Academic journal article Review of Business

September 11 Brings New Anti-Terrorism and Anti-Money Laundering Responsibilities to Financial Institutions

Academic journal article Review of Business

September 11 Brings New Anti-Terrorism and Anti-Money Laundering Responsibilities to Financial Institutions

Article excerpt

The need to track down the terrorists after September 11, and to help prevent future attacks, led to a search for a means of uncovering the money trails they used. The USA PATRIOT Act has produced a flood of pronouncements requiring or encouraging financial institutions to establish anti-money laundering programs, file suspicious activity reports, and share information with the federal government and each other.

Introduction

The events of September 11 put financial institutions in the front lines of the war on terrorism, asking them to detect patterns of financial activity that might indicate an objective to engage in terrorist acts (1). Prior to the USA PATRIOT Act, many financial institutions considered their anti-terrorism responsibility to consist of checking names of those opening accounts, or conducting certain transactions, against a list provided by the Treasury Department's Office of Foreign Assets Control (OFAC). This checking was, and is, primarily accomplished with interdiction software, commercially available programs that examine names and identity information in an institution's databases to search for those OFAC has determined to be terrorists, support terrorists, or to have impermissible dealings with governments that support terrorism.

Money laundering was thought by many to be the province of drug kingpins and criminal organizations. Currency transaction reporting generally required filing forms concerning transactions involving more than $10,000 in cash (including cashier's and traveler's checks, money orders or bank drafts) (2). Suspicious activity reports had to be filed where it appeared that customers were attempting to structure transactions to avoid having currency transaction reports filed, and in other situations where suspicions regarding the activity arose or should have arisen (3). Though currency transaction reporting applied to all trades and businesses (4), suspicious activity reporting was generally limited to banks, casinos and money services businesses (check cashers, money transmitters, etc.). Brokerage firms, mutual funds, insurance companies and most other financial institutions that seldom or never received payments in cash had no need to implement an anti-money laundering program or to appoint someone in the compliance or legal department to think about the issue.

Then came September 11.

USA PATRIOT Act

The need to track down the terrorists and to prevent future attacks, led to a search for a means of uncovering the money trails they used. OFAC lists provided names of known terrorists and their organizations, but it was apparent that the terrorists were finding individuals who had no or only minor criminal histories, who would not set off alarms at borders or at teller's windows. The money laundering regulatory system was as close as could easily be found for the purpose, but the fit was not perfect Money launderers are generally trying to cleanse money obtained from illegal enterprises. Terrorists are often moving funds with no criminal roots: the money may come from donations to charities, or as gifts from family members or grants from subversive governments or their agencies. Only the purpose of the transfers is illegal. Still, there is a desire to keep the trail invisible, and the procedures used by terrorists are often the same as those used by more conventional criminal enterprises.

Thus came about the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, known as the USA PATRIOT Act, signed by President Bush on October 26, 2001 (5).

Terrorism and money laundering had intersected legislatively before with the Antiterrorism and Effective Death Penalty Act of 1996 (6), which added terrorist crimes to the list of underlying offenses for money laundering prosecutions. The USA PATRIOT Act, however, interwove the two strands of law to a degree that will unite them forever. …

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