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Patriot Act makes banks pry into new accounts

"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

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.

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.

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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."

(continued on next page)
-- Posted: Sept. 30, 2003
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