In the wake of the September 11th attacks on the U.S., the U.S. Congress passed the Patriot Act (the Act), which created new requirements for financial institutions deemed necessary to combat future attacks against the U.S.
Although at first glance the requirements under the Act seem to be directed at banks, they apply to any bank, business, or other institution that deals with large financial transactions, regardless of whether the Act specifically references the type of institution or not.
For this reason, it is imperative that every business assess what requirements they need to meet and make a plan for implementing them.
To assist businesses in this endeavor, our post today will review what the Patriot Act is, what the reporting requirements are, how a business can comply with the Act, what the OFAC is, and the consequences of non-compliance.
What is the Patriot Act?
As previously mentioned, the Patriot Act was passed in response to the September 11th, 2001 attacks on the U.S. The Act gave law enforcement agencies across the country new tools and latitude to investigate possible terrorist activity in hopes of preventing future attacks on the U.S.
With regard to financial institutions (including businesses), Section 326 of the Act requires such institutions to do the following:
>Verify “the identity of any person seeking to open an account, to the extent reasonable and practicable,” with the institution;
>Maintain “records of the information used to verify the person’s identity, including name, address, and other identifying information;” and
> 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.”
In short, the Act requires that businesses verify the identity of any customer seeking to open an account or engage in large purchases/sales transactions.
As part of the identification process, the Act also requires that businesses check various lists from nine federal agencies, including the Specially Designated Nationals And Blocked Persons List, to determine the identity of customers.
What are the reporting requirements under the Patriot Act?
Under the Act, you are required to submit FINCEN Form 104, Currency Transaction Report, with the Internal Revenue Service (IRS) within 15 days of a customer depositing, withdrawing, or transferring currency in excess of $10,000. This form should be filed online.
It is important to note that multiple same-day transactions by or on behalf of the same customer are treated as a single transaction for the purposes of compliance.
Therefore, it is extremely important any suspicious activity that raises a red flag should be flagged and reported as possible violations.
How can my business comply with the Patriot Act?
There are a number of ways that your business can comply with the Patriot Act.
In particular, if it is feasible for your business, you should designate a compliance officer to assure that your business is complying with federal law. If such an officer is not a feasible option, you should create procedures to make sure that compliance guidelines are being observed by your business.
For example, all businesses should engage is the following steps with all new customers.
1. Take reasonable steps to verify the customer’s identity, such as obtaining a copy of their valid driver’s license, passport, or other form of government-issued ID.
2. Find out who your customer’s customer is or who the final person/entity is that benefits from the financial transaction. Regulators expect that you will be able to correlate the relationship between all parties in a transaction.
3. Keep a record of the proper verification documents within your business. You should also keep a record with local and/or federal law enforcement, if necessary.
4. Check the customer’s and their organization’s name against a list of known or suspected terrorist organizations. You can do this by checking a number of government lists, specifically the Specially Designated Nationals And Blocked Persons List published by the Treasury Department.
5. Report any matches to the appropriate local and federal law enforcement agencies.
Small businesses should take additional steps to make sure they are not involved, even remotely, in a money laundering transaction. For example, in addition to the steps above, your business can investigate any suspicious new customers through various government agencies like the Office of Foreign Assets Control (OFAC).
What is the Office of Foreign Assets Control (OFAC) and how does my business need to comply with it?
The Office of Foreign Assets Control (OFAC) is part of the Treasury Department, and is responsible for the administration and enforcement of federal laws that impose economic and trade sanctions against targeted foreign countries and their agents, organizations and agencies that sponsor terrorism, and international narcotics traffickers.
To comply with the OFAC’s mandate, financial institutions (including businesses), securities firms, and insurance companies are obligated to block or “freeze” property and payment of any funds, transfers, or transactions made by targeted or sanctioned person or entity.
Businesses and institutions are also required to report all freezes to the OFAC within 10 days of the freeze.
As a business dealing with international clients or transactions, it is expected that you will comply with the OFAC requirements or an OFAC investigation.
What are the consequences of non-compliance with the Patriot Act?
Under the Act, non-compliance leaves your business open to adverse publicity, fines, or even criminal penalties.
If your business if found to be non-compliant, some examples of penalties that can be leveled against your business are:
>Criminal penalties up to $1 million per incident
>Civil penalties of $250,000 per incident
>Forfeiture of accounts or assets
>Imprisonment, depending on the severity of the violation(s)
>Negative publicity for having violated the Patriot Act
Compliance with the Act is an essential aspect of doing business in the U.S. All businesses should have mechanisms in place to identify and properly report “suspicious transactions,” transactions in excess of $10,000, and/or people/entities listed on any of the federal or local government watch lists.
With the proper training, advice, and procedures, compliance with the Patriot Act should become a normal and easy part of doing business in today’s business environment.
Note: This post was originally published on 3/1/16 and has been updated as of 12/3/19.
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Disclaimer: Nothing in relation to the enclosed information should be construed and or considered as legal advice for any individual, entity, case, or situation. The following information is prepared for advertisement use only. The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Immigration Law.