In May, The Title Report learned that FinCEN issued a new Geographical Targeting Order (GTO) that took effect May 21, 2018. GTOs require U.S. title insurance companies to report beneficial ownership information on legal entities, including shell companies, used to purchase certain luxury residential real estate in designated geographic areas.
At the National Settlement Services Summit (NS3) in Detroit on June 7, Steven Day, president National Agency Operations, Fidelity National Title Group and president of the American Land Title Association, participated in an underwriter panel and discussed the latest GTO.
He began with a short history on how the Financial Crimes Enforcement Network (FinCEN) began GTOs.
“We’re talking about Geographic Targeting Orders, and the basis behind it is FinCEN, which is the Financial Crimes Enforcement Network, a division of the U.S. Treasury, under the provisions of the Bank Secrecy Act is able to issue these targeting orders focused on transactions that may be involved in either money laundering or improper placement of funds. And we understand the Bank Secrecy Act, we’ve always had a familiarity relative to the controls that are on banking institutions as to large cash transactions and the reporting that is required from that,” Day said during the NS3 panel. “How it came into our industry actually goes back several years to a series of articles by the New York Times concerning what they believed was a scheme involving high-priced residential properties and the utilization of different corporate or other entity structures in cash transactions, so no bank involvement in any reporting requirements, and that being used for potential money laundering or the improper placement of funds.
“So, back in 2016, the government issued its first Geographic Targeting Order. These orders are for a specific period, but can be extended. It’s been expanded twice, and I had been very ready to sit up here and take up about 30 minutes of the panel so the panel would be very pleased and have seven slides and tell you exactly where the targeting orders are effective, what they impact, what the limitations are … until the last order was just issued, which is effective May 23.
“FinCEN included in the order a confidentiality provision, which says I can’t talk about where the order is effective, who it impacts, what the amounts are,” Day told NS3 attendees. “And their reasoning behind that is that they feel that gives the wrongdoers more information, more opportunities to get around the schemes.”
FinCEN has not publicly released details of the latest GTO.
The Title Report made a request under the Freedom of Information Act for a copy of the latest GTO, but FinCEN denied the request and cited an exemption from the federal law based on “the release of which would disclose techniques and/or procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law.”
Day reached out to FinCEN before the conference and found he was able to convey one thing to the audience.
Day began to read from the disclosure which FinCEN has allowed to be conveyed upon inquiry at the closing table: “I am required by federal law to collect certain additional information from you regarding your purchase of real property. The United States Code Title 31 Section 5326 authorizes the U.S. Department of the Treasury to collect certain information about certain transactions in specified geographic areas in order to carry out the purpose or prevent evasion of the Bank Secrecy Act. This statute, as implemented by the Treasury orders, also prohibits me from disclosing the specific terms of the Geographic Targeting Orders.”
Day joked that there would be “absolutely no confusion at the closing.
“So, to say it’s going to be a little bit difficult – and for those of you who are impacted you have been notified by your underwriters because the orders went to the underwriters and puts them under the obligation as far as getting the information out and making sure as to compliance. So those of you in the room who are in the selected area, and probably if you Googled Geographic Targeting Order back in 2016, you may get a little bit of information of what the initial orders were.
WFG National Title Insurance Co. Executive Chairman and founder Patrick Stone, who moderated the underwriter panel, urged attendees to prepare for questions in impacted areas.
“If you are impacted by this law, make sure that you sit down with whoever is conducting closings, taking signings and coach them,” Stone told the audience. “Because there will be, guaranteed, there will be adverse reactions. And they’re going to have to deal with those adverse reactions and they’re not used to being unable to say anything. So coach them up a little bit on this, make sure they understand. Make sure they understand that they can’t explain this in great detail. It’s really unfortunate, that’s the way it is.”
Another concern to be aware of, Day said, are the reporting responsibilities in impacted areas.
“For now, the biggest irritant is a little bit of reporting – reporting is not that easy to accomplish in the format that they want – and, of course, the inability to really share with our customers what the full intent of the order is,” Day said.
On the positive side, Day had good things to say about FinCEN and its efforts to work with ALTA and the title industry on the GTOs.
“A positive point I can say about FinCEN and with regard to us dealing with it from the industry is that, unlike the prior administration at CFPB who liked regulation by enforcement, when we talked with FinCEN they did, after the articles, they came to the industry, wanted to understand how we’re involved, how the process is, how the closing occurs,” he said. “And they have tried to make it as least intrusive as possible relative to our industry as to the information they’re looking for. And the one really positive note was they said we don’t want this to be a ‘gotcha’ moment for your industry. We just want to catch the bad guys.
“So I am optimistic that as the confusion reigns with our inability to really share with our customers at the table why we’re asking for this information that some of this will be lessened and we can at least have that conversation.”