march 2019 JD Supra
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Residential Real Property Purchased with Virtual Currency must be Reported was published by JD Supra on 3/26/19.

On November 15, 2018, the Financial Crimes Enforcement Network (FinCEN) announced the issuance of a “Revised” Geographic Targeting Order (GTO) that requires U.S. title insurance companies (Covered Business) to

identify the 25% Beneficial Owners behind “Shell” companies (legal entities) used in all-cash purchases of residential real estate. The terms of this Order are effective beginning November 17, 2018 and ending on May 15, 2019.  The revised GTO:

  • lowered the purchase amount threshold (which previously varied by city) to $300,000 for EACH covered metropolitan area.
  • requires that covered purchases using virtual currencies be reported.

FinCEN’s concerns about the use of “shell” companies to buy luxury real estate in “all-cash” transactions.

FinCEN issued its original GTO on January 13, 2016 because real estate transactions involving luxury property purchased through “shell companies” and conducted with cash (and now virtual assets) without traditional financing continue to be an be an attractive alternative to launder illicit proceeds while masking the identities of the ultimate beneficial owners.  FinCEN’s sentiment is that a GTO generates data that assists law enforcement and serves to provide money laundering information to the real estate sector. As a result, FinCEN has steadily renewed the GTO, expanded its reporting scope by lowering the threshold to $300,000 and included virtual assets as forms of payment.

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 at least in part:  currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency.    

Where does the GTO apply?

  1. the Texas counties of Bexar (San Antonio), Tarrant (Fort Worth), or Dallas;
  2. the Florida counties of Miami-Dade, Broward, or Palm Beach;
  3. the Boroughs of Brooklyn, Queens, Bronx, Staten Island, or Manhattan in New York City, New York; (4) the California counties of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;
  4. the City and County of Honolulu in Hawaii;
  5. the Nevada county of Clark (Las Vegas);
  6. the Washington county of King (Seattle);
  7. the Massachusetts counties of Suffolk, or Middlesex (Boston); or
  8. the Illinois county of Cook (Chicago).

Who is a “Beneficial Owner”?

An individual who, directly or indirectly, owns 25% or more of the equity interests of the Legal Entity purchasing real property in the Covered Transaction.

What is a “Legal Entity”?

A corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state, or of the United States, or a foreign jurisdiction.

Reports Required to be Filed by the Covered Business

  • If the Covered Business is involved in a Covered Transaction, then the Covered Business shall report the Covered Transaction to FinCEN by filing a FinCEN Currency Transaction Report (CTR), within 30 days of the closing of the Covered Transaction.
  • Each CTR must be: (i) completed in accordance with the terms of the GTO and the CTR instructions and (ii) e-filed through the Bank Secrecy Act (BSA) E-Filing system.

Covered Businesses must Comply and there are Penalties for Non-Compliance

  • A Covered Business must supervise and is responsible for GTO compliance by each of its officers, directors, employees, and agents.  The Covered Business must transmit the GTO to each of its agents. The Covered Business must also transmit the GTO to its Chief Executive Officer or other similarly acting manager.
  • The Covered Business, and any of its officers, directors, employees, and agents, may be liable, without limitation, for civil or criminal penalties for violating any of the terms of the GTO.

Don’t be a Victim of your Own Making

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 illicit funds while masking their identities. GTOs are generating real estate money laundering intelligence that is relevant to law enforcement.  Adding Virtual Currency as a form of payment demonstrates that FinCEN is aware of the challenges presented by Virtual Currency as a potential conduit of money laundering due to its potential to be misused.

The reporting requirements that are presented by the real estate GTOs look like they could possibly be made permanent. FinCEN has been lowering the residential real estate purchase thresholds, increasing the number of geographic areas and methods of payment to now include Virtual Currency.  Moreover, Taxpayers ought to understand that Ultimate Beneficial Ownership (UBO) disclosure is here to stay.