Practitioners who follow the Treasury’s Office of Terrorism and Financial Intelligence (TFI) may have noticed FinCEN’s issuance of a Geographic Targeting Order (GTO) imposing certain additional reporting and recordkeeping requirements on many of the businesses in Los Angeles’ fashion district. This relatively rare administrative action undertaken by FinCEN follows a massive coordinated raid by nearly 1,000 law enforcement officials in which dozens of search warrants and arrest warrants were executed in connection with businesses suspected of using “Black Market Peso Exchange Schemes” to launder narcotics proceeds for international drug cartels. FinCEN’s action is taken pursuant to 31 C.F.R. 1010.370 and 31 U.S.C. 5326(a).
There are nearly 4,000 businesses located in LA’s fashion district, and FinCEN’s GTO imposes additional requirements on most of them, even those with no suspected involvement with money laundering activities or drug cartels. However, as is indicated in FinCEN’s press release, extensive law enforcement operations have revealed evidence that money laundering activities and Bank Secrecy Act (BSA) violations are pervasive throughout LA’s fashion district. Given these findings, the Treasury Department is authorized to issue orders requiring additional recordkeeping and reporting requirements for up to 180 days. See 31 U.S.C. 5326(a) & (d).
Additional Recordkeeping and Reporting Requirements
Beginning October 9, 2014 and continuing for 180 days thereafter, practically every business located south of East 8th Street, north of East 16th Street, and between Santee Street and South Central Avenue in Los Angeles will be required to file a FinCEN Form 8300 whenever it receives currency in excess of $3,000 in one transaction (or two or more related transactions in a 24-hour period). Normally such forms are only filed when a trade or business receives over $10,000 in cash.
The GTO also prohibits:
- A business from processing, accepting, or receiving funds for or otherwise participating in a transaction that is subject to the GTO (i.e. a transaction involving $3,000+ in currency) unless the customer provides the business with an unexpired government ID that contains both a photo and permanent address;
- A business from processing, accepting, or receiving funds for, or otherwise participating in a transaction that is subject to the GTO (i.e. a transaction involving $3,000+ in currency) unless the customer provides written certification regarding whether the transaction is being conducted on behalf of another individual, organization, or business, and, if so, report all required information in Part II of the Form 8300;
- A business from processing, accepting, or receiving funds for or otherwise participating in a transaction that is subject to the GTO (i.e. a transaction involving $3,000+ in currency) unless the customer provides the business a telephone number for the customer, or, if the transaction is undertaken on behalf of another person, the customer provides a phone number for the customer, or, if the transaction is undertaken on behalf of another person, the phone number of that other person; and
- A business from processing, accepting, or receiving funds for, or otherwise participating in a transaction that is subject to the GTO (i.e. a transaction involving $3,000+ in currency) unless the customer provides the business with the name and phone number for the recipient of the goods and the location of the recipient of the goods.
Any information required by the GTO that is not already part of the Form 8300 must be included in the form’s comment section. Additionally, any business subject to the GTO must also identify in the comment section that the form is being filed pursuant to the GTO.
GTO Compliance and Enforcement
Complying with the GTO is the responsibility of each business subject to its requirements. As such, the GTO clearly indicates that the affected businesses must notify their employees and agents of the terms of the GTO. As is the case with many financial regulations administered by TFI and its components (e.g., OFAC, FinCEN, etc.), noncompliance with the GTO can subject a business and its employees or agents to both civil and criminal penalties.
Civil penalties for willfully violating the GTO can range from the greater of the amount involved in the transaction (not to exceed $100,000) or $25,000. See 31 C.F.R. 5321(a)(1). Simply failing to file the requisite report can subject a person to up to $10,000 in fines. See 31 C.F.R. 5321(a)(3). Proving willful violations is normally challenging for the government. However, given the government’s intent to provide actual notice of the GTO to each affected business, proving willful violations (and thereby subjecting a business to the enhanced penalties provisions) will be much easier.
Criminal penalties for willfully violating the GTO can include a fine of up to $250,000, imprisonment of up to five years, or both. See 31 C.F.R. 5322(a). Given the broader context of the GTO, many of the affected businesses may be subject to the enhanced criminal penalties provision of 31 C.F.R. 5322(b) because violations of the GTO may be considered a “part of a pattern of . . . illegal activity involving more than $100,000 in a 12-month period.” Those enhanced penalties include a fine of up to $500,000, imprisonment of up to 10 years, or both. See 31 C.F.R. 5322(b).
Affected businesses violating the GTO may also be subject to civil and criminal forfeiture of funds or property traceable to a violation. See 31 C.F.R. 5317(c). Structuring a transaction to evade the reporting requirements imposed by the GTO remains a separate and enforceable offense. See 31 C.F.R. 5324.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.