How Does the Patriot Act Affect My Bank?

1st Commercial Credit

Six weeks after the September 11, 2001 terrorist attacks that killed 3,000 Americans, Congress passed the USA Patriot Act in an attempt to prevent future incidents of terrorism. The acronym USA Patriot Act stands for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. The law was proposed by the Department of Justice with the intention of providing additional tools to the Central Intelligence Agency (CIA), federal prosecutors and the Federal Bureau of Investigations (FBI) for the purpose of identifying and disabling terror networks both in the United States and abroad. It has far-reaching effects, including changes in immigration and how citizens and non-citizens of the United States interact with banks.  

How Banks Are Impacted by the Patriot Act

The greatest impact of the Patriot Act is that it requires banks to change the way checking, savings and loan accounts are handled. It contains an anti-money laundering provision that impacts every person who opens or holds a bank account. The reason for the anti-money laundering efforts is that the terrorists responsible for the September 11, 2001 attacks had no problem opening bank accounts in the United States. They were also able to obtain credit cards by completing applications with made-up social security numbers. The anti-money laundering clause of the Patriot Act attempts to hold banks more accountable for opening accounts or lending money to terrorists. As a result, honest individuals and business owners are scrutinized more carefully. A dozen years after the Patriot Act was passed, groups like the American Civil Liberties Union fight against it due to privacy concerns.

What to Expect When You Open a New Bank Account

When you open a new checking, savings or loan account with a bank, it is required to verify your identity by confirming your name, address, date of birth and a valid identification number. This would be a social security number for residents of the United States. People who are conducting business in the United States but who are not citizens are required to provide a government-issued document from their home country as well as proof that they are in the country legally. Upon verifying your identity, bankers are required to make a photocopy of your driver’s license or other identification card and keep it on file. A banker is also required to check your name against the following lists:

  • FBI Wanted Fugitives, Most Wanted Fugitives and Most Wanted Terrorists
  • Specially Designated Nationals and Blocked Persons
  • Wanted Fugitives of the Naval Criminal Investigative Service
  • Top 15 Most Wanted and Major Fugitive Cases of the U.S. Marshals Service
  • Major International Fugitives Wanted by the U.S. Drug Enforcement Administration
  • Most Wanted by the U.S. Customs Office, U.S. Postal Inspection Service and the U.S. Secret Service.
  • Most Wanted by the Bureau of Alcohol, Tobacco and Firearms.
  • Top 10 Fugitives of the Air Force Office of Special Investigations

Bankers are allowed to ask intrusive questions if they feel apprehensive about opening an account for you or issuing a loan. These questions may include:

  • The nature of your business and your specific role in the organization.
  • How you normally earn your money.
  • How you obtained the money you are using to open the account.
  • How you will use the money if you are applying for a loan.

When opening a business bank account, you must provide the full name and address of the business as well as your employer identification number (EIN). You also need to disclose your own name and address of residence. The banker may ask for documentation that proves you are able to conduct financial transactions on behalf of your business. To fully comply with the Patriot Act, banks are required to keep your information on file for five years after you close or pay off your accounts.

What Banks Consider to be Suspicious Activity

The amount of scrutiny you can expect depends on your normal banking activity. A banker may be suspicious of you from the start if you open a business checking or savings account with a large amount of cash. A banker would likely ask you for additional identification and check with other banks in the area to see if you’ve been a problem customer in the past. He or she may also pull your personal and business credit reports.

Another red flag for banks is when you have account activity that is out of the ordinary. For example, if you normally make $5,000 deposits into your business checking account every two weeks, making much larger deposits could trigger an account audit.

Consequences of Having Your Account Flagged

The Patriot Act does not require banks to notify you that your account is being investigated for suspicious activity. This means that your bank can freeze your account without telling you the reason. While you’re in the dark about what is going on, the bank is most likely filing a Suspicious Activities Report with the federal government. After receiving the report, the government notifies you and begins its investigation. Fortunately, this is something that will never happen to the vast majority of individuals and business owners in the United States.

The Patriot Act and the Purchase of Real Estate

The Patriot Act requires all types of financial institutions to submit to increased verification and reporting requirements. If you plan to purchase real estate for your business, you are subject to the same level of verification you would be when opening a bank account or applying for a loan. The mortgage lender must verify your name against several federal databases to ensure that you are not wanted in connection with terrorist activities. This is covered in detail in Section 326 of the Patriot Act. It also requires both buyers and sellers in a real estate transaction to sign additional disclosure statements.

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