DEALERSHIPS SEEK COMPLIANCE SOLUTIONS FOR USA PATRIOT ACT REGULATIONS
By: Keith E. Whann
Following the September 11th attacks on America and
a flurry of legislative activity, the President signed into law the
USA Patriot Act on October
26, 2001, making a number of amendments to the anti-money laundering
provisions of the Bank Secrecy Act and the Money Laundering Control
Act of 1986. The amendments were intended to make it easier to detect,
prevent, and prosecute international money laundering and the financing
of terrorism. Given the seriousness of the subject matter, it is
not surprising that civil and criminal penalties for non-compliance have
been increased to a range between twice the amount of the transaction
and not more than $1 million dollars for any one violation, and may
include complete forfeiture of accounts and property involved in
the
transaction. Dealers should begin taking steps to comply now because
the emerging regulations will impact their policies, procedures and
overall dealership operations.
Title III of the USA Patriot Act applies to all “financial institutions”.
Like the Privacy Rules implemented by the FTC, the Rules adopted by the
Financial Crimes Enforcement Network (FinCEN), a Bureau under the Department
of Treasury, clarify that the Act expanded the scope of the Bank Secrecy
Act to include a number of businesses not formerly covered, including
motor vehicle dealerships. Section 352 of the Act mandates that all covered
industries establish anti-money laundering programs that, at a minimum,
include: (1) the development of internal policies, procedures and controls;
(2) the appointment of a compliance officer to oversee the program; (3)
training employees to follow the program; and (4) conducting an independent
audit to make sure the program is followed.
The Rules and Regulations implementing the Act are still evolving, with
new requirements and compliance procedures being added periodically by
the Department of the Treasury and other Departments and Agencies responsible
for clarifying what regulated industries must do to comply with the Act’s
various requirements. They impact the kinds of business that financial
institutions are authorized to engage in, how that business is conducted,
anti-money laundering policies and procedures, and the penalties for
non-compliance.
Under Section 352 of the Act, all industries were required to establish
their anti-laundering programs by April 24, 2002, but Regulatory Agencies
were given some latitude to extend that deadline for not more than six
months. An Interim Rule released by the FinCEN addresses how and when
financial institutions in various categories must comply with the Act.
Registered securities brokers were required to comply with the Interim
Rules by April 23, 2002; banks, savings associations and credit unions
by April 24, 2002; and money service businesses, mutual funds and operators
of credit card systems had until July 24, 2002.
The Department of Treasury exercised its authority to defer the application
of the Rules to the remaining categories of financial institutions in
order to conduct additional research on the potential risks of money
laundering. The Department recognized that many of the remaining financial
institutions are small businesses that have never been subject to Federal
Anti-Money Laundering Regulations and that the risks inherent in their
operations will vary considerably. While the remaining financial institutions,
including loan or finance companies and motor vehicle dealerships, have
been temporarily exempted, they will be required to establish anti-laundering
programs by October 24th. The temporary exemption does not affect, however,
the ongoing cash reporting requirements with which all financial institutions
must comply.
Section 365 of the Act states that persons engaged in a business who
receive more than $10,000 in cash in one transaction (or two or more
related transactions) must file a report with the FinCEN. Since motor
vehicle dealers already report cash transactions over $10,000 to the
IRS to comply with cash reporting requirements designed to trace money
laundered from drug trafficking, they will now report to the FinCEN as
well. In December of 2001, the FinCEN published an Interim Rule and a
companion Proposed Rule which state that there is no change to the Rules
governing cash reporting other than the re-designation of the IRS Form
8300 as “IRS Form 8300/FinCEN Form 8300”. The form is virtually identical
to IRS Form 8300 and imposes no new reporting or record-keeping requirements.
Motor vehicle dealerships were required to begin using the new form on
January 1, 2002.
In addition to the reporting requirements, Section 314(a) of the USA
Patriot Act and Rules proposed by the FinCEN in March of 2002 requires
motor vehicle dealers to respond to requests for information from regulatory
authorities on persons with whom the dealership has entered into transactions
or maintain an account. The intent of the Rules is to establish a link
between Federal law enforcement agencies and financial institutions and
reduce barriers to the sharing of financial information concerning accounts
and transactions that may involve terrorist activity or money laundering.
Federal law enforcement agencies will have the ability to provide the
names and identifying information about suspected terrorists to FinCEN,
which will then send that information, both electronically and by fax,
to financial institutions so that a check of accounts and transactions
can be made. If matches are found, law enforcement agencies can then
follow up with the financial institutions directly.
On July 17, 2002, the Department of the Treasury and seven Federal Financial
Regulatory Agencies issued Proposed Rules that would require banks and
trust companies, savings associations, credit unions, securities brokers,
mutual funds, futures commission merchants and futures brokers to establish
minimum procedures for identifying and verifying the identify of customers
seeking to open new financial accounts. These financial institutions
would be required to establish programs specifying procedures for (1)
verifying the identity of any person seeking to open an account, to the
extent reasonable and practicable; (2) maintaining records of the information
used to verify the person’s identity and (3) determining whether the
person appears on any list of known or suspected terrorists or terrorist
organizations. This identifying information would be essentially the
same information currently obtained by most financial institutions, such
as the customer’s name, address, date of birth and an identification
number (i.e. social security number or a similar number from a government-issued
document). The program would also have to contain procedures to verify
the identity of customers within a reasonable period of time. The proposed
Rules contemplate that financial institutions will generally use the
same forms of identity verification that are already in place, such as
examining driver’s licenses, passports, credit reports, and other similar
means. The institutions also have the flexibility to tailor their procedures
as appropriate, taking into consideration their size, location and type
of business.
Although the implementing regulations will provide additional guidance
when promulgated, there are actions that motor vehicle dealerships could
begin taking now. Such actions include reviewing current anti-money laundering
policies and implementing procedures to verify the identity of customers
and compare customer information in the dealership files against lists
provided by law enforcement agencies. Given the significance of the issue
and the current political climate, enforcement in this area is likely
to be at the top of the Regulator’s priority lists. As a result, dealers
would be well advised to get a jump on implementing appropriate anti-money
laundering policies, procedures and controls.
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