Under Presidential Executive Order 13224, apartment owners are among a broad range of entities that are prohibited from entering into a lease or other real property transactions with Specially Designated Nationals and Blocked Persons. Failure to comply with the order may result in criminal penalties ranging from $50,000 to $10,000,000 in fines and/or up to 30 years imprisonment. Civil penalties for noncompliance may also be imposed for up to $1,075,000 per violation.

The Treasury Department’s Office of Foreign Assets Control (OFAC) maintains the Specially Designated Nationals (SDN) List. The list includes known and suspected foreign agents, front organizations, terrorists, terrorist organizations, narcotics traffickers, and their representatives. The list, containing over 5,000 names of individuals, governmental entities, and companies, is updated frequently. OFAC mandates that all U.S. persons and organizations avoid business dealings with an individual or entity on the SDN List. Regulated entities, such as apartment communities, must verify the identification of applicants/residents and check that identification against the SDN List to ensure that they are not conducting business or lease transactions with those on the list.

Though the 2001 Executive Order is not new, there is some confusion among property owners and managers as to what these regulations are and how to comply with them. Since penalties for noncompliance are severe, it is advisable for apartment communities to develop a compliance program and ensure all employees adhere to it. The following provides suggestions and resources to assist with compliance.

Recommended Compliance Practices To Limit Corporate Liability

While each multifamily organization should consult their legal counsel when interpreting the Executive Order and developing a compliance program, the following elements may be considered for the program.

1. Incorporate SDN List checking into your applicant screening process. Due to the length of the list and the frequent updates made, is it recommended that apartment communities use a third party information provider to assist with SDN List verification.
2. If your business is backed by institutional multifamily investors, your investor agreement may obligate that you screen applicants against the SDN List as well as other federal, state, or local lists. Review your investor agreement and ensure that your screening policies check all required lists.
3. The prohibition on transactions with persons or entities on the SDN List also extends to multifamily investors. If your company is backed by investors, review your investors’ identities to ensure that they are not on the SDN List.
4. Provide your employees with education regarding SDN and your corporate compliance program. Offer periodic trainings and if possible test your employees’ knowledge of the regulations and your program.

With effective compliance programs, multifamily organizations are more likely to comply with SDN List regulations and avoid financial and/or criminal penalties.

To assist your company with compliance, First Advantage SafeRent offers AppALERT^SM. AppALERT automatically identifies known terrorists and fugitives from a wide variety of data sources. With AppALERT applicants are automatically checked against the SDN List as part of the resident screening process. Such automation eliminates the need for leasing agents to conduct manual searches and also prevents leasing agents from inadvertently forgetting to conduct such a search. This leads to more consistent screening and minimizes corporate liability due to non-compliance with SDN List requirements.

More information about AppALERT may be obtained by contacting First Advantage SafeRent at 800-999-0350.
More information about OFAC and the SDN List may be found by clicking here:  SDN List

This document is for educational purposes only and does not constitute legal advice.   Prior to using information provided in this document, please consult with your legal counsel. 

For more information, click here   U. S. Patriot Act