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Commercial bankers are feeling a lot of schadenfreude these days. For decades, their industry has had to follow strict government rules designed to thwart money laundering. But now banks have a lot of company, thanks to the USA Patriot Act. The sweeping antiterrorism bill requires a wide range of other financial institutions to take similar steps to stop money laundering. And the cost of implementing these new procedures, it turns out, is steep. Financial institutions have been wondering just how much they would be affected by the Patriot Act ever since its passage in November 2001. Congress gave the job of filling in the law’s many blanks to the U.S. Department of the Treasury, which has been issuing a steady stream of new regulations ["Can We Do It?" February 2002, and "Wall Street's Marching Orders," September 2002]. In late April the department issued its latest set of rules. Commercial banks, securities firms, casinos, credit card agencies, and life insurers already knew they would be covered by the act. But Treasury’s latest regulations now include private equity funds, says David Goldstein, a partner in the New York office of Akin Gump Strauss Hauer & Feld. In coming months the department will decide whether the act also covers travel agents, automobile dealers, mutual funds, dealers in precious metals and stones, and others. “The real public policy impact here is on the non � bank financial institutions,” said John Byrne, senior counsel at the American Bankers Association in Washington, D.C., the industry’s major trade group. Including these other businesses is absolutely appropriate, he says, adding, “It’s something we’ve been talking about for 15 years.” Of the sectors that must comply with the new law, experts say the securities industry will be hit hardest. According to a study released in March by TowerGroup, a research firm based in Needham, Massachusetts, securities firms are looking at a $700 million tab. Large firms such as Merrill Lynch & Co. and Citigroup’s Salomon Smith Barney can expect to spend $25 � 30 million to get up to speed, TowerGroup claims. For its part, the commercial banking industry maintains that the Patriot Act duplicates laws it already lived under, especially the 1970 Bank Secrecy Act. Banks have long been required to track customer transactions, for instance, so that they could detect and report unusual patterns that might indicate criminal activity. As a result, the Patriot Act is expected to cost commercial banks far less than other financial firms. TowerGroup estimates that banks will spend about $60 million this year for compliance-related technology. But even for commercial banks, requirements are getting tougher. In its latest batch of new rules, the Treasury Department issued a customer verification regulation, which will go into effect on October 1. Under this rule, banks and other financial firms must verify the identity of every customer, keep records of the verifying data, and cross-reference each customer against lists of known or suspected terrorists. Byrne says that of all the new regulations, this one is potentially the most encompassing and most burdensome.

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