ANALYSIS OF
ANTIANTI-MONEY LAUNDERING
PROVISIONS OF USA PATRIOT ACT
Betty Santangelo
Schulte Roth & Zabel LLP
December 14, 2001
Copyright © 2001 Betty Santangelo. All rights reserved.
Summary of AntiAnti-Money Laundering Provisions of
USA PATRIOT Act of 2001
Betty Santangelo,*
Tim O'Neal Lorah
and Megan Elizabeth Murray
EXECUTIVE SUMMARY
On October 26, 2001, President Bush signed the USA PATRIOT Act,1 aimed at
giving the government new powers in the war on terrorism. Title III of the new legislation, the
International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (the
“Act”), imposes significant new anti-money laundering requirements on all financial institutions,
including domestic banks and domestic operations of foreign banks, broker-dealers, futures
commission merchants (“FCMs”), and investment companies, and gives the U.S. Treasury
Department (the “Treasury”) the power to impose potential additional obligations on them as
well. It also impacts indirectly on foreign banks. This memo outlines the provisions of Title III
and highlights provisions of particular interest to the various affected financial institutions. It
also addresses the Interim Guidance on compliance with sections 313 and 319(b) of the USA
PATRIOT Act2 that was issued by the Treasury Department on November 20, 2001.
First, as a general matter, all financial institutions3 must be mindful 31 U.S.C. §
5312(a)(2), of section 352 of Title III requiring the establishment of “Anti-Money Laundering
*
Betty Santangelo is a litigation partner with the New York City law firm of Schulte Roth & Zabel LLP. Ms
Santangelo's area of practice includes, among other things, providing advice with respect to the Bank Secrecy Act,
as well as other anti-money laundering issues. Tim O'Neal Lorah and Megan Elizabeth Murray are associates of the
firm.
1
See H.R. 3162, "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA PATRIOT) Act of 2001," Pub. L. No. 107-56 (2001)
2
See U.S. Department of the Treasury, Interim Guidance Concerning Compliance by Covered U.S.
Financial Institutions with New Statutory Anti-Money Laundering requirements regarding Correspondent Accounts
Established or Maintained for Foreign Banking Institutions (Nov. 20, 2001).
3
Section 352 amends section 5318 of Title 31. Pursuant to 31 U.S.C. § 5312(a)(2), the term ''financial
institution'' includes: "(A) an insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12
U.S.C. § 1813(h))); (B) a commercial bank or trust company; (C) a private banker; (D) an agency or branch of a
foreign bank in the United States; (E) an insured institution (as defined in section 401(a) of the National Housing
Act (12 U.S.C. § 1724(a))); (F) a thrift institution; (G) a broker or dealer registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.); (H) a broker or dealer in
securities or commodities; (I) an investment banker or investment company; (J) a currency exchange; (K) an issuer,
redeemer, or cashier of travelers' checks, checks, money orders, or similar instruments; (L) an operator of a credit
card system; (M) an insurance company; (N) a dealer in precious metals, stones, or jewels; (O) a pawnbroker; (P) a
loan or finance company; (Q) a travel agency; (R) a licensed sender of money; (S) a telegraph company; (T) a
business engaged in vehicle sales, including automobile, airplane, and boat sales; (U) persons involved in real estate
closings and settlements; (V) the United States Postal Service; (W) an agency of the United States Government or of
Copyright © 2001 Betty Santangelo. All rights reserved.
December 14, 2001
Page 3
Programs.” Section 352 requires that all financial institutions by April 24, 2002 establish antimoney laundering programs which include, at a minimum, developing internal policies,
procedures, and controls; designating a compliance officer; establishing an ongoing employee
training program; and establishing an independent audit function to test programs. Before that
time the Secretary is authorized to issue regulations setting minimum standards for the programs
and exempting from the requirements those institutions that are not presently subject to
implementing regulations under the Bank Secrecy Act, such as investment companies and
FCMs. These institutions need to have their responsibilities clarified by the implementing
regulations.
Second, section 326 amends 31 U.S.C. § 5318 by adding a section entitled
“Identification and Verification of Accountholders.” The new section requires the Secretary to
issue regulations setting minimum standards for customer identification that shall apply to
accounts for customers opening an account at a financial institution and requires certain
minimum standards for both the financial institutions and for their customers as described below.
All financial institutions, including banks, broker-dealers and FCMs, should carefully monitor
any regulations proposed on this issue.
Third, all financial institutions are covered by the provisions of section 351 that
were purportedly designed to clarify the terms of the safe harbor for financial institutions from
civil liability for filing suspicious activity reports. This section amends the existing safe harbor
provision in certain respects, including making the provision applicable to claims filed pursuant
to arbitration agreements. As discussed more fully below, in certain limited respects it appears
to have the potential unintended effect of narrowing the safe harbor provision.
A related section – section 355 – allows an insured depository institution to
disclose in written employment references requested by another insured depository institution
information concerning the possible involvement of an employee in potentially unlawful activity
without being subject to liability, so long as the disclosure is not made with malicious intent.
Fourth, Treasury is permitted to adopt special measures for all domestic financial
institutions or domestic financial agencies4 directed to particular money laundering concerns
relating primarily to foreign jurisdictions. The provisions that can be imposed include requiring
additional recordkeeping and reporting of certain financial transactions, obtaining and retaining
information relating to beneficial ownership of accounts opened by a foreign person, identifying
a State or local government carrying out a duty or power of a business described in this paragraph and (X) a casino,
gambling casino, or gaming establishment with an annual gaming revenue of more than $1,000,000 which - (i) is
licensed as a casino, gambling casino, or gaming establishment under the laws of any State or any political
subdivision of any State; or (ii) is an Indian gaming operation conducted under or pursuant to the Indian Gaming
Regulatory Act other than an operation which is limited to class I gaming (as defined in section 4(6) of such Act.)"
4
The terms ''domestic financial agency'' and ''domestic financial institution'' are defined in 31 U.S.C. §
5312(b)(1) to apply to an action in the United States of a "financial agency or institution." (Emphasis added). The
statutory definition of "financial institution" is set forth in footnote 3, above. "Financial agency" means a person
acting for a person as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to
money, credit, securities, gold, or a transaction in money, credit, securities, or gold. See 31 U.S.C. § 5312(a)(1).
December 14, 2001
Page 4
customers of financial institutions opening payable-through accounts and correspondent
accounts, and even prohibitions on the opening or maintenance of certain payable-through or
correspondent accounts. A comparable provision prohibiting the opening of certain
correspondent accounts for shell banks, i.e. foreign banks that do not have a physical presence in
any country is contained in section 313, but that provision is effective on December 25, 2001.
Virtually all of the special measure provisions of Title III would be applicable at a
minimum to domestic banks and the U.S. operations of foreign banks in that they either give
the Treasury specific authority or direct it to propose regulations that will affect them in differing
respects. However, Treasury also has the authority to define its regulations, in consultation with
the functional regulator, and can draft them to extend to broker-dealers as well as to other
financial institutions. Treasury has already indicated its intent to apply the correspondent bank
provisions to broker-dealers.5 It remains unclear how such regulations would be defined given
the definition of payable-through accounts in the Act6 and given the nature of correspondent
accounts that were the subject of prior Congressional hearings.7 Other financial institutions,
including broker-dealers and FCMs, should be mindful of any such proposed regulations to
determine whether they could be applicable to their businesses.
In addition to the special measures discussed above, section 312 requires a
financial institution that engages in correspondent banking or private banking on behalf of a
non-U.S. person to adopt due diligence, and in some cases enhanced due diligence, procedures
for detecting and reporting money laundering through those accounts. As defined, these
provisions are clearly applicable to domestic banks and the U.S. operations of foreign banks.
But they too have the potential for being applied to other financial institutions. Minimum
standards are established by the statute for private banking accounts, including accounts for
senior foreign political figures, their family members or close associates. Minimum standards
are also established for correspondent accounts located in offshore jurisdictions or
noncooperative jurisdictions. Notably, these provisions are applicable on July 23, 2002,
5
See Interim Guidance at 6.
6
A “payable-through account” includes a “transaction account” as it is defined in section 19(b)(1)(C) of
the Federal Reserve Act, that is, "a deposit or account on which the depositor or account holder is permitted to make
withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other
similar items for the purpose of making payments or transfers to third persons or others. Such term includes demand
deposits, negotiable order of withdrawal accounts, savings deposits subject to automatic transfers, and share draft
accounts." 12 U.S.C. § 461(b)(1)(C). See also definition of payable-through accounts in Minority Staff of the U.S.
Senate Permanent Subcommittee on Investigations Report on Correspondent Banking: A Gateway to Money
Laundering, Feb. 5, 2001, at 15 n.14. ("Payable-through accounts 'allow a respondent bank's clients to write checks
that draw directly on the respondent bank's correspondent account. '")
7
See generally Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations Report on
Correspondent Banking: A Gateway to Money Laundering, Feb. 5, 2001, at 11 (“Correspondent banking is the
provision of banking services by one bank to another bank. It is a lucrative and important segment of the banking
industry. It enables banks to conduct business and provide services for their customers in jurisdictions where the
banks have no physical presence.” The Report describes specific types of banks, including shell banks, offshore
banks, and banks in non-cooperating jurisdictions, as “particularly high money laundering risks.”); see also U.S.
House of Representatives, Committee on Banking and Financial Services, Hearing on Private Banking, Testimony
of Thomas A. Renyi, Chairman of the Board and Chief Executive Officer, Bank of New York, Sept. 21, 1999.
December 14, 2001
Page 5
regardless of whether the implementing regulations are adopted. The provisions are applicable
to all existing accounts, as well as new accounts. Implementing regulations shall be adopted no
later than April 24, 2002.
Additionally, section 313 prohibits “covered financial institutions”8 from
maintaining correspondent bank accounts with foreign shell banks or banks that do not maintain
a physical presence in any country. Treasury has indicated in the Interim Guidance that this
prohibition will also apply to “non-bank covered financial institutions,” including broker-dealers.
A “covered financial institution” is also required to take reasonable steps to ensure that none of
its correspondent accounts is being used by a foreign bank to indirectly service a foreign shell
bank. This section does not apply if the foreign bank is an affiliate of a depository institution,
credit union, or foreign bank that maintains a physical presence in the United States or a foreign
country, and is subject to regulation. The Interim Guidance terms such entities “regulated
affiliates” and adds to the definition entities that are controlled by or are under common control
with the depository institution, credit union, or foreign bank. This provision is effective on
December 25, 2001.
Section 325 provides that the Secretary may propose regulations governing the
maintenance of concentration accounts at financial institutions in order to ensure that
concentration accounts are not used to prevent the association of the identity of an individual
customer with the movement of funds of which the customer is the beneficial owner. The term
“concentration accounts” is not defined in the legislation. Although the accounts that were the
subject of prior Congressional investigations9 were accounts at banks, given the political
atmosphere, it is possible that Treasury will interpret this section to include broker-dealers.
Accordingly, all financial institutions, including broker-dealers and FCMs, should monitor any
proposed regulations to identify the accounts that are covered by the regulations.
Broker-dealers should pay particular attention to section 356 which requires
Treasury to propose, before January 1, 2002, regulations requiring registered brokers and dealers
to file reports of suspicious financial transactions (i.e., SAR reports). (Broker-dealers that are
subsidiaries of bank holding companies are already required to file SAR reports under the rules
of the Bank Supervisory Agencies.) Final implementing regulations are to be published by the
Secretary of the Treasury no later than July 1, 2002.
FCMs should also pay close attention to section 356, which allows the Secretary
to impose the same SAR requirement on FCMs, commodities trading advisors, and commodity
pool operators. Although broker-dealers in commodities have long been included in the
8
Subsection (j)(1) of this section defines, for the purposes of this subsection, the phrase "covered financial
institution" as any "financial institution described in subparagraphs (A) through (G)" of 31 U.S.C. § 5312(a)(2). As
set forth in footnote 3 above, these include (A) an insured bank; (B) a commercial bank or trust company; (C) a
private banker; (D) an agency or branch of a foreign bank in the United States; (E) an insured institution; (F) a thrift
institution; and (G) a broker or dealer registered with the SEC under the Securities Exchange Act of 1934.
9
See United States General Accounting Office, Private Banking: Raul Salinas, Citibank, and Alleged Money
Laundering, Pub. GAO/OSI-99-1, at 9 (Oct. 1998) (describing a “concentration account” as a “business deposit
account that commingles funds of a number of bank branches/affiliates and bank customers”).
December 14, 2001
Page 6
definition of financial institutions under 31 U.S.C. § 5312, pursuant to section 321 of this Act,
FCMs are now specifically included as financial institutions under this section, as are commodity
trading advisors and commodity pool operators. Moreover, FCMs should also monitor any
regulations imposed pursuant to section 365 since they could theoretically be covered by its
provisions, which require reporting of so-called cash transactions10 over $10,000 received in a
trade or business.
Investment companies should note that this same section 356 provides for an
Investment Company Study not later than one year from the date of enactment of the Act. As
more fully discussed below, the section provides that the Secretary, jointly with the Board of
Governors of the Federal Reserve System and the SEC, shall submit a report to Congress on
recommendations for effective regulations to apply the provisions of the Bank Secrecy Act to
investment companies. This same section, subsection (c)(4), which relates to beneficial
ownership of personal holding companies, authorizes the Federal Reserve Board and the SEC to
recommend that the Secretary promulgate regulations to require any corporation or business or
other grantor trust that has 5 or fewer common shareholders or holders of beneficial or other
equity interest to disclose their beneficial owners when opening accounts or initiating funds
transfers at any domestic financial institution.
In addition to the provisions above which cover them, of particular concern to
foreign banks and their U.S. bank operations are sections 311, “Special Measures for
Jurisdictions, Financial Institutions, or International Transactions of Primary Money Laundering
Concern”; 312, “Special Due Diligence for Correspondent Accounts and Private Banking
Accounts”; 313, “Prohibition on United States Correspondent Accounts with Foreign Shell
Banks”; 317, “Long-Arm Jurisdiction Over Foreign Money Launderers”; 319, “Forfeiture of
Funds in United States Interbank Accounts”; 328, “International Cooperation on Identification of
Originators of Wire Transfers”; and 330, “International Cooperation in Investigation of Money
Laundering, Financial Crimes, and the Finances of Terrorist Groups.” These sections either
require more scrutiny of foreign banking relationships with domestic financial institutions or
impose new obligations on domestic financial institutions as they interact with foreign banks.
Specifically, the following provisions impact foreign banks:
•
10
Section 311 authorizes Treasury to require domestic financial institutions,
including an agency or branch of a foreign bank in the United States, to apply
special measures to dealings with specific jurisdictions, foreign financial
institutions, transactions or types of accounts that the Secretary has determined
are of primary money laundering concern. As noted above, such measures can
include prohibitions on payable-through and correspondent accounts for foreign
banking institutions.
These provisions are comparable to the Internal Revenue Code provisions that are presently applicable to
FCMs. Pursuant to regulations adopted under the Internal Revenue Code and pursuant to its authorization under
section 365 of the Act, respectively, cash has been and can be defined by the Secretary as transactions involving
monetary instruments with a face amount of less than $10,000.
December 14, 2001
Page 7
•
Section 312 requires that financial institutions apply enhanced due diligence to
correspondent accounts requested or maintained by, or on behalf of, a foreign
bank operating under an offshore banking license or under a banking license
issued by a noncooperative foreign country.
The minimum requirements for enhanced due diligence for certain correspondent
accounts are that the specified financial institution ascertain information about the
foreign bank, including the identity of the owners of the foreign bank; the nature
and extent of the interest of each owner; and whether the foreign bank provides
correspondent accounts for other foreign banks. If it does provide such accounts,
the financial institution must ascertain the identity of those foreign banks and
gather related due diligence information.
•
As noted above, section 313 prohibits “covered financial institutions”11 from
maintaining correspondent bank accounts with foreign banks that do not
maintain a physical presence in any country. Covered financial institutions are
also required to take reasonable steps to ensure that none of its correspondent
accounts is being used by the foreign banks to indirectly service a foreign shell
bank. This section does not apply to foreign banks that are “regulated affiliates,”
defined by the Interim Guidance as affiliates of depository institutions, credit
unions, or foreign banks that maintain a physical presence in the United States or
a foreign country and are subject to supervision by a banking authority in the
foreign country, that are controlled by or are under common control with the
depository institution, credit union, or foreign bank.
Treasury has provided a model certification form with the Interim Guidance that
“institutions may choose to use an as interim means to assist them in meeting their
obligations related to dealing with foreign shell banks” under this section.
11
12
•
Section 317 provides the U.S. district courts under certain circumstances with
long-arm jurisdiction over, among others, foreign financial institutions formed
under the laws of a foreign country, if, among other things, the foreign financial
institution maintains a bank account at a financial institution in the United States.
•
Section 319 includes provisions broadening the ability of the government to seize
and forfeit assets held in a foreign bank, if the foreign bank has an interbank
account in the United States.12
•
Section 319 also provides that the Secretary of the Treasury or the Attorney
General may issue a summons or subpoena to any foreign bank that maintains a
See footnote 8 above.
For purposes of this section, “interbank account” is defined as “[a]n account held by one financial
institution at another financial institution primarily for the purpose of facilitating customer transactions.” See
discussion of section 319, below, referencing 18 U.S.C. § 984(c)(2)(B).
December 14, 2001
Page 8
correspondent account in the United States and request records related to such an
account, including records maintained outside the United States relating to the
deposit of funds into the foreign bank.
•
Section 328 directs the Secretary of the Treasury, in consultation with the
Attorney General and the Secretary of State, to take “all reasonable steps” to
encourage foreign governments to require the inclusion of the name of the
originator in wire transfer instructions sent to the United States.
•
In section 330, Congress expresses its “sense” that the President should direct the
Secretary of State, the Attorney General, or the Secretary of the Treasury, in
consultation with the Board of Governors of the Federal Reserve, to seek to enter
into negotiations with foreign jurisdictions that may be utilized by a foreign
terrorist organization in order to further cooperative efforts to ensure that foreign
banks and other financial institutions maintain adequate records of transactions
and account information relating to any foreign terrorist organization or member
thereof. They would also seek to establish a mechanism whereby those records
would be made available to United States law enforcement.
OTHER MISCELLANEOUS PROVISIONS
•
Section 319 adds a provision to section 5318 of the Bank Secrecy Act entitled
“Bank Records Related to Anti-Money Laundering Programs,” which requires
that not later than 120 hours after receiving a request by an appropriate Federal
banking agency for information related to anti-money laundering compliance by a
covered financial institution or a customer of such institution, a covered
financial institution shall provide to the appropriate Federal banking agency
information and account documentation for any account opened, maintained,
administered or managed in the United States by the covered financial institution.
While this speaks of “covered financial institutions,” which is a broader phrase, it
appears to be relevant primarily to banks since it involves both bank
recordkeeping and procedures for responding to requests by a Federal banking
agency.
•
Section 319 also requires covered financial institutions that maintain
correspondent accounts for a foreign bank in the United States to maintain records
in the United States identifying the owners of the foreign bank and the name and
address of a person who resides in the United States and is authorized to accept
service of process for records regarding the correspondent account; to produce
such information within 7 days after receipt of a written request from a Federal
law enforcement officer; and to terminate a correspondent banking relationship
within 10 business days of receipt of written notice from the Secretary or the
Attorney General of the correspondent bank’s failure to comply with or respond
to a subpoena. Under the Interim Guidance, the term “covered financial
institutions” as it is used in this section, does not include broker-dealers. As noted
December 14, 2001
Page 9
below, Treasury will be issuing guidance relating to broker-dealers shortly. The
model certification provided by Treasury with the Interim Guidance may be used
as a means to meet the recordkeeping obligations under this section.
Covered financial institutions are required to comply with these requirements by
December 25, 2001. Although it might appear reasonable to read this section in
tandem with section 312, the Interim Guidance specifically states that "no
inference may be drawn as to the applicability of the definition [of "owner"] to
other provisions of the USA PATRIOT Act, including the enhanced due diligence
requirements" set forth in Section 312 (relating to different standards for reporting
ownership information).
•
Section 327 requires the Federal Reserve Board to “take into consideration the
effectiveness of the company or companies in combating money laundering
activities, including in overseas branches,” in connection with any application
submitted to the Board under Section 3 of the Bank Holding Company Act. The
section requires a similar review with respect to mergers involving insured
depository institutions under the Federal Deposit Insurance Act. Both provisions
are applicable after December 31, 2001.
•
Section 362, “Establishment of Highly Secure Network,” provides that the
Secretary shall establish such a network in FinCEN to allow financial institutions
to file reports and receive alerts electronically. This network shall be in place by
July 26, 2002.
•
Finally, section 314 provides that regulations shall be adopted by the Secretary to
encourage cooperation among financial institutions, regulatory authorities, and
law enforcement authorities in combating money laundering. Section 314 also
permits financial institutions to share information with each other relating to
money laundering or terrorist activity upon notice to the Secretary of the
Treasury. The provision appears to be effective immediately without
implementing regulations. It is not clear whether this provision will inadvertently
limit in any way information routinely shared by financial institutions without
notice to the Secretary of the Treasury.
TIMELINE
All financial institutions need to keep the following timeline in mind. Many of
the provisions take effect over the coming year, some without requiring implementing
regulations. Others only take effect upon the adoption of implementing regulations, but there are
specific time periods set forth in the statute for their adoption.
•
The “Prohibition on United States Correspondent Accounts with Foreign Shell
Banks” contained in section 313 takes effect on December 25, 2001.
December 14, 2001
Page 10
•
Financial institutions are required to comply with the provisions of section 319,
“Forfeiture of Funds in United States Interbank Accounts” “relating to
maintaining records of ownership of foreign banks and authorized person for
receipt of service by December 25, 2001.
•
The provisions of section 327 require the Federal Reserve Board to “take into
consideration the money laundering programs of companies” in connection with
any application submitted to the Board under Section 3 of the Bank Holding
Company Act and in connection with any mergers involving insured depository
institutions under the Federal Deposit Insurance Act. Both provisions are
applicable after December 31, 2001.
•
Section 356 requires that proposed broker-dealer SAR regulations be published by
Treasury before January 1, 2002 and published in final form no later than July 1,
2002.
•
The regulations provided for in section 314, “Cooperative Efforts to Deter Money
Laundering,” shall be adopted by the Secretary within 120 days of enactment of
the Act (or by February 25, 2002).
•
Section 352, “Anti-Money Laundering Programs,” becomes effective in 180 days
(or on April 24, 2002). The section requires the Secretary to issue regulations
within 180 days as well, but does not condition the effective date on the
Secretary’s fulfillment of this obligation.
•
Section 365 requires the Secretary of the Treasury to file regulations in final form
implementing the provision relating to “Reports of Coin or Currency Received in
a Nonfinancial Trade or Business” before the end of the 6-month period after the
enactment of the Act (or by April 26, 2002).
•
The due diligence requirements of section 312, pertaining to correspondent and
private banking accounts, apply to accounts opened before, on, or after the date of
enactment of this Act. The section is self-executing in that its requirements go
into effect 270 days after enactment of the Act (or on July 23, 2002), regardless
of whether final regulations have been promulgated. The regulations are to be
delineated within 180 days of the enactment of the Act (or April 24, 2002).
•
Section 362 provides for the establishment of a highly secure network by the
Secretary to allow financial institutions to file reports and receive alerts
electronically, which shall be in place within 9 months of enactment of the Act
(or by July 26, 2002).
•
Section 326, “Verification of Identification,” provides for regulations to be issued
by the Secretary setting minimum standards for customer identification. This is a
key provision for all financial institutions. The regulations to be promulgated
December 14, 2001
Page 11
under this section are to take effect no later than 1 year after the enactment of the
Act (or by October 26, 2002).
•
The Investment Company Study provided for in section 356 is to be completed
not later than 1 year from the date of enactment of the Act (or by October 26,
2002).
If you have any questions concerning the above, please contact:
Betty Santangelo
212-756-2587
[email protected]
Tim O'Neal Lorah
212-756-2425
[email protected]
December 14, 2001
Page 12
OUTLINE OF PROVISIONS
Set forth below in more detail are the various provisions of Title III.13
SEC. 302.
FINDINGS AND PURPOSES.
Section 302 states Congressional findings on money laundering, its effects, and
how it is accomplished. The findings include statements that:
13
•
money laundering provides the financial fuel that permits transnational criminal
enterprises to conduct and expand their operations to the detriment of the safety
and security of American citizens;
•
money laundering and the defects in financial transparency upon which money
launderers rely are critical to the financing of global terrorism;
•
money launderers subvert legitimate financial mechanisms and banking
relationships by using them as protective covering for the movement of criminal
proceeds and the financing of crime and terrorism, thereby threatening the safety
of Americans and the integrity of American financial institutions and the global
financial and systems upon which growth and prosperity depend;
•
certain foreign jurisdictions that offer offshore banking and related facilities
designed to provide anonymity, coupled with weak financial supervisory and
enforcement regimes, provide tools to disguise ownership and movement of funds
involved in criminal offenses, including narcotics trafficking, terrorism, arms
smuggling, trafficking in human beings, and financial fraud;
•
transactions involving such offshore jurisdictions make it difficult for law
enforcement to follow the trail of criminal money;
•
correspondent banking systems are susceptible in some circumstances to
manipulation by foreign banks to permit the laundering of funds by hiding the
identity of the real parties in interest;
•
private banking services are susceptible to manipulation by money launderers,
including corrupt foreign government officials;
•
United States anti-money laundering efforts are impeded by outmoded and
inadequate statutory provisions that make investigations, prosecutions, and
forfeitures more difficult, particularly in cases involving foreign persons, banks,
or countries;
For those familiar with the legislative history of H.R. 3162, it should be noted that most of the provisions
of Title III closely track S. 1510, the Daschle-Sarbanes bill, with some additions from H.R. 3004, the bill introduced
by Rep. Oxley.
December 14, 2001
Page 13
•
the ability to mount effective counter-measures to international money launderers
requires national, bilateral, and multilateral action, using tools specifically
designed for that effort; and
•
the Basle Committee on Banking Regulation and Supervisory Practices and the
Financial Action Task Force on Money Laundering have each adopted
international anti-money laundering principles and recommendations.
Section 302 also states the purposes of Title III. The purposes stated are to:
•
increase the strength of the United States measures to prevent, detect, and
prosecute international money laundering and the financing of terrorism;
•
ensure that banking transactions and financial relationships (and the conduct of
them) do not contravene the Federal Deposit Insurance Act or Chapter 2 of Title I
of Public Law 91-508 (84 Stat. 1116) (which has been incorporated into Title 12
and contains bank reporting and recordkeeping rules) or facilitate the evasion of
any such provisions and that the purposes of those provisions continue to be
fulfilled;
•
strengthen the provisions put into place by the Money Laundering Control Act of
1986, especially with respect to crimes by non-United States nationals and foreign
financial institutions;
•
provide a clear national mandate for subjecting to special scrutiny those foreign
jurisdictions, financial institutions operating outside of the United States, and
classes of international transactions or types of accounts that pose particular,
identifiable opportunities for criminal abuse;
•
provide the Secretary of the Treasury with broad discretion to take measures
tailored to the particular money laundering problems presented by specific foreign
jurisdictions, financial institutions operating outside of the United States, and
classes of international transactions or types of accounts;
•
ensure that the employment of such measures by the Secretary permits
appropriate opportunity for comment by affected financial institutions;
•
provide guidance to domestic financial institutions on dealings with particular
foreign jurisdictions, financial institutions operating outside of the United States,
and classes of international transactions that are of primary money laundering
concern;
•
ensure that the forfeiture of any assets in connection with the anti-terrorist efforts
of the United States permits for adequate challenge consistent with providing due
process rights;
December 14, 2001
Page 14
SEC. 303.
•
clarify the terms of the safe harbor from civil liability for filing suspicious activity
reports;
•
strengthen the authority of the Secretary to issue and administer geographic
targeting orders and to clarify that violations of such orders may result in civil or
criminal penalties;
•
ensure that all appropriate elements of the financial services industry are subject
to appropriate reporting requirements and that jurisdictional disputes do not
hinder examination of compliance;
•
strengthen the ability of financial institutions to maintain the integrity of their
employee population; and
•
strengthen measures to prevent the use of the United States financial system for
personal gain by corrupt foreign officials and to facilitate the repatriation of any
stolen assets to the citizens of the countries to whom such assets belong.
4-YEAR CONGRESSIONAL REVIEW; EXPEDITED CONSIDERATION.
Section 303 provides that the provisions of this title (and any amendments
thereto) shall terminate upon joint resolution of Congress on or after the first day of fiscal year
2005. Any joint resolution pursuant to this section should be considered by Congress
expeditiously.
SEC. 311.
SPECIAL MEASURES FOR JURISDICTIONS, FINANCIAL
INSTITUTIONS, OR INTERNATIONAL TRANSACTIONS OF PRIMARY
MONEY LAUNDERING CONCERN.
Section 311 creates 31 U.S.C. § 5318A, titled “Special measures for jurisdictions,
financial institutions, or international transactions of primary money laundering concern.” It
authorizes the Secretary to require domestic financial institutions and domestic financial
agencies14 to take one or more special measures if the Secretary finds that reasonable grounds
exist for concluding that a jurisdiction outside of the United States, one or more financial
institutions operating outside of the United States, one or more classes of transactions within, or
involving, a jurisdiction outside of the United States, or one or more types of accounts is of
primary money laundering concern.
Some of the special measures (requiring additional recordkeeping and reporting of
certain financial transactions, obtaining and retaining information relating to beneficial
ownership, and identifying customers of financial institutions opening payable-through accounts
and correspondent accounts) can be imposed by regulation, order, or otherwise as permitted by
law, but may not remain in effect for more than 120 days except pursuant to a rule promulgated
14
See footnotes 3 and 4 above (identifying the entities encompassed within the definition of "domestic
financial institutions and domestic financial agencies").
December 14, 2001
Page 15
on or before the end of the 120-day period beginning on the date of issuance of such order. The
special measure of prohibitions or conditions on opening or maintaining certain correspondent or
payable-through accounts may only be imposed by regulation.
In selecting which special measure or measures to take, the Secretary is directed
to 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 SEC, the CFTC, the National Credit Union
Administration Board, and in the sole discretion of the Secretary, such other agencies and
interested parties as the Secretary may find to be appropriate. The Secretary is also directed to
consider whether similar action has been or is being taken by other nations or multilateral
groups; whether the imposition of any particular special measure would create a significant
competitive disadvantage, including any undue cost or burden associated with compliance, for
financial institutions organized or licensed in the United States; the extent to which the action or
the timing of the action would have a significant 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; and the effect of the action on United
States national security and foreign policy.
This section specifically provides that it does not supersede or restrict any other
authority held by the Secretary or any other agency.
The special measures that the Secretary can impose by rule, regulation, or
otherwise as provided by law, are:
•
Recordkeeping and Reporting of Certain Financial Transactions
The Secretary of the Treasury may require any domestic financial institution
or domestic financial agency to maintain records, file reports, or both, concerning the
aggregate amount of transactions, or concerning each transaction, with respect to a
jurisdiction outside of the United States, one or more financial institutions operating
outside of the United States, one or more classes of transactions within, or involving,
a jurisdiction outside of the United States, or one or more types of accounts if the
Secretary finds any such jurisdiction, institution, or class of transactions to be of
primary money laundering concern. Such records and reports shall be made and
retained at such time, in such manner, and for such period of time, as the Secretary
shall determine, and shall include such information as the Secretary may determine,
including:
(i) the identity and address of the participants in a transaction or
relationship, including the identity of the originator of any funds
transfer;
(ii) the legal capacity in which a participant in any transaction is
acting;
December 14, 2001
Page 16
(iii) 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
(iv) a description of any transaction.
For purposes of this section and subsections (i) and (j) of section 5318 as added
by sections 312 and 313, below, the term “account” is defined as “a formal banking or business
relationship established to provide regular services, dealings, and other financial transactions;
and includes a demand deposit, savings deposit, or other transaction or asset account and a credit
account or other extension of credit.”
Comment: The reference in this section to “one or more types of accounts” could
arguably be read to apply to domestic accounts, although such a reading would not appear to be
consistent with the underlying intent of the section, which appears to be focused on activity
arising in or related to jurisdictions outside the United States.
•
Information Relating To Beneficial Ownership
The Secretary may require any domestic financial institution or domestic
financial agency to take such steps as the Secretary may determine to be reasonable
and practicable to obtain and retain information concerning the beneficial ownership
of any account opened or maintained in the United States by a foreign person (other
than a foreign entity whose shares are subject to public reporting requirements or are
listed and traded on a regulated exchange or trading market), or a representative of
such a foreign person, that involves a jurisdiction outside of the United States, one or
more financial institutions operating outside of the United States, one or more classes
of transactions within, or involving, a jurisdiction outside of the United States, or one
or more types of accounts if the Secretary finds any such jurisdiction, institution,
transaction or type of account to be of primary money laundering concern.
The Secretary is required to promulgate regulations defining beneficial
ownership of an account for purposes of this section and subsections (i) and (j) of
section 5318 as added by sections 312, “Special Due Diligence for Correspondent
Accounts and Private Banking Accounts,” and 313, “Prohibition on United States
Correspondent Accounts with Foreign Shell Banks.” =Such regulations shall address
issues related to an individual’s authority to fund, direct, or manage the account
(including, without limitation, the power to direct payments into or out of the
account), and an individual’s material interest in the income or corpus of the account,
and shall ensure that the identification of individuals under this section does not
extend to any individual whose beneficial interest in the income or corpus of the
account is immaterial.
December 14, 2001
Page 17
•
Information Relating To Certain Payable-Through Accounts
If the Secretary finds a jurisdiction outside of the United States, one or more
financial institutions operating outside of the United States, or one or more classes of
transactions within, or involving, a jurisdiction outside of the United States to be of
primary money laundering concern, the Secretary may require any domestic financial
institution or domestic financial agency that opens or maintains a payable-through
account in the United States for a foreign financial institution15 involving any such
jurisdiction or any such financial institution operating outside of the United States, or
a payable-through account through which any such transaction may be conducted, as
a condition of opening or maintaining such account:
(A) to identify each customer (and representative of such customer) of such
financial institution who is permitted to use, or whose transactions are routed
through, such payable-through account; and
(B) to obtain, with respect to each such customer (and each such
representative), information that is substantially comparable to that which the
depository institution obtains in the ordinary course of business with respect to its
customers residing in the United States.
For purposes of this section and subsections (i) and (j) of section 5318 as
added by sections 312 and 313, below, the term “payable-through account” means
an account, including a transaction account (as defined in section 19(b)(1)(C) of the
Federal Reserve Act),16 opened at a depository institution by a foreign financial
institution by means of which the foreign financial institution permits its customers to
engage, either directly or through a subaccount, in banking activities usual in
connection with the business of banking in the United States.
•
Information Relating To Certain Correspondent Accounts
If the Secretary finds a jurisdiction outside of the United States, one or more
financial institutions operating outside of the United States, or one or more classes of
transactions within, or involving, a jurisdiction outside of the United States to be of
primary money laundering concern, the Secretary may require any domestic financial
institution or domestic financial agency that opens or maintains a correspondent
account in the United States for a foreign financial institution involving any such
15
31 U.S.C. § 5312(b)(2) defines "foreign financial agency" and "foreign financial institution" to "apply to
an action outside the United States of a financial agency or institution." (Emphasis added). The terms "financial
agency" and "financial institution" are defined in footnotes 3 and 4.
16
As defined in that section, "transaction account" means "a deposit or account on which the depositor or
account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of
withdrawal, telephone transfers, or other similar items for the purpose of making payments or transfers to third
persons or others. Such term includes demand deposits, negotiable order of withdrawal accounts, savings deposits
subject to automatic transfers, and share draft accounts." 12 U.S.C. § 461(b)(1)(C).
December 14, 2001
Page 18
jurisdiction or any such financial institution operating outside of the United States, or
a correspondent account through which any such transaction may be conducted, as a
condition of opening or maintaining such account:
(A) to identify each customer (and representative of such customer) of any
such financial institution who is permitted to use, or whose transactions are routed
through, such correspondent account; and
(B) to obtain, with respect to each such customer (and each such
representative), information that is substantially comparable to that which the
depository institution obtains in the ordinary course of business with respect to its
customers residing in the United States.
For purposes of this section and subsections (i) and (j) of section 5318 as
added by sections 312 and 313, below, a “correspondent account” [with respect to
banking institutions] is an account established to receive deposits from, make
payments on behalf of a foreign financial institution, or handle other financial
transactions related to such institution. This definition is reiterated in the Interim
Guidance as pertaining to subsection (j) of section 5318 as added by section 313.
Comment: As discussed below, the Act creates several provisions relating to
correspondent accounts that appear to overlap to a certain extent. Some of the
provisions require implementing regulations; others are effective immediately. These
overlapping provisions create a certain degree of confusion as to whether each
statute is creating a different obligation or simply ensuring that the Secretary of the
Treasury is provided with broad powers. The Interim guidance recognizes that the
definitions set forth in the statute do not necessarily apply for each section.
The special measure which can only be implemented by regulation is:
•
Prohibitions or Conditions on Opening or Maintaining Certain Correspondent or
Payable-Through Accounts
If the Secretary finds a jurisdiction outside of the United States, one or more
financial institutions operating outside of the United States, or one or more classes of
transactions within, or involving, a jurisdiction outside of the United States to be of
primary money laundering concern, the Secretary, in consultation with the Secretary
of State, the Attorney General, and the Chairman of the Board of Governors of the
Federal Reserve System, may prohibit, or impose conditions upon, the opening or
maintaining in the United States of a correspondent account or payable-through
account by any domestic financial institution or domestic financial agency for or on
behalf of a foreign banking institution, if such correspondent account or payablethrough account involves any such jurisdiction or institution, or if any such
transaction may be conducted through such correspondent account or payablethrough account.
December 14, 2001
Page 19
Section 311 directs the Secretary to consult certain officials and consider specific
information when determining whether jurisdictions, institutions, types of accounts, or
transactions to be of primary money laundering concern.
•
Section 311 also provides that in making a finding that reasonable grounds exist
for concluding that a jurisdiction outside of the United States, one or more
financial institutions operating outside of the United States, one or more classes of
transactions within, or involving, a jurisdiction outside of the United States, or
one or more types of accounts is of primary money laundering concern, the
Secretary shall consult with the Secretary of State and the Attorney General.
•
The Secretary is also directed to consider (in regard to a particular jurisdiction)
evidence that organized criminal groups, international terrorists, or both, have
transacted business in that jurisdiction; the extent to which that jurisdiction or
financial institutions operating in that jurisdiction offer bank secrecy or special
regulatory advantages to nonresidents or nondomiciliaries of that jurisdiction; the
substance and quality of administration of the bank supervisory and countermoney laundering laws of that jurisdiction; the relationship between the volume
of financial transactions occurring in that jurisdiction and the size of the economy
of the jurisdiction; the extent to which that jurisdiction is characterized as an
offshore banking or secrecy haven by credible international organizations or
multilateral expert groups; whether the United States has a mutual legal assistance
treaty with that jurisdiction; the experience of United States law enforcement
officials and regulatory officials in obtaining information about transactions
originating in or routed through or to such jurisdiction; and the extent to which
that jurisdiction is characterized by high levels of official or institutional
corruption.
•
When making that determination as to a specific institution, the Secretary is
instructed to consider the extent to which such financial institutions, transactions,
or types of accounts are used to facilitate or promote money laundering in or
through the jurisdiction; the extent to which such institutions, transactions, or
types of accounts are used for legitimate business purposes in the jurisdiction; and
the extent to which such action is sufficient to ensure, with respect to transactions
involving the jurisdiction and institutions operating in the jurisdiction, that the
purposes of this subchapter continue to be fulfilled, and to guard against
international money laundering and other financial crimes.
Notification To Congress
When the Secretary imposes special measures, the Secretary is required by section
311 to notify in writing within 10 days the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.
December 14, 2001
Page 20
Additional Definitions Applicable to Institutions Other Than Banks
With respect to institutions other than banks, the Secretary shall, after
consultation with the appropriate Federal functional regulators (as defined in section 509 of the
Gramm-Leach-Bliley Act and for purposes of this act including the CFTC), define by regulation
the term “account,” and shall include within the meaning of that term, to the extent, if any, that
the Secretary deems appropriate, arrangements similar to payable-through and correspondent
accounts. In the Interim Guidance, Treasury states that it intends to issue a rule further defining
“account” to “(1) prohibit non-bank covered financial institutions (including [broker-dealers])
from establishing or maintaining an account for a foreign shell bank that is not a regulated
affiliate and (2) to require non-bank covered financial institutions to take reasonable steps to
ensure that any account established, maintained, administered, or managed by such institution in
the United States for a foreign bank is not being used by that foreign bank to indirectly provide
banking services to a foreign shell bank that is not a regulated affiliate.”
This section also gives the Secretary authority to define other terms by regulation.
SEC. 312.
SPECIAL DUE DILIGENCE FOR CORRESPONDENT ACCOUNTS AND
PRIVATE BANKING ACCOUNTS.
Section 312 requires that each financial institution that establishes, maintains,
administers, or manages a private banking account or a correspondent account in the United
States for a non-United States person, including a foreign individual visiting the United States, or
a representative of a non-United States person, shall establish appropriate, specific, and, where
necessary, enhanced, due diligence policies, procedures, and controls that are reasonably
designed to detect and report instances of money laundering through those accounts.
Private banking accounts held by or on behalf of a non-United States person
require at a minimum that the financial institution take reasonable steps to:
(i) ascertain the identity of the nominal and beneficial owners of and the source
of funds deposited into the account as needed to guard against money
laundering and report suspicious transactions; and
(ii) conduct enhanced scrutiny of any private banking account requested or
maintained by or on behalf of a senior political figure, any member of the figure’s
immediate family, or any close associate of the figure to detect and report
transactions that may involve the proceeds of foreign corruption.
“Private banking account” is defined as an account or combination of accounts
that requires a minimum aggregate deposit of funds or other assets of not less than $1,000,000,
is established on behalf of one or more individuals who have a direct or beneficial ownership
interest in the account, and is assigned to or administered by an officer, employee, or agent of a
financial institution acting as a liaison between the financial institution and the owner of the
account.
December 14, 2001
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As to correspondent accounts, enhanced due diligence is required if the
correspondent account is requested or maintained by, or on behalf of, a foreign bank operating
under an offshore banking license17 or under a banking license issued by a foreign country that
has been designated as noncooperative with international anti-money laundering principles or
procedures by an intergovernmental group or organization of which the United States is a
member or has been designated by the Secretary as warranting special measures due to money
laundering concerns.
Enhanced due diligence as to correspondent accounts consists of, at a minimum:
(i) ascertaining for any such foreign bank the shares of which are not publicly
traded, the identity of the owners of the foreign bank;
(ii) ascertaining the nature and extent of the interest of each owner;
(iii) conducting enhanced scrutiny of the account to guard against money
laundering and report suspicious transactions; and
(v) ascertaining whether such foreign bank provides correspondent accounts with
other foreign banks, and if so, the identity of those foreign banks and related due
diligence information.
The model certification provided by Treasury as part of the Interim Guidance for
use in meeting the obligation imposed by sections 313 and 319 does not satisfy the obligations of
this section.
Section 312 requires the Secretary within 180 days (or by April 24, 2002) to
further delineate by regulation the due diligence policies, procedures and controls required under
this section, after consultation with the appropriate Federal functional regulators (as defined in
section 509 of the Gramm-Leach-Bliley Act) of the affected financial institutions.
Finally, section 312 takes effect 270 days after enactment of the Act (or on July
23, 2002), regardless of whether final regulations have been issued.
SEC. 313.
PROHIBITION ON UNITED STATES CORRESPONDENT ACCOUNTS
WITH FOREIGN SHELL BANKS.
Section 313 prohibits “covered financial institutions” (including broker-dealers)18
from establishing, maintaining, administering, or managing a correspondent account in the
17
This section defines “offshore banking license” as a license to conduct banking activities which, as a
condition of the license, prohibits the licensed entity from conducting banking activities with the citizens of, or with
the local currency of, the country which issued the license.
18
The Act limits the meaning of the phrase “covered financial institutions” to those described in 31 U.S.C.
§ 5312(a)(2)(A) – (G) and includes the following: (A) an insured bank (as defined in section 3(h) of the Federal
Deposit Insurance Act (12 U.S.C. § 1813(h))); (B) a commercial bank or trust company; (C) a private banker; (D) an
agency or branch of a foreign bank in the United States; (E) an insured institution (as defined in section 401(a) of the
December 14, 2001
Page 22
United States for or on behalf of a foreign bank that does not have a physical presence in any
country (shell bank). The term “correspondent account” is defined by section 311 of the Act.
The Interim Guidance restates the section 311 definition as it applies to banking institutions as
follows: a correspondent account is “an account established to receive deposits from, make
payments on behalf of a foreign financial institution, or handle other financial transactions
related to such institution.”
Apparently recognizing that the bank definition of “correspondent account”
should not be extended to broker-dealers and other non-bank financial institutions, Treasury
states in the Interim Guidance that it “intends to issue a rule . . . to further define the term
‘account’ (1) to prohibit non-bank covered financial institutions (including [broker-dealers])
from establishing or maintaining an account for a foreign shell bank that is not a regulated
affiliate and (2) to require non-bank covered financial institutions to take reasonable steps to
ensure that any [such] account” is not used to indirectly service foreign shell banks.
In order to prevent indirect service to foreign shell banks, covered financial
institutions are required to take reasonable steps to ensure that any such correspondent account is
not being used by the foreign bank to indirectly provide banking services to a foreign shell bank.
The Secretary is required to delineate by regulation the reasonable steps necessary to comply
with this section.
With the Interim Guidance, Treasury issued a certification form to as “an interim
means to assist [covered financial institutions] in meeting their obligations” under this section.
The form is for institutions to use in requesting information from each of its foreign bank
customers. In the Interim Guidance Treasury stated its “expectation . . . that a covered financial
institution will accord priority to requesting the certifications in connection with foreign banks
for which it maintains correspondent deposit accounts or their equivalents.”
An exception is provided to correspondent accounts with “regulated affiliates,”
defined by the Interim Guidance as affiliates of depository institutions, credit union, or foreign
banks that maintain a physical presence in the United States or a foreign country and are subject
to supervision by a banking authority in the foreign country, that are controlled by or is under
common control with the depository institution, credit union, or foreign bank.
“Physical presence” means a place of business that is maintained by the foreign
bank, is located at a fixed address (other than solely an electronic address) in a country in which
the foreign bank is authorized to conduct banking activities, and at which location the foreign
bank employs one or more individuals on a full-time basis and maintains the operating records
related to its banking activities, and where it is subject to inspection by the licensing banking
authority.
National Housing Act (12 U.S.C. § 1724(a))); (F) a thrift institution; (G) a broker or dealer registered with the SEC
under the Securities Exchange Act of 1934. This definition is reiterated in the Interim Guidance.
December 14, 2001
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This section takes effect on December 25, 2001, but institutions are required to
promptly terminate correspondent accounts with shell banks when they are identified, regardless
of whether the deadline has arrived.
Comment: The inconsistent use of terms describing the institutions to which the
statutory provisions or proposed regulations will be applicable creates a certain degree of
confusion. For example, some sections of the Act are applicable to “financial institutions,”
some are applicable to “domestic financial institutions” and some to “covered financial
institutions.” Moreover, while some requirements are fairly broad in that they appear to apply
to many institutions, they are often described in terms and context that are applicable only to
banks. The Interim Guidance appears to recognize this problem and attempts to resolve it as to
sections 313 and 319, making it clear that the definition for “correspondent account” contained
in section 311 of the Act applies to section 313 and 319, and that the definition of “covered
financial institution” includes broker-dealers for purposes of section 313, but not for section
319.
SEC. 314.
COOPERATIVE EFFORTS TO DETER MONEY LAUNDERING.
Section 314 provides for cooperation among financial institutions, regulatory
authorities, and law enforcement authorities. It provides that within 120 days of enactment of
the Act (or by February 25, 2002), the Secretary shall adopt regulations to encourage further
cooperation between these entities, specifically in regard to individuals, entities and
organizations engaged in or reasonably suspected to be engaged in terrorist acts or money
laundering activities.
The regulations to be adopted by the Secretary may include or create procedures
for cooperation and information sharing focusing on matters specifically related to the finances
of terrorist groups, the means by which they transfer funds around the world (including within
the United States), including the use of charities, nonprofit organizations, and non-governmental
organizations, and the extent to which financial institutions in the United States are unwittingly
involved in the transactions; the relationship (particularly financial relationship) between
international narcotics traffickers and foreign terrorist organizations; and the means for
identifying the accounts and transactions that involve terrorist groups and facilitating the
exchange of information among law enforcement and regulatory personnel.
The regulations may require one person within the financial institution to be
appointed to receive information on individuals, entities and organizations identified as
reasonably suspected to be engaged in terrorist acts or money laundering activity.
The section does not modify a financial institution’s other obligations.
Information obtained under this section is to be used only to identify and report
activities that may involve money laundering or terrorism.
Upon notice to the Secretary, financial institutions can share information
regarding individuals, entities, organizations, and countries suspected of possible terrorist or
December 14, 2001
Page 24
money laundering activities. There is a safe harbor provision that states that financial institutions
shall not be liable to any person under any law or regulation of the United States, any
constitution, law, or regulation of any State or political subdivision thereof, or any contract or
other legally enforceable agreement (including arbitration) for such disclosure or for any failure
to provide notice of such disclosure to the person who is the subject of such disclosure, or any
other person identified in the disclosure, except where such transmission, receipt, or sharing
violates this section or regulations promulgated pursuant to this section.
Comment: This section utilizes broad protective language for financial
institutions when it states that they “shall not be liable to any person under any law or
regulation of the United States, any constitution, law or regulation of any state or political
subdivision thereof, or under any contract or legally enforceable agreement (including any
arbitration agreement), for such disclosure . . . .” However, the use of limiting language with
respect to protection from civil liability for failure to notify “the person who is the subject of
such disclosure or any person identified in the disclosure” (rather than maintaining the
language of the existing safe harbor protection)19 could unfortunately lead to a narrow
interpretation of the safe-harbor provision.
There is a provision making clear that compliance with this title requiring or
allowing financial institutions and any association of financial institutions to disclose or share
information shall not constitute a violation of the provisions of Title V of the Gramm-LeachBliley Act.
Section 314 provides that at least semiannually, the Secretary shall publish a
report, to be distributed to financial institutions, containing a detailed analysis identifying
patterns of suspicious activity and other investigative insights derived from suspicious activity
reports and law enforcement investigations.
SEC. 315.
INCLUSION OF FOREIGN CORRUPTION OFFENSES AS MONEY
LAUNDERING CRIMES.
Section 315 adds to the list of money laundering predicates: bribery of a public
official, or misappropriation, theft, or embezzlement of public funds for the benefit of a public
official; smuggling or export control violations involving an item controlled on the United States
Munitions List or an item controlled under the Export Administration Regulations; and an
offense with respect to which the United States would be obligated by a multilateral treaty to
extradite the alleged offender or submit the case for prosecution if the offender were found
within the United States.
19
Prior to enactment of the Act, the safe harbor provision encompassed in 31 U.S.C. § 5318(g)(3) limited
liability for "any failure to notify the person involved in the transaction or any other person of such disclosure."
(Emphasis added).
December 14, 2001
Page 25
SEC 316.
ANTI-TERRORIST FORFEITURE PROTECTION.
Section 316 provides a right to contest the confiscation of property under any
provision of law relating to the confiscation of assets of suspected international terrorists, by the
mechanisms of the Federal Rules of Civil Procedure. The affirmative defenses available under
this section are that the property was not subject to confiscation under the provisions of law
dealing with suspected terrorists and that the person whose property was confiscated was an
innocent owner.
Under this section, a court may admit evidence otherwise inadmissible if the
evidence is reliable and strict compliance with the Federal Rules of Evidence may jeopardize the
national security interests of the United States.
SEC. 317.
LONG-ARM JURISDICTION OVER FOREIGN MONEY LAUNDERERS.
Section 317 grants the U.S. district courts long-arm jurisdiction over any foreign
person against whom an action under this section is brought, so long as service of process is
made under the Federal Rules of Civil Procedure or the laws of the country where the person is
located, and the offender commits a crime involving a financial transaction that occurs in whole
or in part in the United States, the foreign person converts to his own use property in which the
United States has an ownership interest, or the foreign person is a financial institution that
maintains a bank account at a financial institution in the United States.
Under this section, courts may issue restraining orders or take other action
necessary to maintain the availability of that bank account or any other asset in the United States
for payment of judgment. The court may also appoint a Federal Receiver to oversee the seized
assets. If a Receiver is appointed, the Receiver is an officer of the court with all of the powers
that come with that status and the Receiver shall have standing equal to that of a Federal
prosecutor for the purpose of obtaining information by written request from FinCEN or from a
foreign country in accordance with a multilateral treaty, agreement, or other arrangement.
SEC. 318.
LAUNDERING MONEY THROUGH A FOREIGN BANK.
This section simply adds a foreign bank in the definition of a “financial
institution” in the money laundering statute. The effect of this section is that money laundered
through a foreign bank is within the purview of this legislation.
SEC. 319.
FORFEITURE OF FUNDS IN UNITED STATES INTERBANK
ACCOUNTS.
Section 319 is divided into two very distinct parts. Subsection (a) provides for
forfeiture of funds held in United States interbank accounts. Subsection (b) requires financial
institutions to maintain certain foreign bank records in the United States and provide those
records to various authorities upon request.
December 14, 2001
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(a)
Forfeiture of Funds From United States Interbank Account.
Under section 319(a), if funds are deposited into an account at a foreign bank,
and that foreign bank has an interbank account in the United States with a covered financial
institution (including a broker-dealer),20 the funds shall be deemed to have been deposited into
the interbank account in the United States, and those funds are then subject to any restraining
order, seizure warrant, or arrest warrant in rem. The Attorney General is authorized to suspend
or terminate a forfeiture under this section if he determines that a conflict of law exists between
the laws of the jurisdiction in which the foreign bank is located and the laws of the United States.
Under this section, the government need not trace the funds in the account to the
money deposited into the foreign account.
The owner of the funds is permitted to bring suit to recover the funds. The owner
does not include the foreign bank or any financial institution acting as an intermediary unless
the basis for the forfeiture is the wrongdoing of the foreign bank and the foreign bank can prove
by a preponderance of the evidence that the bank had discharged all or part of its obligation to
the owner of the funds prior to the forfeiture. In that case, the foreign bank will be considered
the owner of the funds to the extent of the discharged obligation.
For purposes of this section, “interbank account” is defined to have “the same
meaning as in § 984(c)(2)(B).” That definition is “[a]n account held by one financial institution
at another financial institution primarily for the purpose of facilitating customer transactions.”
If property subject to forfeiture cannot be located upon exercise of due diligence,
has been transferred to, sold to, or deposited with a third party, has been placed beyond the
jurisdiction of the court, has been substantially diminished in value, or has been commingled
with other property which cannot be divided without difficulty, the court shall order the
forfeiture of any other property of the defendant up to the value of the property subject to
forfeiture. The court may also order that the property be returned to the jurisdiction of the court.
Failure to comply with this forfeiture section shall be punishable as a civil or
criminal contempt of court and may also serve as the basis for an enhancement of the sentence
for obstruction of justice under the United States Sentencing Guidelines.
(b)
Bank Records Related to Anti-Money Laundering Programs.
Section 319(b) provides that the Secretary or the Attorney General may issue a
summons or subpoena to any foreign bank that maintains a correspondent account in the United
States and request records related to such correspondent account, including records maintained
20
For purposes of section 319(a), “covered financial institution” has the same definition as in section 313.
The definition includes those institutions described in 31 U.S.C. § 5312(a)(2)(A) – (G): (A) an insured bank (as
defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. § 1813(h))); (B) a commercial bank or trust
company; (C) a private banker; (D) an agency or branch of a foreign bank in the United States; (E) an insured
institution (as defined in section 401(a) of the National Housing Act (12 U.S.C. § 1724(a))); (F) a thrift institution;
(G) a broker or dealer registered with the SEC under the Securities Exchange Act of 1934.
December 14, 2001
Page 27
outside the United States relating to the deposit of funds into the foreign bank. Such summons
or subpoena may be served on the foreign bank in the United States if the foreign bank has a
representative in the United States, or in a foreign country pursuant to any mutual legal
assistance treaty, multilateral agreement, or other request for international law enforcement
assistance.
Any covered financial institution21 that maintains a correspondent account in the
United States for a foreign bank shall maintain records in the United States identifying the
owners of such foreign bank22 and the name and address of a person that resides in the United
States and is authorized to accept service of legal process for records regarding the correspondent
account. The model certification form provided by Treasury in the Interim Guidance and
21
The term “covered financial institutions” is not defined in section 319(b). For purposes of the Interim
Guidance, Treasury defines it to include "(A) an insured bank (as defined in section 3(h) of the Federal Deposit
Insurance Act (12 U.S.C. § 1813(h))); (B) a commercial bank or trust company; (C) a private banker; (D) an agency
or branch of a foreign bank in the United States; (E) an insured institution (as defined in section 401(a) of the
National Housing Act (12 U.S.C. § 1724(a))); [and] (F) a thrift institution”. Broker-dealers are not included in the
definition of “covered financial institution” for purposes of this section. However, the Interim Guidance also states
that “Treasury intends to propose similar recordkeeping requirements for such brokers and dealers.” Given that the
120-hour rule requires the financial institution to respond to requests from banking authorities, it is not clear whether
broker-dealers will be required to respond to requests from those same authorities.
22
The Interim Guidance defines the term “owners of a foreign bank” to include any person who is a large
direct owner, an indirect owner, and certain small direct owners. The Interim Guidance also defines the term
“person” to mean any individual, bank, corporation, partnership, limited liability company, or any other legal entity,
except that members of the same family (parents, spouses, children, siblings, uncles, aunts, grandparents,
grandchildren, first cousins, second cousins, stepchildren, stepsiblings, parents-in-law, and spouses) shall be
considered one person.
A “large direct owner” is a person who (1) owns, controls, or has power to vote 25 percent or more of any
class of voting securities or other voting interests of the foreign bank, or (2) controls in any manner the election of a
majority of the directors (or individuals exercising similar functions) of the foreign bank. If any large direct owner
of a foreign bank is majority-owned by another person, or by a chain of majority-owned persons, an “indirect
owner” is any person in the ownership chain who is not majority-owned by another person.
A “small direct owner” is a person who owns, controls, or has power to vote less than 25 percent of any
class of voting securities or other voting interests of the foreign bank A small direct owner’s identity need not be
reported unless two or more small direct owners (1) in the aggregate own 25 percent or more of the voting securities
or interests of the foreign bank, and (2) are owned by the same indirect owner. If any two or more small direct
owners of a foreign bank (1) in the aggregate own, control, or have power to vote 25 percent or more of any class of
voting securities or other voting interests of the foreign bank and (2) are majority-owned by the same person or by
the same chain of majority-owned persons, the “indirect owner” is any person in the ownership chain of the small
direct owners who is not majority-owned by another person.
“Voting shares or other voting interests” means share or other interests that entitle the holder to vote for
or select directors (or individuals exercising similar functions).
The Interim Guidance contains examples to illustrate the owners of foreign banks covered by this section.
It also explicitly states that the definition of “owner” applies only to section 319(b) and that “no inference may be
drawn as to the applicability of this definition to other provisions of the USA PATRIOT Act, including the enhanced
due diligence requirements of” section 312 “which sets forth different standard for reporting ownership
information.”
December 14, 2001
Page 28
discussed above in relation to section 313 may also be used to aid financial institutions in
meeting these recordkeeping requirements. Treasury has expressed its expectation in the Interim
Guidance that “a covered financial institution will accord priority to requesting certifications in
connection with foreign banks for which it maintains correspondent deposit accounts or their
equivalents.”
Section 319 imposes a 120-hour rule,23 stating that no later than 120 hours after
receiving a request by an appropriate Federal banking agency for information related to antimoney laundering compliance by a covered financial institution or customer, a covered
financial institution shall provide (or make available at a specified location) information and
account documentation for any account opened, maintained, administered or managed in the
United States by the covered financial institution.
Upon receipt of a written request from law enforcement for information required
to be maintained under this section, the covered financial institution shall provide the
information not later than 7 days after receipt of the request.
Upon receipt of notice from the Secretary or the Attorney General, a covered
financial institution has 10 business days to terminate a correspondent relationship with a foreign
bank. The Secretary or Attorney General shall make such notification only after consultation
with each other and a determination that the foreign bank has failed to comply with a summons
or subpoena issued under this section or failed to initiate proceedings in a United States court
contesting such summons or subpoena.
A covered financial institution shall not be liable to any person in any court or
arbitration proceedings for terminating a correspondent relationship in accordance with this
subsection.
Failure to comply with a notice to terminate a correspondent relationship shall
render the financial institution liable for a civil penalty of up to $10,000 per day until the
relationship is terminated.
Financial institutions have until December 25, 2001 to comply with the
provisions of this section.
For purposes of this section, “appropriate federal banking agency” has the
same meaning as in § 3 of the Federal Deposit Insurance Act.
“Correspondent account” has the same meaning as in § 5318A(e)(1)(B) as
added by section 311, which is “an account established to receive deposits from, make payments
23
The Guidance does not specifically address this section.
December 14, 2001
Page 29
on behalf of a foreign financial institution, or handle other financial transactions related to such
institution.”24
SEC. 320.
PROCEEDS OF FOREIGN CRIMES.
Section 320 amends 18 U.S.C. § 981(a)(1)(B) to provide that property used to
facilitate an offense against a foreign nation is subject to forfeiture.
SEC. 321.
FINANCIAL INSTITUTIONS SPECIFIED IN SUBCHAPTER II OF
CHAPTER 53 OF TITLE 31, UNITED STATES CODE.
Credit unions are added to the definition of “financial institution” in 31 U.S.C. §
5312(2).
This section is also amended to add to the definition of “financial institution” any
FCM, commodity trading advisor, or commodity pool operator registered, or required to register,
under the Commodity Exchange Act. Previously, the statute referenced only a broker-dealer in
commodities.
This section clarifies, “for purposes of this Act and any amendment made by this
Act to any other provision of law,” that the CFTC is included within the meaning of the term
“Federal functional regulator” anywhere that term is used in this Act and any amendment made
pursuant thereto.
SEC. 322.
CORPORATION REPRESENTED BY A FUGITIVE.
This section amends 18 U.S.C. § 2466, which purportedly relates to fugitive
disentitlement. As drafted, this section would amend 18 U.S.C. § 2466 by adding a new
subsection to the existing statute, to read as follows: “(b) Subsection (a) may be applied to a
claim filed by a corporation if any director of the corporation, majority shareholder, or individual
filing the claim on behalf of the corporation is a person to whom subsection (a) applies.” The
reference to title 18, section 2466 is in error here, as the applicable provision is 28 U.S.C.
§ 2466, which is captioned “Fugitive disentitlement.”
SEC. 323.
ENFORCEMENT OF FOREIGN JUDGMENTS.
This section amends 28 U.S.C. § 2467 to allow the court to issue a restraining
order pursuant to 18 U.S.C. § 983(j) in order to preserve the availability of property subject to a
foreign forfeiture or confiscation judgment.
SEC. 324.
24
REPORT AND RECOMMENDATION.
The statute references § 5318A(f)(1)(B) and not (e)(1)(B). However, § 5318A, as added to the United
States Code by section 312 of this legislation, does not include a subsection (f). The final subsection is (e), and
section (e)(1)(B) defines “correspondent account.” The Interim Guidance refers to the definition of correspondent
account “in 31 U.S.C. 5318A(e)(1)(B), as added by section 311,” indicating that the reference to subsection (f) in the
statute is indeed an error.
December 14, 2001
Page 30
This section requires the Secretary of the Treasury, in consultation with the
Attorney General, the Federal banking agencies, the National Credit Union Administration
Board, the SEC, and such other agencies as the Secretary may determine, to evaluate the
operations of the provisions of this subtitle and make recommendations to Congress as to any
legislative action with respect to this subtitle as the Secretary may determine to be necessary or
advisable. The recommendations are due not later than 30 months after the date of enactment of
this Act.
SEC. 325.
CONCENTRATION ACCOUNTS AT FINANCIAL INSTITUTIONS.
This section amends 31 U.S.C. § 5318(h) to allow the Secretary to amend the
regulations governing the maintenance of concentration accounts (which are not defined) at
financial institutions, in order to ensure that concentration accounts are not used to prevent the
association of the identity of an individual customer with the movement of funds of which the
customer is the beneficial owner. Such amended regulations would, at a minimum: (i) prohibit
financial institutions from allowing clients to direct transactions involving funds in a
concentration account; (ii) prohibit financial institutions and their employees from informing
customers of the existence of, or means of identifying, the institution’s concentration accounts;
and (iii) require financial institutions to establish written procedures governing all transactions
involving a concentration account, including procedures to ensure documentation of transactions
in which funds belonging to one or more customers are commingled.
Comment: The term “concentration accounts” is not defined in the legislation.
Although we presume such accounts are of the type that were the subject of prior Congressional
hearings,25 financial institutions should monitor any proposed regulations to determine the types
of accounts that could be covered by such regulations.
SEC. 326.
VERIFICATION OF IDENTIFICATION.
Section 326 amends 31 U.S.C. § 5318 by adding a section titled “Identification
and Verification of Accountholders.” This is a very important section in terms of the operations
of all financial institutions, and all financial institutions should carefully monitor the regulations
proposed on this issue.
The new section provides that the Secretary shall issue regulations setting
minimum standards for customer identification that shall apply to customers opening an account
at a financial institution. At a minimum, the regulations shall require financial institutions to
implement and customers, after being given adequate notice, to comply with procedures for:
(i) verifying the identity of any person seeking to open an account to the extent
reasonable and practicable;
(ii) maintaining records of the information used to verify a person’s identity,
including name, address, and other identifying information; and
25
See footnote 7 above.
December 14, 2001
Page 31
(iii) consulting applicable lists of known or suspected terrorists or terrorist
organizations generated by government agencies to determine whether a person
seeking to open an account appears on any such list.
In prescribing the regulations, the Secretary is required to consider the types of
accounts maintained by the institution, the various methods of opening accounts, and the various
types of identifying information available.26
This section states that as to any financial institution the business of which is
engaging in financial services described in section 4(k) of the Bank Holding Company Act of
1956 (including financial activities subject to the jurisdiction of the CFTC), the regulations
prescribed by the Secretary shall be prescribed jointly with each Federal functional regulator (as
defined in section 509 of the Gramm-Leach-Bliley Act, including the CFTC) appropriate for
such financial institution.
The Secretary may prescribe by regulation or order exemptions from this section
for any financial institution or type of account in accordance with such standards and procedures
as the Secretary may prescribe.
The effective date of the regulations issued under this section shall be no later
than one year after the enactment of the Act.
Finally, this section requires that within 6 months after the date of enactment, the
Secretary, in consultation with the Federal functional regulators and other appropriate
government officials, submit a report to Congress containing recommendations for determining
the most timely and effective way to require foreign nationals to provide domestic financial
institutions and agencies with appropriate and accurate information, comparable to that which is
required of United States nationals, concerning their identity, address, and other related
information necessary to enable the institutions and agencies to comply with this section;
requiring foreign nationals to apply for and obtain an identification number similar to a Social
Security Number or Tax Identification Number prior to opening an account; and establishing a
system for domestic financial institutions and agencies to review information maintained by
relevant government agencies for purposes of verifying the identities of foreign nationals seeking
to open accounts at the institutions.
SEC. 327.
CONSIDERATION OF ANTI-MONEY LAUNDERING RECORD.
Section 327 provides that under the Bank Holding Company Act of 1956, the
Board of Governors of the Federal Reserve System shall take into consideration the effectiveness
of the company or companies in combating money laundering activities, including in overseas
branches, when determining whether or not it is permissible for a company to become a bank
holding company; for a bank to become a subsidiary of a bank holding company; for a bank
26
Section 118 of H.R. 3004, introduced by Rep. Oxley, would have criminalized the making of false
statements concerning the identity of a customer to a financial institution. This section was not adopted as part of
the Act.
December 14, 2001
Page 32
holding company to acquire direct or indirect ownership or control of any voting shares of any
bank if, after such acquisition, such company will directly or indirectly own or control more than
5 per cent of the voting shares of such bank; for any bank holding company or subsidiary thereof,
other than a bank, to acquire all or substantially all of the assets of a bank; or for any bank
holding company to merge or consolidate with any other bank holding company. This section
shall apply to any application submitted to the Board under section 3 of the Bank Holding
Company Act of 1956 after December 31, 2001.
This section also amends 12 U.S.C. § 1828(c) to include an institution’s
effectiveness in combating money laundering as a factor that the responsible agency must
consider in determining whether a depository institution may merge or consolidate with any
noninsured bank or institution; assume liability to pay any deposits made in, or similar liabilities
of, any noninsured bank or institution; or transfer assets to any noninsured bank or institution in
consideration of the assumption of liabilities for any portion of the deposits made in such insured
depository institution. It applies to applications filed after December 31, 2001.
SEC. 328.
INTERNATIONAL COOPERATION ON IDENTIFICATION OF
ORIGINATORS OF WIRE TRANSFERS.
Section 328 requires the Secretary to take all reasonable steps to encourage
foreign governments to require the inclusion of the originator’s name in wire transfer instructions
sent to the United States and other countries, and requires the Secretary to 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 toward that goal and
impediments to instituting a regime where all appropriate identification is included in wire
transfer instructions.
Comment: This provision will impact foreign banks in that their own regulators
may impose additional requirements upon them to include the originator’s name in wire transfer
instructions directed toward a U.S. institution.
SEC. 329.
CRIMINAL PENALTIES.
This section imposes criminal sanctions on government official and employees or
agents of the government for accepting bribes in connection with the administration of this title.
SEC. 330.
INTERNATIONAL COOPERATION IN INVESTIGATION OF MONEY
LAUNDERING, FINANCIAL CRIMES, AND THE FINANCES OF
TERRORIST GROUPS.
In this section, Congress expresses its “sense” that the President should direct the
Secretary of State, the Attorney General, or the Secretary of the Treasury, in consultation with
the Board of Governors of the Federal Reserve, to seek to enter into negotiations with the
appropriate financial supervisory agencies and other officials of any foreign country. The
purpose of the negotiations would be to seek to enter into and further cooperative efforts,
voluntary information exchanges, the use of letters rogatory, mutual legal assistance treaties, and
December 14, 2001
Page 33
international agreements to ensure that foreign banks and other financial institutions maintain
adequate records of transactions and account information relating to any foreign terrorist
organization or member thereof, and establish a mechanism whereby such records may be made
available to United States law enforcement.
SEC. 351.
AMENDMENTS RELATING TO REPORTING OF SUSPICIOUS
ACTIVITIES.
This section amends 31 U.S.C. § 5318(g)(3) to provide that any financial
institution or employee that makes a voluntary disclosure of any possible violation of law or
regulation to a government agency, or makes a disclosure pursuant to this subsection or any other
authority, shall not be liable to any person. This safe harbor extends to claims under Federal law
or state law or regulation as well as to any contract or other legally enforceable agreement
(including any arbitration agreement) for such disclosure or failure to provide notice of such
disclosure to the person who is the subject of such disclosure or any other person identified in
the disclosure.
Comment: This section was changed to add that the disclosure was to a
government agency. It is not clear why this change was made. Broker-dealers and FCMs
should note that this does not cover reports to self-regulatory organizations, although under the
provisions of section 358, the self-regulatory organizations now may be provided access to the
reports by the Secretary.
A second change that was made by this amendment is that the former statute
provided immunity for disclosure to or failure to provide notice of the disclosure to any person.
The safe harbor continues to protect from liability “to any person” for reporting a suspicious
transaction, but it appears to limit liability for the failure to notify only to the person who is the
subject of the report or to those persons identified in the report.27
Comment: It is not clear why this change was made and it may inadvertently lead
to narrowing of the safe harbor provision. We also note that the section is expanded from the
former law and now applies to private contract actions and arbitrations.
This section that states that immunity is not provided for claims brought by the
government or any agency in a civil or criminal action to enforce any constitution, law or
regulation of such government or agency.
As amended by Section 351(b), 31 U.S.C. § 5318(g)(2) continues to prohibit a
financial institution from notifying a person involved in a transaction that the transaction has
been reported and now precludes officers and employees of the Federal government or any state,
local, tribal, or territorial government who have knowledge of such a report to disclose it to any
person except in the course of official duties.
27
Compare footnote 19 above.
December 14, 2001
Page 34
Notwithstanding the above, the proposed amendment to the statutory safe harbor
would not preclude a financial institution from including such information in a written
employment reference provided that the reference is given in accordance with Federal Deposit
Insurance Act rules in response to a request from another financial institution, or that such
reference is provided in accordance with the rules of the self-regulatory organizations. However,
the written employment reference may not disclose that such information was included in any
report or that a report was made in the first instance. The disclosure is not required. See also
section 355 below.
SEC. 352.
ANTI-MONEY LAUNDERING PROGRAMS.
This section amends 31 U.S.C. §5318(h) to require financial institutions to
establish anti-money laundering programs, including, at a minimum:
(i) the development of internal policies, procedures, and controls;
(ii) the designation of a compliance officer;
(iii) an ongoing employee training program; and
(iv) an independent audit function to test programs.
Subparagraph (2) of this section allows the Secretary, after consultation with the
appropriate Federal functional regulator, to (i) prescribe minimum standards for such anti-money
laundering programs, and (ii) exempt from the application of those standards any financial
institution not subject to the implementing regulations contained in part 103 of C.F.R. Title 31.
This amendment shall take effect 180 days after enactment (or on April 24,
2002). Before the end of the 180-day period beginning on the date of enactment, the Secretary
shall prescribe regulations that consider the extent to which the requirements under this section
are commensurate with the size, location, and activities of the financial institutions to which such
regulations apply.
SEC. 353.
PENALTIES FOR VIOLATIONS OF GEOGRAPHIC TARGETING
ORDERS AND CERTAIN RECORDKEEPING REQUIREMENTS, AND
LENGTHENING EFFECTIVE PERIOD OF GEOGRAPHIC TARGETING
ORDERS.
This section amends 31 U.S.C. § 5322 to provide for criminal penalties for the
violation of geographical targeting orders; 31 U.S.C. § 5324(a) with respect to structuring
transactions to evade targeting orders or recordkeeping requirements; and 31 U.S.C. § 5326(d) to
lengthen the effective period of geographic targeting orders to 180 days.
SEC. 354.
ANTI-MONEY LAUNDERING STRATEGY.
This section amends 31 U.S.C. § 5341, National Money Laundering and Related
Financial Crimes Strategy, subsection (b), Development of Strategy. Section 354 adds to the list
December 14, 2001
Page 35
of factors to be addressed in that strategy “Data concerning money laundering efforts related to
the funding of acts of international terrorism, and efforts directed at the prevention, detection,
and prosecution of such funding.”
SEC. 355.
AUTHORIZATION TO INCLUDE SUSPICIONS OF ILLEGAL
ACTIVITY IN WRITTEN EMPLOYMENT REFERENCES.
This section amends 12 U.S.C. § 1828 (the Federal Deposit Insurance Act) to
permit (but not require) an insured depository institution to disclose in written employment
references requested by another insured depository institution information concerning the
possible involvement of a “current or former institution-affiliated party” in potentially unlawful
activity. However, a voluntary disclosure made with malicious intent is not shielded from
liability to the person identified in the disclosure.
For purposes of this subsection, the term “insured depository institution” includes
any uninsured branch or agency of a foreign bank.
SEC. 356.
REPORTING OF SUSPICIOUS ACTIVITIES BY SECURITIES
BROKERS AND DEALERS; INVESTMENT COMPANY STUDY.
Broker-dealers: Subsection (a) provides that not later than January 1, 2002, the
Secretary, after consultation with the SEC and the Board of Governors of the Federal Reserve
System, shall publish proposed regulations requiring registered broker--dealers to file reports of
suspicious financial transactions. Final regulations are to be published by July 1, 2002.
Futures commission merchants: Subsection (b) provides that the Secretary may
also, after consultation with the CFTC, prescribe regulations requiring FCMs, commodities
trading advisors, and commodity pool operators to submit suspicious activity reports.
Investment Companies: Subsection (c) provides that not later than one year
after the date of enactment of this Act, the Secretary of the Treasury, the Board of Governors of
the Federal Reserve System, and the SEC shall jointly submit a report to Congress on
recommendations for effective regulations to apply Bank Secrecy Act requirements to
investment companies, pursuant to its existing authority under section 31 U.S.C. § 5312(a)(2)(I).
For purposes of this section, the term “investment company” is broadly defined as
(A) having the same meaning as in section 3 of the Investment Company Act of 1940 (15 U.S.C.
80a-3); and (B) being any person that, but for the exceptions provided for in paragraph (1) or (7)
of section 3(c) of the Investment Company Act of 1940 (15 U.S.C. § 80a-3(c)), would be an
investment company. In its report, the SEC may make different recommendations for different
types of entities.
Subsection (c)(4), which relates to beneficial ownership of personal holding
companies, provides that the report described above shall include recommendations as to
whether the Secretary should promulgate regulations to treat any corporation or business or other
grantor trust whose assets are predominantly securities, bank certificates of deposit, or other
December 14, 2001
Page 36
securities or investment instruments (other than such as relate to operating subsidiaries of such
corporation or trust) and that has 5 or fewer common shareholders or holders of beneficial or
other equity interest, as a financial institution within the meaning of that phrase in section
5312(a)(2)(I) and whether to require such corporations or trusts to disclose their beneficial
owners when opening accounts or initiating funds transfers at any domestic financial institution.
SEC. 357.
SPECIAL REPORT ON ADMINISTRATION OF BANK SECRECY
PROVISIONS.
This section provides that not later than 6 months after the date of enactment of
this Act, the Secretary shall submit a report to Congress relating to the role of the Internal
Revenue Service in the administration of subchapter II of the Bank Secrecy Act. This report
shall address and contain recommendations concerning (A) whether it is advisable to shift the
processing of information reporting to Treasury under the BSA provisions to facilities other than
those managed by the Internal Revenue Service; and (B) whether it remains reasonable and
efficient for the Internal Revenue Service to retain authority and responsibility for audit and
examination of the compliance of money services businesses and gaming institutions with those
BSA provisions and shall include specific recommendations regarding the agency or agencies to
which any of these functions should be transferred.
SEC. 358.
BANK SECRECY PROVISIONS AND ACTIVITIES OF UNITED STATES
INTELLIGENCE AGENCIES TO FIGHT INTERNATIONAL
TERRORISM.
Subsection (a) amends 31 U.S.C. § 5311 by adding to the purposes of the BSA
“the conduct of intelligence or counterintelligence activities, including analysis, to protect
against international terrorism.” Subsection (b) authorizes the Secretary of the Treasury to refer
any report of a suspicious transaction to a United States intelligence agency for use in the
conduct of intelligence or counterintelligence activities.
Subsection (c) amends 31 U.S.C. § 5319 to permit the Secretary to make
information contained in reports filed under this subchapter available, for purposes consistent
with this subchapter, to any State financial institutions supervisory agency, any U.S.
intelligence agency, and any self-regulatory organization registered with the SEC or the
CFTC.
Subsections (d) and (e) amend 12 U.S.C. §§ 1829b(a) and 1953(a), respectively,
to state that Congress finds that adequate records maintained by insured depository institutions
have a high degree of usefulness in the conduct of intelligence or counterintelligence activities.
Subsection (f) amends the Right to Financial Privacy Act to include a provision
concerning the availability of records for “intelligence or counterintelligence activity,
investigation or analysis related to international terrorism.”
Subsection (g) adds an exemption to the Fair Credit Reporting Act and permits a
consumer reporting agency to furnish reports on a consumer to a government agency authorized
December 14, 2001
Page 37
to conduct investigations of, or intelligence or counterintelligence activities or analysis related to,
international terrorism, upon receipt of a written certification by a government agency. It
prohibits disclosure to any person, including the consumer, that a government agency has sought
or obtained access to information. It also provides a safe harbor from civil liability “to any
person” for making any disclosure or consumer reports or other information in “good faith”
reliance upon the government agency certification.
SEC. 359.
REPORTING OF SUSPICIOUS ACTIVITIES BY UNDERGROUND
BANKING SYSTEMS.
This section extends the authority of the Government to regulate informal money
transaction systems. First, it amends 31 U.S.C. § 5312(a)(2)(R), which currently states that “a
licensed sender of money” is a financial institution, to read: “a licensed sender of money or any
other person who engages as a business in the transmission of funds, including through an
informal value transfer banking system or network of people facilitating the transfer of value
domestically or internationally outside of the conventional financial institutions system.”
It also amends 31 U.S.C. § 5330(d)(1)(A), which currently defines a “money
transmitting business” to be one which, among other things, “provides check cashing, currency
exchange, or money transmitting or remittance services, or issues or redeems money orders,
travelers’ checks, and other similar instruments,” and adds: “or any other person who engages as
a business in the transmission of funds, including through an informal value transfer banking
system or network of people facilitating the transfer of value domestically or internationally
outside of the conventional financial institutions system.”
Subsection (c) states that any rules promulgated under 12 U.S.C. § 1829b (the
Federal Deposit Insurance Act) shall apply to any person who engages as a business in the
transmission of funds, including through an informal value transfer banking system or network
of people facilitating the transfer of value domestically or internationally outside of the
conventional financial institutions system.
Subsection (d) requires the Secretary to report to Congress, within one year of the
enactment of this Act, on the need for any additional legislation relating to informal value
transfer banking systems or networks of people facilitating the transfer of value domestically or
internationally outside of the conventional financial institutions system, and counter-money
laundering and regulatory controls relating to underground money movement and banking
systems, including whether the threshold for the filing of suspicious activity reports under 31
U.S.C. § 5318(g) should be lowered in the case of such systems.
The term “money transmitting business” as used in this section is defined
narrowly. As defined, it should not affect people or institutions that do not engage in an informal
money transfer system as a business.
Comment: Although this section was added to regulate hawalas, it does not
specifically reference them by name.
December 14, 2001
Page 38
SEC. 360.
USE OF AUTHORITY OF UNITED STATES EXECUTIVE DIRECTORS.
Subsection (a) provides that if the President determines that a particular foreign
country has taken or has committed to take actions that contribute to efforts of the United States
to respond to, deter, or prevent acts of international terrorism, the Secretary may, consistent with
other applicable provisions of law, instruct the United States Executive Director of each
international financial institution to use the voice and vote of the Executive Director to support
any loan or other utilization of the funds of respective institutions for such country, or any public
or private entity within such country.
Subsection (b) provides that the Secretary may instruct the United States
Executive Director of each international financial institution to aggressively use the voice and
vote of the Executive Director to require an auditing of disbursements at such institutions to
ensure that no funds are paid to persons who commit, threaten to commit, or support terrorism.
Subsection (c) defines the term “international financial institution” to mean an
institution described in section 1701(c)(2) of the International Financial Institutions Act (22
U.S.C. § 262r(c)(2)). As defined in that section, the term “international financial institution”
means “the International Monetary Fund, International Bank for Reconstruction and
Development, International Development Association, International Finance Corporation,
Multilateral Investment Guarantee Agency, African Development Bank, African Development
Fund, Asian Development Bank, Inter-American Development Bank, and Inter-American
Investment Corporation.”
SEC. 361.
FINANCIAL CRIMES ENFORCEMENT NETWORK.
Section 361 adds 31 U.S.C. § 310, which provides for the Financial Crimes
Enforcement Network (“FinCEN”) to be a bureau of the Department of the Treasury and details
FinCEN’s Director’s duties and powers, and the bureau’s requirements relating to maintenance
and use of data banks. This section also provides for the Secretary to study methods for
improving compliance with the reporting requirements of 31 U.S.C. § 5314, Records and
Reports on Foreign Financial Agency Transactions, which requires a person doing business with
a foreign financial agency to keep records and file reports when the person makes a transaction
or maintains a relation for any person with a foreign financial agency. The records and reports
are to include the identity and address of participants in a transaction or relationship, the legal
capacity in which a participant is acting, the identity of real parties in interest, and a description
of the transaction. Section 361 provides that the Secretary will submit a report on such study to
Congress by the end of the 6-month period following enactment of the Act, and to submit
follow-up reports each 1-year period thereafter.
SEC. 362.
ESTABLISHMENT OF HIGHLY SECURE NETWORK.
This section provides that the Secretary shall establish a highly secure network in
FinCEN that allows financial institutions to file reports through the network and provides
financial institutions with alerts and other information regarding suspicious activities that
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warrant immediate and enhanced scrutiny. The section requires that the network be fully
operational before the end of the 9-month period following enactment of this Act.
SEC. 363.
INCREASE IN CIVIL AND CRIMINAL PENALTIES FOR MONEY
LAUNDERING.
This section amends 31 U.S.C. § 5321(a) by adding subsection (7) (“Penalties for
International Counter Money Laundering Violations”) to increase civil penalties for money
laundering violations to an amount equal to not less than two times the amount of the transaction,
but not more than $1,000,000, for any financial institution or agency that violates any provision
of subsection (i) or (j) of § 5318 as added by sections 312 and 313, above, or any special
measures imposed under § 5318A as added by section 311, above.
This section also amends 31 U.S.C. § 5322 (relating to criminal penalties) to
increase such penalties for violations of any provision of subsection (i) or (j) of § 5318 as added
by sections 312 and 313, above, or any special measures imposed under § 5318A as added by
section 311, above, or any regulation prescribed under subsection (i) or (j) of § 5318 or § 5318A,
to an amount equal to not less than two times the amount of the transaction, but not more than
$1,000,000.
SEC. 364.
UNIFORM PROTECTION AUTHORITY FOR FEDERAL RESERVE
FACILITIES.
Section 364 authorizes personnel at Federal Reserve facilities to act as law
enforcement officers to protect and safeguard the premises, grounds, property and personnel or
operations.
SEC. 365.
REPORTS RELATING TO COINS AND CURRENCY RECEIVED IN
NONFINANCIAL TRADE OR BUSINESS.
Section 365 creates 31 U.S.C. § 5331, Reports Relating to Coins and Currency
Received in Nonfinancial Trade or Business. The section is applicable to any trade or business
other than a financial institution that is subject to the reporting requirements of 31 U.S.C. § 5313
(which requires domestic financial institutions to report certain coin and currency transactions)
and the ensuing regulations.
Specifically, section 365 provides that any person who is engaged in a trade or
business and who, in the course of such trade or business, receives more than $10,000 in coins or
currency in one transaction (or two or more related transactions) must file a report with FinCEN
according to regulations to be promulgated by the Secretary. The form of the report will be
prescribed by the Secretary, and will include identifying information of the person from whom
the coins or currency was received, the amount received, the date and nature of the transaction,
and other information, including the identification of the person filing the report, as prescribed
by the Secretary. Excepted from the reporting requirement are transactions occurring entirely
outside the United States. Currency includes foreign currency and, to the extent provided by the
Secretary in regulations, any monetary instrument with a face amount of not more than $10,000.
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Although section 365 does not directly reference 26 U.S.C. § 6050I of the Internal
Revenue Code, this new section requires the filing of a report to FinCEN of the same type of
information presently required on a return under section 6050I. Although implementation of this
section could require duplicate reporting, it is more likely that the regulations will eliminate
duplicate reporting. For example, presently, section 6050I(c)(1) does not apply to “cash received
in a transaction reported under Title 31, United States Code, if the Secretary determines that
reporting under this section would duplicate the reporting to the Treasury under title 31, United
States Code.” Under the regulations that were implemented under section 6050I,28 financial
institutions as defined in paragraphs (A-G) and (J),(K) (R) and (S) of section 5312(a)(2) of Title
3129 are presently not required to file such reports under section 6050I. Since the information
required by the two sections is identical, institutions that are required by any implementing
regulations to file such reports with FinCEN should presumably be exempted from the reports
required by the Internal Revenue Code.
Comment: Given the legislative history of this section and the number of changes
it went through, it appears that this was an attempt to shift the IRS reporting provision to the
Bank Secrecy Act in order to provide the Treasury department with access to the types of reports
filed under the Internal Revenue Code provisions. Presently, this information is not available to
all of those who have access to FinCEN’s database. The question that arises is whether the
existing provision of 6050I will have any applicability once these regulations are proposed.
Firms such as FCMs that are not presently covered by BSA implementing regulations, and other
financial institutions, such as insurance companies, may be covered by these new provisions
once the regulations are adopted.
Section 365 prohibits structuring transactions (and assisting structuring) to evade
these reporting requirements or any regulations prescribed thereunder.
Regulations to implement this section must be filed in final form before the end of
the 6-month period after the enactment of the Act.
SEC. 366.
EFFICIENT USE OF CURRENCY TRANSACTION REPORT SYSTEM.
Section 366 requires the Secretary to perform a study and issue a report as to
possible expansion of the currency transaction reporting exemption system and methods for
improving financial institution utilization of the statutory exemption provisions as a way of
reducing the submission of currency transaction reports that have little or no value for law
enforcement purposes. The report to Congress is required within one year of enactment of this
Act.
SEC. 371.
BULK CASH SMUGGLING INTO OR OUT OF THE UNITED STATES.
28
See 26 C.F.R. section 1.6050I-1(d).
29
See footnote 3 for description of these financial institutions.
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This section makes the act of smuggling bulk cash (currency “or other monetary
instruments” over $10,000) a criminal offense, authorizes forfeiture of any cash or instruments of
the smuggling offense and emphasizes the seriousness of the act of bulk cash smuggling.
Penalties include up to 5 years imprisonment.
SEC. 372.
FORFEITURE IN CURRENCY REPORTING CASES.
Section 372 provides that violations of the currency reporting requirements carry
criminal and civil forfeiture penalties. All property involved in the offense may be subject to
forfeiture.
SEC. 373.
ILLEGAL MONEY TRANSMITTING BUSINESSES.
Section 373 amends 18 U.S.C. § 1960, providing for criminal penalties for
knowingly operating, controlling, overseeing or owning an unlicensed money transmitting
business.
SEC. 374.
COUNTERFEITING DOMESTIC CURRENCY AND OBLIGATIONS.
Section 374 amends 18 U.S.C. § 470, involving counterfeiting acts committed
outside the United States, including lengthening criminal sentences and expanding counterfeiting
to include the use of analog, digital or electronic images.
SEC. 375.
COUNTERFEITING FOREIGN CURRENCY AND OBLIGATIONS.
Section 375 amends 18 U.S.C. § 478, involving counterfeiting foreign monetary
instruments (including obligations and securities). Similar to section 374, this section lengthens
criminal sentences and expands counterfeiting to include the use of analog, digital or electronic
images.
SEC. 376.
LAUNDERING THE PROCEEDS OF TERRORISM.
Section 376 adds “providing material support or resources to designated foreign
terrorist organizations” as a predicate offense to money laundering under the money laundering
statute, 18 U.S.C. § 1956.
SEC. 377.
EXTRATERRITORIAL JURISDICTION.
Section 377 amends 18 U.S.C. § 1029 by adding subsection (h), which provides
that any person engaging in an act outside the United States that would be an offense under
subsections (a) or (b) of this section if committed in the United States, shall be subject to fines,
penalties, imprisonment, and forfeiture if the offense involves an access device issued, owned,
managed, or controlled by a financial institution, account issuer, credit card system member, or
other entity within the jurisdiction of the United States, and the person transports, delivers,
conveys, transfers to or through, or otherwise stores, secrets, or holds within the jurisdiction of
the United States, any article used to assist in the commission of the offense or the proceeds of or
property derived from such offense.