The USA PATRIOT Act was a turning point in American national security policy, particularly with regards to foreign terrorism. The law is mostly known for its provisions expanding the investigative powers of US law enforcement and intelligence agencies – a number of which have proven to be controversial.
However, the “Patriot Act” – as it’s commonly referred to – also addresses the need for stricter financial regulations to prevent money from making its way into the hands of terrorist organizations and other bad actors.
So what is the Patriot Act? What is its purpose? And why is it important that financial institutions know about it? Read on for the answers.
“USA PATRIOT Act” is an acronym for the official title of the act, which is Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.
The USA PATRIOT Act is a law designed to prevent and punish acts of terrorism in the United States by expanding investigation resources available to law enforcement agents. It also tightens requirements on financial institutions to prevent corruption, money laundering, and terrorism financing.
The USA PATRIOT Act was enacted in October of 2001 by President George W. Bush. It was reauthorized in 2005, 2006, and in 2011 by President Barack Obama. It was set to be reauthorized again in 2020, but Congress has indefinitely postponed the vote on it.
Though the law is now expired, many provisions of it are still in effect through other laws such as:
The USA PATRIOT Act serves three main purposes:
These three goals aimed to improve US national security following a series of plane hijacking and bioterrorism attacks in September of 2001, later known as the 9/11 terrorist attacks and Amerithrax.
The Patriot Act’s purpose is to make it easier for US law enforcement and intelligence agencies to uncover and stop terrorist plots. However, the law has generated much debate regarding whether or not it violates Americans’ constitutional rights – particularly surrounding privacy and due process. Here’s a quick summary of the Patriot Act’s pros and cons:
The USA PATRIOT Act’s money laundering provisions are found in Title III, so this is the part of the law most relevant to financial institutions. In particular, Section 326 of the USA PATRIOT Act involves establishing minimum standards for FIs to verify customers' identities.
This primarily applies to checking if prospective clients are known terrorists, or belong to known terrorist organizations. It also involves maintaining and verifying the accuracy of information related to the identities of existing customers.
Commonly termed the “know your customer” section of the Patriot Act, Section 326 requires that financial institutions include a Customer Identification Program (CIP) as part of their AML compliance framework.
Each CIP must explain the procedures for opening a new account at the institution, as well as what types of identifying information will be collected from the customer in the process. A CIP also has to outline a risk-based process for verifying customers’ identities that considers:
Finally, it’s important to note that USA PATRIOT Act requirements regarding KYC were amended in July 2016 to add provisions related to beneficial ownership. So when a person opens an account, they must disclose information regarding anyone who has at least 25% of ownership rights, voting rights, or rights to capital gains for either the assets in the account or the company serving as the legal owner of the account. This information typically includes:
A summary of the USA PATRIOT Act, as it pertains to US financial institutions, is as follows:
Though some of the USA PATRIOT Act’s provisions are no longer in force, the ones related to preventing financial crime have stayed in effect through amendments to other US laws. At a high level, they require financial institutions to build more effective anti-fraud and AML programs with more stringent KYC and SAR policies.
Unit21’s platform makes this regulatory compliance simple with pre-made KYC check rule sets, data integration with reliable KYC/KYB sources, and automated SAR filing. Book a demo today to see what it can do for your financial organization.