The Financial Crimes Enforcement Network (“FinCEN”) is a bureau of the United States Department of Treasury. Their mission statement 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.” FinCEN’s goal is to protect against terrorist financing, financial crimes and money laundering by obtaining and analyzing certain information about financial transactions.
Over the years FinCEN has strived to make the standard mortgage market less susceptible to money laundering and fraud. Now the focus is on all cash residential real estate purchase transactions, or any transaction not involving bank financing from a financial institution subject to federal banking regulations.
FinCEN has issued a Geographic Targeting Order (“Order”) which will require title insurance companies in the United States to collect certain information in order to identify the natural persons behind companies which are used to pay all cash in residential real estate purchases over a certain amount in certain cities throughout the U.S. Residential real estate is real property (including condominium units and cooperative apartments) designated as a one to four family usage.
The goal of this Order is to safeguard against individuals who are trying to hide their illegal assets and identity by purchasing high end residential real estate properties through shell companies, primarily in specific U.S. cities. The title insurance companies must identify the true beneficial owner behind the legal entity used and report it to FinCEN.
Once it is determined that a business and it’s transaction is covered under the Order, the title insurance company must report the transaction to FinCEN and provide any required supporting documentation and information within 30 days of the covered transaction.
To determine if a real property, all cash transaction is covered by the Order the following must all apply:
1. The purchaser is a legal entity (meaning a corporation, limited liability company (LLC), partnership, business trust or other similar business entity, either formed under the laws of the state, United States or a foreign jurisdiction). Other then a business trust, most trusts, such as personal trusts and testamentary trusts, will not be targeted by this Order. If the Purchaser is determined to be any of the above legal entities and meet the criteria listed in numbers 2 and 3 below, the title company is required to report the names of the Beneficial Owner’s of the company. If the legal entity is an LLC, the title company must also report the names of it’s members.
2. The purchased property must be residential real property meeting the following criteria which differs among geographic locations:
3. The purchases must be made, at least in part, by using currency or a cashier’s check, certified check, traveler’s check, personal check, business check or money order. The Order does not apply to electronic fund transfers (“ETFs”) since the bank has already collected adequate information about both the originator and the recipient of the EFTs and will disclose this information to regulators if requested.
The Order becomes effective on August 28, 2016 and runs for 180 days, ending on February 23, 2017. Failure to follow all terms of this Order may result in civil or criminal penalties against the covered business and any of its agents, employees, officers or directors.