"Gate Keepers": Whether We Like It or Not...

The full meaning of the Patriot Act is starting to become very clear to many members of the financial community. In the minds of many, including those in the U.S. Congress, financial institutions have come to be looked upon as Gate Keepers. The definition most commonly accepted is that a Gate Keeper is a term applied to anyone or any profession that can facilitate the laundering of money or assets, to enable the use of funds in illicit or illegal activities by appearing to be legitimate funds.

The terrorists from September 11 used funds that not only complied with the rules at the time they were deposited, but would also be compliant with the new rules. Other than stopping the account openings themselves, the methods of the financing of the attack would not have been evident.

Now we have new Know Your Customer rules, in the guise of the Patriot Act. (It walks like a duck, and quacks like a duck - the PatAct is KYC dressed like a duck.) The difference is not in the fact that we have to know our customers. It lies in the fact that we now are being held responsible for knowing how our customers run their business.

A great shudder of fear went through the banking industry when First American National Bank and First Tennessee Bank N.A. were sued by five states when Martin Frankel, posing as a broker and insurance company, managed to launder $139 million and $228 million, respectively, through those two banks. The charges against the banks included the allegations that they failed to "recognize, detect, stop and refrain from participating in" the fraudulent transactions and they did not "take appropriate steps to be aware of any unusual transactions relative to the customer's known business."

Accounts that used to be opened in a matter of minutes may now take days, for you are expected to go far beyond gathering identification documents, and corporation documents. Just as in making a loan, perhaps you will need to do an in-depth investigation of the business, until you are satisfied it is legitimate, and then you may want to police the account to be sure it is running "normally."

If it is not, you may want to strongly consider filing a Suspicious Activity Report, as you are instructed to do under the PatAct. If you don't file, you could be fined - or worse. On the other hand, if you DO file, and the government considers the SAR to be a waste of time, you could also be fined! (Needless, unnecessary filing is a no-no.)

Our financial institutions are losing legitimate business. Our staffs are being overworked. And we're maintaining a lot of unnecessary records. We've been deputized by the government, and there are many who recognize the futility of the efforts. However, we've no choice.What the financial industry needs, right now, is evidence that all of our efforts are making a difference. The government, so far, has failed to prove that.

Gate Keepers we are, and Gate Keepers we'll continue to be.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 10, 1/04