Geographic Targeting Order- How FinCEN Fines Non-Financial Businesses for AML Violations

What is GTO (Geographic Targeting Order)?

Definition

Under the Bank Secrecy Act, FinCEN has introduced an extension to regulate the Real-Estate industry against Money Laundering. GTO or Geographic Targeting Order is implemented to increase the scope of the Bank Secrecy Act.

Since Bank Secrecy Act is limited to the financial sector, thus there was a need felt to introduce a separate but interlinked regulation. GTO was the answer to combat Money laundering through non-Financial Businesses and specifically the Real Estate Sector. Also, it is laser-focused on a specific geographic area to increase the effectiveness of the regulation.

Explanation

Geographic Targeting Order was applicable in the following 9 jurisdictions as of 2021.

1. New York City: Boroughs of Brooklyn, Bronx, Queens, Staten Island & Manhattan
2. Texas: Counties of Bexar, Tarrant, and Dallas
3. Florida: Counties of Miami-Dade, Broward & Palm Beach
4. California: Counties of San Diego, Los Angles, San Francisco, San Mateo & Santa Clara
5. Honolulu & Hawaii
6. Nevada: County of Las Vegas
7. Washington: Seattle
8. Massachusetts: Counties of Middlesex, Suffolk & Boston
9. Illinois: County of Cook Chicago

The list is subject to expansion over time. See an updated list of 14 key Geographic Territories where GTO expanded and updated its scope of jurisdiction in April 2023.

Historic Brief

GTO was introduced in 2016 as a temporary regulatory measure to monitor and regulate the Real Estate sector in the selected geographic terrains in the US. It gathered information about high-value transactions in real estate. Due to its successful pilot implementation and valuable results, GTOs were made a permanent regulation under the BSA framework.

Scope of GTO

Geographics Targeting Order mainly helps resolve the Real Estate money laundering Red Flags. The scope of GTO is well-defined and according to FinCEN Geographic Targeting Order Covering, it includes the following elements and some additional and updated reporting requirements:

1. FinCEN GTO Reporting: GTOs are implemented on certain non-financial businesses
2. Geographic Territories: The most
3. Covered Transactions: A Transaction in which a ‘Residential Real Property’ is legally purchased as an entity and the amount of which is $ 50000 in Baltimore, Maryland, or $ 300000 in the mentioned areas. [See Section-II A. 2 ii 1 of the report]
4. GTO Information Collection Form: FinCEN uses a special document called GTO Information Collection Form. It is an information collection tool about Real Estate Transactions. It is issued to individuals and entities that are involved in real estate businesses with high-value transactions.

Also Read: What is CDD in real estate?

GTO in Real Estate

As mentioned above, Geographic Targeting Orders are primarily for non-financial businesses. But more specifically, they have helped and enhanced the due diligence and regulatory compliance in the Real Estate sector over the years. All “covered entities” are subjected to GTO regulation. All the high-value transactions in real estate business in the subject counties of the US must comply with the GTO.

Here are a few highlights on the contribution of GTOs in Real Estate and other non-financial businesses:

1. GTOs are instrumental in fighting Money Laundering specifically in “all-cash” residential real estate transactions.
2. The Geographic Targeting Orders are known to impact the narcotics proceeds and reduce the illicit Money Transfers by 30% flowing to Colombia from New York.
3. Customs reported an increase in seizure and interdiction of illicit activities at borders with over $50 million in 6 months right after the implementation of GTO
4. Money Launderers stopped transferring funds to Colombia and one even shut down his business.

Also Read :KYC/AML Compliance in Real Estate- Everything You Need to Know

LA Perfume Business Case

A famous case that is considered one of the milestones achieved by Geographic Targeting Order in regulating the non-financial sector in AML compliance was the case of A&S World Trading Inc. A&S is situated in the LA Fashion District which comes under the regulations of GTO. In 2022, A&S was proven to have willingly violated the Bank Secrecy Act. So, under the BSA, GTO was fined $ 275000 for the perfume store in civil money penalty.

Points to Note

1. The fine imposed on A&S World Trading was the result of non-compliance with GTOs under the BSA
2. It was the first-ever violation of the GTOs that got penalized
3. GTO requires the regulated businesses in LA Fashion District to report currency transactions exceeding $3000. The amount can vary for different geographical locations where GTO is applicable
4. During an investigation by the IRS in September 2015, it was found that A&S processed $4,646,211 in sales involving the currency.
5. A&S failed to submit the required documentation and report despite the basic requirement by the GTO to file reports.

Read the following document for details of the case and further information:
AS World Trading Consent Order

Closing Thoughts

Regulatory Compliance like Geographic Targeting Orders ensures legal compliance with Anti-Money Laundering (AML) regulations for businesses that are at risk of being misused for financial crimes. Non-financial sectors in multiple counties of the US and beyond are also becoming more compliant with every update. It is important to note that GTO mainly focuses on the non-financial sector but is actually enforcing all the regulations by the BSA (Bank Secrecy Act). So, in the US businesses need to stay alert and adherent to GTO for increased financial security and for mitigation of Money Laundering.

Lastly, businesses in the US can also consider three key elements under Geographic Targeting Order regulation:

1. MSBs (Money Service Businesses) and Small Businesses can consider having a balanced approach to enforcing the regulation and business operations
2. MSBs can extend the existing Suspicious Transaction Reporting (SAR) for travelers, money transmitters, and other associated members of the non-financial business community
3. Regulators can consider lowering the current threshold of currency transaction reporting for increased and enhanced monitoring. But at the same time, they need to make the reporting process more transparent and seamless to facilitate the legit businesses.