Charles M. CraigSr. 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 11th 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 ActPurpose: 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.

The Act comprises 10 titles. The provisions that most affect all of us are those contained in Title IIITitle III..

Among other things, Title IIITitle III amends the Bank Secrecy Act of 1970 and provides the U.S. Treasury Department and federal agencies with enhanced enhanced authorityauthority to combat international money laundering.

  Title IIITitle III applies to all financial institutionsfinancial institutions regardless

of charter or size.

The USA PATRIOT Act

Section 312 of the ActSection 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

The USA PATRIOT Act

Section 352: “Section 352: “Financial InstitutionsFinancial 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?

the process of disguising illegally obtained disguising illegally obtained moneymoney 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

UseUse of funds that are proceeds of unlawful activity

KnowledgeKnowledge 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

- Annually, the U.S. Departments of the Treasury and Justice seize over US$1 billion in criminal assets, with over 1/31/3 of that amount attributable to money laundering cases.

Penalties are Severe

Violators face penalties of up to: – $500,000 fine or twice the value of the

property involved in the transaction, whichever is greaterwhichever is greater, or

– imprisonment for not more than 20 years, or any combination of aboveor 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.

Verify the legal existence and structurelegal existence and structure of the corporate customer; obtain proof of incorporationproof 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 CorporationsShell 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 i.e. - Cayman Island off-shore corporation purchasing property in Costa Rica property in Costa Rica

- Charities Charities - Non-Governmental OrganizationsNon-Governmental Organizations (“NGOs”)(“NGOs”) - Straw-Man TransactionsStraw-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.

The list of those persons is the Specially Designated Nationals Specially Designated Nationals and Blocked Personsand Blocked Persons ListList (the SDN List) maintained by the Office Office of Foreign Assets Controlof 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:

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”

– Compare it with the exact nameexact name of the party to the transaction and their address, identification numbers, and their address, identification numbers, date of birthdate 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

If you find an exact match 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 Record the full identityfull identity of your customers on all transactions– Photo/Copies of ID – two forms of picture ID! – ID all representatives, agents, and powers of attorney– Get corporate/partnership/LLC/trust documents on all on all

entities and persons involvedentities and persons involved

Keep records on customer identificationcustomer 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.

Records must allow complete reconstructioncomplete reconstruction of individual transactions (including the amounts and types of currency involved if any)

Keep records of any wiring instructionswiring instructions used to transfer money especially the especially the source banksource bank and corresponding bankcorresponding 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” TransactionsStraw Man” Transactions – Corporate Shells and – Corporate Shells and TrustsTrusts

Third Party depositorsThird Party depositors Escrow deposit refund schemesEscrow 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 suspectIf you suspect that funds stem from criminal or terroristcriminal or terrorist activityactivity, you must reportyou must report promptly your suspicions to Stewart Legal DepartmentStewart 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 FIRSTBUT 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

Maintain an internal programinternal 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

Be Careful Out There

Your land. Our business. Worldwide.Your land. Our business. Worldwide.®®

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