Title III of the USA Pariot Act - the International Money Laundering Abatement and Anti-Terrorist Funding Act of 2001 - profoundly expands existing U.S. money laundering laws.
For most domestic financial institutions, the new law will expand money-laundering obligations and will require substantial revisions to existing compliance policies and procedures. It will also require foreign financial instititution with assets in the United States , which have never before been directly subject to U.S. financial regulation, to accept broad new anti-money laundering obligations as a condition for doing business in the United States .
The Act includes coverage of domestic broker-dealers and other non-depository financial instititutions I the United States , expanding the scope of obligations for such institutions. It mandates the issuance of proposed Suspicious Activity reporting (SAR) regulations governing brokers and dealers by January 1, 2002 , with publication of final rules no later than July 1, 2002 . It also provides a schedule for regulating futures commission merchants, commodity trading advisors, and commodity pool operators, and lays the groundwork for future money laundering regulation of investment companies.
The Act also explicitly mandates issuance of new "know-your-customer" requirements to identify and verify account holders for anyone opening an account at any U.S. financial institution.
In addition, the Act would punish domestic and foreign banks that fail to adhere to high standards to combat money laundering by requiring U.S. regulators to consider their money laundering record - including that of their overseas branches - in making decisions regarding acquisitions and mergers. Sanctions for violations of the new law can be imposed in an amount twice that of the sum involved in the transaction, up to $1 million per violation.
Under the Act, information form SARs and currency transaction reports covered by the Bank Secrecy Act may now be shared by the Treasury Department with a broad range of other agencies - ranging from the criminal investigations divisions of the Central Intelligence Agency and the Internal Revenue Service to state regulators. Previously protected consumer reporting information covered by the Fair Credit Reporting Act may also be disclosed to intelligence agencies.
In other significant provisions the Act:
Prohibits, within 60 days from enactment, maintenance of U.S. correspondent accounts of "foreign shell banks";
Mandates special due diligence and enhanced know your customer procedures for: (1) U.S. private banking and correspondent banking accounts that involve foreign person; (2) correspondent banking accounts that involve foreign offshore banks; and (3) correspondent banking accounts of foreign banks in countries designated as "noncooperative" by intergovernmental groups in which the U.S. participates;
Grants the Secretary of the Treasury discretionary authority to require domestic financial institutions to (1) report transactions involving suspect foreign jurisdictions or instititution, transaction or type of account deemed to be a primary money laundering concern; and (3) identify every customer of payable-through and correspondent accounts.
Authorizes the Secretary of the Treasury to prohibit the opening, maintenance or use of correspondent or payable-through accounts involving jurisdictions of "primary money laundering concern"; and
Requires underground banking institutions or "hawalas" to report suspicious transactions and to otherwise live up to anti-money laundering laws, or face the risk of criminal sanctions.
Broadened coverage of foreign money laundering under the Act is especially notable. The Act makes laundering the proceeds of foreign corruption a covered money-laundering criminal offense. It also explicitly creates long-arm jurisdiction over money laundering, if any part of a money-laundering financial transaction occurs in the United States , or if the foreign person is a financial instititution with a bank account at a financial institution in the United States .
The Act requires foreign banks with correspondent accounts in the United States to respond to subpoenas of overseas documents pertaining to money laundering wherever such documents may be held, and to appoint agents in the United States to accept service of subpoenas as a condition for maintaining an account. Accounts of foreign banks that fail to respond within seven days must then be closed by U.S. banks, which in turn become subject to sanctions if they fail to do so within another ten days. A 60-day grace period is provided from the date of enactment before these provisions come into effect.
The timetable for implementation of most provisions of Title III of the USA Patriot Act is aggressive. Some provisions, including the issuance of "know-your-customer" regulations, provide one year from the date of enactment for the issuance of final regulation. Others involve shorter timetables.
For example, the Treasury Department must create a "highly secure network" for SAR reporting by financial institutions within nine months. Final regulations covering policies, procedures and controls over private banking, offshore banking, and certain correspondent accounts must also be issued within nine months, with the law's obligations becoming effective at that time even if the regulatory process is incomplete. Regulations requiring comprehensive anti-money laundering programs at financial institutions must be issued within six months from passage, or by March 26, 2002 . Draft issuance of broker-dealer SARs is required by January 1, 2002 , with final regulations to be adopted no later than July 1, 2002 . Other timetables are even shorter: the prohibition on U.S. correspondent accounts with foreign shell banks takes effect December 26, 2001 .
In sum, Title III of the Act imposes a broad assertion by the U.S. of federal authority over financial institutions wherever located regarding money laundering, and sets forth an aggressive and ambitions schedule for new regulations to be issued, requiring the development and implementation of new compliance programs by thousands of financial institutions in the United States and overseas.