Sanction Scanner: How Patriot Act Affects Financial Institutions?

USA Patriot Act; officially known as “Uniting and Strengthening America By Providing Necessary Tools To Prevent And Prevent The 2001 Terrorism Act.” Its primary purpose is to enforce specific laws to deter and punish terrorist acts in the USA and the world. So, What is US Patriot Act? What are the aims of the Act? What are the Patriot Act’s Impacts on Businesses?


What is Patriot Act?

The USA Patriot Act is passed on September 11, 2001, to prevent attacks shortly after terrorist attacks in the United States. Under Patriot Act, law enforcement agencies have broader powers about investigation, charge, and bring terrorists to justice. Also, with this law, more severe decisions were taken to punish terrorist activities.

This law, whose official name is “Uniting and Strengthening America by Providing Necessary Tools to Prevent and Prevent Terrorism,” is designed to prevent all kinds of terrorist activity. It also includes certain laws against terrorist financing activities such as money laundering, fraud, tax evasion, bribery, and corruption.


What are The Aims of Patriot Act?

USA Patriot Act has more than one key aim. However, it can be said that the first aim is to prevent terrorist activities and fight against terrorism financing and money laundering.

Although the Patriot Act is known as a US Act, it contains several laws to deter and prevent terrorist activities worldwide. Accordingly, fighting international money laundering and preventing financing terrorism are among the primary purposes of this law. In this context, according to the Patriot Act, the stronger the US measures, the easier it will be to identify and deter international money laundering and terrorist financing. This objective includes examining foreign financial institutions and international transaction channels.

All financial institutions have a particular risk of money laundering and terrorist financing. Terrorist financing activities are one of the worst factors affecting the economy in a country. Therefore, AML / CTF laws, laws, and regulations are set by government agencies and some international institutions such as FATF. Institutions and organizations that do not comply with these regulations are subject to certain penal sanctions.

Suspicious Activities Report (SAR) is one of these regulations and obligations. The Patriot Act requires the financial services industry to report all possible risks of money laundering. Under this law, companies must take precautions to prevent all corrupt instruments in the US financial system that could generate a personal gain by foreign authorities.


The Patriot Act’s Affects on Banking

Under the Patriot Act, banks are obliged to change the way control, savings and loan accounts are handled. The law has obligations to prevent money laundering that affects anyone who sign up or owns a Bank account. The main reason for the law to have anti-money laundering obligations is the terrorist financing activities that occur on September 11, 2001. These activities include Terrorists were easily able to open a bank account within the US and get credit cards with fake identification numbers.

The US Patriot Act has impacted financial institutions at home and abroad in various ways. The parts where the US patriot Act affects financial institutions are briefly as follows:

According to section 311 of the Patriot Act, information obtained about domestic customers can be compared. Besides, this section aims to prevent the opening of accounts payable in a foreign banking institution.

Under section 312 of the law, individuals outside the US, foreign entities, and all USA banking institutions must perform customer due diligence and enhanced due diligence.

Section 314 of the law includes preventing shell banks from accessing the US financial system, which is generally considered unregulated and risk money laundering or terrorist financing. According to this law, Banks cannot open correspondent accounts for any foreign bank that does not have a physical presence in any country.

According to section 352 of the Patriot Act, financial institutions must establish specific anti-money laundering programs. These programs include:

  • Institutions should develop internal policies, procedures, and controls.
  • Organizations must appoint an AML compliance officer
  • Organizations should have an independent audit function to test programs.


Advantages and Disadvantages of Patriot Act

After the terrorist attacks on September 11 Law, President George W. Bush signed the bill and enabled it to be put into effect. According to the bill advocates, anti-terrorism efforts have become more efficient and effective. With the law, increasing the access of law enforcement to communication channels and expanding the powers of detecting, handing over, and interrogating the criminals also accelerated the detection of suspicious activities.

On the other hand, Opponents of the law state that the US government has full investigative powers. The law makes it possible to investigate anyone the government deems appropriate. This situation abuses American citizens’ right to privacy. Also, monitoring citizen activities limits the powers of individuals.

Due diligence responsibilities become very costly for financial institutions. For instance, people and institutions making international trade may have to pay additional costs even when opening a simple checking account. Therefore, especially financial institutions that have global activities are exposed to challenging and costly situations.


AML Compliance For USA

With the Patriot Act, companies are subject to certain obligations. For example, companies must implement a risk assessment to customers and report potential risk activities according to a risk-based approach.

One of the methods used in risk assessment is a sanction, PEP, and adverse media screening. Sanction Scanner AML Name Screening Software makes the risk assessment processes of companies automatic and easy. Sanction Scanner has a broad PEP and adverse media screening. Thus, companies can implement their risk assessments under the Patriot Act and other US obligations.

We live in the age of technology, and at many points, most people find it’s essential and could not live without it. Nevertheless, the place of technology in the fight against financial crimes is of great importance. Technology plays an important role in strengthening the fight against financial crimes such as money laundering, drug trafficking, and tax evasion. Criminals are discovering different ways to be caught and launder more money, and the existence of technology and intelligence technologies were necessary to detect these ways.


January 2021, published on Sanction Scanner

Recent Posts