What was the Patriot Act intended to do when it was first put into place
What is the Patriot Act and How Does it Impact AML?
Very few pieces of legislation have impacted the fight against money laundering and terrorist financing like the Patriot Act. That being said, many people are unaware of what the Patriot Act actually is and how it helped shape the international legislative landscape. For those of united states of america who are compelled to abide by AML and CTF legislation, information technology makes sense to understand the history that has led united states of america to where nosotros are today.
Let's dive in.
Laying the groundwork for the Patriot Act
To understand what the Patriot Human action is, we demand to go back in time, because prior to the 1970s, money laundering was not a major focus for law enforcement agencies in most countries. Instead, governments were preoccupied with the drug trade, which was considered the bigger upshot, whereas coin laundering was just an unpleasant side outcome.
In fact, prior to 1986, drug dealers were able to retain their avails in the The states and would have access to their profits one time they left jail. However, the state of war on drugs was about to change that.
The original background for the Patriot Act began in 1970 with the Bank Secrecy Act (BSA). The BSA, for the first time, required other countries to help the US government combat fiscal crime. In addition to that, the BSA worked towards preventing financial institutions from beingness used in money laundering schemes.
With the ascendance of the Reagan administration, the state of war on drugs began and with information technology came an increased awareness of the vital role that money laundering played within the drug trade. In 1986, the Money Laundering Control Act made money laundering a federal law-breaking for the start fourth dimension in the history of the U.s.a., and other countries shortly followed in its footsteps. This act put money laundering on the world stage for the start time in history, and continues to have an bear on on fiscal and governmental regulations today.
In 1989, the Fiscal Action Task Force (FATF) was formed. This was the showtime inter-governmental body aimed to specifically combat money laundering, terrorist financing, and other threats to the fiscal system. The FATF started with 16 members, and has at present expanded to comprehend 39 member countries.
The chore force makes recommendations to its members, although it has no actual legislative power. That existence said, the FATF has a "blackness list" of countries that are non-cooperative and do non take adequate procedures in place to foreclose coin laundering and terrorist financing. This has proven to be quite effective in fostering change. The FATF also actively works with countries to improve their standing and get them off the black list if they are open up to it.
What is the Patriot Act?
Prior to the terrorist attacks of September 11, 2001, international terrorism was not a focus for about governments. A greater focus was placed on domestic terrorism, which was much more than common. The tragic events of 9/eleven had a major effect on money laundering regulations on an international level.
The Patriot Act (the total championship is the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Human action — USA PATRIOT) was introduced as a direct response to 9/11, and gave the U.s.a. regime sweeping new powers to fight terrorism. While the Patriot Act covered a variety of anti-terrorism efforts such equally wire tapping and surveillance, the main part of the Patriot Deed that focused on money laundering was Title III provision — the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001.
The specific purpose of Title III of the Patriot Human action was to increase counter-terrorist financing measures, thereby preventing terrorists from obtaining funds to purchase weapons and indoctrinate new members. Terrorist financing can come from legal sources such as donations, strange governments and businesses, and so it tin exist extremely hard to detect.
Title III provides clearer guidelines for the international community, and stricter rules surrounding financial activities. Additionally, the championship besides broadens the definition of what money laundering actually is to include computer crimes, misuse of public funds, and bribing election officials.
Additionally, Title 3 of the Patriot Human action changed parts of the 1986 Money Laundering Human action in order to strengthen cyberbanking rules regarding international money laundering and terrorist financing. This was done by requiring financial institutions to aggrandize their anti-money laundering (AML) programs and also increase due diligence reports on strange bank accounts.
It besides aimed to open up channels of communication between police force enforcement and fiscal institutions across borders. Once the US introduced these laws, the rest of the earth followed before long afterwards. Specifically, the FATF added counter-terrorist financing measures to its list of recommendations for member countries.
How did the Patriot Act impact AML?
AML stands for anti-money laundering and describes processes designed to fight the menstruation of illegally acquired coin back into the financial system. As role of their regulatory duties, fiscal institutions are compelled to implement a number of procedures aimed at preventing coin laundering from occurring on their scout.
Yous tin go a much clearer understanding of anti-money laundering hither, but for now it suffices to say that take chances factors include a client's location, presence on a sanction list or suspicious action, among others.
One crucial component of AML is Know Your Customer (KYC), which ensures that banks, businesses, and other fiscal institutions identify and authenticate a person's identity earlier doing business organisation with them.
If you have e'er opened a bank account, y'all know that you are required to provide information like a government ID, domicile address, date of birth and social security number. This is to ensure that you lot are indeed who you lot say you are, and this information is subsequently checked against terrorist watchlists, sanction lists, and politically exposed person lists.
Banks, institutions and even startups, therefore, are able to make up one's mind the run a risk contour of an individual and decide preemptively whether a concern human relationship is tenable. In many cases the business will then utilize an appropriate level of due diligence to that customer before and during the relationship.
You tin read more about customer due diligence here, just for now all you need to know is that in that location are dissimilar levels of due diligence which represent with the varying risk profiles. The iii standard ones are:
- Simplified due diligence
- Standard due diligence
- Enhanced due diligence
These categorizations are a straight result of the Patriot Act, which introduced many of these widely used concepts for the start time. Additionally, the Patriot Human action compelled countries, for the start time, to work together to fight terrorism and money laundering. Another major change was the expansion of the definition of money laundering, as previous definitions had been surprisingly narrow and limited.
Today, both AML and KYC are at present considered standard practices and are common terms to hear in the financial manufacture. It'due south of import to sympathize that prior to the Patriot Act, there were only very few procedures in place to actively preclude coin laundering. Because how much AML legislation is now in place, it is remarkable how much of information technology was kickstarted by the Patriot Act.
Has the Patriot Act been misused?
What many didn't know at the time was how much of an bear on the 9/eleven terror attacks were going to accept on the future of money laundering. Prior to the terrorist attacks, money laundering, peculiarly on an international level, was not a major concern. The attacks, and the legislation that followed, inverse the hereafter of the financial industry and we continue to notice the effects of information technology today. While parts of the Patriot Act accept expired (in detail those regarding sweeping government surveillance privileges as leaked past Edward Snowden), the legislation regarding counter-terrorist financing and AML still remains.
Although the Patriot Act was intended to be a force for good, it did likewise requite the US government sweeping powers that have been misused, specifically when it comes to surveillance and the right to privacy. The at present notorious NSA wiretapping scandal for example, shed some light on how these powers were beingness misused, when Edward Snowden 'blew the whistle' on the practice during the Obama assistants.
The American Civil Liberties Union (ACLU) believes that the unlimited power granted to the United States government was unconstitutional, and many are inclined to hold with them. The fact that the Usa National Security Agency can monitor anyone without whatever recourse is certainly a cause for concern. Still, as of March this yr, the wiretapping program (at to the lowest degree for domestic phone calls and texts) was shut down and is set to expire without renewal at the cease of 2019.
Whether you lot believe the Patriot Act was a forcefulness for good or for bad, you can't deny that it has changed the fiscal industry forever. Although money laundering is certainly not a thing of the past, it has get increasingly complex as financial institutions all over the world are taking the subject much more than seriously and are actively working to forestall information technology.
It volition be fascinating to see how AML processes manage to adjust to the threats posed by ever-evolving criminal ingenuity.
Source: https://medium.com/kyc-io-scalable-kyc-management-solutions/what-is-the-patriot-act-and-how-does-it-impact-aml-60bb2602c49f
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