The Financial Crimes Enforcement Network (FinCEN) is expanding required reporting of beneficial owners for cash real estate purchases beyond Manhattan and Miami to six new areas in California and Texas.
The Geographic Targeting Orders (GTOs) require title insurance companies to identify the natural persons behind domestic and foreign companies used to pay all cash for luxury residential real estate in six major metropolitan areas.
Beneficial owners need to be identified if they own 25 percent or more of the purchaser of the real estate.
Title insurers have to “obtain and record” a copy of the beneficial owner’s driver’s license, passport, or other similar identifying documentation, FinCEN said.
The GTOs released Wednesday cover:
All boroughs of New York City
Miami-Dade County and the two counties immediately north (Broward and Palm Beach)
Los Angeles County, California
Three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties)
San Diego County, California, and
The county that includes San Antonio, Texas (Bexar County).
The GTOs become effective for 180 days beginning August 28.
GTO reporting price thresholds are:
The Borough of Manhattan $3,000,000
The Borough of Brooklyn $1,500,000
The Borough of Queens $1,500,000
The Borough of Bronx $1,500,000
The Borough of Staten Island $1,500,000
Miami-Dade County $1,000,000
Broward County $1,000,000
Palm Beach County $1,000,000
San Diego County $2,000,000
Los Angeles County $2,000,000
San Francisco County $2,000,000
San Mateo County $2,000,000
Santa Clara County $2,000,000
Bexar County $500,000
FinCEN said it “remains concerned that all-cash purchases (i.e., those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures.”
“In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers,” FinCEN said.
The agency is using the GTOs to gather information that can be used for possible “future regulatory approaches.”
Earlier this month, the DOJ filed civil forfeiture actions against about $1 billion in real estate and other assets allegedly bought with money allegedly misappropriated from the Malaysia sovereign wealth fund 1MBD.
The assets included high-end real estate and hotels in New York and Los Angeles.
The DOJ alleged that 1MDB officials and others used shell companies with bank accounts in Singapore, Switzerland, Luxembourg, and the United States to launder about $3.5 billion from 1MDB.
FinCEN Acting Director Jamal El-Hindi said Wednesday, “The information we have obtained from our initial GTOs suggests that we are on the right track.”
“By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course,” El-Hind said.
Three weeks ago, the DOJ said it is returning about $1.5 million to Taiwan that came from the sale of a forfeited New York condo and a Virginia home bought with bribe money paid to the family of Taiwan’s former president, Chen Shui-Bian.
In 2014, the DOJ settled civil forfeiture actions against Teodoro (Teddy) Obiang, the son of the president of Equatorial Guinea.
Among the assets he allegedly bought with money looted from his home country was a $30 million mansion in Malibu, California. The settlement required him to sell the mansion.
FinCEN said Wednesday it is targeting title insurance companies “because title insurance is a common feature in the vast majority of real estate transactions.”
A sample GTO FinCEN is sending to the title insurance companies in the targeted geographic areas is here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.