Industry Letter  USA Patriot Act

Date:	12/12/2001
Organization:	Division of Banks
Referenced Sources:	M.G.L. c. 169

To the Chief Executive or Operating Officer of the Licensed Check Casher, Check Seller, or Foreign Transmittal Agency Addressed:

On October 26, 2001, President Bush signed into law the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001" (or USA Patriot Act). Title III of the USA Patriot Act, known as "The International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001" (the Act) is intended to make it more difficult for terrorists to launder money in the United States. In addition, the Act also makes it easier for law enforcement and regulatory officials to share information and identify illegal money laundering activity. The Division of Banks (Division) wants to ensure that all institutions under its supervision understand what is required under the Act and are in full compliance with the provisions of the Act.

This letter briefly describes the Division's policies regarding the relationship between a licensed foreign transmittal agency and its agents. In addition, this letter summarizes the provisions of the Act that should receive immediate attention from all licensed check cashers, check sellers, and foreign transmittal agencies (collectively referred to as "money servicers"). Please ensure that all staff are aware of the requirements of the Act.

Relationship between licensed foreign transmittal agencies and their agents

Many licensed foreign transmittal agency locations are agents of the licensed entity. There have been recent questions regarding the authority of an agent to transmit money. The Division's policy regarding this relationship is outlined below:

• The Division grants a license to the entity, not the agent. The Division only grants authority for the licensed foreign transmittal agency to transmit funds from an authorized agent and at no other locations.
• When the Division grants a license to a foreign transmittal agency to conduct business at an authorized agent, it does not authorize the agent to transmit monies beyond the agent's agreement with the licensed foreign transmittal agency. An agent may not transmit funds for another licensed foreign transmittal agency or on its own behalf without approval from the Division.
• Any agent who transmits money outside of the agent agreement with the licensee or on its own behalf will be deemed by the Division to be operating an illegal and unlicensed money transmitting business for the purpose of G.L. c. 169 and 18 USC 1960.

Verification of Identification

Section 326 of the Act requires the Secretary of the Treasury to promulgate regulations effective no later than October 25, 2002 that would substantially increase the identification and verification requirements for customers of financial institutions. The regulations may require, at a minimum, financial institutions to develop procedures for verifying the identity of a person opening an account, maintaining records of such information, and, consulting lists of suspected terrorists "to determine whether a person seeking to open an account appears on any such list."

In addition, under Section 311 the Secretary of the Treasury may require, by regulation or by order, that financial institutions take certain "special measures" for all institutions, accounts or transactions that the Secretary deems to be a "primary money laundering concern." Most significant among these are requirements to maintain records and report information which identify the participants in a transaction involving a primary money laundering concern (also known as "know your customer"), and the requirement to maintain information relative to the beneficiary of such a transaction.

Records and reporting

As mentioned above, Section 311 requires special record keeping measures for all institutions, accounts, or transactions deemed a primary money laundering concern. In addition, Section 359 amends the definition of a money transmitter to include informal money transfer systems outside of the conventional financial network. The section also amends the registration requirements for the Financial Crimes Enforcement Network (FinCEN). Currently, all money servicers will be required to register with FinCEN as of December 31, 2001. Under the amendments, these informal money transmission networks will also be required to register with FinCEN. Finally, the Act makes any regulations promulgated by the Secretary of the Treasury or the Board of Governors of the Federal Reserve System regarding record retention applicable to money transmitters, including informal money transmission networks.

Anti-money laundering programs

Section 352 amends the Bank Secrecy Act to require all financial institutions to establish anti-money laundering programs. These must include, at a minimum: "(A) the development of internal policies, procedures, and controls; (B) the designation of a compliance officer; (C) an ongoing employee training program; and (D) an independent audit function to test programs." The Secretary of the Treasury may prescribe minimum standards for such programs effective April 24, 2002. The Division expects all money servicers to have already established internal controls to prevent money laundering activity. Money servicers should review their policies, procedures, and controls to assess their adequacy and effectiveness.

Cooperative efforts to deter money laundering

Under Section 314, the Secretary of the Treasury must promulgate regulations by February 23, 2002 to encourage cooperation among financial institutions, their regulators, and law enforcement officials. The purpose is to help provide financial institutions with information regarding suspected terrorist or money laundering activity. The regulations may require each financial institution to designate one or more individuals to receive such information and may establish procedures for the protection of such information.

Effective immediately, after giving notice to the Secretary of the Treasury, two or more financial institutions may share information "regarding individuals, entities, organizations, and countries suspected of possible terrorist or money laundering activities." Any financial institution or association of financial institutions that shares such information will not be considered in violation of the privacy provisions of the Gramm-Leach-Bliley Act.

Illegal money transmitting businesses

Section 373 changes the definition of an "unlicensed money transmitting business" to eliminate the need to prove that the business knowingly operated without a license. In addition, the definition includes anyone who fails to register as a money transmitter with FinCEN. As noted above, any agent of a licensed foreign transmittal agency who transmits money outside of the agent agreement with the licensee will be deemed to be operating an illegal and unlicensed money transmitting business for the purpose of G.L. c. 169 and 18 U.S.C. 1960.

Conclusion

It is important that all licensed money servicers understand that compliance with the Act is required. The Division will use its enforcement and examination powers to ensure compliance with the Act for all entities under its supervision. Any licensed money servicer that fails to comply with all provisions of the Act will face license revocation. The Division will cooperate with all local, state, federal, and international law enforcement agencies in order to detect illegal money laundering and terrorist activities. It is also important that all licensees understand that there are severe penalties for violations of the Act under federal law. Accordingly, all money servicers should work with their own corporate counsel, trade associations, and other regulated entities to know and understand their responsibilities under the Act as well as to educate management and staff of these new requirements.

If your company have any question regarding the Division's actions under the Act or any related questions to this letter you should contact David J. Cotney, Deputy Commissioner for Consumer Compliance at [phone], extension 1542.

Very truly yours,

Thomas J. Curry
Commissioner of Banks