The Miami law firm of Steel, Hector and Davies has produced a chart which summarises the regulations that financial institutions are to expe...

The Miami law firm of Steel, Hector and Davies has produced a chart which summarises the regulations that financial institutions are to expect from the US Treasury in the coming months. All regulations relate to the hastily drafted anti-money laundering statute which leaves large swathes of detail to be filled in by the Treausury.

The complexity of the quickly developing regulatory framework for this new legislation will no doubt worsen over this next year. Financial institutions and their lawyers would do well to keep a close eye on Title III USA PATRIOT Act and its regulatory progeny during the course of 2002.

One word of warning about the 120-hour rule: banks will not have 120 working hours in which to respond to requests from regulators for documents; they will have 120 hours in toto.

Due Date Financial Institutions Compliance Obligations
Upon issuance of order of regulation by Secretary of Treasury Identification of Beneficial Owners of Accounts held by Foreigners:
Banks must take reasonable and practicable steps identify beneficial owners of foreign persons' accounts in the U.S. (pursuant to Treasury Guidance - Nov. 20/01)
Upon issuance of order of regulation by Secretary of Treasury Identification of Foreign Persons Whose Funds Move Through Payable-Through or Correspondent Accounts:
Banks as a condition of maintaining a payable-through or correspondent account with a specified financial institution or a financial institution in a specified jurisdiction, will be under obligation to identify-each customer whose funds move through any such accounts (pursuant to Treasury Guidance - Nov. 20-01).
Upon issuance of regulation by Secretary of Treasury Cut-Off of Payable-Through or Correspondent Accounts:
Banks must comply with regulation prohibiting, or imposing conditions upon payable-through or correspondent accounts
With a specified financial institution or
with a financial institution in a specified jurisdiction.

By December 25, 2001 Cut-Off of Foreign Shell Banks:
Banks operating in the United States must sever correspondent banking relationships with foreign "shell banks" - that is, foreign banks that have no physical presence anywhere.
By December 25, 2001 Response to Request for Records - 120-Hour Rule:
Banks must be prepared to respond with 120 hours to requests by banking regulators for records relating to anti-money laundering compliance or a customer's transactions.
By April 24, 2002 Anti-Money Laundering Programs:
Banks (unless specifically exempted by regulation) must have in place anti-money laundering programs that include

(1) internal policies, procedures, and controls;
(2) designation of a compliance officer;
(3) an employee-training program; and
(4) an independent audit to test the implementation of the programs.
By July 23, 2002 Enhanced Due Diligence:
Banks must be prepared to apply "appropriate, specific, and, where necessary,"enhanced, due diligence", pursuant to Treasury Regulation to be issued, for
all foreign private banking customers and
international correspondent accounts.
Enhanced due diligence will be required for
private banking relationships with senior foreign political figures and their immediate family or close associates.
Correspondent accounts with offshore banks
(banks that cannot legally conduct business with citizens or currency of the jurisdictions in which they are licensed) and
With banks from jurisdictions deemed non-cooperative in international effort to combat money laundering.

By October 26, 2002 Customer Identification Procedures:
Banks must comply with regulation to be issued by the Secretary of the Treasury setting out "reasonable procedures" for customer identification at account opening that include
Ascertaining the identity of customers,
Maintaining records used to identify customers, and
Consulting a government-provided list of known or suspected terrorist.

By July 1, 2002, Broker-Dealer final regulations Broker-Dealer SAR Reporting:
Broker-Dealer will need to have in place a system for reporting transactions that it knows, suspects, or has reason to suspect involve
funds derived from illegal activity or
are intended to hide funds or assets derived from illegal activity
are designed to evade regulations promulgated under the BAS;
serve no business or apparent lawful purpose, and the firm knows of
no reasonable explanation for transactions after examining available facts.