FinCEN expands Geographical Targeting Orders to stem the tide of dirty money flowing into US real estate

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The Financial Crimes Enforcement Network (FinCEN) has expanded the areas in which Geographical Targeting Orders (GTOs) are in place in an attempt to curb the high levels of money laundering within the US commercial and residential real estate markets.

GTOs require certain US title insurance companies (TICs) to identify and report the individuals i.e. the Ultimate Beneficial Owners (UBOs) behind companies paying all cash for expensive properties.

The first GTOs - introduced back in 2016 - temporarily covered the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida, but over the years, GTOs have been renewed and expanded to cover other counties seen to be at greater risk for ‘illicit finance activity through all-cash purchases of residential real estate.’

The latest renewal sees the GTOs in place in Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle, extended until October 26 2022, while the expansion see parts of the District of Columbia, Northern Virginia, and Maryland (DMV) metropolitan area, the Hawaiian islands of Maui, Hawaii, and Kauai, and Fairfield County, Connecticut made subject to GTOs. 

The threshold remains at $300,000 for each of the metropolitan areas covered by the GTOs apart from the City and County of Baltimore, Maryland, where the purchase threshold is $50,000.

Across the world, luxury real estate is a prime target for those looking to clean their dirty cash. And it is easy to see why it is such an attractive investment for money launderers - firstly, properties have no ‘fixed price’ with the values going up and down regularly, and this uncertainty around their true market value makes it easy to hide funds and, secondly, most countries, - including the UK and US - allow properties to be bought by companies, making it easy for indivuals to hide their true identities behind fake corporations.

An example of why GTOs are needed is the case of Russian oligarch Oleg Deripaska. Fifteen years ago, a luxury property on Washington DC’s Embassy Row was purchased for $15m by a Delaware-registered shell company. It wasn’t until 10 years after the purchase that it was revealed that the corporation only existed on paper, and in fact, the ultimate owner was Deripaska - a close ally of Vladimir Putin.

Overall, the introduction of GTOs has been seen as a success so it is likely that FinCEN will continue to expand and renew GTOs across the US. Therefore, real estate agents and TICs need to be ready to run the checks needed to comply.

SmartSearch offers a quick, simple and affordable solution. Our business checks service can run full identification and verification checks on corporate clients and their ultimate beneficial owners, enabling clients to identify exactly who their customers are, and ensuring they are compliant with the latest GTO rules.

 To find out more about how GTO’s could affect your firm’s compliance checks and for a free demonstration of SmartSearch’s award-winning software contact our team of experts today

Sources

https://www.fincen.gov/news/news-releases/fincen-takes-aim-real-estate-secrecy-manhattan-and-miami

 https://www.fincen.gov/sites/default/files/2021-12/RE_ANPRM_FRN_120321_FINAL_508.pdf

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