What is Section 311 of the USA Patriot Act?
What is the USA Patriot Act?
The USA Patriot Act was enacted in 2001 after the 9/11 terrorist attacks. The full title of the USA Patriot is “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001”. The Department of Justice drafted a document, to which Congress made sizable modifications and additions. The purpose of the Act is to enable law enforcement officials to track and punish those responsible for the attacks and to prevent any further similar attacks. Federal officials have the power to trace and intercept communications from terrorists for law enforcement and foreign intelligence purposes.
Anti-money laundering laws and regulations are reinforced under the USA Patriot Act in order to deny terrorists the resources necessary for future attacks. Along with tightening the immigration laws to close borders to foreign terrorists, it also assures to put the rest in exile.
The USA Patriot Act also helped mend and strengthen the BSA.
Under the Patriot Act compliance, a number of AML obligations were imposed:
- AML compliance programs
- customer identification programs
- monitoring, detecting, and filing reports of suspicious activity
- due diligence on private banking accounts and foreign correspondent accounts, including prohibitions on transactions with foreign shell banks
- mandatory information-sharing
- compliance measures imposed to address particular AML concerns
What is Money Laundering?
According to the law and Patriot Act, money laundering is the flow of cash or other valuables derived from a criminal offence and the same which can facilitate further crime. The authorities combat money laundering through numerous regulations, international cooperation, criminal sanctions, with efforts in each area.
Section 314 of the USA Patriot Act
The Act was introduced on 26th October 2001 and was later appended into the law by President George Bush. The USA Patriot Act’s main purpose is to curb terrorism and prevent any related activities both in the US and around the globe. It aimed at enhancing security and enforcing the law around the world through necessary investigatory tools.
The USA Patriot Act is divided into various sections, which may affect financial institutions directly or indirectly. Some of them are 311, 312, 313, 314(a)(b), 319(b). Section 314 of the USA Patriot Act, including both 314(a) and 314(b) is dedicated to preventing money laundering, which implies both individuals and financial institutions. The Bank Secrecy Act (BSA) includes various institutions as financial, some of which include insured banks, private bankers, credit unions, and commercial banks.
Section 314 of the USA Patriot Act with subsection 314(a), whose objective is to detect and prevent suspicious terrorist activities. It is meant to encourage cooperation amongst law enforcement bodies, regulators, and financial organizations. The Financial Crimes Enforcement Network (FinCEN) which comes under the US Department of the Treasury encompasses the provision of Section 314(a). It achieves its objectives through encouraging the sharing of information between above mentioned financial institutions and others which may include inter-government bodies such as FATF and agencies that enforce the law.
The Secretary of the Treasury formulates and adopts the regulation which governs the sharing of information between the two parties mentioned above. This information which is shared covers individuals, entities, or organizations under observation for terrorist acts and money laundering. The information is used further by law enforcement agencies to gather further evidence, which is useful in prosecution. Section 314 and its extension, 314(a), have both enabled the nation and the rest of the world to achieve its main objective of deterring crime and more.
FinCEN regulations in Section 314(a) enables the local, federal, and state law enforcement agencies along with the foreign agencies to access the shared information. An estimate of more than 37,000 points made by law enforcement agencies to gain contact through FinCEN. There is additional access to records of over 16,000 financial institutions.
On the other hand, Section 314 of the USA Patriot Act also includes Section 314(b) another subsection of 314, aimed at encouraging the sharing of information between financial entities voluntarily. Subsection 314(b) involves the sharing of information between similar entities, such as financial institutions while Section 314(a), involves common access and cooperation between the financial establishments and agencies that enforce the law.
Although sharing of information is mandatory in Section 314(a) as stipulated in the federal laws. In contrast, Section 314(b) is not mandatory or compulsory but rather voluntary. Despite that, the sharing of information under Section 314(b) is highly encouraged and recommended by FinCEN.
The purpose of sharing information is to increase the capacity of identification of any suspected money laundering activities in order to report it further for investigation. The section was provided by Congress for extra safety and to eliminate the risks associated with any liability on the consumer. It is beneficial to both customers or clients of the financial institutions because it eliminates liability from any violation of privacy or sharing any false information.
Another benefit of Section 314(b) to the financial organizations is for those who would like to share information freely with the rest. It increases the capacity of dealing with money-laundering, terrorism, and related activities to promote mutual understanding and trust among the entities. Financial institutes will share a united and strengthened level of scrutiny of suspicious money wiring, transactions, and accounts.
Anti-Money Laundering Programs
According to Congress, each and every financial institution should have the power to tailor an AML program to its own structure and address particular money-laundering risks or vulnerabilities. The Department of the Treasury prescribes regulations that consider the extent to which the requirements that implement a compliance program are comparable with the size, location, and activities of the financial institutions.
All Financial Institutions must develop and implement anti-money laundering programs which should include the following:
(1) development of internal policies, procedures, and controls
(2) designation of a compliance officer
(3) ongoing training function
(4) independent audit function to test the programs.
The USA Patriot Act requirements include that financial Institutions should design their own patriot act compliance programs to implement procedures and policies that can reasonably be expected to detect and report activity associated with patriot act money laundering. Money-laundering detection procedures are important in order to avoid possible criminal liability. In addition, an anti-money laundering program will help avoid the damage to a financial institution’s reputation that would occur if they were found to be laundering money that belonged to terrorists.
For investment companies that are structured in this manner, the investment company must rely on third parties to effectuate an anti-money laundering program that would know more about reconciliation, an important financial reporting process of every institution or other money laundering policies.
Under the patriot act compliance, the anti-money laundering program must also include a designated compliance officer who is a money laundering reporting officer (MLRO) , an ongoing training program, and an independent audit function. Informal guidance presented at the ICI Conference suggests that an investment company’s compliance officer serves as the AML compliance officer and has a managerial position that allows them to effectively oversee the anti-money laundering program. To ensure that employees are fully trained to recognize suspicious account activity and know how to report such activity to a supervisor, the training program has been put in place.
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