The USA Patriot Act and Anti-Terrorism Laws Impact the Real Estate Industry
Three Regulatory Regimes Related to Terrorism Directly Affect the Real Estate Industry
Three separate, but related, regulatory regimes used by the government to fight terrorism, directly impact the real estate industry. Two are in effect now, and expose real estate organizations to significant risk. The third has temporarily exempted real estate organizations, but new regulations are expected soon.
- Executive Order 13224 and the prohibited parties list of the Office of Foreign Assets Control (OFAC) is in effect now. It has civil and criminal penalties.
- The Money Laundering Control Act, a criminal statute, is in effect now.
- The USA PATRIOT Act/Bank Secrecy Act, which requires certain anti-money laundering compliance activities, will result in regulations directly affecting the real estate industry within a matter of months.
OFAC: Prohibited Parties and Places
In response to the September 11, 2001 terrorist attacks, President Bush issued an order prohibiting all U.S. individuals and businesses from engaging in any kind of financial transaction with persons or entities designated as terrorists, or their associates. A list of prohibited parties, which now contains more than 3,000 names and is more than 100 pages long, has been created. No individual or business in the U.S. may conduct any kind of transaction with anyone on the list. The list is frequently modified and companies are expected to keep track of all changes. Compliance with this prohibition is enforced through the Treasury Department’s Office of Foreign Assets Control (OFAC).
OFAC has specifically targeted real estate for enforcement and special guidance.
“There is an absolute prohibition against engaging in transactions with individuals or entities on OFAC’s list of Specially Designated Nationals and Blocked Persons (the “SDN List”), named parties owned or controlled by, or acting for or on behalf of, targeted governments or groups such as international narcotics traffickers or terrorists.”
OFAC Guidance for the Real Estate Industry:
Criminal violations of the OFAC regulations “can result in corporate and personal fines of up to $1 million per count and, in the case of individuals, a maximum of 10 to 12 years in jail per count.” Id. Civil fines can range from $11,000 to $275,000 per count.
National and international law enforcement agencies have specifically identified real estate as a prime target for terrorists and other criminals.
The Money Laundering Control Act
The Money Laundering Control Act (MLCA) imposes criminal penalties, including jail terms of up to 20 years and substantial fines for individuals or companies for “knowing” involvement in a transaction involving the proceeds of criminal activity. If a transaction is designed, at least in part, to conceal or disguise the “nature, the location, the source, the ownership, or the control” of proceeds of criminal activity, liability can be imposed. Knowing involvement in an MLCA violation can be established if the party charged ignores facts or circumstances which should raise questions in a reasonable person. The MLCA is in effect now and, in light of the targeting of real estate by money launderers and other criminals, real estate entities should be on guard.
The USA PATRIOT Act/Bank Secrecy Act
The USA PATRIOT Act amends the Bank Secrecy Act (BSA), by requiring, among other things, for real estate entities to establish formal anti-money laundering programs, “Know Your Customer” procedures and suspicious activity reporting. Regulations implementing these requirements are currently under development by the Department of Treasury and are expected in the next several months. Because of the current applicability of the MLCA, however, it is advisable for companies involved in the real estate industry to establish such programs as soon as possible.
Compliance with Anti-Terrorism Regulations
Holland & Knight has extensive experience in advising clients on all anti-terrorism and anti-money laundering issues, including the design and implementation of compliance procedures to help them avoid or correct problems. In combination with our real estate lawyers, we are positioned to develop cost-effective solutions for companies in the real estate industry.
In addition, through our subsidiary, Corporate Integrity Services, we have a developed a software tool that can help companies comply with OFAC and other prohibited parties regulations. This solution is called “KnightGUARDIAN” and is available in a variety of formats and prices to best fit with the business and compliance operations of our clients.