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The US PATRIOT Act and its impact on US Financial Institutions

The US PATRIOT ACT (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) was formalized into a law by President George W Bush on October 26th, 2001. This Act was mandated following the terror acts on the US on September 9th, 2001. At it very core, the act brought dramatic changes and eased restrictions as to how law enforcement agencies could search telephone, e-mail communications, medical, financial, and other records.

The Act was touted as a necessity by the US government to thwart future terrorist attacks on the country and to safeguard the interests of its citizens.

For instance, the Act enables ways in which government agencies can closely monitor and scrutinize individuals and obtain private information. These include monitoring of financial transactions, easing the scope of search warrants for electronic information, significantly increased powers of the FBI and CIA to monitor individuals.

The Act also has seen opposition from many sections of the Civil Society who see it as a tool to breach individuals’ privacy.

Effect of the US PATRIOT Act

The PATRIOT Act mandates that financial institutions must "know their customers". The Act has a direct bearing on US Financial institutions -

  • Stock exchanges
  • Retail and commercial banks
  • Insurance and investment companies

It also targets ’high-risk’ financial institutions such as -

  • Gaming (Casino) industry
  • Money lenders and money transfer agents
  • Pawn shops
  • Travel agencies and brokers
  • Precious metal dealers

In general the US PATRIOT Act requires that certain minimum (stricter) regulations that need to be followed to verify identity of customers who want to transact with a financial institution. It also requires financial institutions to establish anti-money laundering programs, which at a minimum must include: the development of internal policies, procedures and controls; designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs.

Increased Surveillance of electronic communication

The Act greatly raises the scope of surveillance activities that US law enforcement agencies can take up. This affects non-US residents and visitors to the US also. They should be aware that much of what they do while in the US might be subject to scrutiny, including surveillance of e-mail communications, letters, health records and business documents.

The US PATRIOT Act also enables authorities to intercept criminal communications through electronic surveillance, thus extending the government’s ability to monitor Internet and e-mail activities. The owner of a computer can now allow authorities to monitor the activities of a computer trespasser without the requirement of a court order.


Further, investigative agencies can now ’eavesdrop’ on telephone conversations using tapping / tracking devices. Investigators are no longer limited to listening in on one telephone line but may instead track the target on whichever devices they use.

Ultimately, any non-US individual or business with significant contacts with the US may fall under the Act’s broad reach. This requires that all individuals should have a deep understanding of how the US PATRIOT Act will impact them.

Read how Office of the Foreign Assets Control (OFAC) also requires tighter monitoring by Financial Institutions.

Contact us to find out more about the Finance and Accounting Services that we provide.

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