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Introduction Pursuant to the USA
Patriot Act of 2001, the Secretary of the Treasury is required to finalize
regulations before October 26, 2002, setting minimum standards for financial
institutions regarding the identity of customers for opening accounts;
these regulations are required to at least include procedures for verifying
the identity of the person, maintaining records with identifying information,
and consulting lists of known or suspected terrorists or terrorist organizations
provided to the financial institution by any government agency. Those
regulations have not yet been issued. However, at this time you should
be currently working to meet "know your customer" expectations
of the regulators including those in the PRINGLE Compliance Bank Secrecy
Act and Anti-Money Laundering Policy and Audit Procedures. These compliance
tools will be enhanced in upcoming PRINGLE newsletters and updates as
the current expectations of the regulators are revised or expanded. |
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The history is foggy now, but the current responsibilities are becoming clear. Do you vaguely remember when the federal banking regulators decided that rather than rely on guidelines they had issued in 1995, they would propose regulations to require financial institutions to know your customer? On December 7, 1998, the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Office of Thrift Supervision issued a notice of proposed rulemaking with a request for comment on their proposed "know your customer" requirements. Due to the comments received by the agencies, the proposed rule was withdrawn on March 23, 1999. In an interagency statement, the regulators acquiesced to the concerns raised by the commenters which equally divided concerns about the privacy of customer financial information collected and held by financial institutions and the burden the proposed rule would impose on financial institutions. At the same time, the agencies emphasized that the withdrawal of the proposed rule did not diminish their long-standing support for the anti-money laundering provisions of the Bank Secrecy Act. Regulatory Examinations of Holding Companies
Even though the federal agencies had to step back in trying to encourage financial institutions to comply with guidelines to ensure adherence with the anti-money laundering statutes, they continued over the years to work effectively with the Financial Crimes Enforcement Network (FinCEN) to require that Bank Secrecy Act programs were required to be in place in each financial institution. Several enforcement actions have been successfully pursued to accomplish the goals of the Bank Secrecy Act including the need to "know your customer". Thus, agencies encouraged institutions to develop basic know your customer programs in order to monitor transactions for compliance with the suspicious activity reporting requirements, as a means to prevent fraud on the institution, and as a defense to a money laundering action or other Bank Secrecy Act violation. Prudent bankers have strived to meet the agencies' expectations and compliance programs have continued to include extensive guidance to achieve this compliance. Thus many financial institutions should be well on course to meet the new legal requirements under the USA Patriot Act. But now the responsibilities of the regulatory agencies and those institutions they regulate are clearly established in the Bank Secrecy Act and enforceable regulations. An additional know your customer obligation is created by a statutory provision in the USA Patriot Act of 2001 which requires any financial institution that maintains, administers, or manages private (defined to be an aggregate of accounts of $1,000,000) or correspondent accounts for a foreign person (individual or entity, including even a U.S. citizen residing outside the U.S.) or that person's representative to establish and put in place due diligence policies, procedures and controls to detect and report money laundering through those accounts. These provisions are effective when the Secretary of the Treasury's regulations are finalized but not later than July 23, 2002. Proposed regulations were issued for 30 day comment by FinCEN of the Treasury Department on May 30, 2002, which can be expected to be finalized prior to or on July 23, 2002. The proposed regulations spell out special due diligence requirements for correspondent accounts and private banking accounts (as proposed, those related funds or assets of $1 million or more) and require special procedures when due diligence cannot be performed (e.g., refuse to open the account, suspend transaction activity, file a suspicious activity report, and/or close the account). The proposed new subsections can be accessed at http://www.fincen.gov/federalregister05302002.pdf. On April 24, 2002 the Financial Action Task Force (FATF) on money laundering issued a publication titled the AGuidance for Financial Institutions in Detecting Terrorist Financing. One helpful part of this issuance was a section discussing the characteristics of financial transactions that may be a cause for increased scrutiny by financial institutions. While, the Task Force generally noted that as a normal part of carrying out their work financial institutions should be aware of elements of individual transactions that could indicate funds involved in terrorist financing, the Task Force then compiled a list of potentially suspicious or unusual activities to show types of transactions that could be a cause for additional scrutiny. The Task Force did emphasize that this list is not exhaustive, nor does it take the place of any legal obligations related to the reporting of suspicious or unusual transactions that my be imposed by individual national authorities. The full guidance from FATF is available at www.oecd.org/fatf. We encourage you to use this information along with other Bank Secrecy Act and Office of Foreign Asset Control related issuances by the Treasury Department in our Programs and newsletters to help you in the due diligence efforts to know your customer. Additionally, we remind you to train your employees to check each new customer and each transaction for current customers (e.g., wire transfers) to determine before the transfer of funds is permitted whether the person or entity or country is on the OFAC blocked list. This includes loan and trust customers as well as deposit customers and all the services you offer. Again, the website which is kept current by OFAC can be accessed and searched on the Internet at www.ofaccompliance.com. Back to Top |
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