USA PATRIOT Act Frequently Asked Questions -- Primary Payment Systems


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USA PATRIOT Act
Frequently Asked Questions

Who is impacted by the USA PATRIOT Act?
What accounts are covered by the rule?
Who qualifies as a customer?
What is the difference between documentary and non-documentary verification?
What should we do if the customer does not have proper identification?
For how long do records need to be retained?
What terrorist lists are required by Section 326?
What kind of notification do we need to provide to customers?
Which regulatory agencies are responsible the USA PATRIOT Act?

Question: Who is impacted by the USA PATRIOT Act?

Answer: The following are impacted:

Banks and trust companies
Savings associations
Credit unions
Securities brokers and dealers
Futures merchants and brokers
Mutual funds

Question: What accounts are covered by the rule?

Answer: An "account" is defined by the Act as any interaction in which a formal banking relationship is established to provide or engage in services, dealings or other financial transactions. The following matrix outlines samples of what is included and what is excluded from this definition.

Include	Excluded
Deposit Account	Wire transfer
Checking Account	Check cashing
CD	Travelers checks
Credit Card	Accounts opened for participating in an employee benefit plan established pursuant to the Employee Retirement Income Security Act
Loan	Accounts acquired through acquisition, merger, purchase of assets, or assumption of liabilities from a third party
Mortgage	Subaccounts held through a deposit broker
Safe deposit box	Money orders
Custodian or trust services

Question: Who qualifies as a customer?

Answer: A customer is defined as any person or entity opening an account. The following table provides examples of what is included and what is excluded from this definition.

Include	Excluded
Individual	Person with existing account at FI, provided institution reasonably believes it knows its customer
Minor	Financial institution regulated by a Federal functional regulator
Non-Profit	Bank or thrift regulated by a state bank regulator
Civic Club	Municipality or other local, state, or federal government entity
Corporation	Any entity whose stock or analogous equity interest are listed on the NYSE, NASDAQ, or the ASE.
Trust
Partnership or Association

Question: What is the difference between documentary and non-documentary verification?

Answer: The Act distinguishes between two types of validation: documentary (verifying the physical documents), and non-documentary (using an automated validation system).

Question: What should we do if the customer does not have proper identification?

Answer: Restricting access to the customer's account while obtaining complete identifying information is a good approach to Section 326 compliance. It is important that the institution document the procedures for this within their CIP. These procedures should not only specify risk-based procedures for restricting access, but should also specify the period of time that the account will be maintained, and procedures for closing the account in the event that the information cannot be obtained or verified.

Question: For how long do records need to be retained?
Answer: The final rule takes a two-pronged approach to the record retention requirement:

The minimum required information (Name, Taxpayer ID number, Date of Birth, Physical Address) must be retained for five years after the date the account is closed or, in the case of credit card accounts, five years after the account becomes dormant.
All basic identifying information (Name, Taxpayer ID number, Date of Birth, Physical Address), descriptions of any documents used, descriptions of any non-documentary methods used and the results, and resolutions of any discrepancies must be retained by the institution for five years from account opening.

Question: What terrorist lists are required by Section 326?

Answer: There is currently no "government list" for purposes of Section 326. When a list is so designated, it will be clear that it is a Section 326 government list. FIs' CIP must include procedures for determining whether the customer appears on any such list, along with a requirement to make such a determination within a reasonable period of time after the account is opened, or earlier.

Question: What kind of notification do we need to provide to customers?
Answer: The CIP must include procedures for notifying customers about the new identity validation requirements. Sample language was published in the Federal Register, Section 103.121 (5) (iii), and can be used by financial institutions to meet their compliance obligation:

Important Information About Procedures for Opening a New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means for you: when you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.

Question: Which regulatory agencies are responsible the USA PATRIOT Act?

Answer: The regulations were developed jointly by the agencies listed below. Enforcement will be the responsibility of the individual agencies.

Department of Treasury Financial Crimes Enforcement Network
Board of Governors of the Federal Reserve System
Office of the Comptroller of the Currency
National Credit Union Administration
Office of Thrift Supervision
Commodity Futures Trading Commission
Federal Deposit Insurance Corporation
Securities and Exchange Commission

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First published on BankersOnline.com 9/8/03

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