International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Title III of P.L. 107-56 (USA PATRIOT Act)

Order Code RL31208

Report for Congress

Received through the CRS Web

International Money Laundering Abatement and

Anti-Terrorist Financing Act of 2001,

Title III of P.L. 107-56 (USA PATRIOT Act)

December 4, 2001

(name redacted)

Legislative Attorney

American Law Division

Congressional Research Service ˜ The Library of Congress

International Money Laundering Abatement and AntiTerrorist Financing Act of 2001, Title III of P.L. 107-56

(USA PATRIOT Act)

Summary

Title III, of the USA PATRIOT Act, P.L. 107-56 (H.R. 3162), 115 Stat. 272

(2001), the “International Money Laundering Abatement and Financial AntiTerrorism Act of 2001,” contains three subtitles that deal with: International Counter

Money Laundering and Related Measures; Bank Secrecy Act Amendments and

Related Improvements; and, Currency Crimes and Protection. It contains a list of 10

findings and 13 purposes, relating the scope of international money laundering to the

financing of global terrorism and focusing on problems in the international banking

system that have facilitated money laundering. Among the purposes of the

legislation are: increasing the strength of U.S. measures to prevent, detect, and

prosecute international money laundering and the financing of terrorism, to provide

a national mandate for subjecting to special scrutiny foreign jurisdictions, financial

institutions operating outside the United States, and classes of international

transactions or types of accounts that pose particular opportunities for criminal abuse,

and to ensure that all appropriate elements of the financial services industry are

subject to appropriate requirements to report potential money laundering transactions

to proper authorities.

The legislation contains over forty separate sections, each of which is

summarized in this report. Some of them are technical in the sense that they address

criminal and civil judicial or administrative proceedings; others enhance criminal

penalties for various types of financial crimes. Among the provisions that have

garnered the most attention are those that affect financial institutions such as the

grant of authority to the Secretary of the Treasury to impose special measures,

including requiring the closure of certain accounts with foreign banks. To impose

these special measures, the Secretary must find that a jurisdiction, class of

transactions, or institution is of “primary money laundering concern.” In addition,

there are provisions that specifically address and specify increased due diligence for

correspondent accounts, payable-through accounts, and private banking accounts for

non-U.S. persons as well as accounts with off-shore or foreign shell banks. There are

requirements and standards for increased cooperation by financial institutions in

responding to government requests for information and new requirements for

regulations mandating standards for identifying persons opening accounts. The

legislation also requires financial institutions to institute anti-money laundering

programs, and the Secretary of the Treasury, within 3 months, to issue regulations

setting minimum requirements.

Some of the provisions of the legislation went into effect with the President’s

signature. Some need no implementing regulations. Much of the legislation,

however, requires implementing regulations. The full impact, therefore, will emerge

over the course of time. By including many requirements for studies and reports,

Congress has indicated that it is prepared to conduct fine tuning should the need

arise.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Pre-existing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

International Money Laundering Abatement and Financial Anti-Terrorism Act . 4

SUBTITLE A–International Counter Money Laundering and

Related Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Special Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Special Due Diligence for Correspondent Accounts and

Private Banking Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Prohibition on Correspondent Accounts for Foreign Shell Banks . . . . . 5

Cooperative Efforts to Deter Money Laundering . . . . . . . . . . . . . . . . . 5

Foreign Corruption Offenses Added to List of Money

Laundering Predicates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Right to Raise Innocent Property or Innocent Owner Defense in

Terrorist-Related Confiscations or Forfeitures . . . . . . . . . . . . . . . 6

Long-Arm Jurisdiction Over Foreign Money Laundering . . . . . . . . . . . 6

Money Laundering Through a Foreign Bank . . . . . . . . . . . . . . . . . . . . . 7

Forfeiture of Funds in U.S. Interbank Accounts . . . . . . . . . . . . . . . . . . 7

Proceeds of Foreign Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Credit Unions and Commodity Futures Trading Corporation

Regulatees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Corporation Represented by a Fugitive . . . . . . . . . . . . . . . . . . . . . . . . . 8

Enforcement of Foreign Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Concentration Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Verification of Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Consideration of Anti-Money Laundering Record . . . . . . . . . . . . . . . . 8

International Cooperation on Identification of Originators of

Wire Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Criminal Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

International Cooperation in Money Laundering Investigations . . . . . . 9

SUBTITLE B–BANK Secrecy Act Amendments and

Related Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Anti-Money Laundering Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Geographic Targeting Orders–Penalties and Extension of

Permissible Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Anti-Money Laundering Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Authorization to Include Suspicions of Illegal Activity in

Written Employment References . . . . . . . . . . . . . . . . . . . . . . . . . 10

Suspicious Activities Reports by Securities Brokers . . . . . . . . . . . . . . 10

Special Report on Administration of Bank Secrecy Provisions . . . . . 11

Bank Secrecy Provisions and Activities of U.S. Intelligence Agencies

to Fight International Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Reporting of Suspicious Activities by Underground

Banking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Use of Authority of U.S. Executive Directors . . . . . . . . . . . . . . . . . . . 11

Financial Crimes Enforcement Network (FinCEN) . . . . . . . . . . . . . . . 12

Establishment of Highly Secure Network . . . . . . . . . . . . . . . . . . . . . . 13

Increase in Civil and Criminal Penalties for Money Laundering . . . . . 13

Uniform Protection Authority for Federal Reserve Facilities . . . . . . . 13

Reports Relating to Coins and Currency Received in Non-Financial

Trade of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Efficient Use of Currency Transaction Report System . . . . . . . . . . . . 13

SUBTITLE C–Currency Crimes and Protection . . . . . . . . . . . . . . . . . . . . . 14

Forfeiture in Currency Reporting Cases . . . . . . . . . . . . . . . . . . . . . . . 14

Illegal Money Transmitting Businesses . . . . . . . . . . . . . . . . . . . . . . . . 14

Counterfeiting Domestic Currency and Obligations . . . . . . . . . . . . . . 14

Counterfeiting Foreign Currency and Obligations . . . . . . . . . . . . . . . . 15

Laundering the Proceeds of Foreign Terrorism . . . . . . . . . . . . . . . . . . 15

Extraterritorial Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

International Money Laundering Abatement

and Anti-Terrorist Financing Act of 2001,

Title III of P.L. 107-56 (USA PATRIOT Act)

Introduction

The USA PATRIOT ACT, Pub. L. 107-56, 15 Stat. 272 (2001),1 which became

law on October 26, 2001, includes as Title III, the “International Money Laundering

Abatement and Financial Anti-Terrorism Act of 2001.” Title III derives from H.R.

3004, 2 as passed by the House, and Title III of S. 1510, as passed by the Senate.

Although each of the last several Congresses has examined the adequacy of United

States laws targeting money laundering, there was insufficient support for any

legislation until the September 11 attacks focused attention on the financing of

international terrorism and the role that financial institutions could play in identifying

and cutting off its source of funding.

This legislation, which has been deemed “the most significant anti-moneylaundering legislation in more than 30 years,”3 is designed to prevent terrorists and

others from using the U.S. financial system anonymously to move funds obtained

from or destined for illegal activity. It seeks to impose new requirements on banks,

the institutions that have heretofore been the focus of the anti-money laundering

record keeping and reporting requirements, and on other participants in the financial

services industry–brokers and dealers, investment companies, and informal money

transmitting networks. Although its main target is international money laundering

and terrorists, its reach is broader.

Among the purposes of the legislation are: increasing the strength of U.S.

measures to prevent, detect, and prosecute international money laundering and the

financing of terrorism. Another aim is to provide a national mandate for subjecting

to special scrutiny foreign jurisdictions, financial institutions operating outside the

United States, and classes of international transactions or types of accounts that pose

particular opportunities for criminal abuse. Another significant purpose of the

legislation is to ensure that all appropriate elements of the financial services industry

are subject to appropriate requirements to report potential money laundering

transactions to proper authorities.

1

The full title is “Uniting and Strengthening America by Providing Appropriate Tools

Required to Intercept and Obstruct Terrorists.”

2

3

H.R. Rep. 107-250, 107th Cong., 1st Sess. (2001).

Todd Stern, Satish M. Kini, and Stephen R. Heifetz, “Array of Regulations to Flow from

Anti-Laundering Law,” American Banker 18 (Nov. 2, 2001) (available in LEXIS-NEXIS,

BANKNG Library, CURNWS file).

CRS-2

The legislation contains over forty separate sections, each of which is

summarized in this report. Some of them are technical in the sense that they address

criminal and civil judicial or administrative proceedings; others enhance criminal

penalties for various types of financial crimes. Among the provisions that have

garnered the most attention are those that affect financial institutions such as section

311' s grant of authority to the Secretary of the Treasury to impose special measures

on financial institutions upon finding a jurisdiction, class of transactions, or

institution to be of “primary money laundering concern” that could include opening

or maintaining accounts. In addition, there are provisions that specifically address

and specify increased due diligence for correspondent accounts, payable-through

accounts, and private banking accounts for non-U.S. persons as well as accounts with

off-shore or foreign shell banks. There are requirements and standards for increased

cooperation by financial institutions in responding to government requests for

information and new requirements for regulations mandating standards for

identifying persons opening accounts. The legislation also requires financial

institutions to institute anti-money laundering programs and the Secretary of the

Treasury, within 3 months, to issue regulations setting minimum requirements.

Since much of the legislation requires implementing regulations, the full impact

will emerge over the course of time. Because many of its provisions impose

requirements for studies and reports, Congress has indicated that it is prepared to

conduct fine tuning should the need arise.

Pre-existing Law

This legislation builds on existing law, which includes substantive criminal

statutes defining and prohibiting money laundering and statutes calling for a

regulatory regime of record keeping and reporting on various financial transactions

and prescribing civil and criminal penalties for violations of that scheme and its

regulations. The major components of this array of anti-money laundering laws are

presented below.

1. 18 U.S.C. § 1956 prohibits anyone from knowingly engaging in various

financial transactions that involve the proceeds of specified illegal activity. A person

may be convicted under this statute if proven to have engaged in any of various types

of financial transactions without actually knowing that the proceeds of illegal activity

are involved provided the prosecution proves willful blindness.4 It is a crime that

uniquely involves the activities of financial institutions and, therefore, requires their

diligence both to cooperate with law enforcement and to avoid liability.

2. Under 18 U.S.C. § 1957, anyone who knowingly engages in a monetary

transaction in criminally derived property of more then $10,000, that has been

derived from specified unlawful activity, is subject to criminal penalties.

3. Titles I and II of P.L. 91-508, including 12 U.S.C. §§ 1829b, and 1951 - 1959;

31 U.S.C. §§ 5311 et seq., the Bank Secrecy Act (BSA) of 1970 and its major

4

United States v. Jensen, 69 F. 3d 906 (8th Cir. 1995), cert. denied, 517 U.S. 1169.

CRS-3

component, the Currency and Foreign Transactions Reporting Act, 31 U.S.C. §§

5311 et seq., require reports and records of transactions involving cash, negotiable

instruments, or foreign currency and authorize the Secretary of the Treasury to

prescribe regulations to insure that adequate records are maintained of transactions

that have a “high degree of usefulness in criminal, tax, or regulatory investigations

or proceedings.” Violation of the regulations is subject to civil and criminal

penalties.

4. Since April, 1996,5 the regulations require that banks and other depository

institutions submit Suspicious Activity Reports (SARs)6 of any transaction involving

at least $5,000, which the institution suspects: to include funds from illegal activities;

to have been conducted to hide funds from illegal activities or designed to evade the

BSA requirements; have “no business or apparent lawful purpose;” or are “not the

sort [of transaction] in which the particular customer would normally be expected to

engage, and the bank knows of no reasonable explanation for the transaction after

examining the available facts, including the background and purpose of the

transaction.”7

5. Under the Money Laundering Suppression Act of 1994, 31 U.S.C. § 5330(a),

the Secretary of the Treasury is required to establish a system to register money

transmitting businesses. Financial Crimes Enforcement Network (FinCEN”s)

regulations require registration by December 31, 2001. 31 C.F.R. 103.41.

Implementation

While much of the new law will require regulations to be issued by the Treasury

Department in consultation with other federal financial institution regulators,8 some

provisions take effect immediately. Among them are the following:

1. The prohibition on U.S. correspondent accounts with shell banks, i.e., banks

having no physical presence in their chartering country, becomes effective December

25, 2001. Section 313 of the Act.

5

61 Fed.Reg. 4326 (February 5, 1996). Included in the notice were implementing

regulations applicable to national banks and to state chartered member banks.12 C.F.R. §§

21.11 and 208.20. Promulgated soon thereafter were regulations applicable to state

chartered nonmember banks; 12 C.F.R. § 353.3; federally insured credit unions (12 C.F.R.

§ 748.1); and federally insured savings associations, 12 C.F.R. § 563.180.

6

31 C.F.R. § 103.21. The authority to require suspicious activity reports derives from 31

U.S.C. § 5314(h), authorizing the Secretary of the Treasury to require financial institutions

to report suspicious transactions, originally enacted as section 1518 of the Housing and

Community Development Act of 1992, P.L. 102-550, 106 Stat. 3672,4059.

7

8

31 C.F.R. § 103.21(a)(2).

See: Federal Reserve Board, Division of Banking Supervision and Regulation, SR 01-29,

“The USA PATRIOT Act and the International Money Laundering Abatement and AntiTerrorist Financing Act of 2001 (November 26, 2001).

[http://www.federalreservegov/boarddocs/SRLETTERS/2001/sr0129.HTM].

CRS-4

2. A covered financial institution is required to provide records relating to its

anti-money laundering program or its customers within 120 hours of a request from

the appropriate regulator. Section 319(b).

3. Banks holding correspondent accounts for foreign banks are required to

maintain certain records identifying the owners of the foreign bank and the name of

an agent in the U.S. authorized to accept legal process that they might be produced

within seven days of their receipt of a subpoena from the Department of the Treasury

or the Attorney General. Section 319(b).9

4. Due diligence standards are required to be in place to detect and report

money laundering by all financial institutions that maintain private banking accounts

or correspondent accounts in the U.S. for non-U.S. persons, including individuals and

entities. Enhanced standards are required for certain correspondent accounts, e.g.,

those with foreign banks with offshore licenses or from particular jurisdictions.

Minimum due diligence standards are specified for private banking accounts,

accounts with minimum deposits of $1 million and managed by a person who acts

as a liaison between the bank and the beneficial owner, held for foreign owners. Sec.

312.

International Money Laundering Abatement and

Financial Anti-Terrorism Act

SUBTITLE A–International Counter Money Laundering and

Related Measures

Special Measures. Sec. 311 authorizes the Secretary of the Treasury (the

Secretary) to impose certain regulatory restrictions, known as “special measures,”

upon finding that a jurisdiction outside the U.S., a financial institution outside the

U.S., a class of transactions involving a jurisdiction outside the U.S., or a type of

account, is “of primary money laundering concern.” To make this finding, the

Secretary must consult with the Secretary of State and the Attorney General and

consider certain factors relating to the foreign jurisdiction or the particular institution

targeted. Among the factors to be considered in imposing special measures relating

to a jurisdiction are: involvement with organized crime or terrorists, bank secrecy

laws and regulations, the existence a mutual legal assistance treaty with the U.S., and

level of official corruption. The special measures generally involve detailed record

keeping and reporting requirements relating to underlying transactions and beneficial

ownership of accounts. Special measures could involve prohibiting the maintenance

of payable-through or correspondent accounts for such institutions or jurisdictions,

provided that there has been consultation with the Secretary of State, the Attorney

General, and the Chairman of the Federal Reserve Board, as well as with other

9

On November 20, 2001, Treasury issued “Interim Guidance Concerning Compliance by

Covered U.S. Financial Institutions with New Statutory Anti-Money Laundering

Requirements Regarding Correspondent Accounts Established or Maintained for Foreign

Banking Institutions.” [http://www.treas.gov/press/releases/regs.htm].

CRS-5

appropriate federal banking agencies and consideration has been given to whether

other nations have taken similar action, whether there would be a significant

competitive disadvantage on U.S. financial institutions, and any effect upon the

international payment system. “Account” is defined for banks, with authority

delegated to the Secretary to define the term for other financial services businesses

upon consultation with the appropriate federal regulators.

Generally, unless there are other provisions of law on which the Secretary may

base a special measure, none may remain in effect beyond 120 days unless a

regulation has been promulgated and none may be ordered unless accompanied by

a proposed rule. Moreover, no order prohibiting or imposing conditions on

maintaining correspondent accounts may be issued unless final regulations have been

promulgated. In addition, the Secretary is required to issue a regulation defining

“beneficial ownership” for purposes of this legislation.

Special Due Diligence for Correspondent Accounts and Private

Banking Accounts. Sec. 312 requires every financial institution with a private

banking or correspondent account for a foreign person or bank to establish policies

and controls designed to detect and report money laundering through the accounts.

If a correspondent account is maintained for a foreign bank that operates under an

offshore license–i.e., does not and may not do banking business in the chartering

country–or that is licensed by a jurisdiction designated for special measures or listed

as non-cooperative by an international organization in which the U.S. participates and

concurs, enhanced due diligence policies are required. For correspondent accounts

for foreign banks, U.S. banks, at the minimum, must secure ownership information

on the foreign bank, maintain enhanced scrutiny of the account, and ascertain due

diligence information on the foreign banks for which the target bank provides

correspondent banking services. For foreign private banking clients, i.e., those with

aggregated deposits of $1,000,000, information must be secured on the identity of the

named owners of the accounts and the actual or beneficial owners, and the source of

the funds. Enhanced scrutiny is required for accounts held for senior foreign political

figures. This section becomes effective within 180 days of enactment; regulations

must be issued within 120 days of enactment.

Prohibition on Correspondent Accounts for Foreign Shell Banks.

Sec. 313 prohibits U.S. banks, thrifts, private banks, foreign bank agencies and

branches operating in the U.S., and brokers and dealers licensed under the Securities

Exchanges Act of 1934, 15 U.S.C. 78a et seq., from maintaining correspondent

accounts for foreign shell banks–banks that have no physical presence in any country.

It requires that the covered institutions take reasonable steps to preclude their

providing services to such shell banks through other banks and requires the Secretary

to issue implementing regulations.

Cooperative Efforts to Deter Money Laundering. Sec. 314 requires the

Secretary to issue regulations within 120 days of enactment to encourage further

cooperation among financial institutions and regulatory and law enforcement

authorities to promote sharing information on individuals, entities, and organizations

engaged in or suspected of engaging in terrorist acts or money laundering. In these

regulations, the Secretary may require each financial institution to designate persons

to receive information and to monitor accounts and establish procedures to protect

CRS-6

the shared information. No information received by a financial institution under this

provision may be used for any purpose other than identifying and reporting activities

involving terrorism or money laundering. If a financial institution uses this

information for those purposes, it may not be held liable for unauthorized disclosure

or failure to provide a notice under any law or regulation, state or federal, or any

contract or agreement. The Secretary is required to provide a semiannual report

analyzing suspicious activity reports.

Foreign Corruption Offenses Added to List of Money Laundering

Predicates. Sec. 315 adds to the list of offenses under foreign law, the proceeds of

which may form an element of a federal money laundering prosecution: any crime

of violence; bribery of a public official; theft, embezzlement, or misappropriation of

public funds; certain smuggling or export control violations; and, offenses for which

the U.S. would be obliged to extradite alleged offenders. Also added would be

certain offenses under the U.S. criminal code relating to customs, importation of

firearms, firearms trafficking, computer fraud and abuse, and felony violations of the

Foreign Agents Registration Act.

Right to Raise Innocent Property or Innocent Owner Defense in

Terrorist-Related Confiscations or Forfeitures. Prior to enactment of the

USA PATRIOT Act, the President had authority to order the vesting of seized foreign

assets under the Trading With the Enemy Act § 5(b), 50 U.S.C. App. § 5(b), which

applies when there has been a declaration of war, but not under the International

Emergency Economic Powers Act (IEEPA), 50 U.S. C. 1702, which applies when

the President has declared the existence of an unusual or extraordinary threat to the

U.S. national security, foreign policy, or economy having its source, in whole or

substantial part, outside the United States. Section 106 of the new law amends

IEEPA to authorize the President, “when the United States is engaged in armed

hostilities or has been attacked by a foreign country or foreign nationals,” to

“confiscate any property, subject to the jurisdiction of the United States, of any

foreign person, foreign organization, or foreign country that he determines has

planned, authorized, aided, or engaged in such hostilities or attacks against the

United States.”

Sec. 316 authorizes judicial review of confiscation of terrorist related assets and

sets forth two defenses for those claiming the property that must be proven by a

preponderance of the evidence: (1) that the property is not subject to forfeiture under

the applicable law, and (2) the innocent owner defense detailed in the criminal

forfeiture provision of 18 U.S.C. § 983(d). It also authorizes the government to

offer otherwise inadmissible evidence provided the court finds that complying with

the Federal Rules of Evidence would jeopardize national security. There is also a

clause alluding to the right to raise Constitutional claims and claims under the

Administrative Procedure Act and a savings clause preserving other remedies.

Long-Arm Jurisdiction Over Foreign Money Laundering. Sec. 317

provides jurisdiction over foreign persons, including financial institutions, for

substantive money laundering offenses under 18 U.S.C. §§ 1956 and 1957, provided

there is a valid service of process and either the offense involved a transaction in the

U.S. or the property has been the subject of a forfeiture judgment or a criminal

CRS-7

sentence. The district courts are authorized to appoint a receiver to take control of

the property.

Money Laundering Through a Foreign Bank. Sec. 318 amends the

substantive money laundering criminal statute, 18 U.S.C. § 1956, to cover

laundering money through a foreign bank.

Forfeiture of Funds in U.S. Interbank Accounts. Sec. 319 amends 18

U.S.C. § 981 to permit forfeiture, including forfeiture under the Controlled

Substances laws, of accounts in offshore offices of foreign banks by substituting

funds in interbank accounts in U.S. financial institutions up to the value of the funds

in the targeted account. The section authorizes the Attorney General to suspend or

terminate such a forfeiture action on conflict-of-law grounds or upon a finding that

to do so would be in the interest of justice and would not harm the national interests

of the U.S.

Sec. 319, effective within 60 days of enactment, amends the Currency and

Transaction Reporting Act, 31 U.S.C. § 5311, et seq., to require U.S. banks, thrifts,

private banks, foreign bank agencies and branches operating in the U.S., and brokers

and dealers licensed under the Securities Exchanges Act of 1934, 15 U.S.C.§ 78a et

seq., to provide federal regulators, upon request, information on the institution’s

compliance with anti-money laundering requirements or on a customer’s account,

within 120 hours. It also authorizes the Secretary of the Treasury or the Attorney

General to subpoena records from a foreign bank that has a correspondent account

in the U.S. that relate to that account, including records maintained abroad. It

requires U.S. institutions maintaining correspondent accounts for foreign banks to

maintain records identifying the owners of such foreign banks and indicating the

name and address of a U.S. resident authorized to accept service of legal process for

records relating to the correspondent account. U.S. institutions having such

correspondent accounts are required to provide federal law enforcement officers with

these names and addresses within 7 days of receiving a request and are required to

terminate correspondent accounts within 10 business days of receiving a notice from

the Secretary or the Attorney General that the foreign bank has failed to comply with

a subpoena or to contest its issuance. U.S. financial institutions are not to be held

liable for terminating such accounts and are subject to civil penalties of $10,000 per

day for failing to do so.

This section also amends the criminal forfeiture provisions of the Controlled

Substances Act, 21 U.S.C. §§ 853(p) and 853(e) to permit a court to order return to

the jurisdiction of substitute assets, property that may be substituted for unreachable

property subject to forfeiture, and to issue a pre trial-order to a defendant to repatriate

such substitute assets.

Proceeds of Foreign Crimes. Section 320 authorizes the forfeiture of

property derived from or traceable to felonious violations of foreign controlled

substances laws, provided the offense is punishable by death or a term of

imprisonment of more than one year under the law of the foreign nation and under

U.S. law, had it occurred within the jurisdiction of the U.S.

CRS-8

Credit Unions and Commodity Futures Trading Corporation

Regulatees. Sec.. 321 adds credit unions and CFTC- regulated or registered

futures commission merchants, commodity trading advisors, and commodity pool

operators to the specific list of financial institutions subject to the requirements of the

Currency and Foreign Transaction Reporting Act.

Corporation Represented by a Fugitive. Sec. 322 amends 28 U.S.C. §

2466 to include corporations having a majority stockholder who is a fugitive, thus,

disallowing such corporations to successfully pursue innocent owner claims in a civil

or criminal forfeiture case.

Enforcement of Foreign Judgments. Sec. 323 amends 28 U.S.C. § 2467

to extend authority for judicial enforcement of foreign confiscation from the previous

provisions limiting such enforcement to confiscations related to drug trafficking

offenses. Under the newly enacted provision U.S. district courts may enforce foreign

confiscations related to any offense under foreign law that, if committed under U.S.

law, would have permitted forfeiture.

Report. Sec. 324 requires the Secretary of the Treasury, within 30 months of

enactment, to make a report on operations respecting the provisions relating to

international counter-money laundering measures and any recommendations to

Congress as to advisable legislative action.

Concentration Accounts. Sec. 325 authorizes the Secretary of the Treasury

to prescribe regulations governing maintenance of concentration accounts by

financial institutions. If issued, such regulations must prohibit financial institutions

from allowing clients to direct transactions through those accounts, prohibit financial

institutions from informing customers of the means of identifying such accounts, and

require each financial institution to establish written procedures to document all

transactions involving a concentration account in such a way that amounts belonging

to each customer may be identified.

Verification of Identification. Sec. 326 requires the Secretary of the

Treasury, jointly with appropriate regulators of financial institutions, within a year

of enactment, to prescribe minimum standards for identifying customers opening

accounts at financial institutions. These are to include procedures to verify customer

identity and compare with government lists of terrorists and terrorist organizations.

Under this section, the Secretary is required to submit a report to Congress within six

months of enactment, recommending a means of insuring similarly accurate

identification of foreign nationals, requiring an identification number similar to a

Social Security number or a tax identification number for foreign nationals opening

accounts at financial institutions, and setting up a system for financial institutions to

review information held by government agencies to verify identities of foreign

nationals opening accounts.

Consideration of Anti-Money Laundering Record. Sec. 327 amends the

Bank Holding Company Act and the Federal Deposit Insurance Act, to require that,

before approving certain acquisition or merger applications under the Bank Holding

Company Act or the Federal Deposit Insurance Act, the Board of Governors of the

CRS-9

Federal Reserve System and the Federal Deposit Insurance Corporation must

consider the institution’s effectiveness in combating money laundering.

International Cooperation on Identification of Originators of Wire

Transfers. Sec. 328 requires the Secretary of the Treasury to encourage foreign

governments to require the name of the originator in wire transfer instructions and

include it from origination to disbursement. The Secretary is to report annually on

progress toward this end to the House Financial Services Committee and Senate

Banking, Housing, and Urban Affairs Committee.

Criminal Penalties. Sec. 329 criminalizes the soliciting or acceptance of a

bribe by anyone acting on behalf of an entity of the Federal Government in

connection with the administration of the International Money Laundering

Abatement and Anti-Terrorist Financing Act of 2001, subject to a fine of up to three

times the value of the thing constituting the bribe, 15 years imprisonment, or both.

International Cooperation in Money Laundering Investigations. Sec.

330 states the sense of Congress that international negotiations should be pursued for

further cooperative efforts to insure that foreign financial institutions maintain

adequate records relating to foreign terrorist organizations and money launderers and

make such records available to U.S. law enforcement officials and domestic financial

institution supervisors.

SUBTITLE B–BANK Secrecy Act Amendments and Related

Improvements

Amendments Relating to Reporting of Suspicious Activities. Sec. 351 amends

the Currency and Foreign Transactions Reporting Act, 31 U.S.C. § 5318(g)(3), to

extend the safe harbor provisions for financial institutions and their employees who

provide information as to possible law violations to cover all voluntary disclosures

of possible law violations made to any federal government agency. Also covered are

employees or agents of institutions who require others to make such disclosures. The

immunity provided under the legislation covers potential liability under contracts and

other legally enforceable agreements.. Previously, immunity was provided only for

disclosures of violation of law or regulation pursuant to law or regulation; there was

no specific immunity for those requiring others to make disclosures; and, immunity

extended only to liability under laws or regulations of the United States or

constitution, law, or regulation of a state or political subdivision thereof. The section

makes it clear that the liability does not extend to prosecutions brought by

governmental entities. Disclosure to the subject of the tip-off is prohibited.

Information disclosed about potential law violations may be used in employment

references to other financial institutions as well as, under the rules of the securities

exchanges, in termination notices.

Anti-Money Laundering Programs. Sec. 352, effective 180 days after

enactment, requires each financial institution to develop an anti-money laundering

program to include development of internal policies, designation of a compliance

officer, ongoing employee training, and an independent audit function to test the

programs. It authorizes the Secretary of the Treasury to prescribe minimum

CRS-10

standards for such programs and to exempt those financial institutions that are not

covered by the regulations promulgated under the Currency and Foreign Transactions

Reporting Act. It requires the Secretary to prescribe regulations that consider the

extent to which the requirements imposed under this section comport with the size,

location, and activities of the financial institutions to which they apply.

Geographic Targeting Orders–Penalties and Extension of

Permissible Period. Sec. 353 extends the civil and criminal penalties under the

Currency and Foreign Transactions Reporting Act, 31 U.S.C. §§ 5321(a) and 5322,

to include violations of geographic targeting orders issued under that Act and willful

violations of regulations prescribed under the record keeping requirements of the

Bank Secrecy Act, found in Section 21 of the Federal Deposit Insurance Act (FDIA),

12 U.S.C. § 1829(b), or violations of regulations covering uninsured financial

institutions issued by Treasury under the authority of 12 U.S.C. §§ 1951 - 1959.

Before enactment of USA-PATRIOT, 18 U.S.C. § 1829(b) carried no criminal

penalties and set civil penalties for violations of regulations issued under 12 U.S.C.

§ 1829(b) at up to $10,000. Section 1955 of Title 12, U.S.C. carried civil penalties

of up to $10,000; and, 12 U.S.C. § 1956 carried a criminal penalty of up to $1,000

and imprisonment for one year. 31 U.S.C. § 5321(a) permits civil penalties of

$25,000 or the amount of the instrument (not to exceed $100,000); 31 U.S.C. § 5322

permits criminal penalties of up to $250,000 in fines and imprisonment of up to 5

years for a single offense and enhancement for offenses committed in conjunction

with other offenses or as a pattern of criminal activity.

The section also extends the prohibitions on structuring transactions to avoid

reporting requirements, 31 U.S.C. § 5324, to cover structuring to avoid geographic

targeting orders and record keeping requirements of the Bank Secrecy Act, found in

Section 21 of the Federal Deposit Insurance Act, 12 U.S.C. § 1829(b), and 12 U.S.C.

§§ 1951- 1959. It extends the permissible length of geographic targeting orders from

60 to 180 days.

Anti-Money Laundering Strategy. Sec. 354 includes in the list of topics

prescribed for inclusion in the Administration’s annual anti-money laundering

strategy, data regarding the funding of international terrorism acts.

Authorization to Include Suspicions of Illegal Activity in Written

Employment References. Sec. 355 authorizes depository institutions,

“[n]otwithstanding any other provision of law,” to disclose the possible involvement

of institution-affiliated parties in potentially unlawful activity. Such disclosures may

be made to other insured depository institutions requesting employment references,

provided the disclosure is not made with malicious intent.

Suspicious Activities Reports by Securities Brokers. Sec. 356

requires the Secretary of the Treasury, by January 1, 2002, to publish proposed

regulations requiring registered brokers and dealers to file suspicious activity reports

under 31 U.S.C. § 5318(g). It also authorizes the Secretary to prescribe such

regulations for futures commission merchants, commodity trading advisors, and

commodity pool operators registered under the Commodity Exchange Act. It also

requires a report, within one year of enactment, recommending effective regulations

under the Currency and Foreign Transactions Reporting Act for investment

CRS-11

companies, as defined in the Investment Company Act of 1940, and to evaluate the

possibility of requiring trusts and personal holding companies to disclose their

beneficial owners when opening accounts at depository institutions.

Special Report on Administration of Bank Secrecy Provisions. Sec.

357 requires the Secretary of the Treasury to submit a report, within six months of

enactment, on the role of the Internal Revenue Service in administering the Bank

Secrecy Act’s Currency and Foreign Transactions Reporting Act. The report is

specifically to address such issues as whether processing of information is to be

shifted from the Internal Revenue Service and whether the Internal Revenue Service

is to retain authority for auditing compliance by money services businesses and

gaming businesses with BSA requirements.

Bank Secrecy Provisions and Activities of U.S. Intelligence

Agencies to Fight International Terrorism. Sec. 358 authorizes the Secretary

of the Treasury to refer suspicious activity reports to U.S. intelligence agencies for

use in the conduct of intelligence or counterintelligence activities to protect against

international terrorism. It authorizes the release of information under the Currency

and Foreign Transactions Reporting Act and other provisions of the Bank Secrecy

Act, the Right to Financial Privacy Act, and the Fair Credit Reporting Act, to U.S.

intelligence agencies by amending 31 U.S.C. §§ 5311, 5318(g)(4)(b), 5319; 12

U.S.C. § 1829(b), 1953; 12 U.S.C. 3412(a); 15 U.S.C. § 1681x.

Reporting of Suspicious Activities by Underground Banking

Systems. Sec. 359 specifically includes “a licensed sender of money or any other

person who engages as a business in the transmission of funds, including any person

who engages as a business in an informal money transfer system or any network of

people who engage as a business in facilitating the transfer of money domestically

or internationally outside of the conventional financial institutions system” as a

“financial institution” subject to the requirements of the Currency and Foreign

Transactions Reporting Act. It subjects them to any regulations promulgated under

the authority of section 21 of the Federal Deposit Insurance Act, 12 U.S.C. § 1829b.

That section of the law provides authority for the regulations issued under 31 C.F.R.

Part 103, requiring reports of currency and foreign transactions, including those

requiring suspicious activity reports from money services businesses, 31 C.F.R. §

103.20.

Sec. 359 also mandates a report by the Secretary, within a year of enactment, on

whether further legislation is needed with respect to these underground banking

systems, including whether the threshold for reporting suspicious activities ($2,000)

should be lowered for them.

Use of Authority of U.S. Executive Directors. Sec. 360 authorizes the

President to direct the U. S. executive directors of international financial institutions

to use their voices and votes to support countries or entities that have contributed to

the U.S. anti-terrorism efforts and ensure that no funds of their institutions are paid

to persons who threaten to commit or support terrorism. International financial

institutions, as defined in 22 U.S.C. § 262r(c)(2), include the International Monetary

Fund, the International Bank for Reconstruction and Development, the European

Bank for Reconstruction and Development, the International Development

CRS-12

Association, the International Finance Corporation, the Multilateral Investment

Guarantee Agency, the African Development Bank, the African Development Fund,

the Asian Development Bank, the Bank for Economic Development and Cooperation

in the Middle East and North Africa, and the Inter-American Investment Corporation.

Financial Crimes Enforcement Network (FinCEN). Sec. 361, by

enacting 31 U.S.C. § 310, transforms FinCEN from a Treasury Department bureau

established administratively to a statutory bureau in the Treasury Department. It

specifies that it is to be headed by a Director to be appointed by the Secretary. It

details its duties and powers. Subject to applicable legal requirements and guidance

by Treasury, FinCEN is to maintain a government-wide data access service to

information collected under the anti-money laundering reporting laws, information

on currency flows, and other records maintained by other government offices as well

as privately and publically available information;. It is to analyze and disseminate

data : (1) to federal, state, local, and foreign law enforcement officials to identify

possible criminal activity; and (2) to regulatory officials to identify possible

violations of the anti-money laundering reporting requirements. It is to determine

emerging trends and methods in money laundering; and, support intelligence

activities against international terrorism.

FinCEN is to establish and maintain a financial crimes communications center

to furnish law enforcement authorities with intelligence information relating to

investigations and undercover operations. It is to furnish informational services to

financial institutions, federal regulatory agencies, and law enforcement authorities,

in the interest of countering terrorism, organized crime, money laundering, and other

financial crimes. It is to assist law enforcement and regulatory authorities in

combating the use of informal nonbank networks permitting transfer of funds or the

equivalent of funds without records and in insuring compliance with criminal and tax

laws. It is to provide computer and data support and data analysis to the Secretary

of the Treasury for tracking and controlling foreign assets. It is to administer the

anti-money laundering reporting requirements as delegated by the Secretary of the

Treasury.

Sec. 361 further specifies that the Secretary is to prescribe procedures with

respect to the government-wide data access service and the financial crimes

communications center maintained by FinCEN to provide efficient entry, retrieval,

and dissemination of information. This is to include a method for submitting reports

by Internet, cataloguing of information, and prompt initial review of suspicious

activity reports. Sec. 361 requires the Secretary to develop, in accordance with the

Privacy Act, 5 U.S.C. § 552a, and the Right to Financial Privacy Act, 12 U.S.C. §§

3401, et seq., procedures for determining access, limits on use, and “how

information about activities or relationships which involve or are closely associated

with the exercise of constitutional rights are screened out.”

Appropriations of such sums as are necessary are authorized for fiscal years

through 2005.

The Secretary is to study methods for improving compliance with the reporting

requirements under 31 U.S.C. § 5314, relating to foreign currency transactions, and

CRS-13

to submit an annual report to Congress on the subject, beginning six months after

enactment.

Establishment of Highly Secure Network. Sec. 362 requires the

Secretary to establish as operational within nine months, a highly secure network in

FinCEN to allow financial institutions to file electronically reports required under the

Bank Secrecy Act and to provide financial institutions with alerts and other

information regarding suspicious activities warranting immediate and enhanced

scrutiny.

Increase in Civil and Criminal Penalties for Money Laundering. Sec.

363 amends 31 U.S.C. §§ 5321(a) and 5322 to permit the Secretary to impose a civil

money penalty and a court to impose a criminal penalty equal to 2 times the amount

of the transaction, but not more than $1,000,000 for violations of the suspicious

activity reporting requirements, under 31 U.S.C. §§ 5318(i) and (j) or any special

measures imposed under 31 U.S.C. § 5318A. Under pre-existing law, the Secretary

had authority to impose a civil money penalty of the amount of the transaction, up to

$100,000, or $25,000; and, a criminal fine for a violation of the suspicious activity

reporting requirement was set at not more than $250,000.

Uniform Protection Authority for Federal Reserve Facilities. Sec. 364

authorizes the Federal Reserve Board to issue regulations, subject to the approval of

the Attorney General, to authorize personnel to act as law enforcement officers to

protect the Board’s personnel, property, and operations, including the Federal

Reserve banks, and for such personnel to carry firearms and make arrests.

Reports Relating to Coins and Currency Received in Non-Financial

Trade of Business. Sec. 365 adds a new section to the anti-money laundering

reporting requirements, 31 U.S.C. § 5331. It requires anyone engaging in a trade or

business, who receives $10,000 in coins or currency (including foreign currency and

financial instruments) in a single transaction or in two related transactions to file a

report on the transaction to FinCEN as prescribed by the Secretary in regulations.

The form for such reports must include the name and address of the person from

whom the coins or currency are received, the date and nature of the transaction, and

such other information as the Secretary may prescribe. Exemptions are made for

reports filed by financial institutions under 31 U.S.C. § 5313 and its implementing

regulations, and for transactions occurring outside the United States–unless the

Secretary so prescribes. The section also includes a provision that prohibits

structuring transactions to cause such businesses to evade these reporting

requirements or requirements under implementing regulations.10 “Nonfinancial trade

or business” is defined to mean any trade or business other than a financial institution

subject to reporting requirements under 31 U.S.C. § 5313 and regulations thereunder

Efficient Use of Currency Transaction Report System. Sec. 366

requires the Secretary to study expanding the statutory exemption system to the

currency transaction reporting requirements, under 31 U.S.C. § 5313, authorizing

10

There appears to be a typographical error in the text of the legislation. The prohibition

on structuring refers to 31 U.S.C. § 5333, rather than to 5331.

CRS-14

exemptions for transactions with various entities and qualified business customers

from the domestic currency and coin reporting requirements. The study is to address

methods for improving financial institutions’ use of these exemptions to reduce the

submission of reports with little or no value for law enforcement purposes. A report

on this is required within one year.

SUBTITLE C–Currency Crimes and Protection

Bulk Cash Smuggling into or out of the United States. Sec. 371 creates a new

criminal offense, knowingly concealing more than $10,000 and transporting it or

attempting to transfer it out of or into the United States. Conviction under the statute

is subject to imprisonment for up to 5 years and forfeiture of any property involved

in the offense. Preexisting law, 31 U.S.C. § 5316, requires a report by anyone

transporting monetary instruments, defined to include currency, of more than $10,000

into or out of the U.S. In United States v. Bajakajian, 524 U.S. 324 (1998), the

Supreme Court ruled it unconstitutional to require forfeiture of $357,144, in cash that

the defendant possessed legitimately and was attempting to carry with him when

leaving the United States. The Court found the penalty disproportional to the gravity

of the offense and a violation of the Excessive Fines Clause of the Eighth

Amendment to the U. S. Constitution. In reaching that decision, the Court

considered the fact that the offense was merely a reporting offense since it was not

illegal to transport the currency.

Forfeiture in Currency Reporting Cases. Sec. 372 authorizes criminal

forfeiture and civil forfeitures for violations of the reporting requirements relating to

monetary instruments and makes the criminal forfeiture procedures of section 413 of

the Controlled Substances Act and the civil forfeiture procedures of 18 U.S.C. §

981(a)(1)(A) (money laundering) applicable to criminal and civil forfeiture,

respectively, under 31 U.S.C. §§ 5313 (reports on domestic coins and currency),

5316 (reports on exporting monetary instruments), and 5324.(structuring transactions

to evade reporting requirements).

Illegal Money Transmitting Businesses. Sec. 373 prohibits anyone from

knowingly conducting, controlling, managing, supervising, directing, or owning a

money transmitting business: (1) without a license in a state that requires such a

license and subjects those operating without a license to state misdemeanor or felony

penalties; (2) not registered with Treasury under 31 U.S.C. § 5330; or (3) involves

the transportation or transmission of funds that the defendant knows to have been

derived from a criminal offense or are intended to be used to promote or support

unlawful activity. The section prescribes a federal penalty of up to five years’

imprisonment and criminal fines and authorizes civil forfeiture of property involved

in transactions in connection with this offense.

Counterfeiting Domestic Currency and Obligations. Sec. 374 extends

the definition of counterfeiting obligations of the United States to cover analogs,

digital or electronic images, as well as “any plate, stone, or other thing or part

thereof, used to counterfeit” such obligations or securities, as provided in pre-existing

law.18 U.S.C. § 470(2). This section is also amended to provide penalties for

offenses committed outside the U.S. as are applicable to those within the U.S. Other

provisions increase the penalties under other counterfeiting statutes to 20 years’

CRS-15

imprisonment: 18 U.S.C. §§ 471 (obligations or securities of the U.S.); 472 (uttering

counterfeit obligations or securities); 473 (dealing in counterfeit obligations or

securities); and, 474 (using plates or stones for counterfeiting).

The section amends 18 U.S.C. § 474 to cover counterfeiting involving an

analog, digital or electronic image of U.S. obligations, unless authorized by Treasury.

It amends 18 U.S.C. § 476 (taking impressions of tools used for obligations or

securities of the U.S.) to increase the penalty from 10 years to 25 years’

imprisonment. It amends 18 U.S.C. § 477 (possessing or selling impressions of tools

used for obligations or securities) to cover an analog, digital, or electronic image. It

raises the penalty for connecting parts of different notes, 18 U.S.C. § 484, from five

years’ to ten years’ imprisonment, and for offenses under 18 U.S.C. § 493 (bonds and

obligations of certain lending agencies), from five to ten years’ imprisonment.

Counterfeiting Foreign Currency and Obligations. Sec. 375 increases

the penalties for violations of various offenses involving foreign currency and

obligations as follows: 18 U.S.C. § 478 (foreign obligations or securities, penalty

raised from five to 20 years; 18 U.S.C. § 479 (uttering counterfeit foreign obligations,

penalty raised from three to twenty years); 18 U.S.C. § 480 (possessing counterfeit

foreign obligations or securities, penalty raised from one to twenty years); 18 U.S.C.

§ 481 (plates or stones for counterfeiting foreign obligations or securities, penalty

raised from five to twenty years); 18 U.S.C. § 482 (foreign bank notes, penalty raised

from two to twenty years); and 18 U.S.C. § 483 (foreign bank notes, penalty raised

from two to twenty years). The section also criminalizes counterfeiting involving an

analog, digital, or electronic image of foreign obligations and securities.

Laundering the Proceeds of Foreign Terrorism.. Sec. 376 adds 18

U.S.C. § 2339B, providing material support to designated foreign terrorist

organizations, as a predicate offense for a money laundering prosecution under 18

U.S.C. § 1956.

Extraterritorial Jurisdiction. Sec. 377 enhances the applicability of 18

U.S.C. § 1029 (computer fraud) by covering offenses committed outside the U.S. that

involve an access device issued by a U.S. entity, such as a credit card, provided the

defendant transports, delivers, conveys, transfers to or through, or otherwise stores,

secrets, or holds within the jurisdiction of the U.S., any article used to assist in the

commission of the offense or the proceeds of such offense or property derived

therefrom

EveryCRSReport.com

The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the

Library of Congress, charged with providing the United States Congress non-partisan advice on

issues that may come before Congress.

EveryCRSReport.com republishes CRS reports that are available to all Congressional staff. The

reports are not classified, and Members of Congress routinely make individual reports available to

the public.

Prior to our republication, we redacted names, phone numbers and email addresses of analysts

who produced the reports. We also added this page to the report. We have not intentionally made

any other changes to any report published on EveryCRSReport.com.

CRS reports, as a work of the United States government, are not subject to copyright protection in

the United States. Any CRS report may be reproduced and distributed in its entirety without

permission from CRS. However, as a CRS report may include copyrighted images or material from a

third party, you may need to obtain permission of the copyright holder if you wish to copy or

otherwise use copyrighted material.

Information in a CRS report should not be relied upon for purposes other than public

understanding of information that has been provided by CRS to members of Congress in

connection with CRS' institutional role.

EveryCRSReport.com is not a government website and is not affiliated with CRS. We do not claim

copyright on any CRS report we have republished.