The USA PATRIOT Act: statutory analysis and regulatory implementation
| DOI | https://doi.org/10.1108/13590790410809059 |
| Published date | 01 January 2004 |
| Pages | 73-102 |
| Date | 01 January 2004 |
| Author | Carol R. Van Cleef |
| Subject Matter | Accounting & finance |
USA PATRIOT Act: Statutory Analysis and
Regulatory Implementation
Carol R. Van Cleef
INTRODUCTION
On 26th October, 2001, President Bush signed into
law the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA PATRIOT Act) Act
of 2001 (USA PATRIOT Act), PL 107± 56.
1
The
International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 (the Act),
which is Title III of the USA PATRIOT Act, vests
federal regulators with signi®cant new powers to
obtain information from a wide range of ®nancial ser-
vices and other companies and contains the broadest
reforms of US anti-money laundering laws since
1994.
2
The US Department of the Treasury (Treasury
Department) is principally responsible for imple-
menting this new law. The Treasury Department is
required to consult with federal functional regulators
in connection with certain requirements. The
demanding schedule for promulgating regulations
has been extraordinarily dicult to meet, especially
in view of the large number of entities potentially
aected by the new requirements. To date, much of
the regulatory eort has focused on delineating the
new record keeping and reporting required for corre-
spondent and private banking accounts; proposing
rules on suspicious transaction reporting by broker-
dealers; implementing new currency transaction
reporting requirements for all trades or businesses;
providing guidance on information sharing; develop-
ing new rules for verifying the identify of new
customers; and requiring ®nancial services and
other companies to develop anti-money laundering
compliance programmes. Although a number of reg-
ulations have been promulgated during the 20
months since the passage of the USA PATRIOT
Act, several key provisions have yet to be fully
implemented.
SECTION 311: SPECIAL MEASURES
INVOLVING FOREIGN JURISDICTIONS,
FINANCIAL INSTITUTIONS,
TRANSACTIONS AND ACCOUNTS OF
PRIMARY MONEY LAUNDERING
CONCERNS
3
Statutory provision
The Secretary of the Treasury (the Treasury Secre-
tary) may require the broad range of domestic
®nancial institutions or agencies to take one or
more of ®ve `special measures' if it ®nds `reasonable
grounds' for concluding that any of the following is
`of primary money laundering concern': (i) a
foreign jurisdiction, (ii) one or more ®nancial institu-
tions operating outside the USA, (iii) a transaction or
classes of transactions within, or involving, a foreign
jurisdiction, or (iv) one or more types of accounts.
Determining primary money laundering
concerns
In making such a ®nding, the Treasury Secretary
must consult with the Secretary of State and the
Attorney General. The Secretary also must consider
the following factors as well as any other information
determined to be relevant:
Foreign jurisdictions: (i) The extent to which the
jurisdiction or ®nancial institution operating in
the jurisdiction oers bank secrecy or special reg-
ulatory advantages to nonresidents or nondomi-
ciliaries, (ii) the substance and quality of
administration of the jurisdiction's bank super-
visory and counter-money laundering laws,
(iii) the volume of ®nancial transactions in com-
parison to the size of the jurisdiction's economy,
(iv) the extent to which the jurisdiction is charac-
terised as an oshore banking or secrecy haven
or by high levels of ocial or institutional
corruption, and (v) evidence that organised
criminal groups and/or organised terrorists
have transacted business in the jurisdiction.
Financial institutions operating outside the USA, one
or a class of transactions or a type of account: (i) The
Page 73
Journal of Financial Crime Ð Vol. 11 No. 1
Journal of Financial Crime
Vol.11, No. 1, 2003, pp. 73 ±102
Henry Stewart Publications
ISSN 1359-0790
extent to which any or all three are used to facil-
itate or promote money laundering in or
through the jurisdiction for legitimate business
purposes, or (ii) the extent to which applying
one or more special measures will guard against
international money laundering and other
®nancial crimes.
The special measures
The special measures that may be imposed include:
Record keeping and reporting. Domestic ®nancial
institutions or agencies may be required to
maintain records and/or ®le reports concerning
each transaction or the aggregate amount of
transactions with respect to foreign jurisdictions,
®nancial institutions, one or more classes of
transactions, or one or more types of accounts
of primary money laundering concern. The
records and reports must be maintained at such
time, in such manner and for such period of
time as required by the Treasury Secretary and
include (i) the identity and address of the partici-
pants in a transaction or relationship, including
the identity of the originator of the funds trans-
fer, (ii) the legal capacity in which each partici-
pant is acting, (iii) the identity of bene®cial
owners of the funds involved in the transaction
(using `reasonable and practicable' procedures
for obtaining and retaining such information),
and (iv) a description of any transaction.
Identifying bene®cial owners. Any domestic ®nan-
cial institution or agency may be required to take
`reasonable and practicable steps' to obtain and
retain information about the bene®cial owner-
ship of any account opened or maintained in
the USA by a foreign person (or a representative
of the foreign person) that involves a foreign
jurisdiction, ®nancial institution, transaction or
class of transactions or type of accounts of
primary money laundering concern.
Requiring payable and correspondent account
information. Any domestic ®nancial institution
or agency may be required to take `reasonable
and practicable steps' to obtain and retain infor-
mation about the bene®cial ownership of any
account opened or maintained in the USA by a
foreign person (or a representative of the
foreign person) that involves a foreign
jurisdiction, ®nancial institution, transaction or
class of transactions or type of accounts of
primary money laundering concern.
Prohibiting or restricting payable-through and
correspondent accounts. A domestic ®nancial insti-
tution or agency may be required, as a condition
of opening or maintaining (a) a payable-through
or correspondent account in the USA for a
foreign ®nancial institution involving any juris-
diction or ®nancial institution of primary
money laundering concern, or (b) a payable-
through or correspondent account through
which a transaction of primary money launder-
ing concern may be conducted, (i) to identify
each of the foreign ®nancial institution's custo-
mers (and the representative of the customer)
who are permitted to use the account or whose
transactions are routed through the account,
and (ii) to obtain information about such custo-
mers (and representatives) that is substantially
comparable to that which the domestic ®nancial
institution obtains in the ordinary course of busi-
ness with respect to its customers residing in the
USA.
Choice of special measure
The Treasury Secretary may impose the special mea-
sures in any sequence or combination. In selecting a
special measure, the Treasury Secretary must
consult with the Chairman of the Federal Reserve
Board, any other appropriate federal banking
agency, the Secretary of State, the Securities and
Exchange Commission (SEC), the Commodities
Futures Trading Commission (CFTC), the National
Credit Union Administration and any other agencies
and interested parties the Treasury Secretary may
®nd appropriate. The Treasury Secretary also must
consider the following factors:
whether similar action has been or is being taken
by other nations or multilateral groups
whether the special measure would create signi®-
cant competitive disadvantages (including any
undue cost or burden associated with compli-
ance) for institutions licensed or organised in
the USA
the extent to which the action or timing of the
action would have a signi®cant adverse systemic
impact on the international payment, clearance
and settlement system or on legitimate business
activities involving the particular jurisdiction,
institution or class of transactions
the eect of the action on US national security
and foreign policy.
Page 74
Van Cleef
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