USA PATRIOT Act Update Memorandum: U.S. Treasury Releases ...
USA PATRIOT Act Update Memorandum: U.S. Treasury Releases ...
USA PATRIOT Act Update Memorandum: U.S. Treasury Releases ...
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4. Effective Date of Compliance<br />
For banks, broker-dealers, FCMs, and IBs, the effective date of compliance with Section<br />
312 of the <strong>USA</strong> <strong>PATRIOT</strong> <strong>Act</strong> is July 23, 2002, regardless of whether the U.S. <strong>Treasury</strong><br />
has issued final rules implementing Section 312. 24 Moreover, application of the due<br />
diligence measures prescribed in Section 312 applies regardless of when a correspondent<br />
account or a private banking account was opened. 25<br />
The U.S. <strong>Treasury</strong> anticipates issuing a final rule implementing Section 312 no later than<br />
October 25, 2002. 26<br />
5. Significance of the Interim Final Rule for Section 312<br />
The significance of this release is that the U.S. <strong>Treasury</strong> recognizes the complexity of<br />
implementing Section 312 of the <strong>USA</strong> <strong>PATRIOT</strong> <strong>Act</strong> and therefore has adopted a more<br />
studied approach towards compliance. A strict application of the proposed rules would<br />
have been unrealistic and counterproductive in light of the unique business practices of<br />
each financial industry. 27 As such, the U.S. <strong>Treasury</strong> acknowledges the need for further<br />
study as to how each industry should comply with Section 312. 28<br />
Furthermore, the Interim Final Rule implementing Section 312 is significant because it<br />
demonstrates that the U.S. <strong>Treasury</strong> is being responsive to comments and concerns from<br />
the financial services industry. 29 A primary concern that the financial industry has<br />
expressed to the U.S. <strong>Treasury</strong> is that neither Title III of the <strong>USA</strong> <strong>PATRIOT</strong> <strong>Act</strong> nor the<br />
proposed rule implementing Section 312 defined key terms that establish the parameters<br />
of compliance with Section 312 for U.S. financial institutions. 30 Even if certain terms are<br />
defined, the criticism is that such defined terms are “overly broad and difficult to<br />
implement.” 31 In response to these concerns and difficulties, the U.S. <strong>Treasury</strong> has taken<br />
the position that additional time “is necessary and appropriate” to consider the definitions<br />
and the text of the proposed rule in light of comments received to determine whether the<br />
terms used in Section 312 should be further defined with respect to each financial<br />
institution. 32<br />
24 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule.<br />
25 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule. See also THSH <strong>USA</strong> <strong>PATRIOT</strong> <strong>Act</strong><br />
<strong>Update</strong> <strong>Memorandum</strong>: Proposed Regulation to Implement Section 312; Best Practices Identified by the<br />
SEC (discussing retroactive effect of Section 312).<br />
26 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule.<br />
27 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule: “Were <strong>Treasury</strong> to require strict<br />
compliance with the proposed rule, not only would it undermine the administrative process, but also it<br />
might require financial institutions to incur substantial costs comply with provisions of the proposed rule<br />
that may be altered or eliminated.”<br />
28 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule.<br />
29 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule.<br />
30 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule.<br />
31 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule. In its commentary, the U.S. <strong>Treasury</strong><br />
and FinCEN noted that commenters consistently criticized the definitions of “correspondent account,”<br />
“covered financial institution,” and “foreign financial institution” as being overly broad.<br />
32 See U.S. <strong>Treasury</strong> and FinCEN commentary to Interim Final Rule.<br />
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