IN SEARCH OF ILLICIT ASSETS, FINCEN GTOS HIT TEXAS, CALIFORNIA, EXPAND IN FLORIDA, NEW YORK

The US Treasury expanded its use of a powerful regional tool to capture more information on the beneficial owners working with non-bank entities in the real estate sector involved in cash deals, widening orders this week in two major metropolitan areas in Florida and New York, and adding locales in Texas and California.

In an initiative started in January to better uncover the nebulous owners behind anonymous shell companies, the Financial Crime Enforcement Network (FinCEN) stated it is more aggressively implementing the use of geographic targeting orders(GTOs). The orders focus on requiring title insurance companies to capture and report individuals behind high-end real estate purchases in all the boroughs of New York City, two more counties in South Florida, five counties in California and a county in Texas.

The latest GTOs are a critical part of a broader initiative begun under the leadership of former FinCEN Director, Jennifer Shasky Calvery – who recently left to take a top compliance position at embattled HSBC – to identify and target key sectors that could be vulnerable to financial crime, in this case the at-times amorphous purchasers of luxury properties.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi.  “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.”

To build on the useful data generated thus far, the GTOs include the following major U.S. geographic areas:

  • NY: All boroughs of NYC. Thresholds: $3 million for Manhattan, $1.5 million for rest.
  • Florida: Miami-Dade, Broward and Palm Beach counties. Threshold: $1 million.
  • California: Los Angeles, San Diego, San Francisco, San Mateo and Santa Clara counties. Threshold: $2 million.
  • Texas: Bexar County, which includes San Antonio. Threshold: $500,000.

In some instances, certain business sectors involved in buying and selling real estate, such as title insurance companies, attorneys and appraisers, are not specifically covered by formal anti-money laundering (AML) duties in the US.

The new GTOs also go further than just leaping to six new areas. Along with cash transactions, they also add business and personal checks to the reporting regime, but still don’t cover wire transfers.

Currently, that is out of the scope of GTO regulations, but Treasury officials are lobbying to change regulations to address that gap, according to a recent briefing provided by FinCEN officials.

GTO details, missing links

In a conference call with reporters, FinCEN officials laid out several points to buttress their decision to expand the use of GTOs into new regions:

  • FinCEN remains concerned that criminals are using shell companies with opaque ownership structures and all cash purchases of luxury real estate to hide assets and identities.
  • The initial GTOs in Miami and Manhattan are producing valuable data and advancing law enforcement’s ability to identify potential illicit actors and activities.
  • The data could also aid in undertaking a broader regulatory approach to bring AML obligations to certain pieces of the real estate sector.
  • Roughly a quarter of the beneficial owners of certain real estate transactions identified under the two prior GTOs had already had a suspicious activity report (SAR) filed on them.
  • The prior GTOs helped link previously unconnected activity to the true purchasers of luxury real estate in Manhattan and Miami.

The attention tied to the GTOs also prodded more institutions required to file SARs to file more SARs tied to real estate, FinCEN said. At the same time, more non-bank entities filed higher numbers of what are known as “IRS Form 8300s,” which any business must file for transactions of $10,000 or more. In the banking sector, they are called “currency transaction reports,” or CTRs.

Some of the suspicious activities the GTOs helped identify include:

  • One beneficial owner engaging in cash withdrawals worth $16 million
  • Another beneficial owner potentially involved in dealing in counterfeit checks
  • Another using a network of shell companies to move $7 million to suspicious businesses in South America.

FinCEN stated it is covering certain title insurance companies because that group “is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern.”

The prior GTOs from January, covered residential purchases of $1 million in South Florida and $3 million in Manhattan. They went into effect on March 1 of this year, and were set to expire Wednesday. All of the information tied to these GTOs can be accessed by law enforcement, in the FinCEN AML database of bank filings, and are also scrutinized by FinCEN analysts to uncover trends.

GTO powers rising in  popularity

FinCEN has proven more willing to use its GTO powers in recent years.

In August of last year, the bureau extended a prior GTO for common carriers of currency – which encompass armored car operations – at two border crossings in Southern California and issued a new GTO for carriers at eight key border crossings in Texas. To read a copy of the orders, click here.

Prior to that, in July, FinCEN issued a GTO requiring check cashers in two South Florida counties to get more information at lower thresholds from anyone cashing in tax refund checks.

The move was a direct response to the rise in criminal identity thieves stealing account information or personal details from individuals in the region and filing false tax returns, later gaining a check from the Internal Revenue Service under fictitious pretenses and cashing the check using fake identification documents.

That FinCEN GTO was the second one in South Florida in three months – the first was tied to trade and also follows orders linked to Los Angeles’ fashion district – and is further evidence the agency is trying to make a statement against multi-dimensional crimes in critical financial hubs.

The prior GTOs, and the related uptick and transaction reports and SARs, have “given greater insight into persons of investigative interest and generated leads” for law enforcement, while also aiding in uncovering the “identities of previously unknown subjects,” said a FinCEN official on the conference call with reporters, who asked not to be named.