In an ideal customer identification system, financial intermediaries could verify the identity of each of its customers, whether a citizen or a foreign national; whether physically present or overseas; whether rich or poor.
But given the quality of information sources currently available, the ideal isn't possible just yet, according to the Treasury.
First, counterfeit identity documents are far too easy to obtain, even for U.S. documents such as driver's licenses and Social Security cards. Second, there's no "single, uniform identification document" for foreign nationals, nor available federal resources to verify existing documents. Thus it's unreasonable to expect the employees of a financial institution to decipher, let alone authenticate, foreign documents.
Accordingly, the Treasury recommended that Congress investigate the feasibility of creating an identification system for foreign nationals, either under the auspices of the Immigration and Naturalization Service (INS) or its proposed successor, the Department of Homeland Security.
The INS currently operates no fewer than eight separate database systems for tracking foreign nationals, with specific applications including those for tracking benefits, refugee status and arrest bookings. Making that information on foreign nationals available to financial institutions would "require both the commitment of substantial resources for the technological infrastructure and staffing as well as an overall restructuring of the system," wrote the Treasury in its Oct. 21 report. "Moreover, a system for identifying and tracking foreign nationals should be constructed to further national security interests and the enforcement of immigration laws, not just the needs of financial institutions to identify customers."
For financial institutions, the value of such an identification system would depend on whether the government itself performs the verification; and whether additional information about immigration status and residency restrictions could be contained within or alongside of a valid identification number.
A REASONABLE BELIEF SYSTEM
In the meantime, financial institutions will be expected to comply with the regulations from Section 326 of the USA PATRIOT Act, which require financial institutions to develop a "reasonable belief" that it knows the identities of its customers.
Under the proposed regulations, banks will have to establish customer identification and verification programs that apply to all new account openings. U.S. citizens would be asked to provide their name, address, taxpayer ID and date of birth.
Foreign nationals could substitute a passport number, alien identification card or other government-issued document in lieu of a taxpayer ID. Also, financial institutions are encouraged to obtain a Social Security number (SSN) or International Taxpayer Identification Number (ITIN) should one be available. But since SSNs are only issued to foreign nationals in limited circumstances and ITINs weren't designed with rigorous identity verification in mind, the Treasury recommends that those numbers not be required for opening an account.
Indeed, "requiring all foreign nationals to obtain a tax collection number might unnecessarily discourage foreign nationals from using the U.S. financial system," wrote the Treasury. "Using this tax number as a required proxy for a foreign national identification number may discourage legitimate business without providing a corresponding benefit to financial institutions."
Along the same lines, raising the bar for authentication also goes against the Treasury's goals for bringing the "unbanked" into the financial system. "Imposing burdensome requirements with respect to non-U.S. customers could discourage financial institutions from serving these populations," the Treasury wrote.