FinCEN orders new reporting requirements for some real estate transactions

Posted By:
Kreller Group
August 25, 2017

The Financial Crimes Enforecement Network (FinCEN), a division of the Treasury Department, has ordered new reporting and record keeping requirements for some real estate transactions in Honolulu, Hawaii. With this order, Honolulu joins six other areas in what's called a Geographic Targeting Order (GTO). FinCEN also extended the reporting requriments for all areas under GTOs through March of 2018.

GTOs are aimed at curbing the use of real estate transactions to launder money. Title Insurance companies in the effected areas are required to keep more detailed records on, and report to FinCEN, the ultimate beneficial owners involved in real estate transactions made with cash. Some areas of the United States have become notorious as places where individuals and organizations can launder money through cash real estate purchases made via shell companies and other means of obfuscating their identity. This order shines some sunlight on these transactions.

FinCEN's advisory on the order highlights some of the reasons that real estate is so attractive fo rmoney laundering: "Real estate transactions and the real estate market have certain characteristics that make them vulnerable to abuse by illicit actors seeking to launder criminal proceeds. For example, many real estate transactions involve high-value assets, opaque entities, and processes that can limit transparency because of their complexity and diversity."

The GTO currently covers transactions in the following areas an in the follwoing amounts:

  1. For a total purchase price of $500,000 or more in the Texas county of Bexar
  2. For a total purchase price of $1,000,000 or more in the Florida county of Miami-Dade, Broward, or Palm Beach
  3. For a total purchase price of $1,500,000 or more in the Borough of Brooklyn, Queens, Bronx, or Staten Island in New York City, New York
  4. For a total purchase price of $2,000,000 or more in the California county of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara
  5. For a total purchase price of $3,000,000 or more in the Borough of Manhattan in New York City, New York
  6. For a total purchase price of $3,000,000 or more in the City and County of Honolulu in Hawaii

One prominent recent example is the 1Malaysia Development Berhad (1MDB), a Malaysian sovereign wealth fund which we have reported on before. In their advisory FinCEN calles out the 1MDB case saying:

A high-profile case illustrating money laundering risks in the real estate sector involves 1Malaysia Development Berhad (1MDB), a Malaysian sovereign wealth fund. In 2016, the U.S. Department of Justice sought forfeiture of over $1 billion in assets—including luxury real estate—associated with funds stolen by corrupt foreign officials from 1MDB. This included a hotel, two homes, and a mansion in Beverly Hills, CA; a home in Los Angeles, CA; a condominium, two apartments, and a penthouse in New York, NY; and, a townhouse in London, England; all with a collected value estimated at approximately $315 million.

Not only does this expanded program highlight the need to be careful about partners who may be laundering money, but it also highlights the importance of knowing who you are doing business with. It's important to know who actually owns the company you are dealing with so you can be sure they are someone you are comfortable with. Smith Brandon International has years of experience working our way through layers of companies to try to find the ultimate beneficial owners. Sometimes we do this to help our clients to recover funds, and someitmes its just so our clients know who they are actually working with. In any case working your way through layers of corporations to the real owners is important so you can make informed decisions.

About the Kreller Group

For nearly 30 years, Kreller has relied on “extensive boots-on-the-ground” research, conducted by investigators who are well-versed in worldwide military, law enforcement, business and government matters to deliver the concise information our clients need to make decisions.


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