The Devil in the Details: Complying With the PATRIOT Act

In December, FinCEN issued a final rule to implement the provisions of Section 312 of the USA PATRIOT Act dealing with foreign correspondent accounts and private banking. The new provisions become effective April 4, 2006.

Under the final rule, financial institutions must take "reasonable steps" to identify the owners of a private banking account and to determine whether any of its owners are "senior foreign political figures." Furthermore, financial institutions will have to ensure that account activity matches up with the purpose and expected uses of the account.

Similar provisions cover correspondent accounts, which foreign financial institutions use to resell the capabilities of U.S. banks to their own clients. Now, financial institutions opening correspondent accounts for foreign financial institutions will have to do their homework -- on the foreign financial institution, their customers and even on the anti-money laundering supervisory regime overseeing that financial institution.

The provisions of final rule are focused on "enhancing what you're already doing," suggests Agnes Bundy-Scanlan, counsel in the financial services practice of Goodwin Procter LLP (Boston). "You want to ensure that your policies and procedures, and your internal controls, are appropriate for your institution and your customer base."

From an operational standpoint, this means investment in education as well as in systems. "It's not only addressing the basic legal requirements, but moving more into spelling out the roles and responsibilities of the associates internally," explains Bundy-Scanlan. "Is there enough information for employees to make the correct decisions? Is the training up to date on this new regulation? Is your monitoring software appropriate given these higher levels of scrutiny?"

"Monitoring has to be taken to a new level," adds Bundy-Scanlan. "It'll take time, creativity and some dollars."

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