What’s a GTO?
While the term geographical targeting order (GTO) sounds like something out of a James Bond film, it actually is a very unique order issued by the Department of the Treasury to narrow the scope of a financial investigation. The GTO is a mandate pronounced through FinCEN under the Bank Secrecy Act (BSA) that requires additional recordkeeping and/or reporting requirements by certain financial institutions or other businesses, including businesses not required to monitor transactions, within a very specific geographic area for a designated time frame on a particular topic. For example, the GTO could be issued only pertaining to MSB’s in Brooklyn, N.Y. from today till 6 months from today for all cash transactions over $500.
The Theory Behind a GTO?
So, what is this about? Why is this done? Simply put, this means there is a law enforcement investigative need to review certain activity in a particular area or area’s. Usually this is the result of reviews of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTR’s) and the observation that there is a heightened level of similar unusual activity within a certain section of the country, county, or city. While SARs and CTRs are paramount to law enforcement for investigative leads, not all investigations begin there and not all GTO’s originate from them. There may be other intelligence sources that result in the request of a GTO. The GTO mandates that the designated financial institutions will lower their reporting threshold to a certain designated amount and requires the Financial Institution (FI) to report activity lower than the usual transaction amount as defined in the GTO. Ultimately, the concept is for the results of the GTO to provide law enforcement with a greater insight into suspected illegal activity and generate additional leads.
The Latest GTO?
The most recent notice from FinCEN is an extension and update of a previously issued GTO with reference to real estate title insurance companies. The GTO addresses a problem being investigated that is a major loophole in the U.S. AML system. The potential money laundering loophole arises when there is a buyer who does not use any lender financing and therefore there is no regulated financial institution involved in the transaction. You remove the regulatory checks and balances since the remaining parties usually involved in a real estate transaction (attorneys, agents, appraisers, title search and insurance companies) have no AML compliance reporting requirements.
To further muddy the waters, bad guys will use multiple shell companies to purchase real estate. A shell company can be used to hide the true identity of any natural person. Hence, this is part of the reason for the addition of the AML fifth pillar on beneficial ownership becoming mandated in May 2018 (see related article “The Five Pillars of A Successful AML Program”). This means that a bad guy could purchase a house or condo using dirty cash with few questions being asked. There are many high priced residences in numerous major cities that have been purchased with illegally obtained funds. Think about it for a moment. If a bad guy has a million dollars of cocaine money, instead of going through the process of placement via structuring or co-mingling assets with a front company or by way of any other usual placement methods, the bad guy, can proceed with the money laundering activity through a slew of shell companies. The bad guy can buy properties in Miami Beach, San Francisco, Manhattan or any other high price locale. Since he does not have to obtain a mortgage or bank loan no one will be asking the usual questions such as source of funds or who is the beneficial owner of the corporation buying the property. The bad guy could use the shell company or perhaps numerous limited liability companies to disguise any title holder. There is no mandate for a realtor to drill down to discover the beneficial owner. When these transactions are conducted without any financing they can potentially avoid traditional anti-money laundering (AML) measures commonly performed by lending financial institutions. So, the bad guy buys his property with drug money without much fanfare.
Under this most recent GTO, a title insurance company is required to drill down and identify the natural person behind any limited liability corporation(s) and/or shell companies. The title company now has an obligation to report a transaction under the following circumstances:
- An all cash transaction (including a check, money order, virtual currency, or other means not involving financing),
- For residential real estate,
- Equal to or greater than $300,000, and
- Made by a legal entity.
- The following geographical areas are involved:
- The Texas counties of Bexar, Tarrant, or Dallas;
- The Florida counties of Miami-Dade, Broward, or Palm Beach;
- The Boroughs of Brooklyn, Queens, Bronx, Staten Island, or Manhattan in New York City, New York;
- The California counties of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;
- The City and County of Honolulu in Hawaii;
- The Nevada county of Clark;
- The Washington county of King;
- The Massachusetts counties of Suffolk, or Middlesex; or
- The Illinois county of Cook;
If a title insurance company is involved in a targeted transaction they must report the transaction to FinCEN by filing a CTR within 30 days of the closing of the transaction. The CTR must be submitted to FinCEN via e-filing. A link to the FinCEN CTR form can be located at: bsaefiling.fincen.treas.gov/docs/GTO/RealEstate_GTO%20Template.pdf.
Additional Articles That May Interest You
I work with AML programs large and small, if you need a customized and quality anti-money laundering program, training, or advise I invite you to contact me to learn how I can help with your AML compliance. – Kevin Sullivan, CAMS, President of The Anti-Money Laundering (AML) Training Academy.