FinCEN Continues Its Focus on Real Estate Transactions through Advisory and GTOs

by Ballard Spahr LLP
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FinCEN has announced the expansion of its Geographical Targeting Orders (GTOs) for high-end cash buyers of real estate. The expansion is two-fold. First, FinCEN has expanded the scope of Form 8300 reportable transactions to include “funds transfers” in addition to currency, cashier’s checks, certified checks, traveler’s check, personal checks, business checks, or money orders in any form. Second, FinCEN has added real estate transactions with a total purchase price of $3,000,000 or more in the City and County of Honolulu, Hawaii. This brings the markets covered to seven metropolitan areas.

The renewed GTOs require title insurance companies to identify and report on the natural persons behind shell companies that make covered transactions. The renewed and expanded GTOs will be in effect from September 22, 2017 through March 20, 2018. FinCEN has again praised the “assistance and cooperation” of the title insurance industry in this effort.

On the same day as the GTO expansion, FinCEN published an “Advisory to Financial Institutions and Real Estate Firms and Professionals.” This Advisory is in line with our expectation that FinCEN would further expand their supervisory and enforcement activity in the real estate market, as recommended by the FATF in their 2016 Mutual Evaluation Report and highlighted in an April 12, 2016, speech by former FinCEN Director Jennifer Shasky Calvery.

The Advisory provides an overview for real estate industry professionals on the money laundering risks associated with certain types of real estate transactions, including all cash transactions. It also provides helpful examples of actual money laundering schemes involving real estate. The most important part of the Advisory, however, addresses suspicious activity reporting.

FinCEN would like real estate industry companies that are not currently required to file suspicious activity reports (SARs) to file them on a voluntary basis. FinCEN’s request is clear and direct:

“FinCEN encourages persons involved in real estate closings and settlements—which may include real estate brokers, escrow agents, title insurers, and other real estate professionals—to voluntarily file a SAR to report any suspicious transactions. These persons are well-positioned to identify potentially illicit activity as they have access to a more complete view and understanding of the real estate transaction and of those involved in the transaction. For example, real estate brokers may have greater insight as to the potential purpose for which a property is being purchased or the possible origin of a purchaser’s funds.”

As part of their press release announcing the GTO expansion and the Advisory, FinCEN again noted law enforcement has found the reporting required by the GTOs to be helpful in advancing criminal investigations. Given the value of combining the beneficial ownership reporting and SAR data cited in the Advisory, we expect FinCEN to continue to expand the scope of AML requirements in real estate. For real estate professionals involved in real estate closing and settlements, voluntary SAR filings may be a prudent next step in preparing for and influencing the development of the increased AML requirements to come.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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