Charles M. Craig Sr. Vice President & International Group Counsel, Associate General Counsel & Senior Underwriter Stewart Title Guaranty Company
The USA PATRIOT Act was signed on October 26, 2001, following the September 11 th attacks; extended until 2015 conglomeration of: Bank Secrecy Act, President's 2001 National Money Laundering Strategy, International Emergency Economic Powers Act, Trading with the Enemy Act, Executive Order 13224 Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism; and public will.
The USA PATRIOT Act Purpose: to deter and punish terrorist acts in the USA and around the world, to enhance law enforcement investigatory tools, and To prevent, detect and prosecute international money laundering and financing of terrorism; To specially scrutinize international jurisdictions, financial institutions, and transactions or types of accounts that are susceptible to criminal abuse; To require the financial institutions to report potential money laundering; To prevent use of U.S. financial system for personal gain by corrupt foreign officials and Facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong.
Title III. The Act comprises 10 titles. The provisions that most affect all of us are those contained in Title III. Title III enhanced authority Among other things, Title III amends the Bank Secrecy Act of 1970 and provides the U.S. Treasury Department and federal agencies with enhanced authority to combat international money laundering. Title IIIfinancial institutions Title III applies to all financial institutions regardless of charter or size. The USA PATRIOT Act
Section 312 of the Act “…financial institutions must establish appropriate, specific, and, where necessary, enhanced due diligence policies, procedures, and controls that are reasonably designed to enable the financial institution to detect and report instances of money laundering...” 31 CFR Part 103, 496 The USA PATRIOT Act
Section 352: “ Financial Institutions” Section 352: “ Financial Institutions” covered by the Act includes “persons engaged in real estate closings and settlements” - Treasury Department to adopt regulations on required money laundering programs for title insurers, real estate closers… – still waiting….. 2001 - 2001 - Stewart didn’t wait - adopted Anti-Money Laundering Policies, Compliance Training Program
What is money laundering? disguising illegally obtained money the process of disguising illegally obtained money so that the funds appear to come from legitimate sources or activities. Money laundering occurs in connection with a wide variety of crimes, including illegal arms sales, drug trafficking, robbery, fraud, racketeering, and terrorism.
Elements of money laundering Use Use of funds that are proceeds of unlawful activity Knowledge Knowledge that the funds are proceeds of unlawful activity Conducting or attempting to conduct Conducting or attempting to conduct a financial transaction knowing that it is designed in whole or in part to disguise the nature, source, ownership or control of the proceeds
How BIG is the problem? $ -Represents between $800 billion to $2 trillion USD estimated annually 1/3 -Annually, the U.S. Departments of the Treasury and Justice seize over US$1 billion in criminal assets, with over 1/3 of that amount attributable to money laundering cases.
Penalties are Severe Violators face penalties of up to: whichever is greater –$500,000 fine or twice the value of the property involved in the transaction, whichever is greater, or or any combination of above –imprisonment for not more than 20 years, or any combination of above. –Often added to FCPA charge
New or Enhanced Procedures Customer identity verification Due diligence procedures for account and escrow officers Record-keeping and Documentation Processes Reporting information to authorities
Customer Identification Verify that any person purporting to act on behalf of the customer is so authorized and identify that person. legal existence and structure proof of incorporation Verify the legal existence and structure of the corporate customer; obtain proof of incorporation, including information concerning the customer's name, legal form, address, directors and provisions regulating the power to bind the entity.
Watch out for: Shell Corporations, -Shell Corporations, i.e. institutions, trusts, corporations, foundations, etc. that do not conduct any form of commercial operation in the country where their registered office is located. i.e. - Cayman Island off-shore corporation purchasing property in Costa Rica Charities -Charities Non-Governmental Organizations(“NGOs”) -Non-Governmental Organizations (“NGOs”) Straw-Man Transactions -Straw-Man Transactions Customer Identification
Check the Office of Foreign Assets Control “SDN” list Executive Order 13224 blocks transactions with persons who commit, threaten to commit or support terrorism. Assets of such persons/entities must be frozen. Specially Designated Nationals and Blocked Persons List Office of Foreign Assets Control The list of those persons is the Specially Designated Nationals and Blocked Persons List (the SDN List) maintained by the Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department. SDN List is found at www.treas.gov/ofac and on Stewart’s firewalled Virtual Underwriter webpage:www.treas.gov/ofac https://specialalerts.stewart.com Run your search in advance of closing; Do not wait until the closing date
What happens if you get a “hit” exact name and their address, identification numbers, date of birth –Compare it with the exact name of the party to the transaction and their address, identification numbers, date of birth. –You do not have a "match" if all identifying information are not the same. –(Ex.) the address of the party on the government issued identification (such as a driver license or passport) or other documentary evidence of address (such as mail, bills, etc.) shows a U.S. address and the SDN List shows another street address, city or country. Check the Office of Foreign Assets Control “SDN” list
an exact match If you find an exact match of name after review of the SDN List or other circumstances reasonably arouse your suspicion (Red Flags), call Stewart Legal Services; –we will call appropriate USA Authorities for further instructions before either closing or refusing to close. Do not close a transaction before calling Stewart Legal and never tell the parties to the transaction that you have a match with a name on the SDN List. If necessary and after discussion with appropriate authorities, you should file any applicable forms requested for reporting blocked transactions. Check the Office of Foreign Assets Control “SDN” list
Record Keeping Do not Do not keep anonymous accounts or accounts in obviously fictitious names or aliases Record the full identity Record the full identity of your customers on all transactions –Photo/Copies of ID – two forms of picture ID! –ID all representatives, agents, and powers of attorney on all entities and persons involved –Get corporate/partnership/LLC/trust documents on all entities and persons involved
customer identification Keep records on customer identification (e.g. copies or records of official identification documents like passports, identity cards, driver’s licenses or similar documents), account files and business correspondence, corporate records, etc. complete reconstruction Records must allow complete reconstruction of individual transactions (including the amounts and types of currency involved if any) wiring instructions especially the source bank corresponding bank Keep records of any wiring instructions used to transfer money especially the source bank and corresponding bank of the wire, wire receipts, etc. Record Keeping
Red Flag Transactions Generally, look for complex, unusual and large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. Examine the background and purpose as far as possible, write down findings in the file, and be available to help supervisors, auditors and law enforcement agencies if needed.
Examples of Red Flags Cash – Actual Currency Transactions Land Flips – multiple transactions involving the same property “Straw Man” Transactions – Corporate Shells and Trusts “Straw Man” Transactions – Corporate Shells and Trusts Third Party depositors Third Party depositors Escrow deposit refund schemes Escrow deposit refund schemes Use of General Powers of Attorney Use of Shell Banks/Banks in OFAC listed countries Use of Bearer Corporate Shares to own Use of numerous deposits under $10,000 each
Reporting If you suspectcriminal or terrorist activityyou must report Stewart Legal Department If you suspect that funds stem from criminal or terrorist activity, you must report promptly your suspicions to Stewart Legal Department, for further instructions before either closing or refusing to close. Under most countries’ laws, financial institutions, their directors, officers and employees should be protected from criminal or civil liability for breach of any restriction on disclosure of information … BUT FIRST BUT FIRST check to make sure you do not run afoul of any privacy, secrecy or freedom of capital laws in your own jurisdiction.
Do not warn your customers that information relating to them is being reported to the competent authorities or that their transaction is suspect. Comply with all instructions from OFAC, Stewart Legal and the competent authorities. Do not hold up the deal, but you must check SDN list, report exact matches prior to providing services or closing the deal Reporting
Internal Program internal program Maintain an internal program against money laundering The program should include, as a minimum: -Designated Compliance Officers at management level -Employee background checks to ensure high standards when hiring employees -Ongoing Employee Training Program -Audit function - test the system – pull a file periodically
STG Needs Your Help U.S. Anti-Money Laundering regulations affect Stewart and your office. As part of our program, we may ask you to provide various identification documents or other information to us. Develop a compliance program now; STG audit services will be looking for it. YOU ARE REQUIRED TO COMPLY WITH STEWART’s COMPLIANCE POLICY, THE USA PATRIOT ACT, AND YOUR LOCAL ANTI-MONEY LAUNDERING LAWS