FinCEN Issues New Geographic Targeting Order for Shell Companies Purchasing High-End Residential Real Estate

by Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP

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.  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.  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” 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.  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.  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.

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.  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.  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.  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) and file it electronically through FinCEN’s e-filing system.  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.  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.  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

2   FinCEN Advisory to Financial Institutions and Real Estate Firms and Professionals, FIN-2017-A003 (Aug. 22, 2017), available at

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

7   See Cadwalader Clients & Friends Memo, FinCEN Targets High-Value Real Estate Transactions in New York and Miami (Jan. 19, 2016), available at

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

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.



12  FinCEN Press Release, “FinCEN Awards Recognize Law Enforcement Success Stories Supported by Bank Secrecy Act Reporting” (May 9, 2017), available at

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

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.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.