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Since September 11, 2001, banks have been checking names on new accounts against government lists of known or suspected terrorists. Deputy Treasury Secretary Kenneth Dam told the June 2002 meeting of the Council on Foreign Relations in New York, “We have frozen over $115 million around the world. One hundred and sixty-six countries and jurisdictions have blocking rules in force.”

Considered one of the world’s largest businesses, money laundering is estimated to amount to $1 trillion annually, with fully half of the funds passing through the U.S. at some point. The numbers speak for themselves; detecting and restricting illicit financial activities are challenges transforming the worldwide financial community.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act was passed in October 2001 to attempt to track and limit the financial resources that fuel terrorist activities. The law imposes strict new requirements on financial institutions with severe penalties for non-compliance. Institutions must “know their customers” - by closely monitoring account ownership and usage.

Requirements for Financial Institutions

As the U.S. Treasury Department interprets rules for implementation, financial institutions struggle with issues affecting compliance. All financial institutions, including depository financial institutions, such as banks and credit unions, securities dealers, investment bankers, commodity traders, money transfer agents, and companies handling “non-financial” transactions are mandated to comply with an initial four requirements.

First, they must have a compliance officer to lead the anti-money laundering (AML) program. Next, they must create internal AML policies and procedures. Third, they have to institute a training program. Finally, financial institutions are expected to create an independent audit process to test their internal procedures.

What’s more, new regulations are being issued all the time.

A compliance solution needs to conduct checks not only when accounts are opened, but throughout the life of the account, tracking ongoing transactions (including all parties to the transaction) as well as sources of funds. Financial institutions should be able to identify, track, and, in some senses, control terrorist funds -- not just by blocking assets but also through tougher identity verification against government-supplied lists. This requires integrated scanning and filtering technology.


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