Specially designated nationals list deserves close attention.

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 million in fines and up to 30 years imprisonment. Civil penalties for non-compliance may also be imposed for as much as $1.075 million per violation.

The Treasury Department's Office of Foreign Assets Control (OFAC) maintains the Specially Designated Nationals (SDN) List. This list includes known and suspected foreign agents, front organizations, terrorists, terrorist organizations, narcotics traffickers and their representatives. The list, containing more than 5,000 names of individuals, companies and governmental entities, 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 and 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. Because 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.

Limiting Corporate Liability

While each organization should consult its 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 the applicant screening process. Because of the length of the list and the frequent updates made, is it recommended that apartment communities use a third-party software product to assist with SDN List verification Mid-America Communities is a NMHC Top 25 management company that owns and manages more than 130 communities. Mid-America opted to use a third-party tool that automatically identifies known terrorists and fugitives from a wide variety of data sources, including the SDN List.

"We selected a tool where our applicants are automatically checked against the SDN List as part of the resident screening process," said James Maclin, Vice President of Corporate Services with Mid-America.

"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," Maclin said. "This saves leasing agents time so that they can better focus on leasing apartments and servicing resident needs. This also leads to more consistent screening and minimizes our corporate liability due to non-compliance with SDN List requirements."

2. Consider screening existing residents on a recurring basis to determine if they have been added to the SDN List.

3. If business is backed by institutional multifamily housing investors, the investor agreement may obligate that applicants be screened against the SDN List as weil as other federal, state or local lists. Review the investor agreement and ensure that the screening policies check all required lists.

4. The prohibition on transactions with persons or entities on the SDN List also extends to apartment investors. If the company is backed by investors, review the investors' identities to ensure that they are not on the SDN List.

5. Provide employees with education regarding SDN and the corporate compliance program. Offer periodic trainings and, if possible, test employees' knowledge of the regulations and program.

With effective compliance programs, apartment organizations are more likely to comply with SDN List regulations and to avoid financial and criminal penalties. Information about OFAC and the SDN List may be found at www.treas.gov/offices/ enforcement/ofac/.

UNITS magazine would like to thank First Advantage SafeRent for contributing this article.