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FinCEN Takes Aim at Real Estate Investor Secrecy in Manhattan and Miami

Newly Issued “Geographic Targeting Orders” Require Title Firms to Identify All-Cash Buyers of High End Residential Property
January 13, 2016
The U.S. Financial Crimes Enforcement Network (FinCEN) announced today that it will temporarily require certain U.S. title insurance companies to disclose the identity of the individuals behind companies that purchase high-end residential real estate in Manhattan and South Florida in all-cash transactions.

With this new "Geographic Targeting Orders" (GTO), FinCEN said it is seeking to combat money laundering in the real estate sector.

FinCEN, a division of the U.S. Treasury, is concerned that all-cash purchases, those made without bank financing, may be a strategy used by individuals attempting to conceal financial assets and shield their identities by purchasing residential properties through limited liability companies or other opaque legal entities.

To clamp down on this suspected money-laundering option, FinCEN said it will require certain title insurance companies to identify and report the true “beneficial owner” behind any legal entity involved in certain high-end residential real estate transactions.

This includes transactions in which individuals use shell companies to purchase high-value residential real estate, primarily in certain large U.S. cities.

"We are seeking to understand the risk that corrupt foreign officials, or trans-national criminals, may be using premium U.S. real estate to secretly invest millions in dirty money," FinCEN Director Jennifer Shasky Calvery said in announcing the new crackdown. "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. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector,” Calvery said.

The GTOs will be in effect for a 180-day window beginning on March 1, 2016, and are scheduled to expire on Aug. 27, 2016.

"The immediate impact of this GTO is that there will be a rush to conclude deals before it takes effect in March, 2016," said Terrence A. Oved, a New York City-based real estate attorney with Oved & Oved, who represents clients who may be impacted by the GTO. "This is a very sweeping regulation in its effect and impacts a disproportionately large amount of purchasers of Manhattan and Miami real estate due to the relatively low threshold triggers of $3 million and $1 million, respectively”.

Oved said while the order only requires title insurers to provide information, he nevertheless expects it to have a broad impact across the industry since it is being implemented in two of the most active markets for high-end residential real estate in the country, New York and Miami. “This GTO will directly affect sales from international and overseas markets and will have an effect on brokers, developers, investors and attorneys involved in those transactions.”

Regarding the relatively short six-month duration of the GTO, Oved surmised that FinCen may be using the limited enforcement action to assess the information it is able to gather during the 6 month period and intends to use it as a guide before deciding on whether or note to extend the duration of the order.

Oved added that if the GTO continues, he would “not be surprised to see overseas investors move money for such deals moves to other, unregulated markets, such as Los Angeles or Colorado.”

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