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The U.S. Department of Treasury, the Financial Crimes Enforcement Network, and seven federal financial institutions have just released final guidelines on � 326 of the USA Patriot Act, which establish minimum requirements that financial institutions must meet in verifying the identity of new customers. Financial institutions have until Oct. 1, 2003 to come into full compliance. Fortunately, certain software products are coming to the marketplace that are designed to reduce annual losses related to identity fraud in the financial services industry and to provide alternatives to help financial institutions comply with the � 326 guidelines. THE PROBLEM In the wake of the Sept. 11 terrorist attacks, it was reported that the terrorists involved had opened 35 bank accounts using false Social Security numbers. If banks had been able to check the identities of the persons opening the accounts in advance, it is possible that the terrorists would have been detected prior to the disaster that unfolded. Moreover, given that many bank fraud schemes are perpetrated with invalid or expired Social Security numbers, ensuring accurate records is of heightened importance. THE GUIDELINES The recent governmental guidelines require financial institutions to implement procedures to verify the identity of persons opening accounts, to maintain records used to verify identities, and to determine whether persons opening accounts are on any list of suspected terrorists or terrorism organizations. So how are financial institutions supposed to get the job done? SOFTWARE SOLUTIONS ATTUS Technologies, a provider of financial services for regulatory compliance, homeland security and fraud prevention, recently has come forward with a line of identity verification software products. These products are designed to reduce annual losses emanating from identity fraud and are intended to help financial institutions comply with � 326. The first product, WatchDOG SSN, is touted as verifying Social Security numbers of new customers of financial institutions by checking the numbers against Social Security databases, without incurring online transaction charges. When a Social Security number and date of birth are entered into the WatchDOG SSN system, the software is intended to validate when the Social Security number was issued, the state in which it originated and whether the number was assigned in a timeframe consistent with a customer’s age. The software also is intended to verify that the Social Security number does not belong to a deceased person. As each Social Security number is reviewed, WatchDOG SSN is supposed to record the system’s responses as proof of compliance with � 326. ATTUS states that it regularly updates WatchDOG SSN with newly assigned or expired numbers from the Social Security Administration. The second product, WatchDOG PHOTO ID, is intended to allow financial institutions to verify government-issued photo identification for all customers. This product is supposed to view the most current versions of government-issued photo IDs, including driver’s licenses in the United States, Canada, and Mexico, green cards and other immigration documents. ATTUS reports that in addition to being able to view an exact copy of each photo ID card, a written description alerts users to particular ID security features that should be examined, such as holograms. A third product, WatchDOG CIP (Customer Identification Program), is supposed to offer increased verification and fraud prevention capabilities by combining Social Security number validation, ID and driver’s license verification, and scanning of lists for designated terrorists, blocked entities and sanctioned countries. ATTUS reports that WatchDOG CIP is the only � 326, ID verification tool that allows institutions to perform baseline verifications on the majority of all new accounts without incurring high transaction costs or having to transmit data over the Internet. For higher-risk accounts, WatchDOG CIP reportedly includes an added level of verification, “Level Two,” with secure access to more than 20 billion public and private records. ATTUS reports that WatchDOG CIP also provides guidance and regulatory content that helps banks manage and adhere to their internal CIP policies. GETTING IN GEAR Financial institutions need to step up to the plate soon when it comes to combating identity fraud and in terms of compliance with � 326. Plainly, the right software can be an important asset for financial institutions in this context. Financial institutions must be careful, however, to investigate the true capabilities of any software considered and to explore the full range of software options that may be available. Eric Sinrod is a partner in the San Francisco office of Duane Morris ( www.duanemorris.com), where he focuses on litigation matters of various types, including information technology disputes. Mr. Sinrod’s Web site is www.sinrodlaw.com, and he can be reached at [email protected]. To receive a weekly e-mail link to Mr. Sinrod’s columns, please type Subscribe in the subject line of an e-mail to be sent to [email protected].

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