- The Washington Times - Monday, October 13, 2003

The Patriot Act provision that requires banks and other financial institutions to make sure their customers are not laundering money took effect Oct. 1, but some critics fear the new rules will make it easier for the firms to pry.

Section 326 of the act requires banks, credit unions, securities brokerages and other firms to verify the identity of customers, maintain records of the information used for the verification and determine whether the person’s name appears on the federal government’s list of known or suspected terrorists.

The act allows the institutions to ask customers for their names, birthdays, addresses and a Social Security number. Many firms sought the data voluntarily before the law was enacted.

The institutions also have the authority to ask more detailed questions if they deem it necessary. For example, a stockbroker can ask a client the source of the money he is investing.

“[Financial institutions] have been deputized to investigate consumers,” said Douglas Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights, a Santa Monica, Calif., group that pushes for reforms in the banking, insurance and utility industries. The group is funded through private donations, he said.

Other activists have expressed similar concerns, but industry executives have dismissed them. The act only “amplified the due diligence” already required of financial institutions, said John Byrne, senior counsel for the American Bankers Association, an industry trade group.

“I’ve seen a lot of quotes from activists who suggest this is privacy-invasive. This is not. I can’t imagine anyone who wouldn’t expect a bank to ask for your driver’s license when you open an account,” Mr. Byrne said.

Congress passed the Patriot Act, a series of laws designed to combat terrorism, after the September 11 attacks.

Financial institutions began implementing the act’s provisions against money-laundering more than a year ago, although the deadline to have the rules in place wasn’t until Oct. 1.

Industry representatives declined to speculate on how much it will cost financial institutions to comply with the rules. The industry did not fight the changes.

“Keeping bad money out of the system is a high priority for everyone,” said Alan Sorcher, vice president and associate general counsel for the Securities Industry Association, a trade group for securities brokers and dealers.

Most consumers are not aware of the new regulations, said Greg McBride, senior analyst for Bankrate.com, a personal-finance Web site. “The general consensus seems to be that most people have not noticed any significant differences,” he said.

The San Francisco Chronicle reported in August about a San Jose, Calif., man whose application to open an online account with Harrisdirect was rejected because the Jersey City, N.J., brokerage was unable to confirm his identity.

A Harrisdirect spokeswoman told the newspaper that the address the man listed in his application didn’t match the one on his credit report.

Securities brokers have been asking clients the source of the money they invest for years, not because they want to pry, but because it helps them make better decisions, industry officials said.

For example, if someone came to a broker with $100,000 to invest, the broker probably would want to know if the money was part of an inheritance or the client’s annual income.

The only way the broker could be sure is to ask the client the source of the money, Mr. Sorcher said.

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