Patriot delay 'encouraging'.

A section of the controversial Patriot Act that could profoundly affect the real estate industry is under review by the Treasury Department, but a decision is not expected until next year.

However, the delay is being viewed as a good sign by many in the real estate industry. "It's encouraging that they're indicating they have to think about it," said Jeffrey Moerdler, a lawyer in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.

He said Treasury Department told him not to expect a formal notice of proposed rulemaking until next year. "What the end result is going to be is anyone's guess, because they have complex issues they're working with."

On April 10, 2003, the Treasury Department's Financial Crimes Enforcement unit or FinCEN, served the real estate industry with an advance notice it was to begin implementing Section 352 of the act, which was passed by Congress in October 2001.

The section--also called the International Money Laundering Abatement Financial Antiterrorism Act--already requires financial institutions to establish anti-money laundering programs.

Enacted on April 24, 2002, Section 352 requires financial institutions and "persons involved in real estate closings and settlements" to establish anti-money laundering programs that require the development of internal policies, procedures and controls; the designation of a compliance officer; an ongoing employee training program and an independent audit function to test the program once in place.

FinCEN would like to amend the act to better reflect how industry professionals could adhere to the regulation, which also intends to hinder the finance of terrorism.

The Treasury Department is seeking comments and a list of those received so far is posted on the FinCEN Web site at http://www.fincen.gov/ reg_352comments.html.

Spokeswoman for the Treasury Department, Molly Millerwise, said the department was "in the process of reviewing the comments to determine the next appropriate step."

Hugh Finnegan, a New York lawyer specializing in real estate, said the general consensus in the industry was one of fear that the Treasury Department's final regulations would be detrimental to the industry and would involve costly procedures before a closing.

"The view is it's going to create a real burden," Finnegan said. "It's a lot of paperwork (and) it's a new layer of paper that we're going to need to collect."

For example, Finnegan said, a burdensome regulation that will likely be proposed is one requiring the collection of copies of photo identification documents and utility bills.

According to Finnegan, such new regulations are not likely to be helpful.

"I just think that if people are going to be doing things like money laundering or whatever, the fact that you've got a copy of their driver's license or a copy of the utility bill doesn't guarantee they're not doing something inappropriate," Finnegan said.

According to Jeffrey Moerdler, one of the most important issues is the fundamentals of attorney-client privilege and the objection of some that the act violates such privilege.

In an e-mail to colleagues that he forwarded to REW, Moerdler said a Treasury official told him repeatedly that their goal is not to regulate lawyers in their role as advocates for their clients in adversarial transactions.

"Rather, Treasury was concerned with the instances where a lawyer is, in his words, providing a 'financial service,' such as when a lawyer holds funds in escrow," Moerdler wrote. "His analogy was that if lawyers started selling hot dogs, this wouldn't exempt them from regulations on hot dog production."