Banks get drafted into the war on terrorism
By Jay MacDonald • Bankrate.com

Will America's war on terrorism change the way you bank? Maybe.

The 9-11 attacks already have dramatically changed the way we live. Public buildings, bridges and national monuments, once symbols of America's many freedoms, are now under guard. Airport security may require you to remove your shoes, your belt, even your bra before boarding a flight. We no longer take our postal workers or our firefighters for granted.

Now, the way your money is handled is about to be drafted into the war on terrorism. And the cost to arm America's new financial troops is likely to be passed on to bank customers.

Stopping the terrorist cash flow
On Oct. 26, 2001, President Bush signed into law the USA Patriot Act. The name is an acronym for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism.

The far-reaching measure gives unprecedented powers to the FBI, CIA and other government agencies to ferret out potential terrorists. Among the tools deemed appropriate by the bill are two specific ways to stop money laundering, viewed by law enforcement as the lifeblood of terrorism:

1. Identification and verification: The law calls for minimum procedures by which banks and other financial institutions (including insurance companies and securities dealers and brokers) identify and verify a customer seeking to open a new account.

2. Compliance: The act underscores and broadens existing laws requiring financial institutions to report suspicious activity and comply with requests from law enforcement for financial records.

The Treasury Department must come up with final regulations by Oct. 26 to govern identification and verification of new account holders.

If all goes as the banking industry hopes, when the deadline arrives most customers won't notice a major change when they go to open an account. Nonresidents, however, will likely encounter greater scrutiny.

Closing the identity gap
John Byrne, senior counsel for the American Bankers Association, helped an eight-member team of bankers draft a new-account identification and verification guide in the weeks immediately following 9-11.

Noting the ease with which false identification can be obtained, the guide lists four vulnerabilities in identifying customers:

• Lack of uniform procedures for official state identifications;
  
  
• Lack of governmental verification processes;
  
  
• Lack of meaningful biometric identifiers, and
  
  
• Lack of real-time commercial verification products.

"The guide is just that, a guide," says Byrne. "We felt it was important just to get a document out there for the compliance officers who need to figure what makes sense going forward when we don't know what the regulations are going to look like.

"Certainly Treasury has said that for this to work, it needs to be generic, it needs to be flexible, and you cannot make it a one-size-fits-all."

Getting to know the customer
America's smaller banks certainly share that last sentiment. They have long prided themselves on knowing their customers, and don't relish the idea of asking them for proof of the obvious.

"The larger banks tend to be in situations where they have more to watch. They may be involved in large international operations and a lot of our members aren't," says Rob Rowe, regulatory counsel for the Independent Community Bankers of America.

"Many of our members are located in rural communities where they do know their customers," says Rowe. "In fact, they probably went to high school together, which does make the need for some kind of sophisticated screening software less necessary. A bank is not a bank is not a bank. They're not all the same."

Michael Briggs, regulatory counsel for America's Community Bankers, agrees.

"Depending on how the regulations are proffered, there might be some changes in terms of account opening procedures," he says. "But these new provisions, when they are implemented, need to take into account the size and complexity of an individual institution and the nature of their customer relationship."