One response to the tragic events of September 11th was Congress’s enactment of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act"). The USA PATRIOT Act is extremely broad in scope and applies to numerous businesses, many of which have not previously been subject to governmental regulation. The USA PATRIOT Act will directly impact the following types of businesses:
Banks, saving associations, credit unions and private bankers; Registered securities broker/dealers and futures commission merchants; Money services businesses, credit card operators, currency exchanges and loan or finance companies; Dealers in precious metals, stones or jewels; Pawnbrokers; Travel agencies; Insurance companies; Telegraph companies; Sellers of vehicles, including automobiles, airplanes and boats; Persons engaged in real estate closings and settlements; Investment bankers and investment companies; Casinos; and Commodity pool operators and commodity trading advisors.
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Title III of the USA PATRIOT Act, known as the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 ("AFTA"), requires individuals and organizations engaged in any of the businesses listed above to establish an anti-money laundering program that includes, at a minimum:
The development of internal policies, procedures and controls to detect and prevent money laundering;
The designation of a compliance officer to supervise the anti-money laundering program;
An ongoing employee training program; and
An independent audit function to test the effectiveness of the anti-money laundering program.
Effective anti-money laundering programs will develop internal policies and procedures to address "know your customer" rules, "account monitoring" activities and Office of Foreign Asset Control ("OFAC") screenings. "Know your customer" rules require identification of your customers and verification of their identity and personal information. "Account monitoring" procedures should be designed to detect and prevent money laundering. Businesses are to monitor customer accounts for suspicious activities, including activities inconsistent with a customer’s business and unusual financial activity. In addition, AFTA requires companies subject to the USA PATRIOT Act to determine whether new and current customers are persons or organizations listed on OFAC’s Web site under "Terrorists" or "Specially Designated Nationals and Blocked Persons," or on the list of embargoed countries and regions. A number of vendors have developed software to conduct these searches.
The person designated as the compliance officer to oversee the anti-money laundering program need not be an officer of the company, but he or she should be someone with sufficient authority, training and ability to effectively supervise the day-to-day implementation of the anti-money laundering program. In certain businesses, the Chief Financial Officer or Comptroller might be best suited to serve as compliance officer.
An effective on-going employee training program will train company employees that (1) interact with customers, (2) handle funds coming in or going out, or (3) have compliance or audit responsibilities. In addition, training should be conducted for all employees at the time of their initial employment and at least annually thereafter. At a minimum, employees are to be instructed generally about the anti-money laundering program, typical anti-money laundering schemes and the penalties imposed for non-compliance with the anti-money laundering rules.
The independent audit may be internal, but the compliance officer may not supervise or conduct the audit. Businesses that employ a small number of people may find it difficult to conduct an independent internal audit, and as such, may be required to hire an outside person to audit and test the adequacy of its anti-money laundering program. The results of the audit must be reported to senior management and/or the board of directors.
The compliance deadline for banks, credit unions, savings associations, registered brokers and dealers, investment bankers, futures commission merchants and casinos was April 24, 2002, and for mutual funds, operators of credit card systems and money services businesses is July 24, 2002. All other businesses that fall within the aforementioned categories must comply with these requirements no later than October 24, 2002.
Enforcement of the USA PATRIOT Act is one of the federal regulators’ top priorities, and failure to comply could result in the imposition of severe civil and/or criminal penalties. Therefore, if your business falls within one of the categories listed above, you should have already implemented or be preparing to implement an effective anti-money laundering program.
Joshua M. Erickson, an associate in the Technology Law, Securities and Corporate Practice Groups at Hinckley, Allen & Snyder LLP, represents individuals and businesses in connection with a variety of business and financing issues.
