According to a 2020 Deloitte Anti-Money Laundering Preparedness Survey, the world loses 2–5 percent of its global GDP (about USD 800B–2T) annually through money laundering. Money laundering activities can create enough money to run several countries for one year. For instance, 2020 government budget estimates show that USD 800B can run the economies of Mexico, Belgium, and Sweden for a year. This amount can also finance over 50 of the world’s developing economies.
Over the years, the USA Patriot Act has changed the fabric of the war against financial crimes, terrorist financing, and money laundering activities. Understanding the USA Patriot Act will help you take advantage of the protections it offers US citizens and businesses against financial crimes.
What Is the USA PATRIOT Act?
The USA Patriot Act stands for “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism.” Congress enacted the Patriot Act in the wake of the horrific September 11, 2001 terror attack, with overwhelming support across the political divide.
The Act provides a framework that allows federal law enforcement agencies to use sophisticated methods to investigate, stop, or prevent acts of domestic and international terrorism. This includes all activities leading to terrorism, especially funding and planning terror attacks.
History of the PATRIOT Act
The journey leading to the establishment of the Patriot Act is long and exciting. Around the 1970s, governments globally did not focus on money laundering. The war against drugs was a more immediate adversary. The Bank Secrecy Act of 1970 was the first legislation that attempted to check money laundering activities and other financial crimes. It aimed to reduce the power of drug cartels.
In 1986, Congress enacted the Money Laundering Control Act, making money laundering a federal crime for the first time in history. This led to a cascade of actions that put money laundering on global economies’ radar. Countries finally woke up to the impact of criminal financing on terrorist activities, civil wars, and other global menaces. As a result, the 1990s and 2000s saw concerted global efforts to curb financial crimes. Money laundering was the biggest source of funding for large-scale criminal activities.
Provisions of the USA PATRIOT Act
The Patriot Act gives the US federal government much greater reach to combat international or large-scale terrorism by cutting off its financial facilitators. The legislation addresses four key aspects related to terrorism funding, money laundering, and protection of the American people.
- Title II–expansion of surveillance methods for law enforcement
- Title IV–immigration procedure changes and security of US borders
- Title VIII–criminal sanctions against terrorism-related activities
- Title III–comprehensive legislation of currency transaction and anti-money-laundering (AML) laws
Title III of the Patriot Act specifically creates measures to curb terrorism financing. Terrorists often get funding from well-orchestrated illegal transactions disguised as ordinary business transactions. The Patriot Act empowers law enforcement agencies to dig deeper into these dealings and uncover critical information about terror activities.
The major guidelines of the Patriot Act are:
1. International Community Guidelines
Title III outlines stringent guidelines surrounding inter-country financial activities. It expands the definition of money laundering activities to include breaches in data protection protocols, cybercrimes, bribing election officials, and misusing public funds. It also reinforces banking rules to control international money laundering.
Many countries followed the enactment of the Patriot Act with complementary AML laws of their own. Otherwise, the Patriot Act would be a lame-duck without international support. As a result, there are better communication structures between US law enforcement agencies and other countries.
2. Property Seizure
Section 106 of the Patriot Act allows the President to seize private or corporate property if an individual or business is engaging in terrorist activities. (Section 411 defines these activities.)
3. Fair Credit Reporting Act Amendment
The Patriot Act also amends the Fair Credit Reporting Act. It allows FBI agents, using ex parte administrative orders, to access credit histories of individuals under investigation related to national or international terrorism. This happens only where the First Amendment does not protect the criminal activities in question.
4. Anti-Money Laundering Activities
Money laundering involves disguising proceeds from criminal activity as income from legitimate business activities. This usually happens in three steps:
- Placement—criminals will first place dubious funds in financial institutions
- Layering—they will then use complex financial transactions to mask the true origins of their income
- Integration—they finally create a legitimate transaction to sanitize the payment, allowing them to use the money
E-commerce is quickly replacing the more traditional form of buyer-seller transactions. The Patriot Act requires businesses and financial institutions to employ Know Your Customer (KYC) measures. KYC measures require businesses to verify customer identities before doing business with them.
Banking businesses, including startups, must assess the risk profile of clients before transacting with them. They must crosscheck customer details against any politically exposed persons, sanction lists, or terrorist watch lists.
Where Are We Now?
With the Patriot Act, financial institutions have improved their capacity to prevent financial crimes. This is good news for everyone. No one wants to find out their business activities have inadvertently funded terrorism activity or their income came from criminal activities.
Still, the world needs a single platform to prosecute, stop, or prevent international money-laundering activities. But the USA Patriot Act was undoubtedly an excellent place to start.