Monday, December 10, 2018

Legal Line Question: FinCEN, GTO and "All Cash" Transactions

Legal Line Question: FinCEN, GTO and "All Cash" Transactions


Q: Can you please explain what FinCEN and GTO stand for and how they affect transactions where the purchaser is not using a lender, but rather is paying  “all cash” to purchase the property?
A: The Financial Crimes Enforcement Network (“FinCEN”) is a bureau of the U.S. Department of the Treasury.  It’s mission is, in part, to safeguard the U.S. financial systems from illicit use and to combat money laundering. 
FinCEN has the authority to issue orders that impose recordkeeping and reporting requirements on institutions in particular geographic areas.  These orders are referred to as Geographic Targeting Orders (“GTO”).
The most recent GTO (the “Revised GTO”) announced by FinCEN is a renewed and revised version of a GTO that requires title insurance companies to identify the persons behind entities that purchase residential real estate in certain geographic areas without a bank loan.  For example, a title company must complete a report that identifies the persons who are the beneficial owners of a Limited Liability Company (“LLC”) that purchases a property for $2,000,000 in Staten Island without a bank loan.
The Revised GTO covers transactions (“Covered Transactions”) in which: (1) residential real property is purchased by a “Legal Entity;” (2) the purchase price is $300,000 or more; (3) the real property is located in the Boroughs of Brooklyn, Queens, Bronx, Staten Island, or Manhattan (as well as other geographical locations across the United States); (4) the purchase is made without a bank loan; and (5) the purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order, a funds transfer, or virtual currency. A “Legal Entity” is defined under the Revised GTO as a corporation, LLC, partnership or other similar business entity, whether formed under the laws of a state, or of the United States, or a foreign jurisdiction.  Included in the definition of residential real property are individual condominium units and cooperative apartments.
If a transaction is a Covered Transaction, the title insurance company must complete a Currency Transaction Report (“CTR”) and deliver it to FinCEN within thirty days (30) of the closing. The CTR will contain, among other things, the identity of the person primarily responsible for representing the Legal Entity (i.e. the person authorized to bind the Legal Entity), the identity of any beneficial owner who directly or indirectly owns more than 25% of the Legal Entity, the date of the closing , the address of the property and the total purchase price of the property.
Important Tip: The Revised GTO became effective on November 17, 2018 and ends on May 15, 2019.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel

Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP


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