New Money Laundering Prevention Regulations
United States title companies have been issued new requirements in connection with the new Geographic Targeting Orders, also known as GTOs, issued on January 13, 2016, by the Department of Treasury. Although temporary, these regulations require title companies to disclose the identities of the natural persons behind entity-purchases in connection with residential real estate purchases made with all cash of at least $1 million in Miami-Dade county and at least $3 million in Manhattan county. These regulations were issued by the Financial Crimes Enforcement Network and will be in effect from March 1, 2016, until August 27, 2016.
The aim of the new regulations is to prevent money laundering. Instead of purchasing real estate using an individual name, an entity such as a corporation or limited liability company (LLC) may be used in order to shield the identity of the true purchaser from the public as well as from other parties to the transaction. This is done for legitimate privacy concerns as well as for personal safety. This however is not always the case. Some individuals will instead hide behind the entity anonymity to launder illicit funds which is exactly what these new regulations are intended to uncover.
If applicable, the title company involved in these transactions will provide information using a FinCEN Form 8300. This form must be submitted within 30 days after the closing. This form will provide such info as the title company who is preparing the report, closing date, property address, purchase price, and the means by which it was paid, for example, cash or check. Even further, the form will disclose the identity of the legal entity as well as the individual primarily responsible for representing the entity including their passport of driver’s license. Lastly, the form requires the identity of the beneficial owner(s) of the entity (owning 25% or more of the entity) again requiring a passport or driver’s license.
Title companies that do not comply with these regulations could face both civil and criminal penalties. These forms must be kept by the title companies for at least five years following the purchase. The information must be presented promptly upon request.
The information collected by the title companies will not become public record. Therefore, legitimate purchasing entities should not be concerned.