FinCEN expands crackdown on real estate shell companies

The Treasury Department, through its Financial Crimes Enforcement Network, will expand the reach of an initiative demanding that certain U.S. title insurance companies identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate.

On March 1, FinCEN initiated those demands, on a temporary basis, for title insurance companies doing business with properties located in Manhattan and Miami-Dade County, Florida. The orders, which expire on Aug. 27, were part of an effort to close a gap in the agencies anti-money laundering efforts.

To “build on the useful data generated thus far,” new Geographic Targeting Orders were announced on July 27 for: all boroughs of New York City; Miami-Dade County and the two counties immediately north (Broward and Palm Beach); Los Angeles County, California; three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); San Diego County, California; and the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area can be found in this table. A sample GTO, which becomes effective for 180 days beginning on August 28, 2016, is available here.

FinCEN, in a statement, expressed continued concern that all-cash purchases (without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. The initial GTOs are “helping law enforcement identify possible illicit activity and informing future regulatory approaches.”

A significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers. This corroborates “concerns that the transactions covered by the GTOs are highly vulnerable to abuse for money laundering,” FinCEN says. Federal and state law enforcement agencies have told the agency that information generated by the GTOs has provided insight on potential assets held by persons of investigative interest and, in some cases, helped generate leads and identify previously unknown subjects.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” FinCEN Acting Director Jamal El-Hindi said in a statement. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

FinCEN is covering title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. “The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies,” the statement says, adding that the agency “appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association.”

The recent GTOs are the latest in the increasing use of that investigative tool by FinCEN. In April 2015, the agency targeted Miami-area businesses in its pursuit of money laundering plots. It did so by targeting electronics exporters in Miami-Dade County, focused on suspicions of trade-based money laundering schemes that used drug cartel proceeds to buy electronics that were later sold in South America, effectively converting ill-gotten gains into local currency. The GTO lowered the standard $10,000 reporting threshold for currency transactions to $3,000 (in either a single transaction, or series of related transactions) for covered businesses. The Treasury Department created a specific protocol, Form 8300, for filing those reports.

Other GTOs have targeted various potentially problematic businesses. One targeted check cashing services in south Florida. Another expanded the reporting and record-keeping obligations to garment and textile businesses, show stores, flower shops, and beauty supply businesses in the Los Angeles garment district. A GTO was also used to target businesses based near the San Ysidro and Otay Mesa ports of entry on the California/Mexico border.