Five geographic targeting orders (GTO) best practices

Originally set to expire at the end of August 2016, the GTOs were part of FinCEN’s ongoing anti-money laundering crackdown effort and required certain U.S. title insurance companies to identify the individuals behind companies that paid for high-end real estate in the two identified markets.

In order to be covered by the GTOs, the transaction must have been paid completely in cash – that is, without financing from a bank or other third party. The “cash” forms of payment included “currency or a cashier’s check, a traveler’s check, or a money order in any form.” Wire transfers were explicitly excluded from this “cash” definition, not because such transactions are not regularly conducted using such methods, but because wire transfers aren’t covered by the Bank Secrecy Act of 1970, the act on which FinCEN is relying for authority to issue the GTOs.

Furthermore, the GTOs only target high-end real estate in the defined markets, specifically transactions of $3 million or more in Manhattan and $1 million or more in Miami-Dade.

What exactly are the requirements of the GTOs? For covered transactions, covered title insurance companies must file a FinCEN Form 8300 in relation to said transaction within 30 days of closing. The completed form must include the following information:

• Purchase price and date of the transaction
• The address of the residential property
• The identity of the individual primarily responsible for representing the purchaser
• Documentation verifying the individual’s identity (a copy of the individual’s driver’s license, passport, or other identifying documentation)
• The identity of any beneficial owners of the purchaser (any individual owning at least 25% interest in the purchaser), along with documentation verifying the individual’s identity

These new orders are the result of an increased awareness of the use of high-end real estate transactions by money launderers.

A typical scheme operates something like this: Bad Actor A obtains a large sum of cash through illicit means, but wants to make the money appear legitimate. Bad Actor A may then have a chain of shell companies created to mask the trail back to his involvement and thus conceal the original source of the funds. One or more of these companies may be used to open a bank account, deposit the illicit funds, and make the real estate purchase. After a year or so, the house is sold, and the proceeds from the sale of the house are now legitimate.

Although the January 2016 GTOs were originally intended to have a limit of six months, FinCEN announced at the end of July that it was expanding the scope of the program. New GTOs are now targeting real estate markets in the following areas:

• All boroughs of New York City
• Miami-Dade, Broward, and Palm Beach counties in Florida
• Los Angeles, San Diego, San Francisco, San Mateo, and Santa Clara counties in California
• Bexar County, Texas (the county that includes San Antonio)

Additionally, the new GTOs address some of the perceived weakness of the previous GTOs that drew criticism. First, FinCEN has proposed legislation to include wire transfers in future GTOs. In addition, the expanded orders now include personal and business checks in their definition of “cash.”

Furthermore, FinCEN has noted the success of the previous GTOs in identifying and preventing money-laundering schemes, while seemingly indicating its plans to continue its expansion of the program. In short, the GTOs are not only here to stay, but are likely to expand even further in the future.

1. Familiarize Your Organization with the GTOs

One of the simplest ways to raise awareness of the GTOs and how they will impact your organization is to read them and read about them. The appropriate parties within your organization should know what the GTOs themselves say, but it is also prudent to read other literature provided by FinCEN, such as its FAQ about the recent GTOs, as well as information and analyses published by third parties. The more that an organization’s leadership and compliance officers know about these orders, the better prepared it will be to comply with these and any future orders.

2. Ensure Your Staff Are Well Trained

After raising awareness among an organization’s leadership and compliance officers about a new or imminent regulation, the next logical progression is to provide adequate and ongoing training to impacted employees. Such training should ensure that employees are cognizant of how the GTOs impact their individual job duties as well as the functions of the larger unit in which they are operating. Staff job duties may need to expand to complete fraud investigation searches when completing customer due diligence.

Although the emphasis on employee training with regard to compliance may seem hackneyed, the importance of proper training cannot be overstated, and will continue to remain imperative to organizations seeking to remain compliant.

3. Identify the Affected Areas of Your Organization

Training and awareness are indeed important, but it may not always be necessary to implement across the entirety of your organization. Especially in situations such as with these GTOs, whose impact is limited to specific geographic markets and specific transactions using certain payment types and thresholds, training may only need to be deployed to narrow segments of the organization.

To minimize the potential waste of time and money, the specific portions of the organization impacted by the GTOs should be ascertained sooner rather than later.

4. Can GTOs Fit into Existing Compliance Programs?

GTOs certainly chart new frontiers for regulation, but that doesn’t mean they are a completely novel concept. Indeed, the tracking orders’ goal of identifying a purchaser’s beneficial owner, as well as its definition of “beneficial owner,” is remarkably similar to FinCEN’s Customer Due Diligence (CDD) rule, also announced earlier this year.

In other words, companies shouldn’t have to reinvent the wheel to comply with these GTOs. Instead, they should slot into existing anti-money laundering and Bank Secrecy Act compliance programs with relative ease.

5. Watch and Actively Plan for Future Expansions

FinCEN has been clear about its intention to expand the GTO program in the future. If this summer’s expansion is any indication, future growth will target both geographic areas included in the program as well as covered types of real estate transactions.

Once your organization has updated its compliance programs to take the GTOs into account, it shouldn’t be terribly difficult to make further adjustments for future changes to the program. Vigilance is nevertheless necessary to ensure your organization stays on top of these changes.

Rather than simply responding to expansions as they are announced, it’s prudent for organizations to implement these practices across all geographic areas within which they are operating. The benefits reaped from such measures go beyond being immediately prepared for any future expansions announced by FinCEN. Although such preparedness is indeed a valuable benefit, organizations secure the further advantage of mitigating the risk of inadvertently conducting business with bad actors such as terrorist organizations or drug cartels.

While such transactions may, in fact, be perfectly legal in some circumstances, organizations may nevertheless face substantial negative publicity for such business ventures – which can often be even more damaging to an organization’s bottom line than any potential regulatory enforcement actions.

In short, organizations may gain considerably by expanding their compliance programs beyond regulatory minimums such that they minimize their risk and secure a competitive advantage.