FinCEN (The Financial Crimes Enforcement Network) is at it again. The agency responsible for the FBAR has come up with a new reporting requirement that they think will catch criminals. In reality, it is going to complicate things for the innocent. The program has some glaring loopholes that acutal criminals could use to get around the requirement.
This new reporting requirement went into effect on March 1, 2016. The official press release states:
"The Financial Crimes Enforcement Network today issued Geographic Targeting Orders that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida"
FinCEN is concerned that all cash purchases may be conducted by people trying to hide their assets and identity. They say that title insurance companies play a central role in providing FinCEN with valuable information about transactions "of concern", as title insurance is a common feature in the vast majority of real estate transactions.
This is loophole #1. Title insurance is not a legal requirement for real estate purchases. So, um, maybe you just don't the insurance?
Who will be "identified"?
The following criteria must be met:
- If the property is designed for the occupancy of from one to four families (dare we say hole #2? You could buy a five family or non-residential property?)
- In Manhattan, sales of more than $3 million must be reported
- In Miami/Dade County, sales of more than $1 million must be reported (I hear there are some lovely properties available for $999,999.99 this time of year)
- They want the beneficial owners*, not the ‘nominees’ (such as lawyers or other place holders on the LLC paperwork) which leads us to hole #3: Simply do a private contract and have someone else's name on the paperwork.
*Beneficial owners = each individual who owns 25% or more of the equity interests. Hole #4: Splinter the ownership among multiple individuals.
If you fall under the reporting requirements, the title insurance company will send your information (including a copy of your driver's license or passport) to FinCEN and will then be added to their database. Who can access this database? 10,000 "authorized law enforcement and regulatory partners".
The many faces of "cash"
FinCEN references "cash" buyers; but the reporting requirement is met if at least part of the purchase is made using currency or a cashier’s check (bank check, official check), a certified check, a traveler’s check, or a money order in any form.
This is hole #5. You could maybe instead pay with a wire transfer or uncertified personal check?
Paying for a 3 million dollar property with your cat theme personal check?
Like. A. Boss.
The requirement is that "at least part of the purchase" is made with cash. So if you are going to purchase a $3 million property in Manhattan, have a valid mortgage in the amount of $2,999,500 and pay $500 cash…your information will be sent to FinCEN and local law enforcement agencies. Because, obviously, you are a criminal and should be monitored.
We're not here to spill the beans to criminals on the ways to get around this requirement; trust me, the bad guys already know all this. The questions we want to pose are — What is the real intention behind this reporting requirement? What are they truly gaining with this new requirement? Ah yes. More control.
