New law declares open season on bank records
By Jay McDonald • Bankrate.com

As America commemorates the lives and innocence lost one year ago to terrorist attacks, some believe Congress may have granted dangerously broad powers to federal agencies in its rush to respond to the events of Sept. 11.

Just weeks after the attacks, Congress overwhelmingly passed the far-reaching USA Patriot Act. The law's name is itself an equally ambitious acronym: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism. The sweeping legislation gives unprecedented powers to a host of federal agencies, including the FBI, CIA, DEA, INS, IRS, Customs, Secret Service and Postal Inspection Service, to obtain and share information in their searches for terrorists in our midst.

And it's not just government agencies that have been drafted to fight terrorism. The law requires the bank down the block, among other private industries, to pry a bit deeper in some customers' lives in the name of homeland security.

"This law is dangerous, it's a travesty," says Jennifer Van Bergen, a lawyer and board member of the American Civil Liberties Union of Broward County, Fla. "If you think this law applies only to the bad guys who attacked our nation, think again. Many provisions in this law apply to and will affect Americans in many bad ways."

Finance joins the front lines
If Americans are aware of the Patriot Act at all, it's probably for provisions that loosen search-and-seizure laws and tighten immigration. But the changes wrought by Title III, which addresses terrorist financing and money laundering, could have broad implications for your financial privacy.

This section of the law enlists an expanded range of financial institutions, including banks, securities brokers and dealers, insurance companies and money-transfer services, into America's war on terrorism.

Banks have complied with most of the provisions for years; the others are newbies in this fight. Their responsibilities under the act include:

• Identify and verify customers seeking to open new accounts;
• Check new account applicants against various government lists of suspected terrorists;
• Report suspicious account activity to the Financial Crimes Enforcement Network (FinCEN), the Treasury Department's central anti-money-laundering database;
• Conduct enhanced due diligence for correspondent accounts for foreign banks and private accounts of non-U.S. persons;
• Comply with requests from federal investigative agencies for financial records.

Interim regulations went into effect for banks on July 23; nonbank financial institutions were granted extra time to establish due diligence programs. Final Title III regulations are to be in place on Oct. 25, one year from the date the legislation became law.

Open season on bank records
Strict bank compliance guidelines, however, aren't what are causing the most alarm among some citizens.

Of greatest concern to civil libertarians are Title III's "special measures" provisions. Now, not only is it easier for federal authorities to obtain your financial record, but for the first time a law allows them to share it with other agencies, financial institutions and even foreign governments.

No one is required to notify you, and should you find out, there is nothing you can do about it. In fact, the act specifically exempts investigators and financial institutions from liability for sharing your financial records.

Should you appear on any agency's radar, your bank records could easily become an open book, according to C. William Michaels, a Baltimore attorney and author of the soon-to-be-published No Greater Threat: America After September 11 and the Rise of a National Security State.

"There is no requirement in Title III that there be court review of this and there doesn't seem to be any requirement that there can be any court challenge to it once the order is presented to the bank," he says. "This sort of activity is totally unprecedented."

Don't know any members of al Qaeda personally? You may not need to. Say you donate to an antiabortion or other activist group. If they have been known to use violence to advance their own political agenda, your donation could be considered "material support of domestic terrorism" under the act and subject to federal investigation, without your knowledge and without civil remedy.

Banking concerns remain
Banks, too, still have some practical problems with the implementation of Patriot Act requirements.

Since the interim regulations took effect in July, banks have been working out bugs with the legislation. John Byrne, senior counsel for the American Bankers Association, says several problem areas remain concerning account-opening procedures, including:

• Copying identification: The act requires banks to photocopy government-issued picture ID (i.e., a drivers' license) used to open an account. The problem: Bankers have been taught for years not to photocopy drivers' licenses for fear of exposing the institution to loan discrimination charges under the Equal Credit Opportunity Act. Possible solution: Have bankers sign a form stating that they reviewed the license.
• Taxpayer number verification: The act requires banks to verify the taxpayer identification number (i.e., Social Security number). For face-to-face verification, they do this by noting the number on a government-issued photo ID (typically a drivers' license). But many states don't print Social Security numbers on licenses. What's a banker to do then? Byrne says that since state motor vehicle departments require Social Security numbers, a license should be sufficient to open an account.
• Documentation: The act requires banks to retain ID documentation for five years after the account has closed. Banks think this is excessive.
• Corporate accounts: The act wants banks to similarly verify all of the signatories to an account. Banks think that's impractical.

"The real test of all of this is not so much what's on paper, it's how do the bank examiners interpret their charge to make sure that we're in compliance of the law?" says Byrne. "That's part of what we will be watching closely."

Lofty goals may not be met
The country's bankers, along with customers and lawmakers, also will be watching to see if Title III will achieve its stated goals of flagging money-laundering activity and thus impeding terrorism.

"Money laundering, maybe; terrorism, no," says Rebekah Poston, a defense attorney specializing in money laundering cases with the Miami law firm of Steel Hector & Davis. "When you look back at what really happened with 9-11, these guys came in and opened up a little bank account with a few thousand dollars and what they pulled out was nothing that would make somebody think they were smurfing (money laundering). I mean, you know it's not going to help there."

Poston says financial institutions in cities like Miami with lots of international traffic may find themselves in a real compliance bind where due diligence is concerned.

"I mean, how far back do you have to go on the family tree on foreign persons?" she asks. "What, a cousin? An immediate relative? A husband or wife? What?"

Michaels agrees that the enhanced due diligence provisions of the act could potentially sabotage its good intentions.

"One of the dangers we're going to be running into is too much information," he says. "If the federal government is going to run around and do all of these special measures and require all this due diligence and get into all this account activity, who's going to analyze this? If you wanted more tools in the toolbox, I think you could have done it in a different way."

Risk vs. benefits
But Byrne maintains that Title III's benefits outweigh its risks.

"What the Patriot Act did that is very important is that it covered the waterfront of financial services. That's the key because it keeps coming back to us time and time again that money laundering and illegal activities go on in the vast majority of financial services, not just those offered by banks and savings institutions."

As far as privacy goes, Byrne says it will be up to financial institutions to stand firm on the processes spelled out in the Right to Financial Privacy Act. "If banks don't detail their policies, if they freely open up their records to FBI agents who haven't shown subpoenas or search warrants or summonses, then they're to blame, too," he says.

Byrne predicts that the act will appear much less ominous as details are hammered out.

"The critics of all of this, whether from the right or the left, are using the lack of detail to make the charge that it's open season on everything," he says. "Life is just a little more complicated than that."

Jay MacDonald is a contributing editor based in Florida.

-- Posted:Aug. 23, 2002