Foreign buyers purchased $102.6 billion of residential property between April 2015 – March 2016.  Fifty percent of the reported transactions were all-cash sales, according to the 2016 Profile of International Activity in U.S. Residential Real Estate report issued by the National Association of Realtors. The Financial Crimes Enforcement Network (FinCEN), aware of the number of all cash real estate purchases, has been concerned that some of those transactions may be conducted by individuals attempting to hide their assets and identity. For this reason, the FinCEN announced on February 23, 2017 the renewal of the existing Geographic Targeting Orders (“GTO”). The first GTO was implemented from March 1, 2016 thru August 27, 2016 and the second one from August 28, 2016 thru February 23, 2017.

FinCEN has found that about 30% of the transactions covered by the prior GTOs involve a beneficial owner or a purchaser representative that is also subject of a previous suspicious activity report. According to the FinCEN Acting Director Jamal El-Hind:  “These GTOs are producing valuable data that is assisting law enforcement and is serving to inform our future efforts to address money laundering in the real estate sector”. At this moment it is not clear whether or not the GTO will be extended to other counties in the nation or if they will become permanent in the future, but if the FinCEN keeps gathering meaningful data that is allowing them to fight money laundering more efficiently, chances are, in my opinion, that they will be implemented nationwide.

Effective on February 24, 2017 and for the next 180 days ending on August 22, 2017, title insurance companies in the following areas will be receiving GTOs.

 ·       All boroughs of New York City (Manhattan, Brooklyn, Queens, Bronx and Staten Island).
·        Miami-Dade County, Broward and Palm Beach Counties.
·        Los Angeles County, San Diego County and San Francisco, San Mateo and Santa Clara Counties (part of the San Francisco area).
·        Bexar County in Texas that includes the city of San Antonio.

The reporting threshold in the NY City boroughs will be $1.5 million except Manhattan that will remain at $3 million. The threshold for the three Florida counties will be $1 million and $2 million for the California counties. Bexar County will have a $500,000 reporting threshold.

The title insurance companies that receive a GTO must file a FinCEN Form 8300 within 30 days of closing to report the transactions over the required thresholds. Form 8300 requires the disclosure of information about the individual responsible for representing the legal entity that is purchasing the property, information about the beneficial owner of the purchaser and information about the transaction and method of payment.

The GTOs do not impose any new requirements on real estate professionals, but the National Association of Realtors has collaborated with FinCEN by developing Anti-Money Laundering Guidelines for Real Estate Professionals to help increase knowledge and understanding of potential money laundering activities. I suggest that you become familiar with the guidelines and also that you make  aware your foreign clients of the temporary reporting requirements.

Please do not hesitate to call me with any questions you may have regarding the above-mentioned issue or any other questions regarding your foreign clients. Our firm has a network of professionals that include International Tax Attorneys as well as Real Estate and Immigration Attorneys that will assist you and your clients to ensure that the whole process of buying, holding and selling real estate in the United States goes without any unpleasant surprises from the U.S. income and estate tax standpoint.

Kind regards,

Jose Huerta, EMST

International Tax Consultant

E-mail: jose@lbcpa.com