FinCEN Attacks Real Estate Deals In Miami and New York

FinCEN Attacks Real Estate Deals In Miami and New York

The Financial Crimes Enforcement Network (FinCEN) issued Geographic Targeting Orders (“GTO’s”) on January 13, 2015 requiring that title companies must identify natural persons behind companies in all cash, high-end residential real estate transactions in Miami-Dade County and Manhattan. The true beneficial owner of the company must e identified and reported to FinCEN.  The aim of the GTO’s is to further crack down on money laundering activities in real estate transactions.  For the last decade, policies, regulations and laws have been put in place to address money laundering in real estate transactions involving real estate loans.  The GTO’s are intended to go the next step and attack money laundering activities in cash transactions.

FinCEN Director Jennifer Shasky Calvers announced “We are seeking to understand the risk that corrupt foreign officials or transnational criminals may be using premium US real estate to secretly invest millions in dirty money.” I would think that Director Calvery would be wise to expand her search to include home grown criminals and terrorists as money laundering is not limited to foreign nationals.

There is question as to how effective the GTO’s can be in accomplishing their purpose. While New York City and Miami Dade County attract private investors paying large cash amounts, limiting the GTO’s to 2 cities will certainly not provide an accurate sampling or deterrent.  And, the 6-month term of the GTO’s is not long enough as many buyers will be content to wait it out.

The Real Deal has penned 7 Strategies to avoid the GTO’s. While most of these strategies have merit, number 3, pay by wire transfer, does not make sense.  The GTO is drafted so that “cash” means any transaction not involving a loan.  Nobody pays with green dolllars and if they did, the transaction would be subject to Patriot Act reporting requirements any way.  Using a cashier’s check is too simple and clearly not what FinCEN intended.  While the other suggested strategies laid out by The Real Deal are simple and obvious strategies, my hunch is that other than “don’t buy title insurance”, as long as money is changing hands in Miami-Dade County, most buyers won’t be paying attention to these requirements.

Beginning March 1, 2016 and continuing through August 27, 2016, title insurance companies will be required to report and record the true ownership or legal entities purchasing residential properties worth more than $3,000,000 in Manhattan and more than $1,000,000 in Miami. For us here in South Florida, there are only two ways to avoid this requirement:  buy commercial or go north to Broward County!