United States: Fincen Issues New Geographic Targeting Order For Shell Companies Purchasing High-End Residential Real Estate

Last Updated: September 4 2017
Article by Jodi L. Avergun, Jonathan Bailyn, Nicholas Brandfon, Steven M. Herman and Joseph V. Moreno

Most Read Contributor in United States, April 2019

In its latest effort to combat money laundering within the real estate sector, the Financial Crimes Enforcement Network ("FinCEN") has issued a new Geographic Targeting Order ("GTO") broadening its scrutiny of shell companies used to purchase luxury residential property in several key U.S. markets.1  The new GTO, effective for 180 days beginning September 27, 2017, requires title insurance companies to identify the natural persons behind limited liability companies and other legal entities that are used to purchase high-end residential real estate, without bank financing, in select markets including New York City, Miami, Los Angeles, San Francisco, San Diego, San Antonio, and now Honolulu.  In addition, the latest GTO applies not only to cash purchases but also to those made via wire transfer.  At the same time, FinCEN published a new Advisory to Financial Institutions and Real Estate Firms and Professionals (the "Advisory") discussing the risks associated with real estate transactions.2  These efforts illustrate FinCEN's continued interest in identifying money laundering risks inherent in the purchase of luxury residential real estate through shell companies, and may be a preview of broader and more permanent scrutiny going forward of title insurance companies, lenders, and the lawyers and agents who advise them.

I.          Broader Reporting of Residential Real Estate Transactions

Under the Bank Secrecy Act ("BSA") a "covered financial institution"3 is required to file a suspicious activity report ("SAR") if it knows, suspects, or has reason to suspect a transaction involves funds derived from illegal activity.4  In addition, the BSA provides FinCEN authority to impose additional reporting requirements (such as pursuant to the issuance of GTOs) relating to certain categories of transactions upon a finding by the Secretary of the Treasury that such steps are necessary to prevent evasions of the BSA's recordkeeping and reporting provisions.5  Historically, this was limited to transactions involving "coin or currency," but the recent enactment of the Countering America's Adversaries through Sanctions Act broadened this authority beyond cash transaction to apply to virtually any transaction designated by FinCEN.6

The current GTO stems from an initial order issued by FinCEN in January 2016 which applied only to certain areas within New York City and Miami.7  It required title insurance companies, and their subsidiaries and agents, to identify the "beneficial owner" behind a legal entity that purchased high-end residential real estate in cash and without a bank loan or other financing.  It defined beneficial owner as a natural person who, directly or indirectly, owns 25% or more of the equity interests of the purchaser.  In July 2016, FinCEN renewed the order and expanded it to include an additional four markets in California and Texas.8  Six months later, in February 2017, FinCEN renewed the GTO for another 180 days.

This latest development is one of FinCEN's most aggressive exercises of its GTO powers to date.  The latest GTO applies to the existing six markets and expands to a seventh one in Hawaii, and applies not only to non-financed transactions paid in cash but also to those paid by check, money order, or wire transfer.9  For real estate purchases to which the GTO applies, the title insurance company is required to complete a FinCEN Form 8300 (Report of Cash Payments over $10,000 Received in a Trade or Business)10 and file it electronically through FinCEN's e-filing system.11  The filing must include the identity of the purchaser (as well as anyone representing the purchaser) and the beneficial owner(s), and a description of the identifying documents examined to verify such information (such as a driver's license or passport).  It also must include the date of the sale, the total purchase price and amount transferred, and the address of the property.  Copies of the filing and all identifying documents must be retained by the title insurance company for five years following the expiration of the GTO.

II.         Additional Guidance for the Real Estate Industry

Alongside the new GTO, the latest Advisory discusses what FinCEN views as money laundering risks associated with real estate transactions.  It describes how high-end residential property is attractive to money launderers due to its appreciation in value over time, and its ability to shield illicit funds from market instability and currency fluctuations and the ability to "clean" large sums of money in a single transaction.  Buying such properties in all-cash transactions with no mortgage permits a purchaser to avoid the anti-money laundering, sanctions screening, and reporting mechanisms utilized by financial institutions.  And, by using a shell company such as a private corporation, a limited liability company, or a trust, a buyer could camouflage his or her identity and the source of funds.  The Advisory also points out that, while the GTO applies only to residential real estate transactions, these risks apply equally to both residential and commercial real estate transactions.

The Advisory also encourages real estate brokers, escrow agents, title insurers, and other real estate professionals who are not required to file SARs to do so voluntarily, as they typically have a full picture of a particular transaction and are well-suited to identify potentially illicit activity.  It lists a number of factors such individual should consider, including whether a transaction:

  • lacks economic sense or has no apparent lawful business purpose (including purchases and sales that generate little to no revenue or are conducted with no regard to high fees or penalties);
  • is used to purchase real estate with no regard for the property's condition, location, assessed value, or sale price;
  • involves funding that far exceeds the purchaser's wealth, comes from an unknown origin, or is from or goes to unrelated individuals or companies; or
  • is deliberately conducted in an irregular manner (such as attempting to purchase property under another name, or asking for records to be altered).

The Advisory also makes a point of stating repeatedly that SARs filed by such individuals are kept confidential, and that voluntary filers enjoy a safe harbor from civil liability.

III.        Conclusion

FinCEN is clearly pleased with the results of its GTO program to date, and that is reflected in these latest efforts.  According to the Advisory, over 30% of the real estate transactions reported under the GTO has involved a beneficial owner or purchaser who was identified in a separate SAR, possibly linked to bribery, corruption, narcotics smuggling, or health care fraud.  At FinCEN's 2017 Law Enforcement Awards ceremony, it celebrated an investigation that was begun "based largely on information gleaned from a FinCEN-issued" GTO.12  Based on this, FinCEN is surely going to continue aggressive GTO efforts, potentially continuing to expand to new markets and applying it to commercial as well as residential transactions.  These efforts are likely to continue alongside upcoming requirements – effective May 2018 – that banks and other financial institutions identify a legal entity's beneficial owner at the time it opens a new customer account.13  FinCEN clearly views transparency around beneficial ownership as vital to combating money laundering, and financial institutions, and the legal and compliance professionals who support them, should plan accordingly.


1 FinCEN Geographic Targeting Order (Aug. 22, 2017), available at https://www.fincen.gov/sites/default/files/shared/Real%20Estate%20GTO%20Order%20-%208.22.17%20Final%20for%20execution%20-%20Generic.pdf.

2   FinCEN Advisory to Financial Institutions and Real Estate Firms and Professionals, FIN-2017-A003 (Aug. 22, 2017), available at https://www.fincen.gov/sites/default/files/advisory/2017-08-22/Risk%20in%20Real%20Estate%20Advisory_FINAL%20508%20Tuesday%20%28002%29.pdf.

3   A covered financial institution includes "persons involved in real estate closings and settlements"; however, that term has not been interpreted to encompass individual buyers and sellers, real estate agents, brokers, or title insurers.  31 U.S.C. § 5312(a)(2)(U).  While these entities are not required to file SARs under the BSA, they may do so voluntarily.

4   31 U.S.C. § 5318(g).

5   31 U.S.C. § 5326(a); 31 C.F.R. § 1010.370; U.S. Department of the Treasury, Treasury Order #180-01 (July 1, 2014).

6   Public Law No. 115-44 (Aug. 2, 2017), available at https://www.congress.gov/bill/115th-congress/house-bill/3364/text#toc-H96DAF0AFF3BB4F55A9973F196CC032DB.

7   See Cadwalader Clients & Friends Memo, FinCEN Targets High-Value Real Estate Transactions in New York and Miami (Jan. 19, 2016), available at http://www.cadwalader.com/resources/clients-friends-memos/fincen-targets-high-value-real-estate-transactions-in-new-york-and-miami.

8   See Cadwalader Clients & Friends Memo, FinCEN Tightens the Screws on Money Launderers with Additional Scrutiny of High-Value Residential Real Estate Transactions (Aug. 1, 2016), available at http://www.cadwalader.com/resources/clients-friends-memos/fincen-tightens-the-screws-on-money-launderers-with-additional-scrutiny-of-high-value-residential-real-estate-transactions.

9   The GTO covers purchases of residential real property at certain dollar thresholds per location, including $500,000 in Texas, $1 million in Florida, $1.5 million in the outer boroughs of New York, $2 million in California, $3 million in New York City, and $3 million in Honolulu.

10  https://www.irs.gov/pub/irs-pdf/f8300.pdf.

11  http://bsaefiling.fincen.treas.gov/main.html.

12  FinCEN Press Release, "FinCEN Awards Recognize Law Enforcement Success Stories Supported by Bank Secrecy Act Reporting" (May 9, 2017), available at https://www.fincen.gov/news/news-releases/fincen-awards-recognize-law-enforcement-success-stories-supported-bank-secrecy.

13  See Cadwalader Clients & Friends Memo, In Wake of the Panama Papers, Treasury Proposes New Reporting Requirements for Foreign-Owned Legal Entities (May 18, 2016), available at http://www.cadwalader.com/resources/clients-friends-memos/in-wake-of-the-panama-papers-treasury-proposes-new-reporting-requirements-for-foreign-owned-legal-entities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions