"Anti-Terrorism" Clauses in Real Estate Contracts

Executive Order 13224 froze the assets of supporters of terrorismand created a list of supporters of terrorism which can be found on the U.S. Treasury website. This watch list is available free of charge and is periodically updated. It is the responsibility of all commercial enterprises to establish a process to check this list in order to ensure that they are not doing business with an actual or suspected terrorist organization. A search of the watch list can be done manually, through available software applications or through outsourcing to a vendor.

At the time the executive order was issued, the Treasury Department’s Office on Foreign Assets Control (OFAC) pointed out that the real estate industry was a prime target for terrorists’ money laundering activities. Compliance with Executive Order 13224 is critical as there is no amnesty for those who do not comply and criminal penalties can be as high as $250,000 for an individual and $500,000 for a business.

A number of real estate attorneys have started to include anti-terrorism clauses in contracts and leases as part of their due diligence process. If the other party resists the clause, it is generally viewed as a red flag. An anti-terrorism clause generally requires that both parties warrant the following:

• They are not listed on the OFAC watch list;
• They are not entities that are prohibited from doing business under anti-terrorism laws;
• They will not violate any anti-terrorism laws; and
• They will not do business with any entity that may violate anti-terrorism laws.

Inserting an anti-terrorism clause in real estate transactions is considered by many real estate attorneys to be a good idea even if a party’s name does not appear on theOFAC list. The reason for this is that slight variations in a name can yield different search results and therefore, it is better to play it safe given the potential cost of noncompliance.

Source: August 28, 2006 Lawyers USA , Real Estate Lawyers Adding 'Anti – Terrorism' Clauses to Contracts and Leases by Nora Lockwood Tooher.