Cracking the Shell: FinCEN’s Relentless Hunt for Beneficial Owners

The Financial Crimes Enforcement Network (FinCEN) announced on February 23 it was renewing existing Geographic Targeting Orders (GTO) in six major metropolitan areas. The GTO’s  temporarily require US title insurance companies to identify the natural persons behind shell companies that pay “all cash” for high-end residential real estate in the six locations.  FinCEN’s concern is that real estate purchases made without bank financing through shell companies provide an ideal mechanism for money laundering, tax evasion and other crimes.  The method of payment used by the shell company must be at least in part, by use of “currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form.”

I have blogged previously here and here about FinCEN’s efforts in hunting down beneficial owners of high-end US real estate purchased by shell companies.  The hunt continues.

Based on its earlier investigations, FinCEN found that about 30 percent of the transactions covered by the GTOs involved a beneficial owner or purchaser representative that was also the subject of a previous “suspicious activity report”.  According to FinCEN, this information corroborated its concerns about the use of shell companies to buy luxury real estate in “all-cash” transactions.

The GTOs that were renewed cover the following major US geographic areas:  (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County; and (6) the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area can be found in this table. A sample GTO, which becomes effective for 180 days beginning on February 24, 2017, is available here.

Why Title Insurance Companies?

Title insurance companies are the subject of the GTO’s because title insurance is a common feature in the vast majority of real estate transactions. These companies can provide FinCEN with valuable information about the targeted real estate transactions. It’s important to note that the GTOs “do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.”

Any questions about the GTO’s can be directed to the FinCEN Resource Center at 800-767-2825.

Frequently asked questions regarding the GTOs are available here.

Form 8300

The title insurance company must provide a completed Form 8300 in order to meet the obligations imposed by the GTO. See Form 8300 Example.  Generally, any person in a trade or business (such as a real estate broker or an insurance company) receiving more than $10,000 in cash in a single transaction or in related transactions must file a Form 8300. Persons includes an individual, a company, a corporation, a partnership, an association, a trust, or an estate.

Form 8300 provides valuable information to the Internal Revenue Service and FinCEN in their efforts to combat money laundering. This is an important effort, since money laundering is a tool used to facilitate various criminal activities, ranging from tax evasion to terrorist financing to drug dealing, to hide the proceeds from their illegal activities.

IRS Publication 1544 provides very useful information regarding the Form 8300 and so does this IRS webpage.



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