Anti-Money Laundering Compliance Update: FinCEN announces new reporting requirements for all-cash real estate transactions in Miami and New York City

Jan 26, 2016   

On January 13, 2016, the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of the Treasury issued two Geographic Targeting Orders (“Targeting Orders”) aimed at potential money laundering activity in the real estate market. As explained in detail below, the orders will require title insurance companies to collect and report information about persons involved in certain residential real estate transactions in Miami-Dade County, Florida and Manhattan. A copy of the Targeting Orders for Miami and Manhattan can be read here and here respectively.

The Targeting Orders are focused on residential real estate sales that are: 1) all-cash sales, FinCEN has explained that all-cash sales would be sales which are made without a bank loan or similar external financing where the purchase is at least in part made using currency, a cashier’s check, a certified check, a traveler’s check, or a money order; and 2) conducted using a “shell company,” i.e., a corporation, limited liability company, partnership, or other similar business entity, designed to shield the identity of the actual purchaser. More specifically, under the Targeting Orders, title insurance companies will be required to report residential real estate sales which are: 1) purchased by a “Legal Entity,” defined as “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;” 2) in an all-cash transaction; 3) for a total purchase price in excess of $1,000,000 in Miami-Dade or $3,000,000 in Manhattan.

For those transactions which qualify, title insurance companies will be required to file a FinCEN Form 8300 containing the following information: 1) the identity of the individual primarily responsible for representing the Purchaser; 2) the identity of the Purchaser; and 3) the identity of any “Beneficial Owners” of the Purchaser, which is defined by the Order as “each individual who, directly or indirectly, owns 25% or more of the equity interests of the Purchaser.” In addition, title insurance companies must obtain and record a copy of the driver’s license, passport, or other similar identifying documentation for each Beneficial Owner and each individual representing the purchaser. The report must also include the closing date, the address of the property, and the property’s purchase price.

As explained by FinCEN in its press release, “[h]aving prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with the money laundering vulnerabilities associated with all-cash 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.” A copy of FinCEN’s press release can be readhere. FinCEN further advised that Targeting Orders will be in effect from March 1, 2016 through August 27, 2016, and that at its conclusion, FinCEN will evaluate the necessity of implementing the additional reporting requirements nationwide.

From an anti-money laundering perspective, the Targeting Order is unremarkable: FinCEN clearly perceived a money laundering risk in the affected all-cash transactions, and targeted the only institution involved in the transaction – the title insurance company – to conduct the due diligence on the purchaser. What is remarkable, however, is the fact that FinCEN has now issued 3 Targeting Orders in Miami in the past year, when it had only sparingly used its general targeting order powers in the past. While unprecedented, it is an unsurprising consequence of Miami being deemed the “Silicon Valley of Fraud” by 60 Minutes.

Also remarkable is the fact that the Targeting Orders could have an impact without any enforcement on the part of FinCEN. First, by targeting high value residential properties in New York and Miami, the Targeting Order has an unbelievable high profile, and will reach far beyond title insurance companies to prospective real estate buyers. As explained in a recent Daily Business Review article by the head of FIDJ’s Anti-Money Laundering Practice Group, Partner Andrew Ittleman: “If I’m the title company, I’m taking a really serious look at how much of my business this all-cash transaction is,” he said. “If I really want to keep it, I have to make a decision as to whether I’m willing to take on the enhanced risk of a transaction that is subject to a high level of government scrutiny.” A copy of the Daily Business Review’s article can be read here.

Second, to the extent that prospective real estate purchasers value their privacy and secrecy – even for reasons having absolutely nothing to do with money laundering – they may now seek to invest their money into other assets or in real estate in other markets.

Finally, the Targeting Order signals a continued expansion of the reach of federal anti-money laundering laws, much like casinos, car dealers, diamond dealers, and pawn shops have been targeted in recent years. Today, federal law treats a huge spectrum of companies as “financial institutions,” and thus requires them to maintain anti-money laundering programs and report to FinCEN. We do not see this trend wavering any time soon, especially in Miami.

We will continue to watch for the latest developments. Fuerst Ittleman David & Joseph’s Anti-Money Laundering practice covers a wide range of businesses and legal issues. Our AML practice group has represented a wide array of financial services providers in all aspects of their business. For more information regarding the Bank Secrecy Act or if you seek further information regarding the steps  your business must take to become or remain compliant, you can reach an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.