Treasury Announces Final and Proposed Rules Under USA Patriot Act

September 18, 2002

The Treasury Department today took major steps in its regulatory program to shore up the U.S. financial system against criminal and terrorist activity. It issued five rules pertaining to financial institutions, from casinos to hedge funds to shell banks. The rules address suspicious activity reporting, anti-money laundering program requirements, prohibitions on maintaining accounts for foreign shell banks, and information sharing between the government and the financial community. Written comments on the proposed rules may be submitted within 60 days of their publication in the Federal Register, which is expected to occur later this week.

The Treasury Department issued a final rule implementing sections 313 and 319 (b), which are two key provisions of the Act aimed at preventing money laundering and terrorist financing through correspondent accounts maintained by U.S. banks and securities brokers on behalf of foreign banks. The final rule continues to authorize U.S. banks and securities brokers to use a certification form to comply with both the shell bank prohibition as well as the recordkeeping requirements of section 319(b). The form, which is sent to all foreign banks with correspondent accounts, requires the foreign banks to do the following: (1) certify that they are not shell banks; (2) certify that they will not permit shell banks access to the U.S. correspondent account; (3) identify the owners of the bank; and (4) identify a U.S. agent for service of process. While U.S. banks and securities brokers are not required to use this form to comply with the regulation, it is a safe harbor from liability for failing to comply with the regulation.


Treasury issued a final rule implementing section 314 that establishes procedures that encourage information sharing between governmental authorities and financial institutions, and among financial institutions themselves. The first part of the rule establishes a mechanism for law enforcement to communicate names of suspected terrorists and money launders to financial institutions in return for securing the ability to locate promptly accounts and transactions involving those suspects. Financial institutions receiving the names of those suspects must search their account and transaction records for potential matches. The second part of the rule outlines how financial institutions can share such information, and similar information concerning suspected terrorist activity and money laundering, with another financial institution under the protection of the statutory safe harbor from liability.

The Department issued a proposed rule requiring insurance companies to establish an anti-money laundering program, as specified under section 352 of the Act. Insurance companies are defined as life insurance companies and any other insurance company that offers products with investment features or features of stored value and transferability. Under the rule, a company must establish and maintain a written anti-money laundering program that at a minimum: (i) incorporates internal policies, procedures, and controls based on the company's assessment of its money laundering risks; (ii) designates a compliance officer; (iii) establishes an ongoing employee training program; and (iv) establishes an independent audit function to test programs.

Treasury issued a proposed rule requiring investment companies not registered with the Securities and Exchange Commission to establish an anti-money laundering program as specified under section 352 of the Act. The unregistered investment companies covered by the proposed rule include hedge funds, commodity pools, and investment companies investing in real estate. Under the rule, these non-registered investment companies must establish an anti-money laundering program that includes, 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. Section 352(c) of the Act directs the Secretary to prescribe regulations for anti-money laundering programs that are "commensurate with the size, location, and activities" of the financial institutions to which such regulations apply. Treasury deferred this rulemaking in April of this year.

Treasury also issued a final rule requiring all casinos and card clubs located in the United States with gross annual gaming revenue of more than $1 million to file a suspicious activity report (SAR) with Treasury's Financial Crimes Enforcement Network on all transactions of at least $5,000 that the casino "knows, suspects, or has reason to suspect" fall into specific categories. This rule, which was issued under the Bank Secrecy Act, will take effect 180 days after its publication in the Federal Register. An accompanying SAR form is being published as well.

Source: The Treasury Department

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