FinCEN Renews GTOs, Keeping Real Estate Loophole Closed
In May 2019, FinCEN reissued its Geographic Targeting Orders (GTOs) in 12 metropolitan areas across the US. These orders are intended to stem the flow of illicit money into the US luxury real estate markets. GTOs were first tested in 2016 with successful outcomes and have since been renewed and expanded.
The initial trial in 2016 resulted in a 70% reduction in the volume of all-cash purchases by corporate entities within the sampled markets. This result is promising yet concerning due to the volume of possible illicit money revealed. This initial trial used thresholds of $1 million and $3 million depending on the region.
The renewed GTO requires that covered businesses collect and report certain identifying information about the beneficial owners of the purchase in a covered transaction. In practice, this means that a seller must obtain a copy of the driver’s license, passport, or another identifying document of anyone with 25% or more of the equity interest in the purchase.
In an apparent effort to crack down even further, the recently renewed GTO has a much lower threshold to just $300,000. This order covers certain counties in the following US Metropolitan areas: Boston, Chicago, Dallas-Forth Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle.
As a money laundering tool, high-value real estate is an appealing target, but the tightening of regulations regarding beneficial ownership makes it much more difficult to take advantage of this asset class.