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John M. Pachkowski, J.D., Writer/Analyst, CCH Federal Banking Law Reporter and Bank Compliance Guide, Co-Author, CCH Financial Services Modernization-Gramm-Leach-Bliley Act of 1999-Law and Explanation and CCH Federal Privacy Rules for Financial Institutions; Contributing Author, CCH Focus.
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To accomplish these goals, Congress made a number of amendments to the BSA on the reporting of suspicious activities that may be the source of funding for global terrorist activities, especially those activities involving Osama bin Laden and the al Qaeda network. Another set of IMLAFAT’s provisions are intended to disrupt terrorism funding by criminalizing the smuggling of more than $10,000 into or out of the United States.
This analysis will examine the improvements to the BSA and the new currency crimes.
The revision to the safe harbor provision, found in Section 351 of IMLAFAT, clarifies that the safe harbor provision applies to arbitration as well as judicial proceedings. The Section 351 amendment also clarifies that the safe harbor provision covers voluntary disclosures — those not covered by the SAR regulatory reporting requirement. For example, the language providing that “any financial institution that … makes a disclosure pursuant to … any other authority … shall not be liable to any person” is not intended to avoid the application of the reporting and disclosure provisions of the federal securities laws to any person, or to insulate any issuers from private rights of actions for disclosures made under the federal securities laws. Finally, Section 351 makes it clear that government officers may not disclose SAR information except in the conduct of their official duties.
A related amendment made by Section 355 of IMLAFAT creates a safe harbor from civil liability for banks that provide information in employment references sought by other banks. Under Section 355, a bank is permitted, but not required, in a response to a request for an employment reference by a second bank, to include information about the possible involvement of a former institution-affiliated party in potentially unlawful activity. This immunity from civil liability does not apply to any disclosure that was made with malicious intent.
This provision closes a gap in present law. Currently, if a bank develops suspicions that a bank officer or employee has engaged in potentially unlawful activity, it typically files an SAR. It had been unclear whether banks could share these suspicions in written employment references with other banks when the officer or employee seeks new employment.
The Treasury Secretary also is authorized, but not required, to develop regulations that require futures commission merchants, commodity trading advisers and commodity pool operators registered under the Commodity Exchange Act to submit suspicious activity reports.
This reporting requirement addresses the problem of the accessibility of information provided in IRS Form 8300 for law enforcement purposes. Form 8300, in use since 1984, provides information that can be used to trace cash movements into retail sectors of the economy and link abnormal uses of cash to purchases of goods or services with possible illicit sources of that cash.
Congress intended these new identification requirements to ensure that individuals opening accounts with U.S. financial institutions provide adequate information to enable law enforcement and supervisory agencies to identify accounts maintained by individuals suspected of terrorist activities.
Section 326 also requires the Treasury Secretary to issue regulations setting minimum standards and procedures concerning the verification of customers’ identities, maintenance of records of identity verification and consultation at account opening of lists of known or suspected terrorists provided to the financial institution by a government agency. In developing these regulations, the Treasury Secretary is to consult with the federal functional regulators and draft the identification requirements as appropriate to the size, location and type of business of an institution.
It was noted by Senate Banking Committee Chairman Paul Sarbanes, D.-Md., that the identification verification regulations “do not place obligations solely on the shoulders of the Nation’s financial institutions, without placing any obligations on their customers. The contemplated regulations should therefore include provisions relating to the obligations of individuals to provide accurate information in connection with account-opening procedures, so that in appropriate cases penalties may apply under the Bank Secrecy Act to customers who willfully mislead bank officials about matters of customer identity.”
Under this provision, a new BSA offense is created by making it illegal for a person to knowingly conceal more than $10,000 in currency or other monetary instruments on his or her person or in any conveyance, such as a suitcase. A person found guilty of this smuggling offense is subject to up to five years imprisonment. Furthermore, the currency instrument is subject to forfeiture proceedings.
Section 371 also focuses on a recent U.S. Supreme Court decision, United States v. Bajakajian, 524 U.S. 321 (1998). Under that decision, the effectiveness of the currency reporting requirements found in 31 USC 5316 as a law enforcement tool were diminished. The Court ruled that Section 5316 constitutes a mere reporting violation, which is not a serious offense for purposes of the Excessive Fines Clause of the Eighth Amendment. Accordingly, confiscation of the full amount of the smuggled currency is unconstitutional even if the smuggler took elaborate steps to conceal the currency and otherwise obstruct justice.