USA PATRIOT ACT

In October, 2001, in response to the September 11, 2001 terrorist attacks, Congress passed the “Uniting and Strengthening America and Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act.” Whew! That’s a mouthful. This Act is commonly known as the USA Patriot Act.

This Act has more broad-reaching privacy concerns that any other bill passed by Congress. The stated purpose of the Act is “to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools and for other purposes.

The Act, in Section 326 mandates that the Treasurer “prescribe regulations setting forth the minimum standards for financial institutions and their customers regarding the identity of the customer that shall apply in connection with the opening of an account at a financial institution. While there are many regulations that impact financial institutions and we, as customers of those institutions, the regulations that hit closest to home are the regulations having to do with real estate closings.

The Department of Treasury has served notice to all real estate professionals, including real estate agents, settlement agents and title insurers that they are prohibited from doing business with Specially Designated Nationals (SDN). Failure to comply with these rules could result in fines from $50,000.00 to $100,000.00 and may include forfeiture of assets, including real estate used as collateral for a mortgage. Real estate professionals may believe that the likelihood that one of their clients is a terrorist is low, but approximately 45% of all SDNs are involved in drug trafficking; a group much more likely to purchase real estate.

The USA Patriots Act, among other things, requires persons involved in real estate closings and settlements for closings to:

1. Verify the identity of any person seeking to open an account to the extent reasonable and practicable;

2. Maintain records of the information used to verify a person’s identity, including name, address and other identifying information; and

3. Consult lists of known or suspected terrorists or terrorist organizations provided....by any government agency to determine whether a person seeking to open an account appears on any such list.

The above sounds like a lot of work, however, as we all know, our title companies provide us with a Patriot Search so that we have the information needed to close title. We may, however, need to investigate the stockholders, members and partners purchasing property as their corporate entities. The website for such investigation is cited below. Title companies have been directed to add the list of SDN and Blocked Persons to their judgment index. Where the title commitment is produced in reliance of such a judgment search and there are no disclosed judgment items, the search has been made.

Where the title examination was made in reliance of the public judgment index, the closer must consult a website to check the names. One of the better websites currently available is the American Land Title Association’s at www.ALTA.org which is only available to members of that organization. Click on the box labeled “Department of Treasury SDN/Blocked Persons,” and type in the name. A copy of the SDN list is also available at the FNF website at http://home.fnf.com/legal/underwriting.asp.

Many sellers are asking purchasers, both individuals and corporations, limited liability companies or partnerships, to represent that neither the seller nor any of its members, partners, shareholders, officers or directors are:

1. Listed on the SDN list maintained by the Office of Foreign Assets Control (OFAC) or any other similar list maintained by the United States Department of State, Department of Commerce or any other governmental authority or pursuant to any Executive order of the President. On its SDN list which is available at http://www.ustreas.gov/ofac, and regularly updated) OFC lists individuals linked to criminal activity whose assets are blocked and with whom US citizens are prohibited from dealing;

2. Determined to be subject to the prohibitions contained in Presidential Executive Order No. 13224. This order authorizes the Secretary of the Treasury and the Attorney General, in consultation with the Secretary of State and the Attorney General, to designate individuals that have committed, or pose a serious risk of committing acts of terrorism.

3. Have been previously indicted for or convicted or any Patriot Act Offenses. These offenses may include any criminal violation relating to terrorism or money laundering.

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