FINANCIAL PROFESSIONS AND THE WAR ON TERRORISM:
On September 23, 2001, President Bush issued Executive Order 13224 to aid in the war against terrorism. This Order blocked all property and interests in property in the U.S. of certain individuals or entities, known as Specially Designated Nationals, who have committed, pose a risk of committing, assisting, sponsoring or financing acts of terrorism. Attached to the Order was a list of these Specially Designated Nationals. This list has been updated since September 23, 2001. Transactions or dealings by any U.S. person or within the U.S. in blocked property of these Specially Designated Nationals is prohibited.
Penalties for violations of the Order are significant. They include civil penalties which may be imposed regardless of the violator’s intent and criminal penalties for willful transgressions. OFAC (The Office of Foreign Assets Control), a division of the Treasury Department, is authorized to block assets subject to the Order and maintain a list of individual Specially Designated Nationals and their entities whose assets are frozen and who are barred from conducting business dealings.
OFAC compliance affects business professionals in many ways. The most obvious is the banking industry. Financial institutions receive transactional funds (including by wire and through the use of letters of credit) and conduct financial transactions. Institutions must therefore take steps to insure that they are complying with OFAC requirements. Institutions should maintain OFAC compliance procedures, for if noncompliance is determined, then the procedures employed by the institution may be considered as a mitigating factor in determining the penalty.
The real estate industry is also particularly affected by OFAC. Landlords, both commercial and residential, conduct transactions with proposed tenants who may be Specially Designated Nationals and blocked persons. Further, Specially Designated Nationals may attempt to purchase real estate to launder, invest and secure funds in the U.S. and thus title companies and lenders assume OFAC obligations. Of course, in both leasing and sales transactions, real estate brokers might be involved, and thus OFAC obligations may fall on them as well. Indeed, even an assignor may unwittingly assume OFAC liability.
Attorneys, accountants, financial advisors and other professionals may also have OFAC obligations. Accepting a Specially Designated National as a client may well constitute a transaction. The receipt of payment from the client could constitute receiving funds or services for the benefit of that person. The range of other professionals who can be subject to OFAC is limited only by the imagination of the government officials charged with enforcing the Order.
There are steps that can be taken in light of the above. Software can be purchased that updates and scans the Specially Designated Nationals list and checks variations in spelling. If a match is made then further investigation is warranted to insure it is not a “false positive”. If, after this, you have reason to believe that a match has been made, OFAC must be contacted.
Those involved in contracts for the sale or lease of real property can include appropriate representations, warranties, and indemnifications in the applicable contracts. Whether OFAC compliance is the ultimate responsibility of the seller or lessor of the real property at issue or of the broker who is the procuring cause of the transaction, may be a matter of negotiation between the parties.
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