FinCEN: Identify Individuals Behind Shell Companies to Stem Money Laundering (2019 Update)

If you're involved with any kind of title insurer or title insurance, you should be aware of this new development.

The Financial Crimes Enforcement Network (FinCEN) has announced that they are issuing Geographic Targeting Orders (GTO).

What this means is that they will be temporarily requiring that all U.S title insurance companies to identify the natural persons that stand behind shell companies that pay “all cash” for high-end residential real estate in six major metropolitan areas.

The decision comes from FinCEN due to lingering concerns that all-cash purchases that occur without bank financing could be conducted by individuals that are attempting to hide their assets.

This is potentially done through purchasing residential properties through limited liability companies or other similar means.

Must Read: Real Estate Money Laundering...

To better understand this issue, FinCEN also issues similar GTOs earlier this year that are meant to cover yearly transactions in Manhattan and Miami-Dade County, Florida.

The initial GTOs issued are providing valuable information to law enforcement officials by helping identify potential illicit activity while also informing future regulatory approaches to help cut down this kind of movement.

“The information we have obtained from our initial GTOs suggest that we are on the right track,” FinCEN Acting Director Jamal El-Hindi claimed.

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.”

To help expand on the data that the implemented measures have generated thus far, the GTOs announced they will be expanding the following major U.S areas: all boroughs of New York City, Miami-Dade County and Broward and Palm Beach, the two counties immediately to the north, Los Angeles County, California, three counties that comprise part of the San Francisco area e.g. San Francisco, San Mateo and Santa Clara counties, San Diego County, and Bexar County, the county that includes San Antonio, Texas.

FinCEN: Identify Individuals Behind Shell Companies to Stem Money Laundering (2019 Update)

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The newly implemented GTO will become effective for 180 days, beginning on August 28, 2016.

Going forward, insurance companies will be required to file FinCEN form 8300 on all Covered Transactions.

These include information about the identity of the individual that is primarily responsible for representing the beneficial owner(s) of the purchase.

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This includes documentation of:

  • Driver’s license
  • Passport

  • Or other similar, qualifying documents of identification

If the purchaser is involved in the Covered Transaction is a limited liability company (LLC), then the Covered Business must provide the name, address and taxpayer identification number of all its members; this is non-negotiable.

FinCEN: Identify Individuals Behind Shell Companies to Stem Money Laundering (2019 Update)

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To put things in simple terms, a legal entity means a corporation, limited liability company, partnership or other similar business entity that can be involved in said Covered Transaction.

A Beneficial Owner means any individual or individuals that own 25% or more of the legal entity.

An Individual, in this case, is primarily responsible for representing the Purchaser (the Buyer’s agent).

But why is FinCEN covering title insurance companies?

Due to the nature of the business, title insurance is a common feature in the majority of real estate transactions.

This means title insurance companies play an integral role in transactions that can provide FinCEN with the information they need to better adjust and understand money laundering in real estate.

FinCEN: Identify Individuals Behind Shell Companies to Stem Money Laundering (2019 Update)

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Earlier attempts have seen commendable success.

It can only be guessed how successful FinCEN’s new movement to spread GTOs to major metropolitan areas will be.

What do you think?

How do you feel about FinCEN’s movement to root out the individuals behind shell companies?

Do you think that their plan will be effective or ineffective?

Leave a comment below - or, call or text me at (760) 297-4539

Your Timely Real Estate Insider,

Scott

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