Illinois Business Journal - U.S. Patriot Act designed to prevent terrorism

In an effort to combat terrorism, the government and other entities, including banks, have taken many steps.

The United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, known as the USA Patriot Act, was passed by Congress and signed into law by President Bush on Oct. 26, 2001, in direct response to the terrorism of Sept. 11.

Debbie Carbonell, internal auditor, compliance and security officer for Security Bank in Springfield, said that some sections of the act are already in effect while others are pending.

"Section 326, which implements procedures for verifying the identity of persons opening accounts, does not go into effect until Oct. 25 of this year," she said.

Carbonell said that what the act is primarily focusing on is the control of money laundering in the United States to help nip terrorism in the bud.

One of the biggest things the Patriot Act is concentrating on is customer identity. Specifically, banks are required to have a customer identification program for people opening accounts. Financial institutions are required to identify the persons and the business to determine that they are who they say they are. They must provide banks with correct identification and a Social Security number.

Carbonell said that, in the past, Social Security numbers were sometimes totally invented.

"Banks really should have had similar programs in place even before Sept. 11, but now the controls are really tightened up and a program must be in place," she said.

Regulatory representatives performing exams when they come into the bank will regulate procedures verifying the identities of customers. They will look at procedures and records that were used when new accounts were opened. Such things as addresses, birth dates and Social Security information should be verified to make sure that it all makes sense. he was born in 1960 may use a Social Security number that wasn't issued until 1971 and that should send up a red flag," Carbonell said.

Institutions that do not comply with the new procedures will incur large penalties in the form of fines.

Regulatory agencies who have worked together to form the USA Patriot Act include the Federal Deposit Insurance Corp., the Treasuries Financial Crimes Enforcement Network, Office of Comptroller of the Currency, the Federal Reserve, Office of Trust Supervision, the National Credit Union Administration, Office of Thrift Supervision, the Securities and Exchange Commission and the Commodities Futures Trading Commission.

"It's not going to be a huge change for financial institutions because they were supposed to have a 'know your customer' program, but it is tightening up the procedures," Carbonell said. "I think the ones that are really going to be affected and make bigger changes are securities brokers, for instance. In the past, they weren't required to have all of this information."

Carbonell said that because the Securities and Exchange Commission was one of the agencies involved in putting this act together, the securities companies will be required to be more stringent in identifying customers.

"Another regulation being addressed is the Bank Secrecy Act, which should also help with money laundering," Carbonell said. "Money laundering is the means used to get money in and out of this country to fund such terrorist acts as the attack on the World Trade Center and surrounding events."

The Bank Secrecy Act was passed in the 1970s and required banks to complete currency transaction reports for transactions of more than $10,000.

"This is something that will be looked at more than ever," Carbonell said. "Also, a suspicious activity report is a requirement of the Secrecy Act. If you think you have a customer who is performing illegal acts through his account at the bank, you are required to fill out a suspicious activity report that goes to the government."

Suspicious activities may include large sums of money going into or out of an account that are uncommon to the account transaction history. Examples include a retired person who starts bringing in large sums; wire transfers that are going to different countries; multiple deposits; large deposits or withdrawals just under the $10,000 limit; and a customer who comes in with a deposit more than the $10,000 limit who suddenly changes his mind when he finds out there will be a report filed with personal information.

Carbonell said that all banking personnel are trained at least on an annual basis on how to spot such things and how to complete the forms and reports.