USA Patriot Act

The Patriot Act affects financial institutions through its Title III provision, also known as the “International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001.” This section is designed to detect individuals involved in money laundering and terrorism financing. Under this law, banks are required to investigate accounts owned by political figures suspected of past corruption.

The Patriot Act also makes it a crime to hide more than $10,000. Similarly, under the Bank Secrecy Act (BSA), also known as The Currency and Foreign Transactions Reporting Act, financial institutions have to report cash purchases that exceed the $10,000 threshold or more each day. This helps to identify potential suspicious activities and crimes like tax evasion. 

According to the Financial Crimes Enforcement Network (FinCEN), the USA PATRIOT Act’s main goal is to:

• Deter and punish terrorist acts in the US and on a global scale.
• Enhance law enforcement investigatory tools.

The Patriot Act also aims to enhance information sharing and cooperation among government agencies to improve their ability to communicate and respond more swiftly to prevent potential attacks.

The USA Patriot Act significantly strengthened anti-money laundering (AML) laws in the United States by:

• Criminalizing the act of financing terrorism
• Tightening customer identification requirements under the BSA
• Mandating that US financial institutions implement due diligence procedures
• Imposing enhanced due diligence (EDD) procedures for high-risk accounts
• Broadening the definition of “financial institution” to include more types of businesses
• Prohibiting US financial institutions from conducting business with foreign shell banks

To keep in line with AML compliance regulations, the USA Patriot Act requires obliged entities to develop and implement their own processes and policies, also known as the AML program. 

It typically consists of various screening and monitoring measures and should be based on the following steps:

• Establishing a risk-based Customer Identification Program (CIP) to verify customer identities.
• Appointing an AML compliance officer who oversees and manages the company’s AML program.
• Building in-house AML policies, processes, and controls.
• Training staff in order to maintain the latest knowledge about changes in AML laws.
• Testing and auditing the program by independent third parties to ensure full transparency. 
• Keeping up with data collection, record-keeping and suspicious activity reporting requirements. 

The USA Patriot Act requires companies to conduct identity verification and ensure that their customers are genuine.

This regulatory requirement is part of the customer due diligence (CDD) framework, which obliges regulated bodies to:

• Collect and verify personal details, such as the customer’s name, address, and date of birth. 
• Screen customers against global watchlists and sanctions lists, such as the United States’ Office of Foreign Assets Control (OFAC).
• Maintain records and conduct continuous monitoring to facilitate ongoing due diligence.

The goal of customer verification is to ensure that the person isn’t involved in any unlawful activities, such as money laundering and other financial crimes.

The USA Patriot Act broadened the definition of “money laundering” to include:

• Computer crimes
• Bribery of elected officials
• Fraudulent handling of public funds
• Exportation or importation of controlled munitions without approval from the US Attorney General