FAQ's on OFAC and the USA PATRIOT Act
May 6, 2004
ALTA Contact: Ann vom Eigen, Legislative and Regulatory Counsel
Outside Counsel: David Smith, Ryberg & Smith<
1. Must a real estate settlement service provider continue to check the names of the parties involved in a real estate transaction against the names on the SDN List published by OFAC?
Yes. The laws and regulations administered by OFAC remain in effect, and prohibit all persons subject to United States jurisdiction from doing any business with any person on the SDN list. [Link to Notes]
2. What if a title company is simply providing a title report or certification for a closing, but no title insurance policy is being issued. Is it still necessary for the title company to check the names of the parties involved in the real estate transaction against the names on the SDN List published by OFAC?
Yes, if the title company is handling the closing or providing the report to one of the parties involved in the transaction. The laws and regulations administered by OFAC prohibit all persons subject to United States jurisdiction, including title companies, from doing any business with any person on the SDN list, regardless of whether any title insurance is issued in the transaction. Consequently, if the title company is providing any services to one or more of the parties involved in the transaction, then it must check the names on the SDN List published by OFAC. If the title company is providing a report to another real estate settlement service provider but is not otherwise involved in the transaction, then the other real estate settlement service provider must do its own SDN search.
3. What if the closing involves an artificial entity, such as a corporation, limited partnership, or LLC? Must a title company still check the name of the artificial entity involved in the real estate transaction against the names on the SDN List published by OFAC?
Yes, the SDN List published by OFAC includes the names of artificial entities.
4. Must a title company check the names of the individual owners of the artificial entity involved in the real estate transaction against the names on the SDN List published by OFAC?
If a title company knows the names of the individual owners of the artificial entity involved in the real estate transaction, it should check those names against the names on the SDN List published by OFAC. Because the laws and regulations administered by OFAC prohibit all persons subject to United States jurisdiction, including title companies, from doing any business with any person on the SDN list, there is a risk for any title company that knowingly does business with an artificial entity owned by an individual whose name appears on the SDN List. At this time, however, there is no federal anti-money laundering requirement that a title company affirmatively investigate to determine the identity of the individual owners of an artificial entity involved in the real estate transaction.
5. Must a real estate settlement service provider establish an anti-money laundering compliance program under section 352 of the USA PATRIOT Act , 31 U.S.C. § 5318(h)?
Not at this time. While section 352 of the USA PATRIOT Act requires persons involved in real estate closings and settlements to establish anti-money laundering compliance programs, such persons have been granted a temporary exemption from section 352 by regulation. See 67 Fed. Reg. 67547 (Nov. 6, 2002).
6. What happened to the advanced notice of proposed rulemaking with regard to the section 352 requirement that persons involved in real estate closings and settlements establish anti-money laundering compliance programs?
The Department of the Treasury published an Advanced Notice of Proposed Rulemaking (“ANPR”) in the Federal Register seeking information to assist the Department in developing a rule to govern anti-money laundering compliance programs for “persons involved in real estate closings and settlements.” See 68 Fed. Reg. 17569 (April 10, 2003). ALTA and other organizations filed comments in response to the ANPR. The Department has not taken any further action at this time.
7. Are there any special rules for attorneys?
As noted above, the Department of the Treasury published an Advanced Notice of Proposed Rulemaking (“ANPR”) in the Federal Register seeking information to assist the Department in developing a rule to govern anti-money laundering compliance programs for “persons involved in real estate closings and settlements.” See 68 Fed. Reg. 17569 (April 10, 2003). The ANPR indicated that anti-money laundering compliance programs for “persons involved in real estate closings and settlements” would apply to attorneys. At this time, however, the Department has not taken any further action, and, therefore, it is unknown whether attorneys will ultimately be required to adopt an anti-money laundering compliance program under section 352.
8. Must a real estate settlement service provider establish a customer identification program under section 326 of the USA PATRIOT Act , 31 U.S.C. § 5318(l)?
Not at this time. Only certain financial institutions (banks, savings associations, credit unions, trust companies, securities brokers and dealers, mutual funds, and others) are required at this time to establish a customer identification program under section 326. See 68 Fed. Reg. 25090 (May 9, 2003). Persons involved in real estate closings and settlements are not included among those financial institutions.
9. Banks making mortgage loans are requiring the real estate closer to perform the verification of identity required by section 326. Can the banks do this?
Banks are permitted to authorize the real estate closer, acting as the bank’s agent, to verify the identity of the mortgagor. The regulations implementing section 326 provide, however, that compliance with section 326 remains the bank’s responsibility. See 31 C.F.R. 103.121(b)(6); 68 Fed. Reg. 25090, 25103 (May 9, 2003).
United States law prohibits “persons subject to the jurisdiction of the United States” or in some cases “United States persons” from engaging in transactions with certain foreign individuals and entities. The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury administers these laws. OFAC administers a number of statutes, including:
1. Trading with the Enemy Act, 50 U.S.C. App. § 1-44.
2. International Emergency Economic Powers Act, 50 U.S.C. § 1701-06.
3. Iraqi Sanctions Act, Pub. L. No. 101-513, 104 Stat. 2047-55.
4. United Nations Participation Act, 22 U.S.C. § 287c(a).
5. International Security and Development Cooperation Act, 22 U.S.C. § 2349aa-9.
6. The Cuban Democracy Act, 22 U.S.C. § 6001-10
7. The Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. § 6021-91.
8. The Foreign Narcotics Kingpin Designation Act, Pub. L. No. 106-120, tit. VIII, 113 Stat. 1606, 1626-36.
Orders prohibiting transactions issued under authority of these statutes apply to a number of different countries or categories of individuals and entities. The countries or categories of entities covered by foreign asset control regulations at the present time include: Cuba, See 31 C.F.R. § 515; North Korea, See 31 C.F.R. § 500; Yugoslavia, See 31 C.F.R. § 585; 31 C.F.R. § 586; 31 C.F.R. § 587; E.O. 13192; E.O. 13121; E.O. 13088; UNITA (Angola), See 31 C.F.R. § 590; E.O. 13098; E.O. 13069; E.O. 12865; Iran, See 31 C.F.R. § 560; 31 C.F.R. § 535; E.O. 13059; E.O. 12959; E.O. 12957; E.O. 12613; Terrorism Sanctions, See 31 C.F.R. § 595; 31 C.F.R. § 596; 31 C.F.R. § 597; E.O. 13244; E.O. 13099; E.O. 12947; Narcotics Sanctions, See Foreign Narcotics Kingpin Designation Act, Pub. L. No. 106-120, tit. VIII, 113 Stat. 1606, 1626-36; Burma (Myanmar), See 31 C.F.R. § 537; E.O. 13047; Sudan, See 31 C.F.R. § 538; Nonproliferation, See 31 C.F.R. § 539; E.O. 13159; Sierra Leone (rough diamonds), See E.O. 13213; E.O. 13194; Liberia (rough diamonds), See E.O. 13213; The Balkans, See E.O. 13219; Zimbabwe, See E.O. 13288 (March 10, 2003).
Contact ALTA at 202-296-3671 or communications@alta.org.