August 2018 JD Supra
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Did you know that GTO’s have a $300,000 Threshold? was published by JD Supra on 8/22/18.

A GTO is a Geographic Targeting Order issued by the Financial Crimes Enforcement Network (FinCEN) under the Bank secrecy Act (BSA) for a specific geographic area.  FinCEN has issued GTOs requiring certain U.S. title insurance companies to record and report information, including beneficial ownership, about legal entities used to make “non-financed” purchases of high-value residential real estate in seven major U.S. geographic areas with different dollar thresholds:   

  • $500,000 in Texas (county of Bexar)
  • $1,000,000 in Florida (county of Miami-Dade, Broward or Palm Beach)
  • $1,500,000 in New York (New York City, Borough of Brooklyn, Queens, Bronx or Staten Island)
  • $2,000,000 in California (county of San Diego, Los Angeles, San Francisco, San Mateo or Santa Clara)
  • $3,000,000 in Hawaii (county of Honolulu)

Who does the GTO Cover?

The GTO applies to a “Covered Business”; which means Title Insurance companies and any of their subsidiaries or agents for “Covered Transactions”.

What are Covered Transactions in a GTO – Methods of Payment?

Covered transactions are purchases of residential real property made by a legal entity, without a bank loan and made at least or in part by using currency or cashier’s check, certified check, traveler’s check, personal check, a business check, a money order in any form, or a funds transfer (wire transfer).

Why GTOs?

FinCEN has been consistent with its message that the real estate market lends itself to money laundering and that real estate transactions involving luxury property purchased through shell companies can be an attractive avenue for criminals to launder illegal proceeds while masking their identities.

What is a Legal Entity?

A Legal Entity is defined as a corporation, limited liability company, partnership or other similar business entity, formed under the laws of a state or of the United States or a foreign jurisdiction.  A Legal Entity purchasing residential real estate property is known as the Purchaser, and each individual who directly or indirectly owns 25% or more of the equity interest of the Purchaser is a Beneficial Owner of the Purchaser.  The Title Insurance Companies must obtain copies of the Beneficial Owner’s driver’s license, passport or similar identifying documentation.

The “Covered Business” that is involved in the “Covered Transaction”:  

  • Must fill out FinCEN Form 8300 – which is e-filed through the BSA E-filing system within 30 days of the Covered Transaction”.  FinCEN Form 8300 is the Report of Cash Payments over $10,000 received in a Trade or Business. Form 8300 has a Comments Section on Page 2 which requires under the GTO, that if the Purchaser is an LLC, then the “Covered Business” must provide the name, address and Tax Identification number of all of its members.
  • There are no minimum thresholds for “Covered Transactions” in the GTOs.  Of note is that the “Covered Business” or any of its officers, directors, employees or agents are liable without limitation for civil and/or criminal penalties for violating any of the terms of the GTO.

Thresholds have been lowered to $300,000 across all the GTO Jurisdictions?

FinCEN has been revising its GTOs since January 12, 2016 and the last public announcement relating to GTOs was made on August 22, 2017.   On July 31, 2018, the Miami Herald reported that Senator Marco Rubio is seeking to take the Geographic Target Orders (GTOs) issued by the Financial Crimes Enforcement Network (FinCEN) to a  national level by introducing an amendment to consider expanding the FinCEN directive to include all cash real-estate transactions over $300,000 anywhere in the United States. In this article, the Miami Herald states: “In May, FinCEN enacted a new directive that secretly lowered the number to $300,000 in all GTO areas. Sources familiar with the agency’s thinking say the new order was kept confidential because regulators don’t want to give money launderers a road map for structuring their transactions to avoid reporting”.

FinCEN changed the thresholds without public notice

FinCEN made a significant splash with the initial issuance of the real estate GTO back in 2016 and has not made any public announcements since the last notice on August 22, 2017.  It has been quietly extending and amending GTOs, six months at a time. Current GTOs are set to expire on September 16, 2018. The take away from this “secret” strategy is that the GTOS are generating real estate money laundering intelligence that is relevant to law enforcement.  

Don’t be a victim of your own making

The reporting requirements that are presented by the real estate GTOs look like they could be made permanent.  Taxpayers ought to understand that Ultimate Beneficial Ownership (UBO) disclosure is here to stay.