The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11 attacks in 2001. It has ten titles, with the third title ("Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001") written to prevent, detect, and prosecute international money laundering and the financing of terrorism.
Title III is itself divided into three subtitles. The second subtitle, entitled Subtitle B: Bank Secrecy Act Amendments and Related Improvements, largely modifies the Bank Secrecy Act (BSA) to make it harder for money launderers to operate, and to make it easier for law enforcement and regulatory agencies to police money laundering operations. The BSA was amended to allow the designated officer or agency who receives suspicious transaction reports to notify U.S. intelligence agencies. It also addresses issues of record keeping and reporting by making it easier to undertake the reporting of suspicious transactions; by making it a requirement that financial institutions report suspicious transactions; through the creation of anti-money laundering programs and by better defining anti-money laundering strategy; and by making it a requirement that anyone who does business file a report for any coin and foreign currency receipts that are over US$10,000. The subtitle increases civil and criminal penalties for money laundering and introduces penalties for violations of geographic targeting orders and certain recordkeeping requirements.
Subtitle B legislated for the creation of a secure network which can be used by financial institutions to report suspicious transactions and which can also give them alerts of relevant suspicious activities. Subtitle B also makes FinCEN a bureau of the United States Department of Treasury. The subtitle allows the Board of Governors of the Federal Reserve System to authorize personnel to act as law enforcement officers to protect the premises, grounds, property and personnel of any U.S. Federal reserve bank, and allows them to delegate this authority to U.S. Federal Reserve Banks. It instructs any United States Executive Directors of international financial institutions to use their voice and vote to support any country that has taken action to support the U.S.'s war on terrorism, and to require such Executive Directors to provide ongoing auditing of disbursements made from their institutions to ensure that no funds are paid to persons who commit, threaten to commit, or support terrorism.
Dissent Title III of the USA PATRIOT Act was passed with very little debate and the final vote in the United States House of Representatives was 412-1. The sole dissenting voice of an earlier version of the Act (the Financial Anti-Terrorism Act) was Republican U.S. Representative for Texas and former presidential nominee of the Libertarian Party Ron Paul. Paul in particular objected to a similar section to subtitle B's section 356, which makes it a requirement of brokers and dealers to report suspicious activities. Congressman Paul stated in Congress:
Among the most obnoxious provisions of this bill are: expanding the war on cash by creating a new federal crime of taking over $10,000 cash into or out of the United States; codifying the unconstitutional authority of the Financial Crimes Enforcement Network (FinCEN) to snoop into the private financial dealings of American citizens; and expanding the `suspicious activity reports' mandate to broker-dealers, even though history has shown that these reports fail to significantly aid in apprehending criminals. These measures will actually distract from the battle against terrorism by encouraging law enforcement authorities to waste time snooping through the financial records of innocent Americans who simply happen to demonstrate an `unusual' pattern in their financial dealings.THOMAS (Library of Congress), House Report 107-250 - Part 1 - FINANCIAL ANTI-TERRORISM ACT OF 2001 , Dissenting views (Ron Paul).
Sec. 351. Amendments relating to reporting of suspicious activities
The Bank Secrecy Act (BSA) was amended to give financial institutions legal immunity from liability for any disclosures of suspicious transactions or activities to appropriate authorities, or for failing to notify any person identified in such a disclosure. The section also prohibits any employee or owner of a financial institution, or any officer or employee of any branch of the U.S. government, from notifying any person involved in a reported transaction that the transaction has been reported. The prohibition does not extend to employee references made under the Federal Deposit Insurance Act; parallel section is Section 18(w) of the Federal Deposit Insurance Act or in a written termination notice or employment reference made under the rules of any self-regulated organisation registered with the Security and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), although the reference must not state that the disclosure was reported. It is noted that institutions are not required to include such information in their termination notices or employee references.
Sec. 352. Anti-money laundering programs The BSA was amended in 2004 to make financial institutions implement anti money laundering programs. Institutions must implement, at a minimum, the development of internal policies, procedures, and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs. The Secretary of the Treasury is given authority to set minimum standards of these programs but may exempt from the application of those standards any financial institution that is not subject to the provisions of the rules contained in part 103 of title 31, of the Code of Federal Regulations.31 CFR 103 deals with financial recordkeeping and reporting of currency and foreign transactions. The section also orders the Secretary of Treasury to produce regulations "commensurate with the size, location, and activities of the financial institutions to which such regulations apply". These regulations were jointly produced by FinCEN and U.S. Treasury as 31 C.F.R. 103.137 on December 5, 2001 and largely focus on requiring insurance companies to form anti-money laundering programs — depository institutions were not targeted because the Bank Secrecy Act already requires them to have anti-money laundering programs.31 CFR 103.137 & Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations—Anti-Money Laundering Programs for Insurance Companies , FinCEN & United States Department of Treasury. Further information on the regulations can also be found at "Anti-Money Laundering Final Rules for Insurance Companies Issued" (December 2005). Dechert OnPoint, issue 29.
Sec. 353. GTOs: penalties and lengthening of period There are two sections that specify civil and criminal penalties for those who violate the BSA or a regulation prescribed under the BSA: title 31, section 5321 of the U.S. Code deals with civil penalties, while title 31, section 5322 of the U.S. Code deals with criminal penalties. Both sections were amended by section 353 of the Patriot Act to extend penalties to apply to violations of any orders made under the BSA. Penalties were also made to apply for violations of regulations prescribed under section 21 of the Federal Deposit Insurance Act and section 123 of Public Law 91-508.Title III, Section 353(a) and (b). Under it is against U.S. Law to attempt to evade such reporting, to cause or attempt to make the report contain a material omission or misstatement of fact, or to "structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions." This section was modified to include as the reporting requirements section 21 of the Federal Deposit Insurance Act and section 123 of Public Law 91-508.Title III, Section 353(c).
Section 123 of Public Law 91-508 specifies regulations that govern recordkeeping for uninsured banks or institutions, or any other institution defined in ,Section 123, P.L. 91-508 is . while section 21 of the Federal Deposit Insurance Act specifies regulations that govern recordkeeping for insured depository institutions.Section 21 of the Federal Deposit Insurance Act is .
The section also lengthens the effective period of geographic targeting orders from 60 days to 180 days.Title III, Section 353(d).
Sec. 354. Anti-money laundering strategy The BSA specifies that "the President, acting through the Secretary and in consultation with the Attorney General, shall develop a national strategy for combating money laundering and related financial crimes." In the development of that strategy, the legislation gives a list of areas that address any area the President, acting through the Secretary and in consultation with the Attorney General, considers appropriate. Section 354 added a new area to be addressed in the strategy: "Data concerning money laundering efforts related to the funding of acts of international terrorism, and efforts directed at the prevention, detection, and prosecution of such funding".
Sec. 355. Written employment references and illegal activity The Federal Deposit Insurance Act was amendedSection 18 of the Federal Deposit Insurance Act () - section (w) was added. to allow written employment references to contain suspicions of involvement in illegal activity in response to a request from another financial institution. The amendment makes clear that it allows such disclosures but does not require it, and also makes clear that the amendment does not shield from liability anyone who makes a disclosure that is found to have been made with malicious intent.
Sec. 356. Reporting suspicious activities of brokers and dealers Section 356 deals with suspicious activity reports (SARs). Part (a) states that the Secretary of Treasury was required to create regulations that require brokers and dealers registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 to submit suspicious activity reports under section 5318(g) of title 31, United States Code. The regulations filed were 31 CFR 103.11(ii), which amended the definition of a transaction to encompass any instrument within the definition of security in the Securities Exchange Act of 1934, and 31 CFR 103.19, which requires suspicious transactions over $US5,000 be reported to FinCEN. 31 CFR 103.19 provides details on filing procedures, details several exceptions to the filing requirement and specifies that records must be retained for a period of 5 years by dealer-brokers. It also requires that reports made to FinCEN remain confidential and gives limited liability to the reporting broker-dealer for any disclosures to appropriate authorities. Failure to file reports may be a violation of the BSA.
Part (b) of the section states that the Secretary of Treasury may prescribe regulations requiring futures commission merchants, commodity trading advisors and commodity pool operators registered under the Commodity Exchange Act to submit suspicious activity reports.
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