Complinet covered a talk given on the impact of new money laundering laws on private banking. It was moderated by Sarah Miller, director, Ce...

Complinet covered a talk given on the impact of new money laundering laws on private banking. It was moderated by Sarah Miller, director, Center for Securities, Trust and Investments at the American Bankers' Association. The panel comprised Thomas Fleming, Bank Secrecy Act/AML compliance specialist at the OCC, and Edward Monahan, director of regulatory advisory services at PricewaterhouseCoopers. Miller began and said that the USA PATRIOT Act was the most significant piece of money laundering legislation since the 1970 Bank Secrecy Act. Fleming kicked off by saying that there were numerous regulations on which the USA PATRIOT Act had both a direct and indirect impact. He was to look closely at the following sections – 311 special measures; 312 due diligence on correspondent and private banking accounts; 313 foreign shell banks; 314 cooperative efforts; 319 forfeiture and records; 325 concentration accounts; 326 verification of identity. The required regs within the Act all have different due dates but the Act should level the playing field across the financial services market. Section 312 becomes effective on 3 July but plans are due for implementation by 24 April. If regs are not in place by the effective date, the Act becomes self-implementing but this is most unlikely. Additional due diligence is required for certain foreign correspondent accounts. Banks with offshore banking licences, those licensed by a non-cooperative jurisdiction as defined by Financial Action Task Force and those that are in an area of money laundering concern as designated by the Treasury will require heightened due diligence. What does this entail? Owner IDs, the nature of the ownership, and the extent of the interest in the bank are all good due diligence. Enhanced scrutiny is not defined at all but it probably encompasses ID checks, regular monitoring and reporting of suspicious transactions. Fleming said that many of the definitions that need to be formalized by the various agencies are still largely undecided. He moved on to the minimum standards for private banking accounts. The need to discover the nominal and beneficial owner was troublesome as beneficial remains undefined. The source of the funds needed to be established and senior political figures required enhanced scrutiny in an attempt to detect possible proceeds from corruption. This begged two questions from the audience. Does this include current political figures or past as well? Presumption is both, or anyone who may have made their money corruptly. Also, to what extent do these needs differ from previous KYC regs? They only differ to the extent that it is now a regulatory requirement rather than a form of voluntary best practice. S.313 – the prohibition on US correspondent a/cs with foreign shell banks. These are no longer permitted and it is important to ensure that a/cs are not used service shell banks. Affiliates are exempted from this and interim guidance is due to be issued. S.319 – forfeiture of funds, production of cash records, records in the US. This captures funds in a/cs outside the US as well as foreign banks with US correspondent a/cs. It also captures funds deemed deposited in the US (foreign banks may well object to this). US a/cs are subject to forfeiture and the funds need not be traceable. Bank records need to be produced. The 120-hour rule will apply to AML programs – this can be enforced at the request of the regulator and covers info and documents for a/cs in the US. This has been used against two institutions already and it applies across an entire organisation. Information held offshore had to be brought back in that time period too! Records in the US must include all foreign correspondent accounts, taking in the owners of the foreign bank and the persons accepting the service of process. Foreign bank records relating to correspondent a/cs are subject to subpoena and summons. What can be expected when the regulator arrives? With the implementation of the 120-hour rule, the regulators will want to see what has been sent out and received back as well as how the new regulations are being approached by the firm. At this point questions were asked. On the $1m asset limit – did this apply to an aggregation of the balances in all accounts for one private bank/correspondent account such as current, custody, fiduciary or would the limit be applied on an individual basis. Fleming said it was prudent to apply the limit across all accounts as aggregated. Another query related to the definition of beneficial owner? Would the definition used in tax law, securities law or law generally be used? No one could say but this must be decided for the regulations to be applied properly. Similarly, when surveying the accounts of politicians, did this include former politicians? The prudent answer was yes. The last question was from a broker dealer standpoint. If a private bank is dealing on behalf of its underlying client with a broker dealer, to what extent does the BD need to identify that client? Fleming said that the BD should establish what procedures the private bank has set up to ID its client and whether this has been done to the BD's own standards. If not it is best not to have such a relationship. Edward Monahan of PwC then took the lectern and his comments on due diligence and customer verification were notable. He referred to enhanced due diligence and noted that this was very hard to achieve quickly when checking up on prominent foreign persons, a process that needs to be completed by 23 July. He said that this would be particularly tough for existing accounts where the client and the front office contact could prove to be non-cooperative. It may be that firms with a great deal of clients in certain non-cooperative areas such as Egypt, Russia and Nigeria will have a large workload. The process of gaining real evidence that all ID records are full (and genuine, complete, original and up-to-date) is very onerous. This conference was held in New York from 27-29 January