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. 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. 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. 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.