The Financial Crimes Enforcement Network (“FinCEN”) is statutorily entitled to impose recordkeeping and reporting requirements on domestic financial institutions or nonfinancial trades or business groups when it deems such regulation necessary to carry out the purposes of the Bank Secrecy Act. See 31 U.S.C. § 5326(a); 31 C.F.R. § 1010.370; Treasury Order 180-01. This includes the authority to impose heightened reporting requirements on title insurance companies, and FinCEN has done so pursuant to Geographic Targeting Orders (“GTO”) aimed at reducing the risk of financial crimes in high-risk jurisdictions.

FinCEN utilizes GTOs to minimize the likelihood of bad actors successfully laundering money by using illicit funds to procure real estate within the U.S. On October 22, 2023, FinCEN issued an updated GTO covering residential real estate transactions in the following jurisdictions:

  1. The Texas counties of Bexar, Tarrant, Dallas, Harris, Montgomery, Webb, or Travis;
  2. The Florida counties of Miami-Dade, Broward, Palm Beach, Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, or Collier;
  3. The Boroughs of Brooklyn, Queens, Bronx, Staten Island, or Manhattan in New York City, New York;
  4. The California counties of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;
  5. The Hawaii counties of Hawaii, Maui, Kauai, or Honolulu, or the City of Honolulu;
  6. The Nevada county of Clark;
  7. The Washington county of King;
  8. The Massachusetts counties of Suffolk, Middlesex, Bristol, Essex, Norfolk, or Plymouth;
  9. The Illinois county of Cook;
  10. The Maryland counties of Montgomery, Anne Arundel, Prince George’s, or Howard;
  11. The Virginia counties of Arlington or Fairfax, or the cities of Alexandria, Falls Church, or Fairfax;
  12. The Connecticut counties of Fairfield or Litchfield;
  13. The Colorado counties of Adams, Arapahoe, Clear Creek, Denver, Douglas, Eagle, Elbert, El Paso, Fremont, Jefferson, Mesa, Pitkin, Pueblo, or Summit; or
  14. The District of Columbia.

If a legal entity purchases residential property in any of these jurisdictions without the use of a loan, mortgage, or similar form of external financing and the purchase price is above $300,000 (or $50,000 in Baltimore City or County), any title insurance company involved in the transaction must submit a Currency Transaction Report to FinCEN within 30 days of closing.

The Currency Transaction Report must include (1) the identity of the individual primarily responsible for representing the legal entity involved in the transaction, including a copy of the individual’s driver’s license, passport, or similar identifying documentation, (2) all available information concerning the identity of the subject legal entity, (3) the identity of the ultimate beneficial owner of the subject legal entity, including a copy of the individual’s driver’s license, passport, or similar identifying documentation, (4) the date of closing and total purchase price for the property, (5) the address of the subject property, and (6) information concerning the reporting title insurance company.

Title companies should note that many legal entities[1] have multiple beneficial owners, and the GTO requires identification of any individual who directly or indirectly owns 25% or more of the legal entity purchasing the subject property. This indirect ownership requirement may deem it necessary for the reporting title insurance company to perform significant due diligence in tracing the ownership of multiple levels of the purchasing entity; in the event the entity is involved in money laundering, one should expect to uncover a shell game of corporate entities, likely based in multiple jurisdictions.

Further, title companies must keep all records related to compliance with this GTO for five years from the date the GTO loses its effectiveness, keep the records reasonably accessible in case FinCEN or another government body requests them, and must produce them to FinCEN upon request.

Notably, each officer, director, employee, and agent of a title company must comply with the GTO. And critically, both the title company and any of these individuals may be held liable, without limitation, for civil or criminal penalties resulting from a failure abide by the terms of the GTO. In short, the GTO has significant teeth and title companies doing business in covered jurisdictions should ensure they provide proper training to staff in order to avoid potential regulatory headaches down the road.

 

[1] “Legal Entity” means a corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state, or of the United States, or a foreign jurisdiction, other than a business whose common stock or analogous equity interests are listed on a securities exchange regulated by the Securities Exchange Commission (“SEC”) or a self-regulatory organization registered with the SEC, or an entity solely owned by such a business

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