On October 26 2001 President Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (known as the Patriot Act). The legislation, which contains 10 titles and is over 150 pages in length, is striking in its breadth and in the substantive changes that it makes to US criminal and regulatory law. Of particular interest to the banking community are Title 3 - which expands the laws and regulatory authority that apply to money laundering, asset forfeiture and related areas - and to a lesser extent Title 8, which adds new substantive criminal offences related to terrorism and money laundering.

The provisions of Title 3, which is entitled "Enhanced Anti-Money Laundering and Anti-Terrorist Financing Measures", expand the law applicable to money laundering and banking, and give the secretary of the treasury and attorney general broad investigative and regulatory authority, as follows:

  • The secretary of the treasury is authorized to determine whether a jurisdiction, institution or transaction is a "primary money-laundering concern", based on a specified set of "jurisdictional factors" and "institutional factors".

  • If the secretary finds that there is a primary money-laundering concern, the secretary may require domestic financial institutions to take "special measures" with respect to the identified jurisdiction, institution or transaction, including (i) maintaining certain records, and (ii) disclosing the identities, addresses and legal capacity of the originator of transactions and the beneficial owners of any funds transferred or held in an account.

  • The secretary may also prohibit or impose conditions upon the opening or maintaining in the United States of a correspondent account or payable-through account by any domestic financial institution or agency on behalf of a foreign banking institution.

  • US financial institutions are prohibited from having correspondent accounts with foreign "shell banks", and are required to ensure that none of their operating correspondent accounts are being used either directly or indirectly by foreign shell banks.

  • 'Shell banks' are defined as banks without a physical presence in any country, with exceptions for any foreign banks that are affiliates of a depository institution or credit union, or any foreign banks that maintain a physical presence in the United States or a foreign country that is subject to supervision by a banking authority in the country regulating the affiliated entity.

  • Special due diligence policies and controls to detect money laundering must be maintained by domestic financial institutions if they open a private bank account or correspondent account in the United States for a foreign person.

  • Foreign corruption and related offences are now predicate offences in the money-laundering statutes, allowing the prosecution in the United States of any person who conducts a financial transaction in the United States involving the proceeds of such offences.

  • The money-laundering statutes are also expanded to provide jurisdiction over any foreign person (including foreign banks) that commits or participates in money-laundering offences in the United States, if the money-laundering offence occurred in part in the United States or the foreign bank has a correspondent account in the United States.

  • If funds derived from crimes committed in the United States are deposited in a foreign bank account and that foreign bank has an interbank account in the United States, the funds "shall be deemed to have been deposited in the interbank account in the United States" and may be seized and forfeited in the United States, even if the funds are not directly traceable to the illicit funds deposited in the foreign bank. US courts may also order the repatriation of assets in criminal cases.

  • Foreign banks maintaining a correspondent account in the United States must appoint agents for service of process within the United States, including subpoenas requesting records maintained outside the United States relating to the deposit of funds into the foreign bank. The secretary of the treasury or the attorney general may issue such subpoenas. If the government notifies a US financial institution that the foreign bank failed to comply with or to contest the subpoena, the US institution must terminate the correspondent relationship within 10 business days or be subject to a fine of $10,000 per day.

  • US courts are given the authority to preserve the availability of property subject to a foreign forfeiture or confiscation judgment by issuing a civil forfeiture restraining order. The person affected by the restraining order may not object to the order on any ground that is the subject of parallel litigation involving the same property pending in the foreign court.

  • The secretary of the treasury is authorized to prescribe regulations concerning the maintenance of concentration accounts by domestic financial institutions so that the source of funds directed into such accounts can be identified and documented.

  • Financial institutions are required to create an anti-money laundering programme that includes, at a minimum, (i) the development of internal policies, procedures and controls, (ii) designation of a compliance officer, (iii) training for employees and (iv) an independent audit function. The secretary of the treasury will establish minimum standards for such programmes effective 180 days after enactment of the act.

  • The secretary of the treasury will issue, no later than January 1 2002, proposed regulations making broker-dealers subject to the reporting requirements for suspicious transactions, and final regulations must be in effect no later than July 1 2002. Entities and individuals subject to regulation under the Commodity Exchange Act may also be subject to these requirements.

  • Currency smuggling into or out of the United States is now a criminal offence, subject to imprisonment of up to five years and criminal or civil forfeiture of the property involved in the offence, including a personal money judgment if the directly forfeitable property cannot be found and the defendant does not have sufficient substitute assets to satisfy the forfeiture judgment.

  • Any money-transmitting business, whether licensed by a state or not, is subject to criminal prosecution for conducting transactions which the owners or employees of the business knew were derived from a criminal offence, or are intended to be used "to promote or support unlawful activity".

The provisions of Title 3 will be reviewed by Congress after four years and will terminate if Congress enacts a joint resolution declaring them to no longer have the force of law.

Title 8, entitled "Strengthening the Criminal Laws Against Terrorism", adds new criminal offences and makes other substantive changes to federal criminal law. Among the many changes introduced are amendments to the money laundering statute, which establish that venue in money laundering prosecutions is appropriate in the district where the underlying specified unlawful activity took place if the defendant participated in the movement of the criminal proceeds from that district to the district where the financial or monetary transaction occurred.

A more detailed discussion of the Patriot Act is set out in "Title 3 of the Patriot Act: Summary and Analysis of Key Anti-Money Laundering Provisions", available from Connie Friesen at Sidley Austin Brown & Wood.

For further information on this topic please contact Connie Friesen at Sidley Austin Brown & Wood LLP by telephone (+1 212 906 2000) or by fax (+1 212 906 2021) or by email ([email protected]).