Readers of these pages know that our primary focus is on the Corporate Transparency Act (the "CTA") and FinCEN's upcoming requirements regarding beneficial ownership reports. Nevertheless, it is helpful to understand how geographic targeting orders work and how they are different from what FinCEN will be doing under the CTA.
Under the Bank Secrecy Act, FinCEN has the authority to require parties to manage financial transactions to identify the beneficial ownership of parties to a transaction. Anyone who has opened a bank account for a company is know familiar with banks' "Know Your Customer" or "KYC" requirements. These KYC requirements are an outgrowth of FinCEN regulations applicable to banks.
FinCEN's geographic targeting orders are somewhat analogous to KYC requirements, except that they apply to title companies and similar intermediaries in real estate transactions.
So far, FinCEN has used geographic targeting orders to obligate title companies in jurisdictions that FinCEN believe have a high risk for receiving investments from money launderers and other parties with illicit funds.
One of those jurisdictions is Miami, which has been the target of FinCEN GTOs.
A Miami-area newspaper writes:
"The dirty secret of Miami's latest luxury condo boom? Some of those sky-high penthouses are being bought by international criminals and other shady individuals to launder money. How many? Well, the Treasury Department's Financial Crimes Enforcement Network wants to find out.
Take, for instance, Spanish drug kingpin Álvaro López Tardón. He ran an international cocaine ring, and to help hide his money, he set up shell corporations to buy 14 condos in Miami. Tardón is now serving a 150-year prison sentence, but the feds suspect he might be just the tip of the iceberg when it comes to funneling shady money into Miami luxury real estate.
FinCEN's 2021 Geographic Targeting Order: covers nine U.S. metro areas:
1. Bexar, Tarrant, and Dallas County, Texas;
2. The Florida counties of Miami-Dade, Broward, or Palm Beach;
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 City and County of Honolulu in Hawaii;
6. The Nevada county of Clark;
7. The Washington county of King;
8. The Massachusetts counties of Suffolk, or Middlesex; and
9. The Illinois county of Cook.
As written, the geographic targeting order applies to any "Covered Business," which the GTO defines as title insurance companies.
The GTO provides:
"If the Covered Business is involved in a Covered Transaction, then the Covered Business shall report the Covered Transaction to FinCEN by filing a FinCEN Currency Transaction Report, within 30 days of the closing of the Covered Transaction. Each Currency Transaction Report filed pursuant to this Order must be: (i) completed in accordance with the terms of this Order and the Currency Transaction Report instructions (when such terms conflict, the terms of this Order apply), and (ii) e-filed through the BSA E-Filing system."
FinCEN expanded and extended the GTO in April, 2022 to also cover (1) the Maryland counties of Montgomery, Anne Arundel, Prince George's, or Howard, (2) the Virginia counties of Arlington or Fairfax, or the cities of Alexandria, Falls Church, or Fairfax, (3) the Connecticut county of Fairfield, and (4) the District of Columbia. FinCEN's GTO imposes KYC-like obligations on title insurance companies in the covered jurisdictions. FinCEN's CTA regulations will apply to all non-exempt companies operating in the U.S. and will dramatically expand the information that FinCEN collects.