To combat the scourge of money laundering from transnational criminal syndicates, the United States Treasury has issued new Geographic Targeting Orders (“GTOs”) to Manhattan and Miami Dade County requiring title insurance companies to reveal beneficial owners of entities purchasing real estate for cash.

GTOs are directives with limited duration issued by the Secretary of Treasury through the Financial Crimes Enforcement Network (“FINCEN”) and are authorized under the Bank Secrecy Act (31 USC 5326).  After passage of the Patriot Act, TROs, by definition, last for 180 days.

The January 13, 2016 announcement from FINCEN specifies that this GTO will begin March 1, 2016 and expire on August 27, 2016.  The stated goals further FINCEN’s risk-based approach to identifying cash real estate transactions used to launder illicit funds.  What concerns the Treasury is the elevated risk when real estate is purchased in an all cash deal.  FINCEN Director Jennifer Shasky Calvery said, “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering.  But cash purchases present a more complex gap that we seek to address.”[1] The purchaser might be a Russian crime syndicate that sets up a Singapore Trust, which in turn owns a Panamanian Shell Company.  Experts claim that using shell companies in this fashion makes it relatively easy to launder money.  After holding the real estate for a year or so, the original purchaser may sell it and realize clean profits.

By requiring title insurance companies to identify the true beneficial owner of these purchases, the Treasury hopes to identify whether the actual purchaser of expensive real estate for cash is an individual or entity believed to be involved in criminal activity.  Critics question whether domestic title insurance companies have the investigatory resources to truly identify the beneficial owners of these international shell companies.  However, the American Land Title Association has pledged its cooperation and assistance.

The GTOs will be directed at specific title insurance companies, and FINCEN stresses that the GTOs ndo ot emply any derogatory findings against these companies.  Instead, FINCEN sees title insurers as valuable players in the efforts to combat money laundering in expensive real estate transactions.

Companies with questions about compliance with these GTOs should contact us for assistance.  We have extensive experience with money laundering investigations, and with providing liaison assistance with applicable law enforcement organizations charged with preventing money laundering.

[1] https://www.fincen.gov/news_room/nr/pdf/20160113.pdf