FinCEN Cracks Down on Real Estate Secrecy in Manhattan and Miami

In yet another indication of its aggressive efforts to fight money laundering, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) today issued another Geographic Targeting Order (GTO), this time targeting the luxury real estate market in New York and Miami.  The GTO reflects the government’s concerned that criminals are laundering proceeds of criminal activity through cash purchases of expensive real estate.  This latest GTO will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in Manhattan and Miami-Dade County.  FinCEN has used its powers to issue GTOs frequently in the past 24 months throughout the United States, including at the Texas and California borders (prior coverage here); the Fashion District of Los Angeles (prior coverage here); exporters of electronics in South Florida (prior coverage here); and check cashers in South Florida (prior coverage here).  In a subsequent post we will present more detailed analysis of this latest GTO.

The text of the FinCEN’s press release announcing today’s GTO follows:

FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami

 “Geographic Targeting Orders” Require Identification for High–End Cash Buyers

 WASHINGTON – The Financial Crimes Enforcement Network (FinCEN) today issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida. FinCEN is 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. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.

 With these GTOs, FinCEN is proceeding with its risk-based approach to combating money laundering in the real estate sector. Having 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.

 “We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money,” said FinCEN Director Jennifer Shasky Calvery. “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.”

 Under specific circumstances, the GTOs will require certain title insurance companies to record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing. They will report this information to FinCEN where it will be made available to law enforcement investigators as part of FinCEN’s database.

 The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. This would mitigate the key vulnerability associated with these transactions – the ability for individuals to disguise their involvement in the purchase.

 FinCEN is covering certain title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the 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.

 The GTOs will be in effect for 180 days beginning on March 1, 2016. They will expire on August 27, 2016.

 Any questions about the Orders should be directed to the FinCEN Resource Center at 800-767-2825.

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 FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.

 

Recent Actions Confirm FinCEN’s Aggressive Anti-Money Laundering Enforcement Agenda

July 2015

Matthew D. Lee

Financier Worldwide Magazine

Blank Rome Partner Matthew D. Lee recently authored an article for the July 2015 edition of Financier Worldwide Magazine, “Recent Actions Confirm FinCEN’s Aggressive Anti-Money Laundering Enforcement Agenda.”

The publicly stated mission of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is to safeguard the US financial system from illicit use, and combat money laundering and promote national security through the collection, analysis and dissemination of financial intelligence and strategic use of financial authorities. Historically viewed as primarily a data-gathering agency, FinCEN has recently advanced a significantly more aggressive enforcement agenda aimed at combating trade-based money laundering, money laundering through real estate transactions, the use of third-party money launderers, and money laundering through use of virtual currency. In each of these areas, FinCEN’s latest actions confirm that the agency intends to take a far more aggressive approach to enforcement and will exercise its authority, where warranted, to impose substantial penalties and sanctions on wrongdoers.

To read the full article, please click here.

“Recent Actions Confirm FinCEN’s Aggressive Anti-Money Laundering Enforcement Agenda,” by Matthew D. Lee was published in the Financier Worldwide Magazine July 2015 Issue.

FinCEN Issues Geographic Targeting Order Focused on Money Laundering in L.A.’s Fashion District

In the latest development in a probe by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) targeting alleged money laundering activities in Los Angeles’ garment trade, the Financial Crimes Enforcement Network (FinCEN) announced Thursday the issuance of a Geographic Targeting Order (GTO) that imposes additional reporting and recordkeeping obligations on certain businesses located within the city’s fashion district.  (The GTO is available here; FinCEN’s press release is here.) According to FinCEN, the GTO will enhance ongoing efforts to identify and pursue cases against individuals and businesses engaged in the illicit movement of U.S. currency to Mexico and Colombia on behalf of prominent drug trafficking organizations (DTOs).

A Geographic Targeting Order (or GTO) is an order issued by the United States Secretary of Treasury requiring any United States domestic financial institutions that exist within a geographic area to report on transactions any greater than a specified value.  GTOs are authorized by the Bank Secrecy Act in 31 U.S.C. § 5326(a).  They only last for a limited period of time, not to exceed 180 days.

The GTO directed at L.A.’s fashion district, which will go into effect Oct. 9, was sought by the U.S. Attorney’s Office for the Central District of California, which is working with HSI and the Internal Revenue Service’s Criminal Investigation division to fight money laundering schemes designed to allow international drug cartels in Central America and South America to reach drug proceeds generated in the U.S.

According to a press release announcing the GTO, extensive law enforcement operations have revealed evidence that money laundering activities and BSA violations are pervasive throughout the Los Angeles Fashion District, which includes more than 2,000 businesses. Much of the money laundering is conducted through Black Market Peso Exchange schemes, also known as trade-based money laundering, in which drug money in the United States is converted into goods that are shipped to countries such as Mexico, where the goods are sold and money now in the form of local currency goes to the drug trafficking organizations.

On September 10, 2014, more than 1,000 federal, state and local law enforcement officials executed dozens of search warrants and arrest warrants linked to businesses in the Fashion District suspected of engaging in money laundering schemes and evasions of required BSA reporting.  Criminal investigations have revealed evidence that many of these businesses are routinely accepting bulk cash as part of schemes involving black market peso exchange and trade-based money laundering on behalf of DTOs based in Mexico and Colombia.  During the Sept. 10 enforcement action, HSI special agents seized what was ultimately determined to be more than $90 million in currency.  The cash was found at various residences and businesses stored in file boxes, duffel bags, backpacks and even in the trunk of a Bentley automobile.

“This order requires nearly every business in the Fashion District to report any instance in which they receive at least $3,000 in cash, and failure to comply with the order could lead to a criminal indictment,” said Acting United States Attorney Stephanie Yonekura.  “My office sought the unprecedented order from FinCEN with the goal of shutting down the flow of dirty money to foreign drug cartels – a huge problem that has contaminated the Fashion District.”

Businesses covered under the order announced Thursday include garment and textile stores; transportation companies; travel agencies; perfume stores; electronic stores (including those that only sell cell phones); shoe stores; lingerie stores; flower/silk flower stores; beauty supply stores; and stores bearing “import” or “export” in their name.  The order will take effect Oct. 9 and remain in effect for 180 days.  Affected businesses in the Los Angeles Fashion District are instructed to review the order to understand their reporting obligations.

FinCEN previously issued a GTO in August 2014 that covered the U.S.-Mexico border at two California ports of entry.  Information gathered pursuant to that GTO is providing U.S. law enforcement with an unprecedented ability to identify precisely who is moving money into and out of the United States using armored cars and other common carriers of currency.