On September 23, 2001 President Bush implemented Executive Order 13224 which gave the government specific authorization to impede terrorist funding by disrupting and blocking the assets of foreign nationals and entities that "commit or pose a significant risk of committing acts of terrorism." In addition, the order authorizes the U.S. Government to block the assets of individuals and other entities that provide "support, services, or assistance to, or otherwise associate with, terrorists and terrorist organizations, their subsidiaries, front organizations, agents and associates." (Fact sheet available at the Department of State.)

This executive order and the USA Patriot Act specifically focused on the Department of the Treasury (with assistance from the Department of State and the Attorney General), and this department's obligation to track money flow, money laundering and ownership of property by foreign nationals or their agents that might benefit terrorists. (The Money Laundering Control Act and the Bank Secrecy Act were already in place at this time.)

How does this affect me?

Initially the acts asked financial institutions to track and control funds by establishing a program to identify their customers and match those customers to a list prepared by the Office of Foreign Asset Control (OFAC) and the Bureau of Export Administration (BAX). This act was specifically targeted at banks, savings associations, credit unions, private banks, trust companies, securities brokers and dealers, mutual fund companies, investment companies, and persons involved in real estate closings and settlements.

The National Association of Realtors (NAR) is presently lobbying to keep the enforcement focused at the financial institution level. At the 2004 National Association of Realtors midyear conference, the association found that:

• Real estate firms are not financial institutions and do not implement anti-money laundering programs.

• Financial institutions are required to implement the programs (i.e. banks that lend money for residential and commercial loans as well as closing/escrow companies)

• Commercial property managers do not need to implement a Customer Identification Program (CIP), but should periodically check the treasury's list of Specifically Designated Nationals and Blocked Persons list to ensure that current and prospective Tenants are not on the list. (*From the NAR Website Exhibit for the agenda of the 2004 business issues committee, 2004 midyear meeting.)

• Residential deals and management fell outside of the purview of the act, and especially outside of the abilities of residential brokers and property managers to enforce the act.

Investors

As an investor in a joint venture, pooled investment fund, REIT, or TIC, one would want to make sure that the company you are investing in and/or with has a process for vetting investment partners through the OFAC.

As an investment fund or fund operator, one is encouraged to check:

• Every investor.

• The chief beneficial owners (those owning over 25 percent of the entity) of each investor if the investor is an LLC or a corporation or any other such entity.

Penalties for non-compliance are stiff:

1. 10-30 years imprisonment for willful violations;

2. $50,000 to $10,000,000 for criminal violations;

3. $11,000 - $1,000,000 for each violation Civil penalty;

4. Related penalties under the Trading With Enemy Act may reach $1,000,000 per violation and $100,000 individual fines.

Summary

Clearly at this time the act is focused at the 5000 or so people and organizations that are involved in running drugs, terrorists, funding terrorist organizations and money laundering. Most people you deal with will not be on the list, which is updated frequently. The key for the real estate investor is to ask the questions of the people with whom they are investing. If your assets become tied up with someone on the list, you can only imagine the cost and time it will take to untangle yourself from the mess. As an investor in commercial property, it does not hurt to be curious and to understand how your money is being used and with whom you are investing.

NOTE: If you are curious about who is on the OFAC list, log on to www.treas.gov/offices/enforcement/ofac/. Bear in mind that there are over 294,371,000 people living in the U.S. today. Many names are similar and many false positives come up in these OFAC searches.

Additionally, BOMA (The Building Owners and Managers Association) has just completed a seminar called "Terrorist Screening, Yes it's your Job." You can obtain an audio copy from their website.