New Federal Anti-Money Laundering Regulations for High-End Residential Real Estate Transactions
Real Estate & White Collar Crime Update
Date: January 22, 2016
Effective March 1, 2016, certain participants in high-end residential real estate transactions will be required to disclose detailed transaction-specific information to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Those requirements are contained in two Geographic Targeting Orders (GTOs) issued by FinCEN on January 13, 2016, as part of FinCEN’s effort to combat money laundering occurring in two of the most sought-after markets in the country.
The GTOs require certain title insurance companies to identify the natural persons behind companies engaging in all-cash transactions or transactions in which there is no outside financing to purchase high-end residential real estate in the Borough of Manhattan in New York, New York and Miami-Dade County, Florida. The GTOs apply to those “covered transactions” (as defined in the GTOs) with a total purchase price in excess of $3,000,000 in Manhattan and $1,000,000 in Miami. Through the GTOs, FinCEN will require all-cash purchasers of high-end residential real estate to disclose their identities even in cases where such purchasers have created a corporate “shell company,” such as a limited liability company, to be the record owner of the asset.
Under the GTOs, title companies will be required to provide information regarding the “beneficial owners” of various “legal entities” (each as defined in the GTOs) to FinCEN by filing FinCEN Form 8300 within 30 days of the closing. FinCEN Form 8300 requires, among other things, tax identification numbers and contact information for the seller and purchaser entities as well as the ultimate entity that received cash from the transaction, a description of the transaction and information regarding the method of payment. The GTOs define a “beneficial owner” as any individual who, directly or indirectly, owns 25 percent or more of the equity interests of the legal entity purchasing such residential real property. Title companies must obtain and record a copy of driver’s licenses, passports, or other similar identifying documentation for all beneficial owners. FinCEN will then make all such information available to law enforcement investigators to assist in their continuing efforts to fight money laundering in the United States.
The failure of a title company or any of its officers, directors, employees or agents to comply with the requirements set forth in the GTOs may result in civil or criminal penalties. Therefore, for these high-end residential sales to occur, title companies will have to obtain all of the information required under the GTOs as a condition of closing. Title companies will look to real estate practitioners to gather and provide that information and so, as a practical matter, real estate attorneys will need to explain to clients these new requirements and assist in their implementation in each covered transaction.
The GTOs are set to go into effect on March 1, 2016 and will remain in effect for 180 days, ending on August 27, 2016. The Borough of Manhattan GTO, Miami-Dade County GTO and FinCEN Form 8300 are available on the FinCEN and IRS websites, respectively.
FOR MORE INFORMATION
For more information, please contact:
Maranda E. Fritz
Karen M. Kozlowski
Eli B. Richlin
Danielle M. Nunziato
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