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Real estate lawyers fret about Treasury reporting requirement: Professional Ethics Committee to research the issue.

Real estate attorneys are concerned that the latest U.S. Treasury Department crackdown on money laundering is putting them between a rock and a hard place.

The problem centers on the Treasury Department's Financial Crimes Enforcement Network, better known as "FinCEN," and its latest version of a Geographic Targeting Order, or "GTO."

The updated order requires title insurance companies or their "agents" to identify the principles behind high-end, cash real estate purchases in Miami-Dade, Broward, and Palm Beach counties.

Failure to report within 30 days of a closing could result in a $500,000 fine or up to 10 years in prison.

Real estate attorneys often act as title agents and are subject to the order. At least one legal expert is warning that a new secrecy provision could conflict with an attorney's ethical obligation to inform clients and obtain their consent.

The issue was raised at the Bar's Professional Ethics Committee at the Annual Convention in Orlando and the committee directed staff to do more research.

Florida Bar Ethics Counsel Elizabeth Tarbert declined to say whether or how many members have contacted the Bar for guidance. So far, no attorneys have been disciplined for issues arising from GTO reporting requirements, according to the Bar's Division of Lawyer Regulation.

FinCEN spokeswoman Candice Basso confirmed that the GTO covering Florida, which originated in 2016, was extended March 21 and will expire September 16 of this year.

"The GTOs issued to date have provided FinCEN and law enforcement with important information about money laundering vulnerabilities in the real estate sector," Basso wrote in an email. "These GTOs are a valuable tool, and they were extended."

The GTO makes no direct reference to a confidentiality or secrecy requirement and Basso declined to be interviewed or address the secrecy question.

"We have no comment about further development with our GTOs," Basso wrote.

One potential source of the concern is a document FinCEN issued early last month titled, "Answers to Frequently Asked Bank Secrecy Act (BSA) Questions."

Question 9, under a heading dealing with Suspicious Activity Reports, reads, "Federal law (31 U.S.C. 5318(g)(2)) prohibits the notification to any person that is involved in the activity being reported on a SAR that the activity has been reported. This prohibition extends to disclosures that could indirectly result in the notification to the subject of a SAR that a SAR has been filed, effectively precluding the disclosure of a SAR or even its existence to any persons other than appropriate law enforcement and supervisory agency or agencies."

Hawaii, California, Texas, and New York are also subject to GTOs.

In Florida, GTO reporting is triggered by the cash purchase of residential real estate for $1 million or more. The definition includes transactions accomplished through corporations, limited liability companies, and trusts without the use of a mortgage or outside financing.

The definition of cash includes currency, certified checks, cashier's checks, and money orders. Wire transfers were added only recently.

Under the GTO, the reporting agent must forward to the federal government the identity of the purchasing entity and any "beneficial owner" or owners of the purchasing entity. Beneficial owners are defined as individuals who directly or indirectly own 25 percent or more of the equity interest.

When the purchasing entity is owned by another legal entity, the beneficial owners of the purchasing entity and all related legal entities must be reported, according to fact sheets from FinCEN.

Reporting agents are required to file electronically and use a modified version of IRS Form 8300.

The Florida Bar's Real Property, Probate and Trust Law Section formed a committee to study GTOs when the first one was issued in 2016. The committee concluded that GT O disclosures, "will require that confidential information be provided on the necessary forms," and that, "client consent will be necessary."

In the past, the committee referred members to Florida Bar Ethics Opinion 92-5, which addresses a question from a member who refused to fully complete an IRS Form 8300 for a client who was involved in a cash transaction exceeding $10,000.

The opinion refers to a requirement set by the Bank Secrecy Act, but the opinion is not directly related to GTO reporting requirements.

A committee member said the RPPTL Section is studying the secrecy issue and withholding comment.

In 2010, the ABA House of Delegates adopted Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing. The guidelines essentially call for an attorney to perform "due diligence" to make sure they are not inadvertently helping a terrorist or drug kingpin launder money.

The guidelines also call for notifying clients up front about federal reporting requirements.

But that advice wouldn't help South Florida real estate attorneys who already represent clients and may be forbidden by the GTO from warning them about the reporting requirements.

By Jim Ash

Senior Editor
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Author:Ash, Jim
Publication:Florida Bar News
Geographic Code:1U5FL
Date:Jul 15, 2018
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