Puzzled By The Patriot Act?
The following information was gleaned from a variety of sources, including The USA Patriot Act, The Foreign Assets Control Regulations, U. S. Department of the Treasury, and Tom Hudson, Esq. Nothing in this article is intended as legal advice. Consult your company’s legal counsel for specific guidance concerning the topics addressed in this article.
Following the invasion of U.S. air space on September 11, 2001, Congress enacted the 342-page USA Patriot Act. The purpose of the Act was to deter and punish terrorist actions in the United States and to provide more open communication among governmental agencies.
Is there confusion about what the Act means for RV dealers? Indeed there is. It seems that when someone cannot explain why a dealership process or procedure exists, the first line of defense is “Well, it is a provision of the Patriot Act.” That makes the Act a catch-all for the uninformed.
OFAC Facts
Well before 9/11, the federal government had enacted legislation, monitored by the U. S. Treasury Department, to prevent business dealings with “specially designated persons.” Dealer preferences to the contrary, all RV dealerships must adhere to this OFAC regulation.
OFAC stands for Office of Foreign Assets Control. The Treasury Department created a Specially Designated National and Blocked Persons (SDN) list. The alphabetical list of names is now 229 pages. Many of the names have aliases. The complete list can be downloaded to any computer.
The OFAC regulation states that all people in the United States are responsible for ensuring that they do not engage in a business deal with an individual or entity on the SDN list. To be sure the people you do business with are not on the OFAC list, you must compare the person’s name against the OFAC list of names. If there is a match, you must call (800) 540-6322, and the deal stops until you can secure a “cleared” status from the federal agency. You must also retain records of your searches for 5 years to verify compliance.
Checking the list
There are several ways to check the list, including the three methods listed here:
1. You can request that an individual credit bureau run a check at the same time your dealership pulls a credit history. While the credit bureau will charge you a little something extra for this service, the added expense is less than the fine for non-compliance.
2. You can check the SDN list yourself by going online to www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf. This address should immediately download the PDF file to your computer. Open the file and begin checking.
3. There are many companies who offer to run the name search for you without the need for a social security number. One such company is Bridger, which, for a fee, will run the name search and store the information for the requisite 5 years to keep the dealership in compliance. For more information, visit the company’s web site at www.ofaccompliance.com.
After 9/11, investigators discovered three of the four pilots who hijacked jets and flew them into the towers had each leased a vehicle from the same automobile dealer in Baltimore. This occurred in spite of the fact the OFAC regulation was in force. Moreover, had a dealership employee checked the SDN list, perhaps the pilots would not have been available to fly that fateful day.
If dealers adhere to the letter of the law, they’ll check the names of everyone they do business with, including customers, sales, service, parts, vendors, consultants and building maintenance personnel. When federal agencies begin auditing this ruling, I fear they’ll find many dealers aren’t in compliance.
The cost of non-compliance is great. I have spoken to many RV dealers about this regulation and too many of them tell me that they are only interested in selling units and making a profit. While I understand their need to take care of business, I also encourage them to adhere to practices that will help them retain rather than needlessly jeopardize their profits.
Depending on the program involved, criminal violations of the OFAC regulation can result in penalties from $50,000 to $10 million and/or 30 years imprisonment for willful violations. OFAC also has the authority to impose civil penalties of up to $1,075,000 per violation, depending on the sanctions program.
The laundry list
Anti-money laundering regulations are part of the Patriot Act. These regulations, in effect for about 20 years, apply to all deals, not just “cash” deals. The FinCen 8300 form is used to record cash transactions of $10,000 or more from the same person within a rolling 12-month period. These transactions include down payment, cost of the vehicle, and other related transactions. The form has undergone several revisions. You can download the latest version from the IRS.gov web site.
The federal government defines cash as currency, money orders, cashier’s checks, or traveler’s checks. A rolling 12-month period starts from the first receipt of cash from the customer in question. How can a dealership track receipts from customers using many different departments? With a good dealership management system.
Now, let’s say the amount of cash is less than the threshold of $10,000 per transaction and the customer asks, “Are you going to be completing the IRS form for the cash down payment?” The astute response is, “Yes, pursuant to the code we will be completing the FinCen 8300 form. Thank you for asking.” The form has a check box for suspicious transactions. When a customer asks about the form, it’s a red flag that you have a suspicious transaction. (What’s more, the customer could be an IRS agent checking your compliance.)
Money-laundering regulations also contain anti-deal structuring clauses. Sales managers and F&I managers should not tell a customer how to circumvent filing the form. If they do, they can be found guilty of structuring a deal to avoid the FinCen8300.
Personal checks, company checks and cashier’s checks with a lien or guarantee of title do not qualify for the form since they can be tracked by the government through the banking system. For those who want to quibble about the amount of the cashier’s checks, look at the back of the FinCen8300 form for guidance.
Note that the FinCen8300 must be completed and sent to the IRS within 15 days of the transaction. By Jan. 31 of the following year, customers must receive a letter advising of action taken.
Take time to sound off
On Feb. 24, FinCen published in the Federal Register an “Advance Notice of Proposed Rulemaking.” The scope of their inquiry is limited to four areas:
1. What is the potential money laundering risk posed by vehicle sellers? Does money-laundering risk vary by industry (marine, powersports, airplanes, automobiles or Rvs)? Or wholesale vs. retail?
2. Should the vehicle industry be exempt from coverage under Sections 352 and 326 of the USA Patriot Act?
3. If the vehicle industry is held accountable to the requirements, how should the program be structured?
4. How should phrases like “vehicle seller” or “minimum threshold of cash” be defined? Should regulations apply to new and used vehicles? To wholesale and retail transactions?
FinCen is asking for comments about these areas. This is your chance to share your views with those who will ultimately make the rules for cash transactions. Dealers often ask me, “Who has been fined?” My response to them is simply, “Do you want to be first?” My best advice is to be prepared for a compliance audit. In this arena, it truly will not pay to be first.
RV Trade Digest, August 2006