The terrorist acts of Sept. 11, 2001 created changes in our lives and businesses in ways in which most of us never dreamed possible. One of the most immediate changes in the way in which many do business was the passage of the Patriot Act. The U.S.A. Patriot Act of 2001 is an acronym for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism. You can see why the acronym caught on.
The law was initially slated to go into effect on Oct. 26, 2002, but was pushed back to October 2003. The first to be affected were businesses directly involved in the financial industry, though it appears as if this Act will be mandated for the insurance industry in the near future.
The Act is aimed at preventing, detecting and prosecuting international money laundering and the financing of terrorist activities. Since the basis for this law is financial activity, various businesses will be directly affected and include such organizations as banks, credit unions, mutual fund dealers, securities firms and the like, but other industries will also feel the strain at one point or another since just about every business deals with finances in some way, shape or form.
Perhaps the biggest change in daily operations for businesses in this market is the newly enacted restrictions that dictate much more stringent requirements regarding proof of identity. Though there are many policies and procedures outlined within the context, it is this part that seems to be causing a stir, partially due to the fact that it will affect the numerous employees who deal with customers.
Therefore, businesses now have to deal with the issue of employee training in this new requirement, along with the added responsibility of storing identity verification documents for future reference should the need arise. These two areas alone may add to a company’s overall operational expense. So at some point in time, part of the financial burden will probably need to be passed along to the customer.
One act, many sections
The Act is composed of 10 different sections. Like most other federal laws, there are a few that stick out and truly affect daily business. Outlined below are some of the most critical sections, all of which have changed the way in which banks and financial services organizations operate.
This is section that houses the new regulations regarding customer identification. Regardless of who you are, you are affected by this part of the law.
Financial institutions need to create and adhere to procedures that verify the true identity of all persons opening new accounts, maintain accurate recordkeeping of identity verification and determine whether or not the person opening an account is listed on any list of known or suspected terrorists.
Information required to prove identity is fairly standard, including items such as government-issued documents (drivers license, passport, social security cards, alien identification cards, etc.) and at times copies of utility bills may further prove residency. For businesses, much the same holds true with the added measure of a valid employer identification number to prove that the business is a legal one.
This is known as the Anti-Money laundering portion of the Act. Most of what is being mandated is something that most banks have already been practicing anyway.
There are two documents that banks use, the Bank Secrecy Act (BSA) and Currency Transaction Reports (CTR). Though these have been common practice for many years, but the Act reinforces that these two functions should be combined into one overall strategy.
Known as Cooperative Efforts to Deter Money Laundering, this section broadens coordinated efforts between banks, financial regulators and law enforcement. This expanded ability to share and compare information is something that can help effectively “catch” potential criminals. As they say, two heads are better than one. Being able to access one another’s information is something that can aid in the overall process.
Understanding any new law takes time and patience, and incorporating it into daily business adds to the overall time line. The Patriot Act is something that needs to be addressed to make certain adequate safeguards are in place for financial institutions and others. The employee training aspect may be a challenge at first, but as with any other business process, with practice, it becomes second nature quickly.