USA PATRIOT Act, Title III, Subtitle A
Encyclopedia
The USA PATRIOT Act
was passed by the United States Congress
in 2001 as a response to the September 11, 2001 attacks
. It has ten titles, with the third title
("Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001") written to prevent, detect, and prosecute international money laundering
and the financing of terrorism
.
Title III is itself divided into three subtitles. The first subtitle, entitled Subtitle A: International Counter Money Laundering and Related Measures, is designed to put measures into place that counter international money laundering. It does this by requiring that financial institutions take several new special measures against money laundering — identification is dealt with particularly; by restricting or prohibiting the use of certain types of bank accounts; through adding further legislation that regulates a financial institution's dealing with foreign concerns; by adding new penalties for non-compliance of the law; and through regulations that are designed to facilitate and encourage reporting and communication between financial institutions and the U.S. government.
. Any such order by the United States Treasury, with the exception of orders that require additional record keeping or reporting for any transaction over an amount greater than the Secretary describes, is issued with a notice of rule making regarding the special measure. Orders may not remain in effect for more than 120 days, though any ruling may be extended by the Treasury.
When the Secretary of Treasury orders special measures, that person must first consult with the Chairman of the Board of Governors of the Federal Reserve System
, any other appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act
), the Secretary of State
, the Securities and Exchange Commission, the Commodity Futures Trading Commission
, the National Credit Union Administration Board and any other relevant parties the Secretary of Treasury decides to call on. The special measures must take into account whether similar actions were taken by other nations and multilateral groups; whether the measure will cause any competitive disadvantage for U.S. financial organizations; how the timing or impact of the decision will affect legitimate business activities; and what effect the action would have on U.S. national security and foreign policy.
The special measures must be undertaken for all transactions that are made outside the U.S. in areas where money-laundering has been identified as a concern. The measures involve:
The section also details what is considered a "primary money-laundering concern". The Secretary of Treasury ultimately makes the decision on such areas in consultation with Secretary of State
and the Attorney General
. Several jurisdictional factors must be taken into account, including:
The Secretary of Treasury also considers whether financial institutions facilitate or promote money laundering, balanced against the extent to which they perform and promote legitimate business activities. He or she must also decide whether the financial institutions is undertaking any of the special measures specified above when considering whether the jurisdiction, financial institutions, types of accounts, or transactions are or are not primarily a money laundering concern.
requirements were added to . Each financial institution that has a correspondent back account held and managed on behalf of a non-U.S. person must enable (or in some cases enhance) their due diligence policies, procedures and controls to detect and report instances of money laundering. The due diligence requirements focus on identifying the direct and indirect (beneficial) owners of the accounts.
Financial institutions must now undertake steps to identify the owners of any non-U.S. bank that is not publicly listed
, along with the interests of each of the owners in the bank. It is expected that additional scrutiny will be applied by the U.S. institution to such banks to make sure they are not engaging in money laundering. Reasonable efforts must be undertaken to determine whether the non-U.S. bank provide correspondent back accounts to other foreign banks, and if it is discovered they do the U.S. financial institution is expected to try to identify the foreign banks the non-U.S. bank deals with.
Similarly, U.S. financial institutions must also identify the nominal and beneficial owners of any private bank account opened and maintained in the U.S. by non-U.S. citizens. The institution must undertake enhanced scrutiny of the account if it is owned by, or is being maintained on behalf of, any senior political figure
where there is reasonable suspicion of corruption. A "private bank account" is defined as any account that has over $US1 million deposited by one or more people who have a direct or beneficial ownership of the account. Further, the account must be administered in whole or in part by an employee, officer or agent of a financial institution, and who acts as a liaison between the institution and the owners of the account.
). U.S. financial institutions must also take steps to prevent the indirect servicing of a foreign shell bank by allowing a correspondent account to be established and maintained by another foreign bank who acts on behalf of that foreign shell bank. However, exceptions are made if the shell bank is an affiliate (under the control) of a bank that has a physical presence in the U.S. or if the foreign shell bank is subject to supervision by a banking authority in the non-U.S. country regulating the affiliated depository institution, credit union, or foreign bank.
, and then on March 14, 2002 they released 31 CFR 103.100 which was entitled "Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity".
The regulation allows FinCEN to solicit, on behalf of a Federal law enforcement agency, information from a financial institution or group of financial institutions. In order to gain such information, a law enforcement agency must provide a certificate which shows who is the target of the information request — the regulation states that enough information must be provided to the institution to allow them to distinguish between common or similar names — and a contact person from the agency who knows about the request. The financial institution must then expeditiously search records for information that satisfies the request, though at any time the institution can contact the law enforcement agency to clarify the scope or terms of the request. The information that an agency must disclose is:
After identifying the account asked for by FinCEN, the financial institution must provide a report back to FinCEN with:
The regulation specifically prohibits the financial institution from using information provided by FinCEN to do anything other than report information back to FinCEN, make a determination whether to do business with the named suspect or suspects, or to help them comply with an order given under the regulation. Furthermore, the financial institution may not disclose that FinCEN made a request for or obtained information to anyone other than FinCEN or to the Federal agency who was using FinCEN to gather information about the suspects. Under the regulation, financial institutions are expected to maintain appropriate security to keep such information confidential in order to satisfy the Gramm-Leach-Bliley Act
.
The section also allows financial institutions to share information with other financial institutions when so allowed by the Secretary of Treasury, and they are now legally immune from prosecution if they gather or share information relating to terrorism or financial money-laundering in order to identify and report such activities. The section also gives immunity against breaches of the Gramm-Leach-Bliley Act to any organisation who undertakes actions to comply with this section.
Finally, the section directs the Secretary of Treasury to produce a report semiannually to the financial services industry "containing a detailed analysis identifying patterns of suspicious activity and other investigative insights derived from suspicious activity reports and investigations conducted by Federal, State, and local law enforcement agencies". This report must be distributed to every financial institution in the United States.
and can either assert as an affirmative defense
that their property was seized improperly or plead an innocent owner defense
. The act also states that:
However, this clause does not deny a property owner of their right to contest the confiscation of assets that are suspected to be owned by international terrorists under the Fourth Amendment of the United States Constitution or under the Administrative Procedures Act. It also does not limit the remedies available to property owners defined under the civil forfeiture laws defined in the U.S. Code.
The section also made a technical amendment to the General Rules for Civil Forfeiture Proceedings by amending the definition of the term "civil forfeiture statute" to exclude the International Emergency Economic Powers Act
(IEEPA).
The amendment gives the court the power to freeze bank accounts and property so they can satisfy a judgement under 18 USC
§ 1956. The courts may appoint a Federal Receiver to seize or control all assets of a defendant in order to satisfy a judgement of the court. The judgement may be a civil judgement about money laundering; the civil or criminal forfeiture of assets; or made against those who act as a fence
. The Federal Receiver is appointed by the court after an application is made by a Federal prosecutor or Federal or State regulator, and they must be an officer of the court. The Federal Receiver is governed by and is able to gain the same information about a defendants assets from FinCen, the Department of Treasury or a foreign government (where a treaty or other agreement is in place with the U.S. government) as a Federal prosecutor.
Any deposits into foreign banks are considered to be deposited into any Interbank account the foreign bank may have in the U.S., and thus any restraining order, seizure warrant or arrest warrant may be made against the funds in the Interbank account held at a U.S. financial institution, up to the amount deposited in the account at the foreign bank. Provisions were made to allow the Attorney General to suspend or stop such a forfeiture if the Attorney General determines that a conflict of law exists between the laws of the foreign country in which the foreign bank resides in and with the laws of the U.S.. The Attorney General must also decide whether halting such a forfeiture would be in the interest of justice and that it would not harm the national interests of the U.S. The funds that are forfeited in the Interbank account can be contested by the foreign bank under the general rules of civil forfeiture proceedings. The U.S. government does not need to show that the funds being forfeited are directly traceable to the funds deposited at the foreign bank and the government is also not required to apply , which deals with the civil forfeiture of fungible property.
Section 319 requires a financial institution to respond to a request for information from a Federal banking agency within 120 hours of the receipt of the request. Federal banking agencies can request information relating to any money-laundering activities — financial institutions must provide documentation for any account opened, maintained, administered or managed by the institution in the U.S. A summons or subpoena
may be issued to any representative of a foreign bank that as a corresponding account in the U.S. — they may be required to include records (even those maintained outside the U.S.) that relate to the deposit of funds into the foreign bank. The summons may be issued to a bank with a representative in the U.S. or in foreign countries where the U.S. has a mutual legal assistance treat, a multilateral agreement or where the U.S. can expect that they will respond to a request for international law enforcement assistance. Foreign banks who maintain corresponding accounts must maintain records in the U.S. that will identify the owners' real names and addresses. The banks must be able to provide this information within 7 days of receipt of the request. It is also a requirement that when so ordered by the Attorney General or the Secretary of Treasury (they must consult each other first) the financial institution must terminate any corresponding accounts within 10 days. Corresponding accounts can be ordered to be closed if the foreign bank fails to comply with a summons or subpoena (see above), or has failed to legally contest the summons in the U.S. A financial institution is further protected from liability if they terminate a corresponding relationship in accordance with the section, and in fact the financial institution faces penalties of $US10,000 for each day the account remains open after the 10 day limit has expired.
The U.S. Code was amended by section 319 to allow a court to order a convicted criminal to return property that is located abroad. If that property cannot be located, has been transferred or sole, is placed beyond the jurisdiction of the court, is substantially reduced in value, or has been comingled with other property in such a way that it cannot be divided without difficulty then the court may order that property be forfeited in substitution of the property that must be returned. The court can also order that any property beyond the jurisdiction of the court must be returned to the jurisdiction of the court.
If a defendant enters into a pretrial restraint order to stop goods from being seized, then the defendant may be required to deposit the property either into the registry of the court, with the United States Marshals Service
, or with the U.S. Secretary of Treasury in an interest-bearing account. If the defendant refuses the law states that they will be charged with contempt of court
and their final sentence may be enhanced under the obstruction of justice
provision of the Federal Sentencing Guidelines
.
s, Futures Commission merchants, commodity trading advisors and commodity pool
operators in its definition of a financial institution. It also defined in all legislation that the term "Federal functional regulator" includes the Commodity Futures Trading Commission
(CFTC).
from mounting an innocent owner defense to contest the forfeiture of property by authorities.
Section 323 places a large emphasis on the ability of a foreign court to follow due process
when considering an application for a forfeiture or confiscation judgement to be registered and enforced in the U.S. The definition of "forfeiture and confiscation" is defined to mean a final order of a foreign nation which compels a person or entity to pay money for "any violation of foreign law that would constitute a violation or an offense for which property could be forfeited under Federal law if the offense were committed in the United States".
, the National Credit Union Administration Board and the Securities and Exchange Commission) the ability to evaluate the operations of the provisions of title III and make recommendations to Congress. These were to be made within 30 months of the enactment of the Act.
is a single account used for the internal purposes of a financial institution to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. Such accounts can lead to the concealment by financial institutions transactions made by customers, however section 325 bans their use for such purposes by prohibiting financial institutions from allowing clients to direct transactions that move their funds into, out of, or through the concentration accounts of the financial institution. Financial institutions are also prohibited from informing clients about the existence of such accounts and disallows any disclosure that may give customer a way of identifying such accounts that the financial institution may use. The section also requires that financial institutions document and follow methods of identifying where the funds are for each customer in a concentration account that commingles funds belonging to one or more customers.
come into compliance. The minimum requirements under the section require financial institutions to establish procedures to take reasonable and practicable measures to verify the identity of those applying for an account with the institution; maintain records of the information used to verify a person's identity, including name, address, and other identifying information; and to consult lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list. When prescribing the regulations, the Secretary was ordered to take into account the types of accounts available to financial institutions, the various methods someone can use to open accounts, and the various types of identifying information available to the institutions.
Under the Bank Holding Company Act of 1956
, banks and other financial institutions are restricted from carrying out activities that do not relate to financial activities. In these cases, the regulations must be prescribed jointly by the Secretary and each Federal functional regulator appropriate for such financial institution. The Secretary also has the power to exempt such institutions from the regulations proscribed under section 326.
The section also required a report with 6 months of the enactment of the Patriot Act from the Secretary of Treasury in consultation with Federal functional regulators as defined in the Gramm-Leach-Bliley Act. As such, on July 23, 2002 the Department of Treasury, FinCEN, the Office of the Comptroller of the Currency
(OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Commission (FDIC), the Office of Thrift Supervision
(OTS) and the National Credit Union Association (NCUA) jointly released a joint notice of rule-making in the Federal Register
for banks, and Treasury simultaneously released an identical notice in the Federal Register for credit unions, private banks and trust companies who did not have a functional regulator. After a considerable response, alterations to the proposed rule making were made and Treasury and the Federal functional agencies released 31 CFR 103.121. The regulation sets out the minimum requirements for setting up a Customer Identification Program
(CIP). These requirements for the CIP are that it must:
The regulation allows any Federal regulator, in concurrence with the Secretary of Treasury, to exempt a bank or type of account from the regulations given.
makes it unlawful, except with prior approval of the Board of Governors of the Federal Reserve System, for a bank to take any action that makes another company into a bank holding company or subsidiary of one; for a bank holding company to acquire direct or indirect shares of more than 5% of a bank; for bank holding companies to acquire all or most of the assets of a bank; and in most circumstances for a bank holding company to merge or consolidate with another bank holding company. Section 327 amends the Act to make the Board take into consideration the effectiveness of the company or companies in combatting money laundering activities, including in overseas branches.
The Federal Deposit Insurance Act
prevents the merger of insured depository institutions with non-insured depository institutions without the written approval of a responsible agency. The Act was amended by section 327 to take into consideration the effectiveness of any insured depository institution involved in the proposed merger transaction in combatting money laundering activities, including in overseas branches, when approving such mergers.
Both of the amendments only apply to applications submitted to either the Board of Governors of the Federal Reserve System or responsible agency after December 31, 2001, and which were not approved by the Board or responsible agency before the date of enactment of the Patriot Act.
instructions sent to the United States and other countries, with the information to remain with the transfer from its origination until the point of disbursement. They must also report annually to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on the progress Treasury is making on this issue and what is impeding progress of implementing the wire transfer identification scheme.
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
was passed by the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 2001 as a response to the September 11, 2001 attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
. It has ten titles, with the third title
USA PATRIOT Act, Title III
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections...
("Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001") written to prevent, detect, and prosecute international money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
and the financing of terrorism
Terrorism
Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
.
Title III is itself divided into three subtitles. The first subtitle, entitled Subtitle A: International Counter Money Laundering and Related Measures, is designed to put measures into place that counter international money laundering. It does this by requiring that financial institutions take several new special measures against money laundering — identification is dealt with particularly; by restricting or prohibiting the use of certain types of bank accounts; through adding further legislation that regulates a financial institution's dealing with foreign concerns; by adding new penalties for non-compliance of the law; and through regulations that are designed to facilitate and encourage reporting and communication between financial institutions and the U.S. government.
Sec. 311: Special measures for jurisdictions, financial institutions, or international transactions of primary money laundering concern
A new section was added to Title 31, subchapter IV, chapter 53, subchapter II ("Records and reports on monetary instruments transactions") of the U.S. Code. The section was 5318A, entitled "Special measures for jurisdictions, financial institutions, or international transactions of primary money laundering concern". It specifies that financial institutions or financial agencies may be required to take special measures when so directed by the United States Secretary of the TreasuryUnited States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
. Any such order by the United States Treasury, with the exception of orders that require additional record keeping or reporting for any transaction over an amount greater than the Secretary describes, is issued with a notice of rule making regarding the special measure. Orders may not remain in effect for more than 120 days, though any ruling may be extended by the Treasury.
When the Secretary of Treasury orders special measures, that person must first consult with the Chairman of the Board of Governors of the Federal Reserve System
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
, any other appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act
Federal Deposit Insurance Act
The Federal Deposit Insurance Act of 1950, , formally removed section 12B of the Federal Reserve Act of 1913 creating the Federal Deposit Insurance Corporation , which itself was an amendment by the Banking Act of 1933, and put it into its own act called the Federal Deposit Insurance Act, which has...
), the Secretary of State
United States Secretary of State
The United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...
, the Securities and Exchange Commission, the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
, the National Credit Union Administration Board and any other relevant parties the Secretary of Treasury decides to call on. The special measures must take into account whether similar actions were taken by other nations and multilateral groups; whether the measure will cause any competitive disadvantage for U.S. financial organizations; how the timing or impact of the decision will affect legitimate business activities; and what effect the action would have on U.S. national security and foreign policy.
The special measures must be undertaken for all transactions that are made outside the U.S. in areas where money-laundering has been identified as a concern. The measures involve:
- the maintenance of records of the aggregate amount of transactions made in such areas. Such records must include:
- the identity and address of the participants in a transaction or relationship, including the identity of the originator of any funds transfer;
- the legal capacity in which a participant in any transaction is acting;
- the identity of the beneficial owner of the funds involved in any transaction, in accordance with such procedures as the Secretary determines to be reasonable and practicable to obtain and retain the information; and
- a description of any transaction.
- undertaking reasonable steps to obtain and retain information on foreigners who gain a benefit of ownership of an account which is opened and maintained in the U.S., and yet who do not own the account itself (this is called beneficial ownershipBeneficial ownershipBeneficial ownership is enjoyed by anyone who has the benefits of ownership of a Security or property, and yet does not nominally own the asset itself....
) - the identification of any foreign customers who are authorized to use or route transactions through a payable-through accountPayable-through accountA payable-through account is a demand deposit account through which banking agencies located in the United States extend cheque writing privileges to the customers of other institutions, often foreign banks....
in the U.S.
The section also details what is considered a "primary money-laundering concern". The Secretary of Treasury ultimately makes the decision on such areas in consultation with Secretary of State
United States Secretary of State
The United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...
and the Attorney General
United States Attorney General
The United States Attorney General is the head of the United States Department of Justice concerned with legal affairs and is the chief law enforcement officer of the United States government. The attorney general is considered to be the chief lawyer of the U.S. government...
. Several jurisdictional factors must be taken into account, including:
- evidence that organized crimeOrganized crimeOrganized crime or criminal organizations are transnational, national, or local groupings of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for monetary profit. Some criminal organizations, such as terrorist organizations, are...
, international terroristsTerrorismTerrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
, or both, have transacted business in that jurisdiction; - the extent to which bank secrecyBank secrecyBank secrecy is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain conditions apply...
or special regulatory advantages are given to nonresidents or nondomiciliaries in the jurisdiction; - the substance and quality of administration of the bank supervisory and counter-money laundering laws of the jurisdiction;
- the relationship between the volume of financial transactions occurring in the jurisdiction and the size of the economy of the jurisdiction;
- the extent to which the jurisdiction is characterized as an offshore banking or secrecy haven by credible international organizations or multilateral expert groups;
- whether the U.S. has a mutual legal assistance treatyMutual Legal Assistance TreatyA mutual legal assistance treaty is an agreement between two countries for the purpose of gathering and exchanging information in an effort to enforce public laws or criminal laws...
with the jurisdiction, and the experience of U.S. law enforcement officials and regulatory officials in obtaining information about transactions originating in or routed through or to the jurisdiction; and - whether there are high levels of official or institutional corruptionPolitical corruptionPolitical corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
The Secretary of Treasury also considers whether financial institutions facilitate or promote money laundering, balanced against the extent to which they perform and promote legitimate business activities. He or she must also decide whether the financial institutions is undertaking any of the special measures specified above when considering whether the jurisdiction, financial institutions, types of accounts, or transactions are or are not primarily a money laundering concern.
Sec. 312. Special due diligence for correspondent accounts and private banking accounts
Extra due diligenceDue diligence
"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations...
requirements were added to . Each financial institution that has a correspondent back account held and managed on behalf of a non-U.S. person must enable (or in some cases enhance) their due diligence policies, procedures and controls to detect and report instances of money laundering. The due diligence requirements focus on identifying the direct and indirect (beneficial) owners of the accounts.
Financial institutions must now undertake steps to identify the owners of any non-U.S. bank that is not publicly listed
Public company
This is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
, along with the interests of each of the owners in the bank. It is expected that additional scrutiny will be applied by the U.S. institution to such banks to make sure they are not engaging in money laundering. Reasonable efforts must be undertaken to determine whether the non-U.S. bank provide correspondent back accounts to other foreign banks, and if it is discovered they do the U.S. financial institution is expected to try to identify the foreign banks the non-U.S. bank deals with.
Similarly, U.S. financial institutions must also identify the nominal and beneficial owners of any private bank account opened and maintained in the U.S. by non-U.S. citizens. The institution must undertake enhanced scrutiny of the account if it is owned by, or is being maintained on behalf of, any senior political figure
Politician
A politician, political leader, or political figure is an individual who is involved in influencing public policy and decision making...
where there is reasonable suspicion of corruption. A "private bank account" is defined as any account that has over $US1 million deposited by one or more people who have a direct or beneficial ownership of the account. Further, the account must be administered in whole or in part by an employee, officer or agent of a financial institution, and who acts as a liaison between the institution and the owners of the account.
Sec. 313. Prohibition on United States correspondent accounts with foreign shell banks
was amended to prohibit U.S. financial institutions from establishing, maintaining, administering, or managing a correspondent account in the U.S. for, or on behalf of, a foreign bank that does not have a physical presence in any country (otherwise known as a shell bankShell bank
A shell bank is a financial term that describes a financial institution that does not have a physical presence in any country. In order to prevent money laundering Subtitle A of the USA PATRIOT Act specifically prohibits such institutions, with the exception of shell banks that are affiliate of a...
). U.S. financial institutions must also take steps to prevent the indirect servicing of a foreign shell bank by allowing a correspondent account to be established and maintained by another foreign bank who acts on behalf of that foreign shell bank. However, exceptions are made if the shell bank is an affiliate (under the control) of a bank that has a physical presence in the U.S. or if the foreign shell bank is subject to supervision by a banking authority in the non-U.S. country regulating the affiliated depository institution, credit union, or foreign bank.
Sec. 314. Cooperative efforts to deter money laundering
In order to foster improved communication between financial institutions, the regulators of the financial institutions and law enforcement authorities the U.S. Treasury secretary was directed to create regulations within 120 days after the enactment of the Patriot Act that set out how information was to be shared. The aim of the act was more to encourage law enforcement authorities and financial regulation agencies to share the information they had on foreign individuals or organisations engaged in terrorism. Due to the complex nature of the task on February 26, 2002 the U.S. Treasury initially put together a proposed rule to amend the Code of Federal RegulationsCode of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
, and then on March 14, 2002 they released 31 CFR 103.100 which was entitled "Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity".
The regulation allows FinCEN to solicit, on behalf of a Federal law enforcement agency, information from a financial institution or group of financial institutions. In order to gain such information, a law enforcement agency must provide a certificate which shows who is the target of the information request — the regulation states that enough information must be provided to the institution to allow them to distinguish between common or similar names — and a contact person from the agency who knows about the request. The financial institution must then expeditiously search records for information that satisfies the request, though at any time the institution can contact the law enforcement agency to clarify the scope or terms of the request. The information that an agency must disclose is:
- any current amounts held for a named suspect
- any account maintained by the suspect during the previous 12 months
- any transaction conducted by or on behalf of a suspected, or any transfer of funds where the suspect was the recipient or the giver of the funds
After identifying the account asked for by FinCEN, the financial institution must provide a report back to FinCEN with:
- the name of the suspect
- the number of accounts owned, or transaction made
- the social security numberSocial Security numberIn the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
, taxpayer ID number, passport number, date of birth, address or any other identity information provided by the suspect to the financial institution when they opened their account or performed their transaction
The regulation specifically prohibits the financial institution from using information provided by FinCEN to do anything other than report information back to FinCEN, make a determination whether to do business with the named suspect or suspects, or to help them comply with an order given under the regulation. Furthermore, the financial institution may not disclose that FinCEN made a request for or obtained information to anyone other than FinCEN or to the Federal agency who was using FinCEN to gather information about the suspects. Under the regulation, financial institutions are expected to maintain appropriate security to keep such information confidential in order to satisfy the Gramm-Leach-Bliley Act
Gramm-Leach-Bliley Act
The Gramm–Leach–Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress...
.
The section also allows financial institutions to share information with other financial institutions when so allowed by the Secretary of Treasury, and they are now legally immune from prosecution if they gather or share information relating to terrorism or financial money-laundering in order to identify and report such activities. The section also gives immunity against breaches of the Gramm-Leach-Bliley Act to any organisation who undertakes actions to comply with this section.
Finally, the section directs the Secretary of Treasury to produce a report semiannually to the financial services industry "containing a detailed analysis identifying patterns of suspicious activity and other investigative insights derived from suspicious activity reports and investigations conducted by Federal, State, and local law enforcement agencies". This report must be distributed to every financial institution in the United States.
Sec. 315. Inclusion of foreign corruption offenses as money laundering crimes
Section 1956(c)(7) of title 18 of the U.S. Code was amended to further include specific acts of unlawful activity in relation to money laundering. Unlawful acts include:- making a financial transaction in the U.S. in order to commit a crime of violence,
- the bribery of public officials and fraudulent dealing with public funds,
- the smuggling or illegal export of controlled munitions; and the importation or bringing in of any firearm or ammunition not authorised by the U.S. Attorney General,
- the smuggling of any item controlled under the Export Administration Regulations,
- any offense where the U.S. would be obligated under a mutual treaty with a foreign nation to extradite a person, or where the U.S. would need to submit a case against a person for prosecution due to the treaty,
- the importation of falsely classified goods,
- computer crimeComputer crimeComputer crime, or cybercrime, refers to any crime that involves a computer and a network. The computer may have been used in the commission of a crime, or it may be the target. Netcrime refers to criminal exploitation of the Internet. Such crimes may threaten a nation’s security and financial health...
, and - any felonyFelonyA felony is a serious crime in the common law countries. The term originates from English common law where felonies were originally crimes which involved the confiscation of a convicted person's land and goods; other crimes were called misdemeanors...
violation of the Foreign Agents Registration Act of 1938
Sec. 316. Anti-terrorist forfeiture protection
This section allows the incorrect seizure of the assets of those suspected to be international terrorist to be contested. The contesting party can file a claim under the Federal Rules of Civil ProcedureFederal Rules of Civil Procedure
The Federal Rules of Civil Procedure govern civil procedure in United States district courts. The FRCP are promulgated by the United States Supreme Court pursuant to the Rules Enabling Act, and then the United States Congress has 7 months to veto the rules promulgated or they become part of the...
and can either assert as an affirmative defense
Affirmative defense
A defendant offers an affirmative defense when responding to a plaintiff's claim in common law jurisdictions, or, more familiarly, in criminal law. Essentially, the defendant affirms that the condition is occurring or has occurred but offers a defense that bars, or prevents, the plaintiff's claim. ...
that their property was seized improperly or plead an innocent owner defense
Innocent owner defense
An innocent owner defense is a concept in United States law providing for an affirmative defense that applies when an owner claims that they are innocent of a crime and therefore their property should not be forfeited...
. The act also states that:
- In considering a claim filed under this section, a court may admit evidence that is otherwise inadmissible under the Federal Rules of Evidence, if the court determines that the evidence is reliable, and that compliance with the Federal Rules of Evidence may jeopardize the national security interests of the United States.
However, this clause does not deny a property owner of their right to contest the confiscation of assets that are suspected to be owned by international terrorists under the Fourth Amendment of the United States Constitution or under the Administrative Procedures Act. It also does not limit the remedies available to property owners defined under the civil forfeiture laws defined in the U.S. Code.
The section also made a technical amendment to the General Rules for Civil Forfeiture Proceedings by amending the definition of the term "civil forfeiture statute" to exclude the International Emergency Economic Powers Act
International Emergency Economic Powers Act
The International Emergency Economic Powers Act , Title II of , is a United States federal law authorizing the President to regulate commerce after declaring a national emergency in response to any unusual and extraordinary threat to the United States which has a foreign source.-Provisions:In the...
(IEEPA).
Sec. 317. Long-arm jurisdiction over foreign money launderers
Section 1956 of title 18 was amended in several ways. U.S. district courts are now given jurisdiction over any foreign person or financial institution where action is undertaken to prosecute them under the Federal Rules of Civil Procedures or under the laws of the country in which the foreigner is found. Offenses where the District court can have jurisdiction are in cases where that person commits an offense that involves money laundering under ; in cases where that person converts property that a U.S. court has seized; or where the foreigner is a financial institution that maintains a bank account at a U.S. financial institution.The amendment gives the court the power to freeze bank accounts and property so they can satisfy a judgement under 18 USC
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
§ 1956. The courts may appoint a Federal Receiver to seize or control all assets of a defendant in order to satisfy a judgement of the court. The judgement may be a civil judgement about money laundering; the civil or criminal forfeiture of assets; or made against those who act as a fence
Fence (criminal)
A fence is an individual who knowingly buys stolen property for later resale, sometimes in a legitimate market. The fence thus acts as a middleman between thieves and the eventual buyers of stolen goods who may or may not be aware that the goods are stolen. As a verb, the word describes the...
. The Federal Receiver is appointed by the court after an application is made by a Federal prosecutor or Federal or State regulator, and they must be an officer of the court. The Federal Receiver is governed by and is able to gain the same information about a defendants assets from FinCen, the Department of Treasury or a foreign government (where a treaty or other agreement is in place with the U.S. government) as a Federal prosecutor.
Sec. 318. Laundering money through a foreign bank
This section expanded the definition of a financial institution to be any foreign bank, as defined in section 1 of the International Banking Act of 1978.Sec. 319. Forfeiture of funds in United States Interbank accounts
Section 319 deals with the forfeiture of funds in Interbank accounts and the ability of Federal banking agencies to subpoena bank records or summons banking staff in order to gain access to bank records. It also gave U.S. courts the authority to order convicted criminal to return property located abroad. Paragraph (c) allowed a (since expired) grace period of 60 days from the enactment of the Act with which financial institutions were required to comply with the provisions of .Any deposits into foreign banks are considered to be deposited into any Interbank account the foreign bank may have in the U.S., and thus any restraining order, seizure warrant or arrest warrant may be made against the funds in the Interbank account held at a U.S. financial institution, up to the amount deposited in the account at the foreign bank. Provisions were made to allow the Attorney General to suspend or stop such a forfeiture if the Attorney General determines that a conflict of law exists between the laws of the foreign country in which the foreign bank resides in and with the laws of the U.S.. The Attorney General must also decide whether halting such a forfeiture would be in the interest of justice and that it would not harm the national interests of the U.S. The funds that are forfeited in the Interbank account can be contested by the foreign bank under the general rules of civil forfeiture proceedings. The U.S. government does not need to show that the funds being forfeited are directly traceable to the funds deposited at the foreign bank and the government is also not required to apply , which deals with the civil forfeiture of fungible property.
Section 319 requires a financial institution to respond to a request for information from a Federal banking agency within 120 hours of the receipt of the request. Federal banking agencies can request information relating to any money-laundering activities — financial institutions must provide documentation for any account opened, maintained, administered or managed by the institution in the U.S. A summons or subpoena
Subpoena
A subpoena is a writ by a government agency, most often a court, that has authority to compel testimony by a witness or production of evidence under a penalty for failure. There are two common types of subpoena:...
may be issued to any representative of a foreign bank that as a corresponding account in the U.S. — they may be required to include records (even those maintained outside the U.S.) that relate to the deposit of funds into the foreign bank. The summons may be issued to a bank with a representative in the U.S. or in foreign countries where the U.S. has a mutual legal assistance treat, a multilateral agreement or where the U.S. can expect that they will respond to a request for international law enforcement assistance. Foreign banks who maintain corresponding accounts must maintain records in the U.S. that will identify the owners' real names and addresses. The banks must be able to provide this information within 7 days of receipt of the request. It is also a requirement that when so ordered by the Attorney General or the Secretary of Treasury (they must consult each other first) the financial institution must terminate any corresponding accounts within 10 days. Corresponding accounts can be ordered to be closed if the foreign bank fails to comply with a summons or subpoena (see above), or has failed to legally contest the summons in the U.S. A financial institution is further protected from liability if they terminate a corresponding relationship in accordance with the section, and in fact the financial institution faces penalties of $US10,000 for each day the account remains open after the 10 day limit has expired.
The U.S. Code was amended by section 319 to allow a court to order a convicted criminal to return property that is located abroad. If that property cannot be located, has been transferred or sole, is placed beyond the jurisdiction of the court, is substantially reduced in value, or has been comingled with other property in such a way that it cannot be divided without difficulty then the court may order that property be forfeited in substitution of the property that must be returned. The court can also order that any property beyond the jurisdiction of the court must be returned to the jurisdiction of the court.
If a defendant enters into a pretrial restraint order to stop goods from being seized, then the defendant may be required to deposit the property either into the registry of the court, with the United States Marshals Service
United States Marshals Service
The United States Marshals Service is a United States federal law enforcement agency within the United States Department of Justice . The office of U.S. Marshal is the oldest federal law enforcement office in the United States; it was created by the Judiciary Act of 1789...
, or with the U.S. Secretary of Treasury in an interest-bearing account. If the defendant refuses the law states that they will be charged with contempt of court
Contempt of court
Contempt of court is a court order which, in the context of a court trial or hearing, declares a person or organization to have disobeyed or been disrespectful of the court's authority...
and their final sentence may be enhanced under the obstruction of justice
Obstruction of justice
The crime of obstruction of justice, in United States jurisdictions, refers to the crime of interfering with the work of police, investigators, regulatory agencies, prosecutors, or other officials...
provision of the Federal Sentencing Guidelines
Federal Sentencing Guidelines
The Federal Sentencing Guidelines are rules that set out a uniform sentencing policy for individuals and organizations convicted of felonies and serious misdemeanors in the United States federal courts system...
.
Sec. 320. Proceeds of foreign crimes
The U.S. Code was amended to allow the forfeiture of any property within the jurisdiction of the United States that was gained as the result of an offense against a foreign nation that involves the manufacture, importation, sale, or distribution of a controlled substance.Sec. 321. Financial institutions specified in Subchapter II of Chapter 53 of Title 31, United States Code
Subchapter II of Chapter 53 of Title 31, United States Code requires certain reports or records from various financial institutions where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism. Section 321 of the USA PATRIOT Act included credit unionCredit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
s, Futures Commission merchants, commodity trading advisors and commodity pool
Commodity pool
A commodity pool is an investment structure where many individual investors combine their moneys and trade in futures contracts as a single entity in order to gain leverage...
operators in its definition of a financial institution. It also defined in all legislation that the term "Federal functional regulator" includes the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
(CFTC).
Sec. 322. Corporation represented by a fugitive
The U.S. Code was amended to disallow a corporation whose majority shareholder or owner is a fugitiveFugitive
A fugitive is a person who is fleeing from custody, whether it be from private slavery, a government arrest, government or non-government questioning, vigilante violence, or outraged private individuals...
from mounting an innocent owner defense to contest the forfeiture of property by authorities.
Sec. 323. Enforcement of foreign judgments
The U.S. Code defines the means by which a foreign nation may seek to have a forfeiture or judgement notification enforced by a district court of the United States. This was amended under section 323 by adding a new paragraph that specifies how the U.S. government may apply for a restraining order to preserve the availability of property which is subject to a foreign forfeiture or confiscation judgement. In evaluating whether to issue the restraining order, the court may rely on information provided in an affidavit which describes the overseas investigation that is underway and why the property in question should be restrained. The U.S. court may also register and enforce a restraining order that has already been issued by a foreign court and which is certified by the Attorney General. Any objections to the restraining order must not include any made on grounds that are part of any parallel foreign litigation over the same property.Section 323 places a large emphasis on the ability of a foreign court to follow due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...
when considering an application for a forfeiture or confiscation judgement to be registered and enforced in the U.S. The definition of "forfeiture and confiscation" is defined to mean a final order of a foreign nation which compels a person or entity to pay money for "any violation of foreign law that would constitute a violation or an offense for which property could be forfeited under Federal law if the offense were committed in the United States".
Sec. 324. Report and recommendation
Provisions were made to allow the Secretary of Treasury and various other agencies (including the Attorney General, the Federal banking agencies as defined in section 3 of the Federal Deposit Insurance ActFederal Deposit Insurance Act
The Federal Deposit Insurance Act of 1950, , formally removed section 12B of the Federal Reserve Act of 1913 creating the Federal Deposit Insurance Corporation , which itself was an amendment by the Banking Act of 1933, and put it into its own act called the Federal Deposit Insurance Act, which has...
, the National Credit Union Administration Board and the Securities and Exchange Commission) the ability to evaluate the operations of the provisions of title III and make recommendations to Congress. These were to be made within 30 months of the enactment of the Act.
Sec. 325. Concentration accounts at financial institutions
A concentration accountConcentration account
A concentration account is a sole account used for the internal purposes of a financial institution to facilitate the processing and settlement of multiple or individual customer transactions within the institution, usually on the same day. Such accounts can lead to the concealment by financial...
is a single account used for the internal purposes of a financial institution to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. Such accounts can lead to the concealment by financial institutions transactions made by customers, however section 325 bans their use for such purposes by prohibiting financial institutions from allowing clients to direct transactions that move their funds into, out of, or through the concentration accounts of the financial institution. Financial institutions are also prohibited from informing clients about the existence of such accounts and disallows any disclosure that may give customer a way of identifying such accounts that the financial institution may use. The section also requires that financial institutions document and follow methods of identifying where the funds are for each customer in a concentration account that commingles funds belonging to one or more customers.
Sec. 326. Verification of identification
The Secretary of the Treasury was given the task of prescribing regulations that set forth the minimum standards that financial institutions must undertake to verify the identity of customers who open accounts. The rules implementing section 326 became effective on June 9, 2003, although financial institutions had until October 1, 2003 tocome into compliance. The minimum requirements under the section require financial institutions to establish procedures to take reasonable and practicable measures to verify the identity of those applying for an account with the institution; maintain records of the information used to verify a person's identity, including name, address, and other identifying information; and to consult lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list. When prescribing the regulations, the Secretary was ordered to take into account the types of accounts available to financial institutions, the various methods someone can use to open accounts, and the various types of identifying information available to the institutions.
Under the Bank Holding Company Act of 1956
Bank Holding Company Act of 1956
The Bank Holding Company Act of 1956 is a United States Act of Congress that regulates the actions of bank holding companies.The original law , specified that the Federal Reserve Board of Governors must approve the establishment of a bank holding company, and prohibited bank holding companies...
, banks and other financial institutions are restricted from carrying out activities that do not relate to financial activities. In these cases, the regulations must be prescribed jointly by the Secretary and each Federal functional regulator appropriate for such financial institution. The Secretary also has the power to exempt such institutions from the regulations proscribed under section 326.
The section also required a report with 6 months of the enactment of the Patriot Act from the Secretary of Treasury in consultation with Federal functional regulators as defined in the Gramm-Leach-Bliley Act. As such, on July 23, 2002 the Department of Treasury, FinCEN, the Office of the Comptroller of the Currency
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...
(OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Commission (FDIC), the Office of Thrift Supervision
Office of Thrift Supervision
The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...
(OTS) and the National Credit Union Association (NCUA) jointly released a joint notice of rule-making in the Federal Register
Federal Register
The Federal Register , abbreviated FR, or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains most routine publications and public notices of government agencies...
for banks, and Treasury simultaneously released an identical notice in the Federal Register for credit unions, private banks and trust companies who did not have a functional regulator. After a considerable response, alterations to the proposed rule making were made and Treasury and the Federal functional agencies released 31 CFR 103.121. The regulation sets out the minimum requirements for setting up a Customer Identification Program
Customer Identification Program
According to provisions of the USA Patriot Act, all financial institutions must verify the identity of individuals wishing to conduct financial transactions. The law was implemented by regulations in 2003 which require financial institutions to develop a Customer Identification Program ...
(CIP). These requirements for the CIP are that it must:
- be appropriate for the financial institution's size and type of business, and if it must have an anti-money laundering compliance program then the CIP must be part of this. Credit Unions, private banks and trust companies without a Federal functional regulator must have a CIP approved by their board of directorsBoard of directorsA board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
, - have identity verification procedures. These must include risk-based procedures that allow the bank to form a reasonable belief that it knows the identities of each customer. The regulation specifies what is required to identify a customer. If a customer does not provide sufficient information to allow their verification the CIP must include procedures the bank must undertake. The procedures must cover (1) circumstances when the bank cannot verify the customer's identity; (2) should cover circumstances when the bank should not open an account; (3) specify what terms in which a customer may use an account while the bank tries to verify the customer's identity; (4) when a bank should close an account after being unable to verify a customer's identity; and (5) when a bank should file a Suspicious Activity Report,
- have procedures for making and maintaining a record of all verification information gathered by the financial institution,
- have procedures for determining whether a customer appears on any government list of known or suspected terrorists or terrorist organizations - the bank must determine this within a "reasonable time",
- have procedures for giving adequate notice to customers that the bank is requesting information to verify their identities, and
- have procedures that specify when another financial institution will rely on another financial institution to perform any of the procedures set out in their CIP
The regulation allows any Federal regulator, in concurrence with the Secretary of Treasury, to exempt a bank or type of account from the regulations given.
Sec. 327. Consideration of anti-money laundering record
The Bank Holding Company Act of 1956Bank Holding Company Act of 1956
The Bank Holding Company Act of 1956 is a United States Act of Congress that regulates the actions of bank holding companies.The original law , specified that the Federal Reserve Board of Governors must approve the establishment of a bank holding company, and prohibited bank holding companies...
makes it unlawful, except with prior approval of the Board of Governors of the Federal Reserve System, for a bank to take any action that makes another company into a bank holding company or subsidiary of one; for a bank holding company to acquire direct or indirect shares of more than 5% of a bank; for bank holding companies to acquire all or most of the assets of a bank; and in most circumstances for a bank holding company to merge or consolidate with another bank holding company. Section 327 amends the Act to make the Board take into consideration the effectiveness of the company or companies in combatting money laundering activities, including in overseas branches.
The Federal Deposit Insurance Act
Federal Deposit Insurance Act
The Federal Deposit Insurance Act of 1950, , formally removed section 12B of the Federal Reserve Act of 1913 creating the Federal Deposit Insurance Corporation , which itself was an amendment by the Banking Act of 1933, and put it into its own act called the Federal Deposit Insurance Act, which has...
prevents the merger of insured depository institutions with non-insured depository institutions without the written approval of a responsible agency. The Act was amended by section 327 to take into consideration the effectiveness of any insured depository institution involved in the proposed merger transaction in combatting money laundering activities, including in overseas branches, when approving such mergers.
Both of the amendments only apply to applications submitted to either the Board of Governors of the Federal Reserve System or responsible agency after December 31, 2001, and which were not approved by the Board or responsible agency before the date of enactment of the Patriot Act.
Sec. 328. International cooperation on identification of originators of wire transfers
The Secretary of the Treasury must take all reasonable steps to encourage foreign governments to require the inclusion of the name of the originator in wire transferWire transfer
Wire transfer or credit transfer is a method of electronic funds transfer from one person or institution to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office...
instructions sent to the United States and other countries, with the information to remain with the transfer from its origination until the point of disbursement. They must also report annually to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on the progress Treasury is making on this issue and what is impeding progress of implementing the wire transfer identification scheme.