Assessing the impact of the USA PATRIOT Act on the financial services industry

Abstract

Outlines the requirements of the PATRIOT Act of October 2001; together with subsequent legislation, it has led to a dramatic increase in surveillance activities affecting both traditional financial institutions and the newer types known as Money Service Businesses. Lists its demands, that all financial institutions: establish a more formal anti‐money laundering programme with a compliance officer, implement an employee training programme, file Suspicious Activity Reports, verify new customers’ identities etc. Indicates the cost to the financial services industry of compliance. Concludes that, given the massive quantities of information collected, even the best technology may not ensure that the tiny minority of terrorist traces actually get followed up

Anti-money laundering law and policy as a double edged sword

“…The Act granted the power to the Treasury to examine the financial institutions and scrutinise the suspect accounts. The Act required the financial institutions to design AML programmes, at least to embrace the internal policies, procedures and controls are in place; the designation of a compliance officer; an ongoing employee training programme; and an independent audit function to test the programmes (Fisher et al, 2005).…”

“…The Act required the proper record-keeping in the USA so that the law enforcement agencies could access them per 120-h rule and foreign bank records shall also be obtained per law enforcement request no later than 7 days after the request receipt. Verification of identification of the customer is also required before the account is opened, and consulting lists of known or suspected terrorists or terrorist organisation provided to the financial institution by government agency is an imperative (Fisher et al, 2005). The PA created mechanisms through which financial institutions can share information among themselves, with regulators and law enforcement agencies.…”

Changing Course

“…In particular, firms have expressed serious concerns about the cost that has been imposed on them as it pertains to implementation. Indeed, banks have certainly inherited an immense new responsibility that some have estimated to have cost American institutions alone in the range of US$11bn (Fisher et al, 2005). It was equally evident both before and after the adoption of the Patriot Act that intensified obligations on the part of financial institutions would only add to the mountainous collection of documentation leading to a needle-in-the-haystack scenario.…”

Misguided Policies in the War on Terror? The Case for Disentangling Terrorist Financing from Money Laundering

“…The initial collaborative spirit demonstrated by firms in the aftermath of 11 September 2001 appears to have evaporated and the extent to which intermediaries have been co‐opted into the process is uncertain ( The Economist , 2005). The cost of compliance with the Patriot Act is estimated at over $10 billion for American firms alone (Fisher et al., 2005). Preliminary observations suggest that the most successful operations against terrorist financing have not come through large or suspect transaction reports but rather from sound intelligence work.…”