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The USA Patriot Act of 2001, signed into law Oct. 26, is the newest weapon in the United States’ war against terrorism. However, because of the broad scope of the act, many law-abiding companies are likely to be the first to feel its impact. The government’s anti-terrorism initiative will result in greater regulatory oversight and law enforcement scrutiny and more stringent civil and criminal penalties for corporations. Corporations involved in the following activities may face greater scrutiny: � international business transactions; � financial relationships with foreign financial institutions; � financial transactions with foreign investors, especially foreign officials; � other financial transactions otherwise subject to regulatory oversight; � export/import business; � employers who hire foreign labor; and � telecommunications and Internet products and services. Most of the provisions relevant to corporations relate to money-laundering enforcement and compliance and law enforcement investigations. Perhaps the most noteworthy aspect of this extensive legislation is the jurisdiction it establishes over foreign banks that maintain correspondent accounts in the United States, and the standards that apply for the seizure and forfeiture of funds contained in those accounts. Under the act, if proceeds of a crime are deposited into a foreign bank account located overseas, the United States can seize an equivalent sum of money contained in that bank’s U.S. account, regardless of whether those funds are traceable to the funds deposited abroad. The act also provides the secretary of the treasury broad subpoena powers over foreign banks, and requires each foreign bank that maintains a correspondent account in the United States to appoint a representative to accept service of process. If the foreign bank fails to respond to a subpoena or summons, the government may require the domestic bank to terminate the correspondent banking relationship with that foreign bank. FOREIGN CRIMES The act amends the federal money-laundering statute by including foreign crimes as new predicate offenses. These include bribery of a public official, misappropriation of public funds, smuggling munitions or technology with military applications, and any offense “with respect to which the United States would be obligated by multilateral treaty” to extradite or prosecute the offender. The proceeds of certain foreign crimes are subject to civil or criminal forfeiture under federal law — even for crimes that would not have been unlawful had they been committed in the United States. ASSET SEIZURE AND FORFEITURE The act reiterates the president’s broad authority under the International Emergency Economic Powers Act to confiscate the assets of any foreign person, foreign organization or foreign country that he determines has planned, authorized, aided or engaged in hostilities or attacks against the United States. On Sept. 24, the president signed an Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism. That order identified 27 persons with whom all financial activities are prohibited. As of Nov. 8, the administration added 123 more individuals and entities to the blocking list. In addition to the persons and organizations identified in the order, the United States currently imposes significant embargo programs against numerous countries and ruling entities and rigid export controls on many others. It also maintains a lengthy list of “Specially Designated Nationals, Blocked Persons, and Denied Persons,” with respect to whom exports (including financial transactions) often are prohibited. (These lists are available at bxa/prohib.html and ofac.) Corporations involved in international business transactions should immediately review the designated terrorist and designated entity lists to ensure that no customers or business partners appear on them. If they do, all transactions with such persons or entities should be halted immediately. To the extent a corporation holds or controls any property in which a designated terrorist has an interest, the corporation must “block” that property: i.e., refuse any efforts to sell or otherwise dispose of the property or use the property in any way that would benefit the designated terrorist. Corporations acting in accordance with the blocking order have immunity from civil liability. IMMIGRATION PROVISIONS The act retroactively broadens the definitions of terrorism and terrorist activity for purposes of deportability and inadmissibility, and strengthens provisions relating to the enforcement of the immigration laws. It expands the definition of money laundering and adds grounds for inadmissibility under the expanded definition of money laundering and for deportability for money laundering. There will be increased sharing of criminal background information between the FBI, the INS and the State Department. Further, the act mandates the detention of aliens, subject to certain time constraints and limited judicial review, for whom the attorney general certifies that reasonable grounds exist to believe that they have or are engaged in terrorist activities or conduct endangering national security. Certain employers that hire foreign workers may find that the increased sensitivity to immigration and border issues may lead to greater governmental scrutiny of immigration filings and additional delays in processing visa applications. COMPLIANCE PROGRAMS The act requires all financial institutions (as defined under the Currency and Foreign Transaction Reporting Act) to implement money-laundering compliance programs that include internal policies, procedures and controls; the designation of a compliance officer; ongoing employee training; and an independent audit function to determine compliance. This law codifies what was previously a regulatory requirement, and greater scrutiny of account holders is likely to follow. The treasury secretary will issue regulations “setting forth the minimum standards for financial institutions and their customers regarding the identity of the customer that shall apply in connection with the opening of an account with a financial institution.” The regulations will require the institution to verify the identity of any person seeking to open an account, to maintain information verifying a person’s identity, and to check names against lists of known or suspected terrorists. Although these requirements apply directly only to financial institutions, greater scrutiny will be focused on other corporate entities as well. Indeed, regulations will soon make others subject to reporting obligations, such as filing suspicious activity reports (SARs), including broker-dealers and commodity traders. It is important that corporate lenders, for example, be familiar with the identity of their customers and that they document the due diligence performed on those customers and transactions prior to closing. Corporations that already maintain compliance programs are well-advised to audit them. CORRESPONDENT AND PRIVATE BANKING The act imposes new requirements on financial institutions that establish, administer or maintain private banking, offshore or correspondent banking accounts. The act notes that correspondent and private banking is sometimes manipulated to permit the laundering of funds by “hiding the identity of real parties in interest to financial institutions,” and by corrupt foreign government officials, particularly if those funds channel into accounts around the world. In this regard, the secretary of state is directed to “take all reasonable steps to encourage foreign governments to require the inclusion of the name of the originator in wire transfer instructions sent to the United States.” Financial institutions are directed to implement policies and procedures that are “reasonably designed to detect and report instances of money laundering.” In the case of correspondent accounts, the enhanced due diligence requirements include identifying the owners of the foreign bank, the nature of the ownership interest, and whether that bank provides correspondent accounts to other foreign banks. In the case of private banking, the enhanced due diligence requirements include: identifying the nominal and beneficial owners of the account and conducting additional scrutiny to ensure that the account is not maintained on behalf of a foreign political figure and does not contain proceeds of foreign corruption. LAW ENFORCEMENT INVESTIGATIONS � Secret Searches Courts are authorized to delay notifying the party against whom a search is conducted where there is reasonable cause to believe that notification of the execution of a search warrant may have an adverse result. For example, law enforcement may enter a home or business, search materials, and not notify the home or business owner. This new “sneak and peek” power is not limited to anti-terrorist activity. Officers are prohibited from seizing evidence during these secret searches unless a court determines that there is a “reasonable necessity” for doing so. � Secret Subpoenas The Foreign Intelligence Surveillance Act is amended to authorize certain law enforcement officials to apply to a court for a subpoena to produce items and documents involving international terrorism or clandestine intelligence activities. A recipient of a FISA subpoena is not permitted to disclose to “any other person (other than those persons necessary to produce the tangible things …) that the [government] has sought or obtained tangible things” under the act. It is not yet clear what the penalties for such a violation will be, or what instructions will be provided with the subpoena to ensure that secrecy is maintained. Corporations receiving third-party subpoenas from government agencies should carefully review them to determine whether the above FISA restrictions apply. � Electronic Surveillance The act expands the government’s ability to conduct electronic surveillance and nationwide search warrants. By extending “pen registers” and “trap and traces” to the Internet, law enforcement is now permitted to obtain e-mails, voicemails and computer information, including “records of session times and durations,” as well as “any temporary assigned network address.” The new law allows law enforcement to obtain a warrant to tap every phone line that someone uses, instead of having to get a warrant for each phone line. In the wake of Sept. 11, and with these added investigatory and legal tools now at the government’s disposal, telecom providers, including wireless providers, can expect increased demands from law enforcement for cooperation in intercepting and monitoring all forms of electronic communications. No subpoena or court order is required to monitor and intercept electronic communications to or from any “computer trespasser,” defined as anyone who “accesses a protected computer without authorization” and therefore “has no reasonable expectation of privacy.” This definition could encompass an individual who violates his ISP’s terms of use (perhaps by falling behind in his payments) or his employer’s online usage policy (for example, by using his employer’s e-mail account for personal communications). Corporate employers or service providers may be asked to cooperate with law enforcement to determine whether usage by a particular employee or customer violates the employer’s or service provider’s usage policy. Careful compliance will help avoid incurring liability for invasion of privacy. Among other things, the issue of “trespass” should be carefully evaluated by corporate counsel in the context of the specific request. RESPONDING TO GOVERNMENT INQUIRIES In the post-Sept. 11 environment, corporate employers can expect ever-increasing incursions into their businesses by federal, state and local government regulators, investigators, auditors and law enforcement officials. Having a prepared response team to handle interactions with the government reduces the likelihood of misstatements and misunderstandings and therefore reduces the likelihood of disrupting the company’s business. Designate one individual to receive all government callers and visitors, and provide training about the myriad issues that might arise during such an encounter. All other employees should be instructed to refer all government agents to the company’s contact person. In establishing a single point of contact, the company’s objective must not be to come across as rigid or uncooperative. Employees should be instructed to always be friendly and courteous. When served with a subpoena for documents, employees should accept service politely and without making any remarks. Always review a subpoena before letting any company official reply to government questions. A. Jeff Ifrah is a senior associate, and Kirby D. Behre and Larry Barcella are partners, in the corporate compliance, government investigations and white-collar practice group in the Washington, D.C., office of Paul, Hastings, Janofsky & Walker (

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