FinCEN Expands Investigation Into All-Cash Buyers

Posted by Patrick Barnard on July 27, 2016 No Comments
Categories : Residential Mortgage

The Financial Crimes Enforcement Network (FinCEN) is expanding the number of markets where title insurance companies will be required to identify the people behind shell companies that pay “all cash” for high-end residential real estate.

In January, FinCEN announced that it was “temporarily” requiring certain title insurance companies in Manhattan, N.Y., and Miami-Dade County, Fla., to report this information in order to determine if certain individuals or groups are “attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures.”

The government is targeting title insurance companies for the information because they are able to identify the true “beneficial owner” behind a legal entity paying all cash for high-end properties.

In addition to Manhattan and Miami-Dade County, FinCEN is now requiring title insurance companies in all five boroughs of New York to report the information, as well as title companies in Los Angeles County; San Francisco County; San Mateo County, Calif.; Santa Clara County, Calif.; San Diego County; and San Antonio (Bexar County, Texas).

These “geographic targeting orders” (GTOs), FinCEN officials say, will help law enforcement identify possible illicit activity and inform future regulatory approaches.

“In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers,” FinCEN says in a release. “This corroborates FinCEN’s concerns that the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) are highly vulnerable to abuse for money laundering.”

Federal and state law enforcement agencies report that, based on the information received thus far, investigators have been able to determine that some of the investors paying all cash for properties in New York City and Miami-Dade County have ties to suspicious activity. Using the information obtained thus far, officials have also been able to get a better handle on how many assets these individuals have obtained using all cash. In addition, the information has helped law enforcement “generate leads and identify previously unknown subjects.”

“The information we have obtained from our initial GTOs suggests that we are on the right track,” says Jamal El-Hindi, acting director for FinCEN, in a statement. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

FinCEN has set monetary thresholds for each geographic area – for example, in Bexar County, title insurance companies only have to report information for transactions of $500,000 and up, whereas in Manhattan, the threshold is set at $3 million.

Authorities are careful to say that the title companies that are being asked to provide information are not being asked to do so as a result of any derogatory finding by FinCEN with respect to the covered companies.

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