The U.S. PATRIOT Act and AML: What You Need to Know

In response to the Sept. 11, 2001, terrorist attacks, the United States adopted the U.S. PATRIOT Act of 2001. Among other aims, the PATRIOT Act sought to strengthen the U.S. government’s efforts in anti-money laundering (AML) and combatting terrorist financing. Parts of the act require and receive periodic renewal, while others have failed to receive support for their renewal.

AML provisions within the U.S. PATRIOT Act

Title III of the act, “International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001,” is one of the ten titles in the Act. The AML provisions in Title III include requirements to improve the government’s ability to detect, prevent, and investigate money laundering.

For example, to break down silos between the public and private sector as well as amongst financial institutions themselves, section 314 encourages the sharing of information between law enforcement, regulators and financial institutions. Section 314(b) allows financial institutions, having notified the U.S. Department of the Treasury, to distribute information to other institutions to assist in the identification and reporting of suspected money laundering and terrorist activity to the government.

• Section 311 grants the Secretary of the Treasury the authority to target specific money laundering and terrorist financing risks upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of “primary money laundering concern.” In practice, this can mean a country or foreign bank can lose its correspondent banking privileges if found to be a “primary money laundering concern.”
• Section 326 establishes a set of minimum standards for financial institutions, including verification of the identity of those seeking to open an account, the maintenance of records used to verify an individual’s identity, including their name, address, and other relevant data, and the consultation of lists of known or suspected terrorists or terrorist organizations supplied by any government entity.
• Section 351 makes amendments to the reporting of suspicious activities, including the expansion of immunity from liability for reporting suspicious activities. It also expands the prohibition regarding the notification of those subject to a Suspicious Activity Reports (SARs) filing.
• Section 352 instructs financial institutions to create anti-money laundering programs and details the minimum requirements, including the creation of internal policies, procedures and controls, the designation of a compliance officer, recurring employee training program and the existence of an independent audit department to test the program’s performance.