X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Nontraditional financial institutions, particularly securities brokers and dealers, are about to face costly new legal responsibilities arising from the federal government’s war on terrorism. And that’s gladdening the hearts of the nation’s bankers. “It’s a leveling of the playing field,” says Clemente L. Vazquez-Bello, a partner at Gunster Yoakley in Miami who practices in the field of banking law. “The broker dealers haven’t been subject to the stringent requirements and the significant overhead the banks have had to bear for the last 10 years in this area. They compete for the same private banking clients.” Meanwhile, some predict that the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, signed into law by President Bush on Oct. 26, ultimately will spell the end of offshore private banking — the lucrative niche that provides specialized financial services to high-net-worth individuals. The new law imposes responsibilities on banks and other “financial institutions” to collect and report data on customers to the authorities. Many of the proposals were pending long before the Sept. 11 terrorist attacks. “Nonbank financial entities should have the same anti-money laundering reporting requirements as banks. That’s been my mantra for 10 years,” says John Byrne, a lawyer and lobbyist for the American Bankers Association in Washington, D.C. “This is long overdue.” Brokerage houses and securities dealers aren’t the only new recruits to the paperwork front. Also conscripted: insurance companies, real estate agents, car dealers, casinos and Indian gaming operators, pawnbrokers, loan companies, travel agencies, telegraph companies, credit card companies, jewelers, currency exchangers, commodities traders, boat and airplane dealers and, not least, the U.S. Postal Service. Some large brokerage houses, like Merrill Lynch, voluntarily implemented their own “know your customer” procedures in recent years. Rules implementing the legislation on how all these entities must identify customers and check them against government lists of known or suspected terrorists have yet to be drawn up. The rules must be finalized by July and will be tailored for each type and size of business. Still, says Vasquez-Bello, businesses will face “significant” costs of compliance. Companies will need forensic accountants, lawyers, and compliance people looking at transactions and conducting monitoring, says Vasquez-Bello. “In addition to auditing the financial side, there are now going to have to be independent audits on the money laundering side. The accounting firms are going to be very happy about that.” For banks, the new federal law mainly changes how they do business with foreign individuals and corporations. At the core are new or enhanced due diligence standards for private banking and correspondent accounts. The goal: to clearly identify participants in transactions and both the nominal and beneficial account holders here and abroad. Dovetailing with that is another requirement. U.S. banks with correspondent accounts for foreign banks must now keep records on who owns those banks; the records must also identify a person or entity in the U.S. who is authorized to accept service of process for that foreign bank. Using that provision, prosecutors will be able to subpoena bank records kept in other countries. If the subpoenaed banks don’t comply, the U.S. can order their correspondent accounts here closed. “So now they’re touchable,” says attorney Bowman Brown, of Shutts & Bowen in Miami. “It’s an area of huge concern because it’s important that a foreign bank not expose itself to litigation in the U.S. any more than it needs to.” That ability to serve legal documents that way will make it easier for the government to forfeit to the Treasury ill-gotten gains stashed in offshore accounts. And Vazquez-Bello predicts it will also put some international bankers “between a rock and hard place” when U.S. demands conflict with another country’s privacy laws. “If they don’t produce, they’ll face [legal trouble] in the United States,” Vazquez-Bello says. “If they do produce, they’ll be sued by their clients.” There is also a new prohibition on banks in the U.S. maintaining correspondent accounts with foreign shell banks that have no physical presence and aren’t affiliated with a U.S. or foreign bank or credit union. An article in Forbes magazine predicted that the new anti-terrorist law eventually may mean the demise of offshore private banking. Such forecasts upset Robert F. Hudson Jr., an international tax lawyer with Baker & McKenzie in Miami who defends the virtues of offshore private banking. “There are plenty of legitimate uses for offshore financial centers,” Hudson insists. “I don’t think there’s a concern that it will put major financial centers out of business. There clearly were institutions that in the past were much too laissez faire about accepting money without sensitivities to U.S. tax rules. This might bring a few remaining rogue banks into line, but I strongly disagree that private banking” is finished. Hudson says he hopes government “doesn’t get carried away” with its broad new authority. “The question is, will it be used for the purpose intended or for other things? Will it be used, for example, for run of the mill tax investigations?” To Bowman Brown, whose clients include banks and securities brokers, the most immediate worry about the new law are the deadlines it imposes. While his clients understand the need for the new legislation, he says, “given the short time frame, they are concerned because there are a number of things that are beyond their control.” As an example, he cited the difficulty in obtaining a list of shareholders for publicly traded foreign banks to maintain correspondent accounts in the U.S. Brown said he expects the banking industry to lobby to postpone the Dec. 25 deadline for “at least a couple of months.” Similarly, Brown says, the law provides no guidance as to the breadth of records to be kept, or the steps required to make sure those records are accurate. “It needs to be clarified,” he says. U.S. Treasury Secretary Paul O’Neill will issue the new rules. But they’ll be drafted by Treasury’s Financial Crimes Enforcement Network. Vazquez-Bello is a member of a FinCEN advisory group on money laundering prevention. “They’ll be working 24 hours a day, seven days a week for a while,” he says. “They’ve got a lot of regulations to issue.”

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.