The types of entities facing violations of the U.S. Office of Foreign Assets Control's prohibited list has been growing recently to include not only mortgage-related players such as banks and commercial real estate entities, but also a homeowner association, according to an Attus Technologies Inc. executive.
The U.S. Office of Foreign Assets Control recently fined a Dallas homeowner association $10,000 for using $9,500 of the proceeds from a Feb. 3, 2009 sale of property in a manner OFAC determined to have violated sanctions regulations related to the former Liberian regime of dictator Charles Taylor.
“That was a surprising one because OFAC typically didn't go after a lot of that stuff,” said Attus vice president Bradley Allen, whose company helps real estate investment trusts and other corporate clients throughout the world screen prohibited lists. “In the past few years, we've seen them really broadening their horizons and really going after a lot of stuff they haven't in the past.”
For example, OFAC has hired an expert in the securities industry area, suggesting that it will be scrutinizing this type of business more closely, Allen said in an interview.
“It really is interesting to see where they'll go in the future because they are starting to hand out more fines and enforcement,” he said. Also, he noted, “OFAC doesn't necessarily work alone,” but may work with other government agencies in order to stop prohibited individuals from using the U.S. banking system, real estate investment or companies in general to help further harmful activities like terrorism, money laundering or drug trafficking.
The mortgage industry typically does screen for OFAC violations as part of its background checks, but he stresses that this is important to update as the list changes, something a lender might do depending on how long it holds the loan it funds.
In addition to reputational risk and fines, OFAC violation concerns for mortgage and real estate market participants could include the freezing of a property or asset in such a way that it affects their business.
Allen recounted a situation in which a real estate company saw space frozen for a couple years because OFAC found a nonprofit tenant was funneling money to a terrorist organization. Citing an example of the types of complications that can arise for a real estate investor in such as situation, he said that at one point the building's owner had to wait to fix a leak for an OFAC representative to arrive and provide access.
That being said, Allen said he has found OFAC is not inflexible to deal with.
“OFAC's goal is not to 'get' you or me, or even a company. OFAC's goal is to [stop illegal funds] from making their way into the U.S. and, more importantly, causing harm,” he said.
