- Buyers should use a legitimate company to avoid the appearance of money laundering.
- The GTOs are specifically intended to flag purchases made without a bank loan or other similar forms of financing, especially all-cash purchases.
- When in doubt, get professional advice.
In August 2016, we will see the second phase of a program launched by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN); it released a statement in July explaining that the program was created to identify anonymous individuals who tried to bypass the law, cover up their identities or assets and buy property through shell companies in an effort to skate on financial sanctions and taxes.
FinCen will use Geographic Targeting Orders (GTOs), which mandate all domestic banks, other financial institutions, trading companies and related businesses, to document and report any transaction of $3 million or more.
Cash buyers can avoid trouble and investigation for suspicious activity by taking the following steps:
1. Don’t use a shell company
Buyers should use a legitimate company to avoid the appearance of money laundering in any form. The federal government is cracking down on real estate companies by requiring them to disclose the names behind luxury residential property purchases done completely in cash.
Financial regulators frequently target offshore businesses due to the rising use of companies by foreign buyers to shelter money in the United States and conceal the origin of illegally obtained funds.
Using a shell company will raise the most red flags when it comes to FinCEN and could ultimately jeopardize the status of your entire purchase.
2. Document cash flow, and keep excellent records
The GTOs are specifically intended to flag purchases made without a bank loan or other similar forms of financing, especially all-cash purchases.
By exempting transactions that would most likely include title insurance, FinCEN has eliminated most transactions from its reporting requirements that likely involve a title insurer.
The GTOs require reporting on transactions conducted in part through currency, money orders and cashier’s, certified or traveler’s checks.
However, FinCEN does not require real estate transactions conducted entirely through wire transfers to be subject to GTO requirements because they tend to be more transparent than cash transactions.
3. Follow legal requirements
The title insurance company must name each owner, including the person’s passport or driver’s license, and report the identity of these individuals to FinCEN within a month of closing.
The title insurance company can use Form 8300, which lists identifying information about the buyer or the company representative.
The title insurance companies must keep related records for 60 months and provide them to FinCEN and to any other government agencies.
4. Seek competent counsel
When in doubt, get professional advice. Some exemptions and loopholes in the FinCEN requirements could allow real estate purchasers to buy property with cash with almost no obstacles.
A buyer might easily navigate these rules for the curtailing the flow of laundered money. Buyers should not proceed without making sure that everything is done correctly and that the right documentation is in order.
With these tips, you should have no problem closing the deal with your all-cash buyers — even after the new regulations go into place.