Patriot Act

With the passage of the USA Patriot Act of 2001, which required that financial institutions create anti-money-laundering compliance programs, anyone purchasing property must be checked against a list of names of known and suspected terrorists. The list has been around since before the September 11 attacks, but increasingly the ritual closing ceremony has involved writing yet another check to the title company that runs the homebuyer’s name against that list.

What’s behind it? The Treasury Department’s Office of Foreign Assets Control maintains the “specifically designated nationals” (SDN) list of people blocked from participating in “any transaction or dealing … in property or interests” within the United States. These people have been identified “to have committed, or to pose a significant risk of committing, acts of terrorism,” according to White House Executive Order 13224, which was issued Sept. 24, 2001. Although the blocked-persons list has been around in some form for about a decade, under the order private individuals (be they jewelers, pawnbrokers or suburban families) buying or selling property are now considered “financial institutions” by the government. And the responsibility has fallen to the title companies to check all parties involved in a transaction against the list. “The SDN list has been around for years. Obviously, since 9/11 the use of charities and banks and different organizations for terrorists to move money have brought it more to light in recent days,” says Molly Millerwise, a Treasury spokesperson, explaining why homebuyers in the heartland are considered financial institutions under the jurisdiction of the Office of Foreign Asset Control. Terrorists, she says, use property to launder money.

Because the SDN list is a public document, many title companies charge nothing for the search, according to ALTA’s von Eigen. But increasingly, firms like California-based First American Corp. are charging the buyer up to $30 for each person involved in the transaction. (So, for example, if one couple buys a condo from another couple, the buyers are charged a total of $120 for the searches, which can be done for free at the ALTA Web site.) "Since performing the search is something that can be conducted for free in mere seconds on the Internet, we're concerned that title companies may be padding their bills with excessive charges and profiteering from fears regarding homeland security,” says Jordana Beebe at the Privacy Rights Clearinghouse. But Larry Moringiello of Heights Abstract in Brooklyn, N.Y., says he charges $25 a search because of the paperwork, time and man-hours required of the searches his office does on the ALTA Web page throughout the week. New Jersey-based Charles Jones, LLC, charges $3 a name for each of the 100,000 “Patriot Name Searches” they conduct with their own software every week, according to Patrick Roe, director of marketing.

In the event of a match, the transaction must be immediately halted and a report filed with the Treasury Department. Failure of a title company to comply could result in fines of up to $65,000 under the Trading with the Enemy Act, according to Treasury’s Millerwise. And although banks must thoroughly vet loan applicants earlier in the home-buying process and there is therefore “always potential for redundancy, it’s better to be safe than sorry,” she says. “Names do come up. Let’s put it like that. The list has worked.” She declined to give any specific examples, though, citing privacy and legal concerns. But what if a name happens to match one on the list, through coincidence or identity theft? "We do the investigation, and once they were cleared, that individual or group is able to go forward at that point," says Millerwise. The length of that process varies, she says, but usually lasts no more than a day or two.

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PATRIOT ACT AND REAL ESTATE