What Is The Geographic Targeting Orders (GTO)
Geographic targeting orders (GTO) is a tool used by the Financial Crimes Enforcement Network (FinCEN) to detect money laundering and other illegal activities through real estate purchases. Real estate purchases have been a successful tool for money laundering for many years, especially through shell companies, and this GTO aims to break this down. The GTO, the Bank Secrecy Act (BSA), has been given the authority to determine these activities.
Furthermore, the GTO, an order requiring the Commission to report on this process when you bring higher value transactions, occurred from a specified geographical area in the U.S. domestic financial institutions. As part of FinCEN's ongoing anti-money laundering efforts, GTOs must identify individuals behind companies that pay for high-quality real estate in the two markets identified. FinCEN GTOs were issued in January 2016.
Renewed Geographic Targeting Order (GTO)
Originally published by The Financial Crimes Enforcement Network (FinCEN) in January 2016, GTO was renewed in November 2019, and this new order was reported to be valid between November 12, 2019, and May 9, 2020. Finally, on May 8, 2020, FinCEN expanded its GTO, which required title insurance companies to report residential property purchases in certain major metropolitan areas.
After the last congress, the geographic regions in which the GTO was authorized with a $300,000 monetary threshold did not change. As a result, no new jurisdiction was added to the pre-existing scope of GTOs. This new revision remained the same as the November 2019 GTOs. On May 8, 2020, FinCEN extended the GTOs for six months as they were. GTO asked insurance companies in some geographic regions to report their purchase of residential properties in metropolitan areas.
How Does Geographic Targeting Order Work?
GTOs address a problem with individuals who purchase high-end residential properties anonymously. Under GTO, an insurance company should report unfinished housing sales ($ 300,000 or more) to legal entity buyers within 30 days of closing. The purchaser must include ownership information at a threshold of 25% for the legal entity. The insurance company must verify the identity of the rights holders and their representatives using documentary tools.
While GTOs previously worked exclusively with money-related activities, they now cover money and transactions involving "funds." If institutions do not comply with GTO, FinCEN may impose fines on institutions or individual prison sentences of 5-10 years. GTOs determine which companies should comply with their record-keeping and reporting obligations. GTOs are regulated for a limited period, which was valid for up to 60 days in the 2000s, while this period is now extended to 180 days under the U.S. Patriot Act. Some possible situations may also extend this time by FinCEN.
The Geographical Areas Covered by GTO
As we mentioned earlier, nine geographical regions were included in the jurisdiction of GTO. You can find these regions below:
- New York: Boroughs of Brooklyn, Queens, Bronx, Staten Island, and Manhattan
- Massachusetts: Suffolk and Middlesex Counties
- Illinois: Cook County
- Washington: King County
- California: San Diego, Los Angeles, San Francisco, San Mateo, and Santa Clara Counties
- Nevada: Clark County
- Texas: Bexar, Tarrant, and Dallas counties
- Hawaii: City and County of Honolulu
- Florida: Miami-Dade, Broward, and Palm Beach Counties
What Are the Requirements of GTOs?
Insurance companies must submit FinCEN Forms in their comprehensive transactions within 30 days from the closing date. This form should contain information such as:
- The identity of the individual responsible for representing the recipient
- Documents that authenticate the person
- Documents confirming the identity of the beneficial owners of the recipient and the identity of the individual
- Purchase price and transaction date
- The address of the residential property
Criticisms of Geographic Targeting Orders (GTOs)
GTOs have been criticized by some who argue that they are overly burdensome for businesses, may have unintended consequences, and may not be effective in preventing financial crimes. Here are some common criticisms of GTOs:
- Increased costs and burdens for businesses: Compliance with GTOs requires businesses to collect and report additional information on certain transactions, which can increase the administrative burden and cost of doing business.
- Potentially deterring legitimate transactions: Some argue that GTOs may deter legitimate transactions, such as real estate purchases or investments, due to the additional reporting requirements and scrutiny.
- Limited effectiveness: Critics argue that GTOs may not be effective in preventing financial crimes, as criminals may simply find other ways to move their money outside of the regulated industries.
- Lack of transparency: GTOs are issued by the Financial Crimes Enforcement Network (FinCEN) without public notice or comment, leading some to criticize the lack of transparency in the process.
- Potential for targeting specific groups: Some argue that GTOs may disproportionately impact certain groups, such as immigrants or individuals from certain countries, who may be more likely to engage in certain types of transactions.
GTO and FinCEN Consulting raised the profile of money laundering problems in the real estate industry. They emphasized the importance of offering SARs if a buyer or seller is suspected of being involved in money laundering. Thus, it was ensured that the processes were integrated into existing AML / CFT compliance programs. As a result, companies should already have Customer Due Diligence and Transaction Monitoring processes to identify customers and beneficial owners to align these targets with GTO for efficiency and accuracy.