USA PATRIOT ACT
Money Laundering Targeted, Part II
by Jerry R. Torp, Compliance Director
BVS Performance Systems
Cedar Rapids, IA
This continues last week’s article on provisions of the USA Patriot Act.
Section 326 is aimed at strengthening the identification requirements for customers that open accounts at U.S. financial institutions. The purpose of this provision is to adopt uniform minimum standards for customer identification, particularly of foreign nationals, so that law enforcement and supervisory agencies can better identify accounts maintained by individuals who are suspected of terrorist activities. This may include issuing to foreign nationals numbers similar to taxpayer identification numbers that must be used when they open accounts.
It requires the Secretary of the Treasury, within one year, to adopt and implement regulations setting minimum standards and procedures for verifying customers’ identities and for maintaining records of identity verification.
The regulations will also require financial institution personnel opening accounts to consult lists of known or suspected terrorists. This should already be done in financial institutions as part of OFAC compliance, so any changes likely will be revisions to those procedures.
Financial institution anti-money laundering programs
Section 352 requires financial institutions to establish minimum anti-money laundering programs that include appropriate internal policies, management, employee training and audit features.
It builds in flexibility so different types of programs will be appropriate for different types and sizes of institutions. Anti-money laundering programs will vary depending on the financial institutions involved and the money laundering risks to which each institution is exposed.
The Secretary of the Treasury must adopt rules to implement this requirement and the rules must be effective by April 22, 2002. This requirement may or may not require substantial changes in existing BSA/anti-money laundering programs, depending upon what specifics the Secretary requires when the rules are adopted.
Suspicious activity reporting
Title III also makes a number of changes to suspicious activity reporting rules. Section 351 makes technical changes to strengthen the safe harbor from civil liability for institutions that report suspicious activity to the Treasury Department. The provisions not only add to the protection for reporting institutions; they also address individual privacy concerns by making it clear that government officers may not disclose suspicious transaction report information except in the conduct of their official duties.
Section 314 requires the Secretary of the Treasury to issue regulations to encourage cooperation among financial institutions, financial regulators and law enforcement officials. The regulations also are to permit law enforcement and regulatory authorities to share information with financial institutions regarding persons who are reasonably suspected, based on credible evidence, of engaging in terrorist acts or money laundering activities.
The section also allows banks to share information involving possible money laundering or terrorist activity among themselves if they also notify the Treasury Secretary. The Secretary must adopt regulations to implement this section by February 22, 2002.
Finally, Section 355 allows a bank to include information, in a response to a request for an employment reference by a second bank, about the possible involvement of a former institution-affiliated party in potentially unlawful activity. It also creates a safe harbor from civil liability for the bank that includes such information in response to an employment reference request, except in the case of malicious intent.
Conclusion
The Patriot Act contains a number of provisions that will require financial institutions to make changes in the way they operate. Since most of these changes will be implemented over the coming year, financial institutions will need to be prepared to address these new laws as they are implemented.
