Patriot Act

On October 26, 2001, President Bush signed the USA Patriot Act (USAPA) into law. With this law sweeping new powers have been given to both domestic law enforcement and international intelligence agencies. This law has eliminated the checks and balances that were previously in place. They gave courts the opportunity to ensure that these powers were not abused. Most of these checks and balances were put into place after previous misuse of surveillance powers by law enforcement agencies, including the stark revelation in 1974 that the FBI and foreign intelligence agencies had spied on more than 10,000 U.S. citizens, including Martin Luther King.

USAPA, is a large and complex law that had more than four different names and was made up of several versions in the five weeks between the introduction of its first predecessor and its final passage into law.

Any person who will have reason to deal with a bank, credit union, finance company or other financial services provider will realize the full impact of the act in some significant way.

The act is broad in range and covers a diverse variety of financial concerns and institutions. This includes many different means with which to fight the problem of international money laundering and serves to stop terrorists dead in their tracks, blocking any access to the U.S. financial system.

The focus is on banks, but the new law applies to other financial services companies as well. Customers have legitimate reasons to be concerned that their privacy is being invaded. At the forefront, financial service providers must struggle to maintain a high level of assurance that their customer's privacy is being well-protected and at the same time, balancing the juggling act of properly complying with the law.

Below are changes that the act commands:

All money-laundering procedures must change. As of July 23, financial institutions that maintain, administer or manage private banking accounts or correspondent accounts of any kind, while in the United States for foreigners, will be required to comply with new due diligence procedures. A United States citizen can be affected simply because bank computers don't know which customers are citizens and which are not.

When a customer engages in regular, day-to-day banking activity such as wire transfers, checks or deposits, they can expect to be treated with added scrutiny. A bank will be required to treat each customer the very same until their systems can be established. Only then will the bank be able to make the critical distinction between accounts of citizens and non-citizens.

Expecting to open up a bank account with only the customary driver's license is now a thing of the past. A much more rigorous protocol is to be strictly followed now. This requires that the verification of customer identification, maintenance of those verification records and double-checking names of new customers against government lists of known or suspected terrorists, will be the new order of the day. Only a few years ago, Congress passed legislation, making it considerably more difficult for financial institutions to share customer information with unaffiliated entities. Now, financial institutions, regulatory authorities and law enforcement are required to share information about people and entities engaged in, or suspected of, terrorist acts or money-laundering activities.

There are specific safeguards set up to protect information from unauthorized access. At the same time, the common sharing of certain information about people and entities engaged in, or suspected of, terrorist acts or money laundering will not violate existing privacy rules. This brings up issues to do with protection of individual customer rights and privacy.

There is now considerable covert activity among financial institutions. Current law stipulates that banks must report suspicious activity. At the same time, banks are protected from civil liability when doing so. Further, the law also prohibits financial institutions and their employees from disclosing that a suspicious activity report has ever been filed. New employment references and terminations policy are in effect. The law has protected individuals whose employment was terminated because of alleged wrongdoing by making it difficult, if not impossible, for the former employer to discuss the situation frankly with a prospective employer who was seeking a reference. Now, information that has been reported as suspicious may be disclosed by a financial institution in a written employment reference or a written termination notice provided to a self-regulatory agency.

At the same time, while the information may be disclosed in these circumstances, the financial institution may not disclose the fact that a suspicious activity report was filed. This amendment contains the limitation that an institution and its agents may be civilly liable for any disclosure that is "made with malicious intent."

Banks are commonly required to maintain records of cash transactions for certain dollar amounts. The volume of these, generally paper records, is tremendous. The new law requires banks to establish systems to be able to produce requested records within 120 hours of the request. The indirect effect of this change will likely be felt by overtaxed banks looking for ways to increase revenue as a means of offsetting the cost of developing the required new systems.

The ripple effect of this act will be adversely felt by financial institutions and their customers, for years. Positive identification, more scrutiny of financial transactions and quicker access by government officials to financial transactions are only a few of the new ways that this act will exact its power.

We can all look to the aid of modern technology to aid in alleviating some of the inconvenience, but not without a high price to pay in return. The USA Patriot Act has established rules that will be expected to help in the battle against terrorism. At the same time, we all will feel the effects -- in dollars, convenience and most of all, in our cherished privacy.