Kirkpatrick & Lockhart LLP
ANTI-MONEY LAUNDERING
July 19, 2002
Treasury Proposes “Customer Identification
Program” Rules
On July 17th, Treasury issued five sets of proposed
regulations implementing Section 326 of the USA
PATRIOT Act that cover: (i) mutual funds; (ii) brokerdealers; (iii) FCMs and IBs; (iv) banks; and (v) banks
lacking a federal functional regulator (“Proposed CIP
Rules”). Comments are due within 45 days of
publication in the Federal Register (which should be
within the next few days), with final rules to be
adopted by October 25, 2002.
The Comptroller of the Currency, along with the other
banking regulators, has proposed uniform Customer
Identification Programs for national banks and
national trust companies. This joint proposal has
been published for comment, with 45 days set as the
comment period. It has already aroused criticism
from the banking industry as being burdensome and
ineffective.
The objective of the procedures is to enable financial
institutions to (1) verify the identity of any person
seeking to open an account, to the extent reasonable
and practicable; (2) maintain records of the
information used to verify identities; and (3)
determine whether the person is on any list of known
or suspected terrorists or terrorist organizations.
The procedures apply to the opening of an account,
a term which is broadly defined. It includes trust and
other fiduciary accounts. It applies to any person,
which is defined to include natural persons,
corporations, partnerships and trusts, seeking to
open a new account. All banks are required to
implement a Customer Identification Program (labeled
a CIP), which must be incorporated into the bank’s
anti-money laundering (BSA) program. The CIP must
be written, and approved by the bank’s board of
directors, or a committee thereof. The CIP must
include (1) internal policies, procedures, and controls
to ensure ongoing compliance; (2) designation of a
compliance officer; (3) an ongoing employee training
program; and (4) an independent audit function to
test the programs.
Banks would be required to implement and comply
with reasonable procedures for verifying the identity
of any person seeking to open an account. The
procedures must specify the identifying information
that the bank must obtain prior to opening an
account or adding a signatory to an account. They
must describe how the bank will verify this
information, including when documents will be used
for this purpose and when other methods will be
used.
The proposed rules then employ a favorite bank
supervisory term—they must be “risk based.” For
example, a bank need not verify identifying
information of an existing customer who is seeking to
open a new account if the bank has previously
verified the customer’s identity and continues to
have a reasonable belief that it knows the true
identity of the customer. On the other hand, it
appears clear that a bank should not interpret this
provision expansively.
The proposed rules specify the minimum information
required from a customer. This includes name,
address, date of birth (for individuals), and an
identification number (for U.S. persons, a social
security number, taxpayer identification number or
employer identification number; for non-U.S.
Kirkpatrick & Lockhart LLP
ANTI-MONEY LAUNDERING
persons, a taxpayer identification number, passport
number, alien identification card number or one of
several other alternatives). A photo should be a part
of the non-U.S. person’s identification. Copies of
these documents, which for some would mean
making photocopies, must be maintained for at least
five years after a customer relationship has ended.
The CIP must contain risk-based procedures for
verifying the information obtained by the bank within
a reasonable period of time after the account is
opened. A specific period of time for this is not set,
but it must be “reasonable and practicable”. The CIP
must have procedures describing both documentary
and non-documentary methods of verification that
will be used, and setting forth the circumstances in
which each method will be employed. In addition, the
CIP must include procedures to be followed when a
bank cannot form a reasonable belief that it knows
the customer’s true identity.
A link to the proposed rules of the Comptroller of the
Currency has been placed on our Anti-Money
Laundering Web Resource Center at http://
www.kl.com/aml/amlwrc. Comments may be made on
the proposals within 45 days of publication.
Kirkpatrick & Lockhart would be pleased to provide
assistance, either in developing procedures to
comply with the rules, or in fashioning comments
thereon.
Kirkpatrick & Lockhart LLP
2
ANTI-MONEY LAUNDERING
Kirkpatrick & Lockhart LLP offers diverse experience in issues relating to money laundering. We can help
banking and diversified financial services clients assess their risk, establish and review compliance practices,
investigate potential weaknesses, perform internal investigations, and respond to regulatory inquiries and
enforcement actions while being sensitive to the privacy of each client and their customers through an
effective attorney-client privilege relationship.
In addition, we have established a website dedicated to issues relating to anti-money laundering regulatory
and legislative developments. The website is located at www.kl.com/aml. In addition to outlining K&L’s
enterprise-wide approach to assisting clients with money laundering compliance issues, the website contains
a resource center with over 100 carefully selected links to various informational resources on money
laundering. The resource center also includes a library of prior K&L publications on money laundering.
We invite you to contact one of the members of our cross-disciplinary anti-money laundering practice team
for additional assistance. You may also send general inquiries to antimoney@kl.com.
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© 2002 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.