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Commercial Leasing Compliance with the Patriot Act and Executive Order 13224

Commercial Leasing Compliance with the Patriot Act and Executive Order 13224

In response to the 9/11 terrorist attacks, then-President Bush issued Executive Order 13224 (“Executive Order”) and Congress passed the USA Patriot Act of 2001 (“Patriot Act”).  The Executive Order and the Patriot Act were intended to stop terrorist activities in the US by restricting terrorists’ access to financial resources.  This blog entry addresses commercial lease transaction compliance with the Executive Order and the Patriot Act.

Executive Order 13224

The Executive Order prohibits any US company from doing business with any person that (1) has committed a terrorist act, (2) poses a risk of committing or supporting terrorist acts, or (3) is identified on the list of Specially Designated Nationals and Blocked Persons generated by the Office of Foreign Assets Control (current list available at: http://www.ustreas.gov/ofac).  Before entering into a commercial lease transaction, each party should find out the names of the principals of the other party and make sure the names of those parties are not on the list.

Following is a sample lease provision to address compliance with the Executive Order:

Tenant and Landlord (each, a “Representing Party”) each represents and warrants to the other that the Representing Party, the persons or entities that own any interest in the Representing Party, and all of the officers, directors, managers and members of the Representing Party are not persons or entities with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated Nationals and Blocked Persons List) or under any statute, executive order (including Executive Order 13224 (the “Executive Order”) signed on September 24, 2001 and entitled “Blocking Property and Prohibiting Transactions with Person Who Commit, Threaten to Commit, or Support Terrorism”), or other governmental action.

Patriot Act

The Patriot Act contains several provisions that could impact commercial leasing, but this blog entry focuses on two issues: anti-money laundering and information sharing with the government.

First, the Patriot Act requires “financial institutions” to adopt anti-money laundering programs that include (1) development of internal policies, (2) designation of a compliance officer, (3) ongoing employee training, and (4) independent audit procedures.  The definition of a financial institution is not limited to banks, but includes companies “engaged in real estate closings and settlements.”  I am not aware of any test case that evaluates whether escrow agents, brokers, attorneys, landlords or tenants are considered financial institutions under the Patriot Act.

Following is a sample lease provision to address the anti-money laundering requirement:

(a) Tenant and Landlord (each, a “Representing Party”) each represents and warrants to the other that the Representing Party has taken, and shall continue to take at all time following the execution of the Lease, commercially reasonable actions to ensure that the funds used in connection this Lease are derived (1) from transactions that do not violate U.S. law or, to the extent such funds originate outside the United States, do not violate the laws of the jurisdiction in which they originated; and (2) from permissible sources under U.S. law or to the extent such funds originate outside the United States, under the laws of the jurisdiction in which they originated.

(b) The Representing Party (1) is not under investigation for, has not been charged with, or has not been convicted of, money laundering, drug trafficking, terrorist-related activities, any crimes which in the United States would be predicate crimes to money laundering, or any violation of any Anti-Money Laundering Laws; (2) has not been assessed civil or criminal penalties under any Anti-Money Laundering Laws; (3) has not been assessed civil or criminal penalties under any Anti-Money Laundering Laws; or (4) has not had any of its funds seized or forfeited in any action under any Anti-Money Laundering Laws.

(c) “Anti-Money Laundering Laws” means those laws, rules, regulations, orders and sanctions, state and federal, criminal and civil, that (1) limit the use of and/or seek the forfeiture of proceeds from illegal transactions; (2) limit commercial transactions with designated countries or individuals believed to be terrorists, narcotic dealers or otherwise engaged in activities contrary to the interests of the United States; (3) require identification and documentation of the parties with whom a financial institution conducts business; or (4) are designed to disrupt the flow of funds to terrorist organizations.  Anti-Money Laundering Laws specifically include, without limitation, the USA Patriot Act of 2001.

Second, the Patriot Act requires sharing information with federal law enforcement agencies concerning individuals or entities that may be engaging in terrorist acts or money laundering.  Following is a sample provision to address this issue:

Notwithstanding anything to the contrary in this Lease, Landlord and Tenant immediately shall comply with any request or demand for information by any federal law enforcement agency with respect to any violation or suspected violation of the USA Patriot Act of 2001.

Prior to using any language or concepts from this blog entry, consult with an attorney.

Ryan Rosensteel is a real estate and construction attorney licensed in Arizona.  You can contact him at ryan.rosensteel@azbar.org.

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