FinCEN’s GTO Aims to Discover Identities of High-End Real Estate Buyers

On January 14, 2016, the US Department of Treasury issued a GTO (Geographic Targeting Order) targeted at high-end residential real estate market in Manhattan, New York and Miami-Dade County, Florida. The Order requires certain American title insurance companies to identify the “beneficial owners” behind companies purchasing luxury real estate properties in all-cash under certain circumstances.

According to this Order, real estate buyers who met the following requirements have to disclose their true identities in transactions:

1. The property is either located in Manhattan NY and the value is in excess of 3 million dollars, or the property is located in Miami-Dade County, Florida and the value is in excess of 1 million dollars;
2. The real estate property is purchased with title, e.g. condo and house; however, co-op purchases are unlikely to be affected because they typically do not involve title transfer;
3. All-cash transaction, without any mortgage financing; and
4. The purchaser is a legal entity (LLC or Corporation), and the beneficial owner owns, directly or indirectly, 25% or more of the equity interests of the legal entity.

The Order also requires that the insurance company must use Form 8300 to disclose the identities of beneficial owners, and the Form 8300 must be submitted within 30 days of the closing to FinCEN, one of the lead agencies of US Department of Treasury, along with beneficial owner’s ID, such as passport, driver license or any other documents that can establish identities.

In the event that the buyer is a LLC, the company must provide all the identity information of its member owning directly or indirectly, no less than 25% of the equity interest of the company, such as their name, address and SSN.

Besides, the title insurance companies must report information regarding the transaction such as the address of the property, the date of closing, total amount transferred in the form of a monetary instrument and total purchase price of the property.

It shall also retain all records relating to compliance with this Order for a period of five years from the last day that this Order is effective (including any renewals of this Order). Notably, as of now this Order only requires compliance from title insurance companies, not real estate lawyers, brokers or other related parties.

The title insurance companies who fails to comply with the reporting and record-keeping obligation of these GTOs may be subject to penalties or other actions.

The above-mentioned GTO is currently implemented on a temporary basis and will be in effect from March 1, 2016 through August 26, 2016.  Officials from US Department of Treasury represent that they will send the gathered information to law enforcement agencies for record keeping, and, if any suspicious source of fund was identified in the transaction, Department of Treasury may expand this Order to a national scale, make it a permanent action and a part of routine investigation.

Nevertheless, this Order does not address certain issues such as diluting equity interests percentage by increasing the number of members of purchasing LLC, setting up another LLC as the member of the purchasing LLC, conducting wire transfer in purchases or using straw buyer in the transaction, etc.

As a result, the Order will foreseeably generate a huge impact to entity buyers who would like to purchase high-end real estate properties all in cash in the U.S.  Since the whole transaction involves a wide variety of law such as real estate, immigration, corporate and tax, it is highly recommended for those interested buyers to consult with experienced lawyers in related fields in advance so as to make optimal purchasing plans for themselves.