International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Title III of P.L. 107-56 (USA PATRIOT Act)
Released: 2001-12-04T00:00:00

Introduction

The USA PATRIOT ACT, Pub. L. 107-56, 15 Stat. 272 (2001), (1) which became law on October26, 2001, includes as Title III, the "International Money Laundering Abatement and FinancialAnti-Terrorism Act of 2001." Title III derives from H.R. 3004 , (2) as passed by the House,and Title III of S. 1510 , as passed by the Senate. Although each of the last severalCongresses has examined the adequacy of United States laws targeting money laundering, there wasinsufficient support for any legislation until the September 11 attacks focused attention on thefinancing of international terrorism and the role that financial institutions could play in identifyingand cutting off its source of funding.

This legislation, which has been deemed "the most significant anti-money-laundering legislation in more than 30 years," (3) is designed toprevent terrorists and others from using the U.S.financial system anonymously to move funds obtained from or destined for illegal activity. It seeksto impose new requirements on banks, the institutions that have heretofore been the focus of theanti-money laundering record keeping and reporting requirements, and on other participants in thefinancial services industry-brokers and dealers, investment companies, and informal moneytransmitting networks. Although its main target is international money laundering and terrorists, itsreach is broader.

Among the purposes of the legislation are: increasing the strength of U.S. measures to prevent, detect, and prosecute international money laundering and the financing of terrorism. Another aimis to provide a national mandate for subjecting to special scrutiny foreign jurisdictions, financialinstitutions operating outside the United States, and classes of international transactions or types ofaccounts that pose particular opportunities for criminal abuse. Another significant purpose of thelegislation is to ensure that all appropriate elements of the financial services industry are subject toappropriate requirements to report potential money laundering transactions to proper authorities.

The legislation contains over forty separate sections, each of which is summarized in this report. Some of them are technical in the sense that they address criminal and civil judicial or administrativeproceedings; others enhance criminal penalties for various types of financial crimes. Among theprovisions that have garnered the most attention are those that affect financial institutions such assection 311' s grant of authority to the Secretary of the Treasury to impose special measures onfinancial institutions upon finding a jurisdiction, class of transactions, or institution to be of "primarymoney laundering concern" that could include opening or maintaining accounts. In addition, thereare provisions that specifically address and specify increased due diligence for correspondentaccounts, payable-through accounts, and private banking accounts for non-U.S. persons as well asaccounts with off-shore or foreign shell banks. There are requirements and standards for increasedcooperation by financial institutions in responding to government requests for information and newrequirements for regulations mandating standards for identifying persons opening accounts. Thelegislation also requires financial institutions to institute anti-money laundering programs and theSecretary of the Treasury, within 3 months, to issue regulations setting minimum requirements.

Since much of the legislation requires implementing regulations, the full impact will emerge over the course of time. Because many of its provisions impose requirements for studies and reports,Congress has indicated that it is prepared to conduct fine tuning should the need arise.

Pre-existing Law

This legislation builds on existing law, which includes substantive criminal statutes definingand prohibiting money laundering and statutes calling for a regulatory regime of record keeping andreporting on various financial transactions and prescribing civil and criminal penalties for violationsof that scheme and its regulations. The major components of this array of anti-money launderinglaws are presented below.

1. 18 U.S.C. ï¿½ 1956 prohibits anyone from knowingly engaging in various financial transactions that involve the proceeds of specified illegal activity. A person may be convicted underthis statute if proven to have engaged in any of various types of financial transactions withoutactually knowing that the proceeds of illegal activity are involved provided the prosecution proveswillful blindness. (4) It is a crime that uniquelyinvolves the activities of financial institutions and,therefore, requires their diligence both to cooperate with law enforcement and to avoid liability.

2. Under 18 U.S.C. ï¿½ 1957, anyone who knowingly engages in a monetary transaction in criminally derived property of more then $10,000, that has been derived from specified unlawfulactivity, is subject to criminal penalties.

3. Titles I and II of P.L. 91-508, including 12 U.S.C. ï¿½ï¿½ 1829b, and 1951 - 1959; 31 U.S.C. ï¿½ï¿½ 5311 et seq. , the Bank Secrecy Act (BSA) of 1970 and its major component, the Currency andForeign Transactions Reporting Act, 31 U.S.C. ï¿½ï¿½ 5311 et seq ., require reports and records oftransactions involving cash, negotiable instruments, or foreign currency and authorize the Secretaryof the Treasury to prescribe regulations to insure that adequate records are maintained of transactionsthat have a "high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." Violation of the regulations is subject to civil and criminal penalties.

4. Since April, 1996, (5) the regulations require that banks and other depository institutions submitSuspicious Activity Reports (SARs) (6) of anytransaction involving at least $5,000, which theinstitution suspects: to include funds from illegal activities; to have been conducted to hide fundsfrom illegal activities or designed to evade the BSA requirements; have "no business or apparentlawful purpose;" or are "not the sort [of transaction] in which the particular customer wouldnormally be expected to engage, and the bank knows of no reasonable explanation for the transactionafter examining the available facts, including the background and purpose of the transaction." (7)

5. Under the Money Laundering Suppression Act of 1994, 31 U.S.C. ï¿½ 5330(a), the Secretary of the Treasury is required to establish a system to register money transmitting businesses. FinancialCrimes Enforcement Network (FinCEN"s) regulations require registration by December 31, 2001. 31 C.F.R. 103.41.

Implementation

While much of the new law will require regulations to be issued by the Treasury Departmentin consultation with other federal financial institution regulators, (8) some provisions take effectimmediately. Among them are the following:

1. The prohibition on U.S. correspondent accounts with shell banks, i.e. , banks having no physical presence in their chartering country, becomes effective December 25, 2001. Section 313 of the Act.

2. A covered financial institution is required to provide records relating to its anti-money laundering program or its customers within 120 hours of a request from the appropriate regulator. Section 319(b).

3. Banks holding correspondent accounts for foreign banks are required to maintain certain records identifying the owners of the foreign bank and the name of an agent in the U.S. authorizedto accept legal process that they might be produced within seven days of their receipt of a subpoenafrom the Department of the Treasury or the Attorney General. Section 319(b). (9)

4. Due diligence standards are required to be in place to detect and report money laundering by all financial institutions that maintain private banking accounts or correspondent accounts in theU.S. for non-U.S. persons, including individuals and entities. Enhanced standards are required forcertain correspondent accounts, e.g. , those with foreign banks with offshore licenses or fromparticular jurisdictions. Minimum due diligence standards are specified for private bankingaccounts, accounts with minimum deposits of $1 million and managed by a person who acts as aliaison between the bank and the beneficial owner, held for foreign owners. Sec. 312.

International Money Laundering Abatement and Financial Anti-Terrorism Act

SUBTITLE A-International Counter Money Laundering and Related Measures

Special Measures. Sec. 311 authorizes the Secretary of the Treasury (the Secretary) to impose certain regulatory restrictions, known as "specialmeasures," upon finding that a jurisdiction outside the U.S., a financial institution outside the U.S.,a class of transactions involving a jurisdiction outside the U.S., or a type of account, is "of primarymoney laundering concern." To make this finding, the Secretary must consult with the Secretary ofState and the Attorney General and consider certain factors relating to the foreign jurisdiction or theparticular institution targeted. Among the factors to be considered in imposing special measuresrelating to a jurisdiction are: involvement with organized crime or terrorists, bank secrecy laws andregulations, the existence a mutual legal assistance treaty with the U.S., and level of officialcorruption. The special measures generally involve detailed record keeping and reportingrequirements relating to underlying transactions and beneficial ownership of accounts. Specialmeasures could involve prohibiting the maintenance of payable-through or correspondent accountsfor such institutions or jurisdictions, provided that there has been consultation with the Secretary ofState, the Attorney General, and the Chairman of the Federal Reserve Board, as well as with otherappropriate federal banking agencies and consideration has been given to whether other nations havetaken similar action, whether there would be a significant competitive disadvantage on U.S. financialinstitutions, and any effect upon the international payment system. "Account" is defined for banks,with authority delegated to the Secretary to define the term for other financial services businessesupon consultation with the appropriate federal regulators.

Generally, unless there are other provisions of law on which the Secretary may base a special measure, none may remain in effect beyond 120 days unless a regulation has been promulgated andnone may be ordered unless accompanied by a proposed rule. Moreover, no order prohibiting orimposing conditions on maintaining correspondent accounts may be issued unless final regulationshave been promulgated. In addition, the Secretary is required to issue a regulation defining"beneficial ownership" for purposes of this legislation.

Special Due Diligence for Correspondent Accounts and PrivateBanking Accounts. Sec. 312 requires every financial institution with a privatebanking or correspondent account for a foreign person or bank to establish policies and controlsdesigned to detect and report money laundering through the accounts. If a correspondent accountis maintained for a foreign bank that operates under an offshore license- i.e ., does not and may notdo banking business in the chartering country-or that is licensed by a jurisdiction designated forspecial measures or listed as non-cooperative by an international organization in which the U.S.participates and concurs, enhanced due diligence policies are required. For correspondent accountsfor foreign banks, U.S. banks, at the minimum, must secure ownership information on the foreignbank, maintain enhanced scrutiny of the account, and ascertain due diligence information on theforeign banks for which the target bank provides correspondent banking services. For foreign privatebanking clients, i.e. , those with aggregated deposits of $1,000,000, information must be secured onthe identity of the named owners of the accounts and the actual or beneficial owners, and the sourceof the funds. Enhanced scrutiny is required for accounts held for senior foreign political figures. This section becomes effective within 180 days of enactment; regulations must be issued within 120days of enactment.

Prohibition on Correspondent Accounts for Foreign Shell Banks. Sec. 313 prohibits U.S. banks, thrifts, private banks, foreign bank agenciesand branches operating in the U.S., and brokers and dealers licensed under the Securities ExchangesAct of 1934, 15 U.S.C. 78a et seq ., from maintaining correspondent accounts for foreign shellbanks-banks that have no physical presence in any country. It requires that the covered institutionstake reasonable steps to preclude their providing services to such shell banks through other banksand requires the Secretary to issue implementing regulations.

Cooperative Efforts to Deter Money Laundering. Sec. 314 requires the Secretary to issue regulations within 120 days of enactment to encouragefurther cooperation among financial institutions and regulatory and law enforcement authorities topromote sharing information on individuals, entities, and organizations engaged in or suspected ofengaging in terrorist acts or money laundering. In these regulations, the Secretary may require eachfinancial institution to designate persons to receive information and to monitor accounts andestablish procedures to protect the shared information. No information received by a financialinstitution under this provision may be used for any purpose other than identifying and reportingactivities involving terrorism or money laundering. If a financial institution uses this informationfor those purposes, it may not be held liable for unauthorized disclosure or failure to provide a noticeunder any law or regulation, state or federal, or any contract or agreement. The Secretary is requiredto provide a semiannual report analyzing suspicious activity reports.

Foreign Corruption Offenses Added to List of Money LaunderingPredicates. Sec. 315 adds to the list of offenses under foreign law, the proceeds ofwhich may form an element of a federal money laundering prosecution: any crime of violence;bribery of a public official; theft, embezzlement, or misappropriation of public funds; certainsmuggling or export control violations; and, offenses for which the U.S. would be obliged toextradite alleged offenders. Also added would be certain offenses under the U.S. criminal coderelating to customs, importation of firearms, firearms trafficking, computer fraud and abuse, andfelony violations of the Foreign Agents Registration Act.

Right to Raise Innocent Property or Innocent Owner Defense inTerrorist-Related Confiscations or Forfeitures. Prior to enactment of the USAPATRIOT Act, the President had authority to order the vesting of seized foreign assets under theTrading With the Enemy Act ï¿½ 5(b), 50 U.S.C. App. ï¿½ 5(b), which applies when there has been adeclaration of war, but not under the International Emergency Economic Powers Act (IEEPA), 50U.S. C. 1702, which applies when the President has declared the existence of an unusual orextraordinary threat to the U.S. national security, foreign policy, or economy having its source, inwhole or substantial part, outside the United States. Section 106 of the new law amends IEEPA toauthorize the President, "when the United States is engaged in armed hostilities or has been attackedby a foreign country or foreign nationals," to "confiscate any property, subject to the jurisdiction ofthe United States, of any foreign person, foreign organization, or foreign country that he determineshas planned, authorized, aided, or engaged in such hostilities or attacks against the United States."

Sec. 316 authorizes judicial review of confiscation of terrorist related assets and sets forth two defenses for those claiming the property that must be proven by a preponderance of the evidence:(1) that the property is not subject to forfeiture under the applicable law, and (2) the innocent ownerdefense detailed in the criminal forfeiture provision of 18 U.S.C. ï¿½ 983(d). It also authorizes thegovernment to offer otherwise inadmissible evidence provided the court finds that complying withthe Federal Rules of Evidence would jeopardize national security. There is also a clause alludingto the right to raise Constitutional claims and claims under the Administrative Procedure Act anda savings clause preserving other remedies.

Long-Arm Jurisdiction Over Foreign Money Laundering. Sec. 317 provides jurisdiction over foreign persons, including financialinstitutions, for substantive money laundering offenses under 18 U.S.C. ï¿½ï¿½ 1956 and 1957, providedthere is a valid service of process and either the offense involved a transaction in the U.S. or theproperty has been the subject of a forfeiture judgment or a criminal sentence. The district courts areauthorized to appoint a receiver to take control of the property.

Money Laundering Through a Foreign Bank. Sec.318 amends the substantive money laundering criminal statute, 18 U.S.C. ï¿½ 1956, to coverlaundering money through a foreign bank.

Forfeiture of Funds in U.S. Interbank Accounts. Sec. 319 amends 18 U.S.C. ï¿½ 981 to permit forfeiture, including forfeiture under the ControlledSubstances laws, of accounts in offshore offices of foreign banks by substituting funds in interbankaccounts in U.S. financial institutions up to the value of the funds in the targeted account. Thesection authorizes the Attorney General to suspend or terminate such a forfeiture action onconflict-of-law grounds or upon a finding that to do so would be in the interest of justice and wouldnot harm the national interests of the U.S.

Sec. 319, effective within 60 days of enactment, amends the Currency and Transaction Reporting Act, 31 U.S.C. ï¿½ 5311, et seq ., to require U.S. banks, thrifts, private banks, foreign bankagencies and branches operating in the U.S., and brokers and dealers licensed under the SecuritiesExchanges Act of 1934, 15 U.S.C.ï¿½ 78a et seq., to provide federal regulators, upon request,information on the institution's compliance with anti-money laundering requirements or on acustomer's account, within 120 hours. It also authorizes the Secretary of the Treasury or theAttorney General to subpoena records from a foreign bank that has a correspondent account in theU.S. that relate to that account, including records maintained abroad. It requires U.S. institutionsmaintaining correspondent accounts for foreign banks to maintain records identifying the owners ofsuch foreign banks and indicating the name and address of a U.S. resident authorized to acceptservice of legal process for records relating to the correspondent account. U.S. institutions havingsuch correspondent accounts are required to provide federal law enforcement officers with thesenames and addresses within 7 days of receiving a request and are required to terminate correspondentaccounts within 10 business days of receiving a notice from the Secretary or the Attorney Generalthat the foreign bank has failed to comply with a subpoena or to contest its issuance. U.S. financialinstitutions are not to be held liable for terminating such accounts and are subject to civil penaltiesof $10,000 per day for failing to do so.

This section also amends the criminal forfeiture provisions of the Controlled Substances Act, 21 U.S.C. ï¿½ï¿½ 853(p) and 853(e) to permit a court to order return to the jurisdiction of substituteassets, property that may be substituted for unreachable property subject to forfeiture, and to issuea pre trial-order to a defendant to repatriate such substitute assets.

Proceeds of Foreign Crimes. Section 320 authorizes the forfeiture of property derived from or traceable to felonious violations of foreigncontrolled substances laws, provided the offense is punishable by death or a term of imprisonmentof more than one year under the law of the foreign nation and under U.S. law, had it occurred withinthe jurisdiction of the U.S.

Credit Unions and Commodity Futures Trading Corporation Regulatees. Sec.. 321 adds credit unions and CFTC- regulated or registered futurescommission merchants, commodity trading advisors, and commodity pool operators to the specificlist of financial institutions subject to the requirements of the Currency and Foreign TransactionReporting Act.

Corporation Represented by a Fugitive. Sec. 322 amends 28 U.S.C. ï¿½ 2466 to include corporations having a majority stockholder who is a fugitive,thus, disallowing such corporations to successfully pursue innocent owner claims in a civil orcriminal forfeiture case.

Enforcement of Foreign Judgments. Sec. 323 amends 28 U.S.C. ï¿½ 2467 to extend authority for judicial enforcement of foreign confiscation fromthe previous provisions limiting such enforcement to confiscations related to drug traffickingoffenses. Under the newly enacted provision U.S. district courts may enforce foreign confiscations related to any offense under foreign law that, if committed under U.S. law, would have permittedforfeiture.

Report. Sec. 324 requires the Secretary of the Treasury, within 30 months of enactment, to make a report on operations respecting the provisionsrelating to international counter-money laundering measures and any recommendations to Congressas to advisable legislative action.

Concentration Accounts. Sec. 325 authorizes theSecretary of the Treasury to prescribe regulations governing maintenance of concentration accountsby financial institutions. If issued, such regulations must prohibit financial institutions fromallowing clients to direct transactions through those accounts, prohibit financial institutions frominforming customers of the means of identifying such accounts, and require each financial institutionto establish written procedures to document all transactions involving a concentration account insuch a way that amounts belonging to each customer may be identified.

Verification of Identification. Sec. 326 requires the Secretary of the Treasury, jointly with appropriate regulators of financial institutions, within ayear of enactment, to prescribe minimum standards for identifying customers opening accounts atfinancial institutions. These are to include procedures to verify customer identity and compare withgovernment lists of terrorists and terrorist organizations. Under this section, the Secretary is requiredto submit a report to Congress within six months of enactment, recommending a means of insuringsimilarly accurate identification of foreign nationals, requiring an identification number similar toa Social Security number or a tax identification number for foreign nationals opening accounts atfinancial institutions, and setting up a system for financial institutions to review information heldby government agencies to verify identities of foreign nationals opening accounts.

Consideration of Anti-Money Laundering Record. Sec. 327 amends the Bank Holding Company Act and the Federal Deposit Insurance Act, to requirethat, before approving certain acquisition or merger applications under the Bank Holding CompanyAct or the Federal Deposit Insurance Act, the Board of Governors of the Federal Reserve System andthe Federal Deposit Insurance Corporation must consider the institution's effectiveness in combatingmoney laundering.

International Cooperation on Identification of Originators of WireTransfers. Sec. 328 requires the Secretary of the Treasury to encourage foreigngovernments to require the name of the originator in wire transfer instructions and include it fromorigination to disbursement. The Secretary is to report annually on progress toward this end to theHouse Financial Services Committee and Senate Banking, Housing, and Urban Affairs Committee.

Criminal Penalties. Sec. 329 criminalizes the soliciting or acceptance of a bribe by anyone acting on behalf of an entity of the Federal Governmentin connection with the administration of the International Money Laundering Abatement andAnti-Terrorist Financing Act of 2001, subject to a fine of up to three times the value of the thingconstituting the bribe, 15 years imprisonment, or both.

International Cooperation in Money Laundering Investigations. Sec. 330 states the sense of Congress that international negotiationsshould be pursued for further cooperative efforts to insure that foreign financial institutions maintainadequate records relating to foreign terrorist organizations and money launderers and make suchrecords available to U.S. law enforcement officials and domestic financial institution supervisors.

SUBTITLE B-BANK Secrecy Act Amendments and Related Improvements

Amendments Relating to Reporting of Suspicious Activities. Sec. 351 amends the Currency and Foreign Transactions Reporting Act, 31 U.S.C. ï¿½ 5318(g)(3), to extend the safe harborprovisions for financial institutions and their employees who provide information as to possible lawviolations to cover all voluntary disclosures of possible law violations made to any federalgovernment agency. Also covered are employees or agents of institutions who require others tomake such disclosures. The immunity provided under the legislation covers potential liability undercontracts and other legally enforceable agreements.. Previously, immunity was provided only fordisclosures of violation of law or regulation pursuant to law or regulation; there was no specificimmunity for those requiring others to make disclosures; and, immunity extended only to liabilityunder laws or regulations of the United States or constitution, law, or regulation of a state or politicalsubdivision thereof. The section makes it clear that the liability does not extend to prosecutionsbrought by governmental entities. Disclosure to the subject of the tip-off is prohibited. Informationdisclosed about potential law violations may be used in employment references to other financialinstitutions as well as, under the rules of the securities exchanges, in termination notices.

Anti-Money Laundering Programs. Sec. 352, effective 180 days after enactment, requires each financial institution to develop an anti-moneylaundering program to include development of internal policies, designation of a compliance officer,ongoing employee training, and an independent audit function to test the programs. It authorizes theSecretary of the Treasury to prescribe minimum standards for such programs and to exempt thosefinancial institutions that are not covered by the regulations promulgated under the Currency andForeign Transactions Reporting Act. It requires the Secretary to prescribe regulations that considerthe extent to which the requirements imposed under this section comport with the size, location, andactivities of the financial institutions to which they apply.

Geographic Targeting Orders-Penalties and Extension of Permissible Period. Sec. 353 extends the civil and criminal penalties under theCurrency and Foreign Transactions Reporting Act, 31 U.S.C. ï¿½ï¿½ 5321(a) and 5322, to includeviolations of geographic targeting orders issued under that Act and willful violations of regulationsprescribed under the record keeping requirements of the Bank Secrecy Act, found in Section 21 ofthe Federal Deposit Insurance Act (FDIA), 12 U.S.C. ï¿½ 1829(b), or violations of regulations coveringuninsured financial institutions issued by Treasury under the authority of 12 U.S.C. ï¿½ï¿½ 1951 - 1959. Before enactment of USA-PATRIOT, 18 U.S.C. ï¿½ 1829(b) carried no criminal penalties and set civilpenalties for violations of regulations issued under 12 U.S.C. ï¿½ 1829(b) at up to $10,000. Section1955 of Title 12, U.S.C. carried civil penalties of up to $10,000; and, 12 U.S.C. ï¿½ 1956 carried acriminal penalty of up to $1,000 and imprisonment for one year. 31 U.S.C. ï¿½ 5321(a) permits civilpenalties of $25,000 or the amount of the instrument (not to exceed $100,000); 31 U.S.C. ï¿½ 5322permits criminal penalties of up to $250,000 in fines and imprisonment of up to 5 years for a singleoffense and enhancement for offenses committed in conjunction with other offenses or as a patternof criminal activity.

The section also extends the prohibitions on structuring transactions to avoid reporting requirements, 31 U.S.C. ï¿½ 5324, to cover structuring to avoid geographic targeting orders and recordkeeping requirements of the Bank Secrecy Act, found in Section 21 of the Federal Deposit InsuranceAct, 12 U.S.C. ï¿½ 1829(b), and 12 U.S.C. ï¿½ï¿½ 1951- 1959. It extends the permissible length ofgeographic targeting orders from 60 to 180 days.

Anti-Money Laundering Strategy. Sec. 354 includes in the list of topics prescribed for inclusion in the Administration's annual anti-moneylaundering strategy, data regarding the funding of international terrorism acts.

Authorization to Include Suspicions of Illegal Activity in WrittenEmployment References. Sec. 355 authorizes depository institutions,"[n]otwithstanding any other provision of law," to disclose the possible involvement ofinstitution-affiliated parties in potentially unlawful activity. Such disclosures may be made to otherinsured depository institutions requesting employment references, provided the disclosure is notmade with malicious intent.

Suspicious Activities Reports by SecuritiesBrokers. Sec. 356 requires the Secretary of the Treasury, by January 1, 2002, topublish proposed regulations requiring registered brokers and dealers to file suspicious activityreports under 31 U.S.C. ï¿½ 5318(g). It also authorizes the Secretary to prescribe such regulations forfutures commission merchants, commodity trading advisors, and commodity pool operatorsregistered under the Commodity Exchange Act. It also requires a report, within one year ofenactment, recommending effective regulations under the Currency and Foreign TransactionsReporting Act for investment companies, as defined in the Investment Company Act of 1940, andto evaluate the possibility of requiring trusts and personal holding companies to disclose theirbeneficial owners when opening accounts at depository institutions.

Special Report on Administration of Bank Secrecy Provisions. Sec. 357 requires the Secretary of the Treasury to submit a report,within six months of enactment, on the role of the Internal Revenue Service in administering theBank Secrecy Act's Currency and Foreign Transactions Reporting Act. The report is specificallyto address such issues as whether processing of information is to be shifted from the InternalRevenue Service and whether the Internal Revenue Service is to retain authority for auditingcompliance by money services businesses and gaming businesses with BSA requirements.

Bank Secrecy Provisions and Activities of U.S. Intelligence Agencies to Fight International Terrorism. Sec. 358 authorizes the Secretary of theTreasury to refer suspicious activity reports to U.S. intelligence agencies for use in the conduct ofintelligence or counterintelligence activities to protect against international terrorism. It authorizesthe release of information under the Currency and Foreign Transactions Reporting Act and otherprovisions of the Bank Secrecy Act, the Right to Financial Privacy Act, and the Fair Credit ReportingAct, to U.S. intelligence agencies by amending 31 U.S.C. ï¿½ï¿½ 5311, 5318(g)(4)(b), 5319; 12 U.S.C.ï¿½ 1829(b), 1953; 12 U.S.C. 3412(a); 15 U.S.C. ï¿½ 1681x.

Reporting of Suspicious Activities by Underground Banking Systems. Sec. 359 specifically includes "a licensed sender of money or any otherperson who engages as a business in the transmission of funds, including any person who engagesas a business in an informal money transfer system or any network of people who engage as abusiness in facilitating the transfer of money domestically or internationally outside of theconventional financial institutions system" as a "financial institution" subject to the requirementsof the Currency and Foreign Transactions Reporting Act. It subjects them to any regulationspromulgated under the authority of section 21 of the Federal Deposit Insurance Act, 12 U.S.C. ï¿½1829b. That section of the law provides authority for the regulations issued under 31 C.F.R. Part103, requiring reports of currency and foreign transactions, including those requiring suspiciousactivity reports from money services businesses, 31 C.F.R. ï¿½ 103.20.

Sec. 359 also mandates a report by the Secretary, within a year of enactment, on whether further legislation is needed with respect to these underground banking systems, including whether thethreshold for reporting suspicious activities ($2,000) should be lowered for them.

Use of Authority of U.S. Executive Directors. Sec. 360 authorizes the President to direct the U. S. executive directors of international financialinstitutions to use their voices and votes to support countries or entities that have contributed to theU.S. anti-terrorism efforts and ensure that no funds of their institutions are paid to persons whothreaten to commit or support terrorism. International financial institutions, as defined in 22 U.S.C.ï¿½ 262r(c)(2), include the International Monetary Fund, the International Bank for Reconstruction andDevelopment, the European Bank for Reconstruction and Development, the InternationalDevelopment Association, the International Finance Corporation, the Multilateral InvestmentGuarantee Agency, the African Development Bank, the African Development Fund, the AsianDevelopment Bank, the Bank for Economic Development and Cooperation in the Middle East andNorth Africa, and the Inter-American Investment Corporation.

Financial Crimes Enforcement Network (FinCEN). Sec. 361, by enacting 31 U.S.C. ï¿½ 310, transforms FinCEN from aTreasury Department bureau established administratively to a statutory bureau in the TreasuryDepartment. It specifies that it is to be headed by a Director to be appointed by the Secretary. Itdetails its duties and powers. Subject to applicable legal requirements and guidance by Treasury, FinCEN is to maintain a government-wide data access service to information collected under theanti-money laundering reporting laws, information on currency flows, and other records maintainedby other government offices as well as privately and publically available information;. It is to analyze and disseminate data : (1) to federal, state, local, and foreign law enforcement officials toidentify possible criminal activity; and (2) to regulatory officials to identify possible violations ofthe anti-money laundering reporting requirements. It is to determine emerging trends and methodsin money laundering; and, support intelligence activities against international terrorism.

FinCEN is to establish and maintain a financial crimes communications center to furnish law enforcement authorities with intelligence information relating to investigations and undercoveroperations. It is to furnish informational services to financial institutions, federal regulatoryagencies, and law enforcement authorities, in the interest of countering terrorism, organized crime,money laundering, and other financial crimes. It is to assist law enforcement and regulatoryauthorities in combating the use of informal nonbank networks permitting transfer of funds or theequivalent of funds without records and in insuring compliance with criminal and tax laws. It is toprovide computer and data support and data analysis to the Secretary of the Treasury for tracking andcontrolling foreign assets. It is to administer the anti-money laundering reporting requirements asdelegated by the Secretary of the Treasury.

Sec. 361 further specifies that the Secretary is to prescribe procedures with respect to the government-wide data access service and the financial crimes communications center maintainedby FinCEN to provide efficient entry, retrieval, and dissemination of information. This is to includea method for submitting reports by Internet, cataloguing of information, and prompt initial reviewof suspicious activity reports. Sec. 361 requires the Secretary to develop, in accordance with thePrivacy Act, 5 U.S.C. ï¿½ 552a, and the Right to Financial Privacy Act, 12 U.S.C. ï¿½ï¿½ 3401, et seq. , procedures for determining access, limits on use, and "how information about activities orrelationships which involve or are closely associated with the exercise of constitutional rights arescreened out."

Appropriations of such sums as are necessary are authorized for fiscal years through 2005.

The Secretary is to study methods for improving compliance with the reporting requirements under 31 U.S.C. ï¿½ 5314, relating to foreign currency transactions, and to submit an annual report toCongress on the subject, beginning six months after enactment.

Establishment of Highly Secure Network. Sec. 362 requires the Secretary to establish as operational within nine months, a highly secure networkin FinCEN to allow financial institutions to file electronically reports required under the BankSecrecy Act and to provide financial institutions with alerts and other information regardingsuspicious activities warranting immediate and enhanced scrutiny.

Increase in Civil and Criminal Penalties for Money Laundering. Sec. 363 amends 31 U.S.C. ï¿½ï¿½ 5321(a) and 5322 to permit theSecretary to impose a civil money penalty and a court to impose a criminal penalty equal to 2 timesthe amount of the transaction, but not more than $1,000,000 for violations of the suspicious activityreporting requirements, under 31 U.S.C. ï¿½ï¿½ 5318(i) and (j) or any special measures imposed under31 U.S.C. ï¿½ 5318A. Under pre-existing law, the Secretary had authority to impose a civil moneypenalty of the amount of the transaction, up to $100,000, or $25,000; and, a criminal fine for aviolation of the suspicious activity reporting requirement was set at not more than $250,000.

Uniform Protection Authority for Federal Reserve Facilities. Sec. 364 authorizes the Federal Reserve Board to issue regulations,subject to the approval of the Attorney General, to authorize personnel to act as law enforcementofficers to protect the Board's personnel, property, and operations, including the Federal Reservebanks, and for such personnel to carry firearms and make arrests.

Reports Relating to Coins and Currency Received in Non-Financial Trade of Business. Sec. 365 adds a new section to the anti-moneylaundering reporting requirements, 31 U.S.C. ï¿½ 5331. It requires anyone engaging in a trade orbusiness, who receives $10,000 in coins or currency (including foreign currency and financialinstruments) in a single transaction or in two related transactions to file a report on the transactionto FinCEN as prescribed by the Secretary in regulations. The form for such reports must include thename and address of the person from whom the coins or currency are received, the date and natureof the transaction, and such other information as the Secretary may prescribe. Exemptions are madefor reports filed by financial institutions under 31 U.S.C. ï¿½ 5313 and its implementing regulations,and for transactions occurring outside the United States-unless the Secretary so prescribes. Thesection also includes a provision that prohibits structuring transactions to cause such businesses toevade these reporting requirements or requirements under implementing regulations. (10) "Nonfinancialtrade or business" is defined to mean any trade or business other than a financial institution subjectto reporting requirements under 31 U.S.C. ï¿½ 5313 and regulations thereunder

Efficient Use of Currency Transaction Report System. Sec. 366 requires the Secretary to study expanding the statutory exemptionsystem to the currency transaction reporting requirements, under 31 U.S.C. ï¿½ 5313, authorizingexemptions for transactions with various entities and qualified business customers from the domesticcurrency and coin reporting requirements. The study is to address methods for improving financialinstitutions' use of these exemptions to reduce the submission of reports with little or no value forlaw enforcement purposes. A report on this is required within one year.

SUBTITLE C-Currency Crimes and Protection

Bulk Cash Smuggling into or out of the United States. Sec. 371 creates a new criminal offense, knowingly concealing more than $10,000 and transporting it or attempting to transfer it out of or intothe United States. Conviction under the statute is subject to imprisonment for up to 5 years andforfeiture of any property involved in the offense. Preexisting law, 31 U.S.C. ï¿½ 5316, requires areport by anyone transporting monetary instruments, defined to include currency, of more than$10,000 into or out of the U.S. In United States v. Bajakajian , 524 U.S. 324 (1998), the SupremeCourt ruled it unconstitutional to require forfeiture of $357,144, in cash that the defendant possessedlegitimately and was attempting to carry with him when leaving the United States. The Court foundthe penalty disproportional to the gravity of the offense and a violation of the Excessive Fines Clauseof the Eighth Amendment to the U. S. Constitution. In reaching that decision, the Court consideredthe fact that the offense was merely a reporting offense since it was not illegal to transport thecurrency.

Forfeiture in Currency Reporting Cases. Sec.372authorizes criminal forfeiture and civil forfeitures for violations of the reporting requirementsrelating to monetary instruments and makes the criminal forfeiture procedures of section 413 of theControlled Substances Act and the civil forfeiture procedures of 18 U.S.C. ï¿½ 981(a)(1)(A) (moneylaundering) applicable to criminal and civil forfeiture, respectively, under 31 U.S.C. ï¿½ï¿½ 5313(reports on domestic coins and currency), 5316 (reports on exporting monetary instruments), and5324.(structuring transactions to evade reporting requirements).

Illegal Money Transmitting Businesses. Sec. 373 prohibits anyone from knowingly conducting, controlling, managing, supervising, directing, orowning a money transmitting business: (1) without a license in a state that requires such a licenseand subjects those operating without a license to state misdemeanor or felony penalties; (2) notregistered with Treasury under 31 U.S.C. ï¿½ 5330; or (3) involves the transportation or transmissionof funds that the defendant knows to have been derived from a criminal offense or are intended tobe used to promote or support unlawful activity. The section prescribes a federal penalty of up tofive years' imprisonment and criminal fines and authorizes civil forfeiture of property involved intransactions in connection with this offense.

Counterfeiting Domestic Currency and Obligations. Sec. 374 extends the definition of counterfeiting obligations of theUnited States to cover analogs, digital or electronic images, as well as "any plate, stone, or otherthing or part thereof, used to counterfeit" such obligations or securities, as provided in pre-existinglaw.18 U.S.C. ï¿½ 470(2). This section is also amended to provide penalties for offenses committedoutside the U.S. as are applicable to those within the U.S. Other provisions increase the penaltiesunder other counterfeiting statutes to 20 years' imprisonment: 18 U.S.C. ï¿½ï¿½ 471 (obligations orsecurities of the U.S.); 472 (uttering counterfeit obligations or securities); 473 (dealing in counterfeitobligations or securities); and, 474 (using plates or stones for counterfeiting).

The section amends 18 U.S.C. ï¿½ 474 to cover counterfeiting involving an analog, digital or electronic image of U.S. obligations, unless authorized by Treasury. It amends 18 U.S.C. ï¿½ 476(taking impressions of tools used for obligations or securities of the U.S.) to increase the penaltyfrom 10 years to 25 years' imprisonment. It amends 18 U.S.C. ï¿½ 477 (possessing or sellingimpressions of tools used for obligations or securities) to cover an analog, digital, or electronicimage. It raises the penalty for connecting parts of different notes, 18 U.S.C. ï¿½ 484, from five years'to ten years' imprisonment, and for offenses under 18 U.S.C. ï¿½ 493 (bonds and obligations of certainlending agencies), from five to ten years' imprisonment.

Counterfeiting Foreign Currency and Obligations. Sec. 375 increases the penalties for violations of various offenses involving foreign currency andobligations as follows: 18 U.S.C. ï¿½ 478 (foreign obligations or securities, penalty raised from fiveto 20 years; 18 U.S.C. ï¿½ 479 (uttering counterfeit foreign obligations, penalty raised from three totwenty years); 18 U.S.C. ï¿½ 480 (possessing counterfeit foreign obligations or securities, penaltyraised from one to twenty years); 18 U.S.C. ï¿½ 481 (plates or stones for counterfeiting foreignobligations or securities, penalty raised from five to twenty years); 18 U.S.C. ï¿½ 482 (foreign banknotes, penalty raised from two to twenty years); and 18 U.S.C. ï¿½ 483 (foreign bank notes, penaltyraised from two to twenty years). The section also criminalizes counterfeiting involving an analog,digital, or electronic image of foreign obligations and securities.

Laundering the Proceeds of Foreign Terrorism. . Sec. 376 adds 18 U.S.C. ï¿½ 2339B, providing material support to designated foreign terroristorganizations, as a predicate offense for a money laundering prosecution under 18 U.S.C. ï¿½ 1956.

Extraterritorial Jurisdiction. Sec. 377 enhances the applicability of 18 U.S.C. ï¿½ 1029 (computer fraud) by covering offenses committed outside theU.S. that involve an access device issued by a U.S. entity, such as a credit card, provided thedefendant transports, delivers, conveys, transfers to or through, or otherwise stores, secrets, or holdswithin the jurisdiction of the U.S., any article used to assist in the commission of the offense or theproceeds of such offense or property derived therefrom.