On Jan. 13, 2016, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury responsible for anti-money laundering enforcement, announced a new initiative intended to uncover the identities of cash real estate buyers in Miami-Dade County and Manhattan. Specifically, FinCEN issued a Geographic Targeting Order (“GTO”) that requires title insurance companies involved in a “Covered Transaction” to identify the true owners of companies that purchase residential real estate in cash in Miami-Dade County and Manhattan if the amounts exceed $1 million or $3 million, respectively. The GTO will be in effect from March 1, 2016 to August 27, 2016.
Only “Covered Transactions” Are Subject to Reporting
A “Covered Transaction” is a transaction in which:
(i) a Legal Entity (i.e., corporation, limited liability company, partnership or similar business entity, domestic or non-U.S.);
(ii) purchases residential real property located in Miami-Dade County valued at more than $1 million, or, if located in Manhattan, over $3 million;
(iii) without any financing; and
(iv) pays, at least in part, with currency, a cashier’s check, a certified check, a traveler’s check, or a money order.
If the transaction is a “Covered Transaction”, the title insurance company must:
(i) report the identity of the individual primarily responsible for representing (“Purchaser’s Representative”) the Legal Entity (“Purchaser”), including a copy of this individual’s driver’s license or passport;
(ii) report the identity of the Purchaser;
(iii) report the identity of the Beneficial Owner(s) of the Purchaser, which is each individual who directly or indirectly owns 25% or more of the equity interests of the Purchaser, including a copy of each Beneficial Owner’s driver’s license or passport;
(iv) if the Purchaser is an LLC, report the identities of all its members (even those owning less than 25%); and
(v) report the date of closing, the total amount transferred by currency and/or checks, the total purchase price and address of the real estate purchased;
Two Important Points
There are two important issues to point out. First, a “Covered Transaction” does not include those where payment is made entirely by wire transfer. Thus, if the Purchaser wires all funds to the title company, the transaction will not be subject to FinCEN reporting, even though such purchases are often labelled “cash” purchases because of the lack of financing.
Second, it is unclear who qualifies as the “Purchaser’s Representative,” which is defined as the “individual primarily responsible for representing the Purchaser”. Does this mean the Purchaser’s real estate broker, its attorney, or simply its primary corporate officer (i.e., a corporation’s President or an LLC’s Manager)? Unfortunately, the GTO does not provide any guidance on this point.
In sum, parties involved in real estate closings should be conducting sufficient due diligence to identify the parties involved in those transactions.
Authored by John Sosa
Barbosa Legal is a boutique international law firm located on the historic Lincoln Road in the heart of Miami Beach, Florida. The primary focus of the firm is to aid international citizens that desire to invest in the United States, specifically navigating the complexities of the United States tax codes and how they interact with international laws.
The Barbosa Legal team has ample experience negotiating, drafting, and enforcing all transaction documents and agreement. They assist with planning for future tax implications, creating enforceable transaction contracts, explaining economic conditions and currencies, and the ability to register businesses in multiple countries.
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