THE LATEST MONEY LAWS and how they might AFFECT YOU!
The anti-money-laundering provisions of the Patriot Act* are about to be
noticed by consumers who open new accounts with financial institutions.
Even if you have a checking account with a bank and you decide to open
an IRA or a savings account with the same bank, you can expect to be
asked some prying questions that may make you uncomfortable. Banks,
savings associations, credit unions, brokerages and mutual funds are
expected to comply with the provisions as of Oct. 1 2005. Background checking
Here is what is required when a new account is opened:
A. The institution must verify the identity of any person seeking to
open an account by obtaining customer identification that includes:
1. Name 2. Date of birth 3. Address 4. Identification number -- a taxpayer
identification number for American citizens or a government-issued
document for noncitizens.
B. The institution must maintain records of the information used to verify
the person's identity. Originally, the regulations required financial institutions
to keep a photocopy of whatever document was used for identification. That rule has been
changed; they will only have to keep a written record of the document.
C. Determine whether the person appears on any lists of known or
suspected terrorists or terrorist organizations provided to the
financial institution by any government agency.
Those provisions may seem fairly harmless, but Boston-based Dalbar, a financial industry
consulting firm, says institutions have the ability to ask much more
intrusive questions should they decide it's necessary. For instance,
Dalbar says institutions could include questions about:
* Other accounts with links to the customer
* Nature of the customer's business and occupation
* Name and address of employer
* Customer's wealth
* Source of customer's income
* Customer's tax status
* Source of customer's funds used to open account
* Customer's investment objective
"The regulations require a very limited amount of documentation: a valid
drivers license or passport for a foreigner, valid street address and
date of birth. They'll also check the suspect database," says Charles
O'Neill of Dalbar. "But elsewhere in the regulations it's stated very
clearly that the institution has an obligation beyond those
requirements. The institution is still responsible for knowing their
customers." O'Neill says how much scrutiny you're subjected to could
depend, in part, on the nature of your transactions and the amount of
money. "If you open an account with $100,000, you'll undoubtedly be
asked for more than a driver's license. You may be asked where you have
other financial accounts and crosschecked against other financial
institutions and credit reports. "If you ordinarily maintain an average
balance of $3,000 and over the course of three months you deposited two
or three checks for $25,000 each, those transactions could be flagged.
But it's also likely that based on their knowledge of you, perhaps you
have a mortgage with them, they would cross reference you against other
accounts and determine there is no suspicious or illegal activity."
If an institution does suspect suspicious activity, don't expect to be told
of an investigation. The law states that "the financial institution,
director, officer, employee, or agent many not notify any person
involved in the transaction that the transaction has been reported."
O'Neill says some customers might simply be notified that their account
has been frozen. "People could be sensitive about not being told why
their account is frozen," O'Neill says. "That will happen rarely. There
will be some circumstances in which it will occur where the individual
is perfectly innocent. But you can be confident that when a Suspicious
Activity Report is filed, that particular matter will be addressed by
federal authorities very quickly. "Consider that several hijackers
opened bank accounts and obtained credit cards with false Social
Security numbers just a couple years ago. If there's over-documentation
now, to me it's reasonable." Banks vs. bad guys Krista Shonk, regulatory
specialist with America's Community Bankers, says banks have long been
required to report suspicious activity and the reason customers aren't
told is because doing so could compromise the investigation. Shonk says
banks will continue to check all customers against a list of known
terrorists and money launderers that's issued by the Office of Foreign
Assets Control, but she adds that there is some concern about a list
generated by law enforcement agencies of people who are merely suspects.
"The OFAC list is bona fide bad guys. The 314A is a list of people
suspected of money laundering or terrorism," says Shonk. "It's flexible.
The concern is these are people who are suspected. Banks need to check
customers against the 314A list, but they shouldn't use it to blackmail
people." But Shonk agrees with other banking industry representatives
that most legitimate consumers will hardly notice the implementation of
the new regulations. "Generally, most customers will see absolutely no
change," says John Hall, spokesman for the American Bankers Association.
"Banks have a long history of doing due diligence in account openings.
Our industry has always had the Bank Secrecy Act, which deals with
account opening procedures. This is just codifying what's already in
place." Little banks feel big pressure But some institutions clearly are
struggling to comply with the regulations. First Community Bank in
Whitehall, Ohio, has three branches and a total of 35 employees. "It's a
lot of work for a small bank," says Kristy Nugent, vice president,
comptroller and compliance officer. "We have so few people to do this.
It's additional work on top of their regular duties." Being a small town
bank also means customers may be a bit more put off by employees asking
too many questions. "The customers come here because they want to know
you on a personal basis, but they don't necessarily want to give you all
their personal information," Nugent adds. "They could have a checking
account with us and if they come in and open a savings account or take
out a loan, we'll have to go through the background check and they won't
like that. "We have signs in the lobbies saying that we'll be doing
background checks. This way they can turn around and walk out." One
thing that will likely affect all customers is the increased costs
involved with implementation of the anti-money-laundering provisions of
the Patriot Act. Dalbar estimates that labor costs involved in opening a
new account will jump from current costs of about $7.75 to an estimated
$22 under the new rules. "One way or another, financial institutions
will have to find a way to recover (the costs) and ultimately some
portion will trickle down to the customer," says O'Neill. "I don't think
we've seen a lot of evidence of that yet. Maybe companies can absorb a
certain percentage, but on an ongoing basis, depending on the absolute
cost of compliance, it's most likely customers will pay."
*To deter and punish terrorist acts in the United States and around the
world, to enhance law enforcement investigatory tools, and for other
purposes." -- From the Patriot Act, Congress, Oct. 24, 2001
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