Use of Shell Companies To Shield Identity Further Limited

By admin of MillarLaw A Professional Corporation On Monday, August 1, 2016

On July 27, 2016 the Financial Crimes Enforcement Network, (FinCEN) of the Department of the Treasury issued expanded Geographic Targeting Orders (GTO) that will:
“temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas”

The areas now cover are:
“the GTOs announced today include the following major U.S. geographic areas: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County).”

The purposes of the GTO’s is to assist law enforcement in tracking “the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) which are highly vulnerable to abuse for money laundering. ”

There is a legitimate concern about money laundering through the use of “shell” companies, also referred to as single purpose vehicles (SPV’s) when used to buy real property and open financial account using substantial sums of cash.

Example of the problem the GTO seeks to address. Taxpayer forms an offshore shell in a tax haven jurisdiction, ( a country with a zero tax rate on out of country income). The shell is then funded often with unreported funds for U.S. tax purposes. The offshore company then forms a U.S SPV to acquire U.S. assets, such as real property. Often a “Nominee” officer and director is used to apply for an employer identification number for the SPV.

The SPV is then funded with funds from the offshore company and then the SPV completes the asset purchase. With the GTO title insurance companies will be required to obtain the identities of the ultimate beneficial owners of the offshore company. This means that if a U.S. person (individual or company) is the ultimate beneficial interest holder that name must be disclosed.

The expectation is that the identities of tax cheats and money launderers will be discovered as the process is implemented. When the GTO’s are added to the “know Your Customer” requirements of the Foreign Account Tax Compliance Act (FATCA) the IRS may have found a way of catching those U.S. taxpayers who still have undisclosed foreign financial accounts and are trying to us those fund in the U.S. The Offshore Voluntary Disclosure Program of 2014 is still open. However, some taxpayers will just not come forward, and for them, prosecution remains a true reality along with huge civil penalties

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