Knowing Everything You Should About Your Bank s Customers

Knowing Everything You Should About Your Bank s Customers A CABA Seminar Presented by Sandra DuBoff, Esq. Brian Brodrick, Esq. Michael Galligan, Esq.

Knowing Everything You Should About Your Bank s Customers The Patriot Act Sandra DuBoff, Esq.

USA Patriot Act United and Strengthening America by Providing Appropriate Tools Required to Obstruct Terrorism USA Patriot Act Signed into law October 26, 2001 Executive Order 13224 signed into law September 23, 2001

USA Patriot Act Executive Order 13224 Impacts attorneys, bankers, title companies US Treasury website www.ustreas.gov Specifically Designated Nationals Blocked Persons

USA Patriot Act Mortgage Lenders Require borrower to give notification if it is placed on the restricted list Prohibit transfer of interest to person on restricted list Not per lease or sale of unit to person on restricted list or otherwise accept income from such a person Give notice if it is placed on restricted list Not accept any funds for debt service, ground, rent, deposits, dividends that comes from persons on restricted list

USA Patriot Act Title III Comprehensive statutory framework for imposing new reporting requirements and due diligence for US and foreign financial institutions

USA Patriot Act Key Definitions in the Patriot Act Account - formal banking or business relationship demand or savings account transaction or asset credit card business relationship Correspondent account - account established to handle financial transactions on behalf of a foreign financial institution

USA Patriot Act Key Definitions in the Patriot Act Payable through account - account opened at a depository institution by a foreign institution by means of which the institution permits customers to engage in banking activities usual in connection with banking in the US

USA Patriot Act Key Definitions in the Patriot Act Covered financial institutions FDIC-insured depository institutions uninsured US branches and agencies of foreign banks in US commercial bank or trust companies SEC-registered securities broker-dealers mutual funds money service businesses casinos

USA Patriot Act Key Definitions in the Patriot Act Private banking account - account in excess of $1,000,000 established for one or more individuals and that is assigned to, administered or managed by, an employee, officer or agent of financial institution acting as a liaison between the owner and the institution Beneficial ownership interest - non-contingent legal authority to fund, direct or manage an account

USA Patriot Act Key Definitions in the Patriot Act Senior foreign political figure - current or former senior official in the executive, legislative, military or judicial branches of foreign government, political party or foreign government owned corporation immediate family member person who is widely and publicly known to maintain close personal relationship with such a person

USA Patriot Act Key Definitions in the Patriot Act FINCEN - Financial Crimes Enforcement Network www.fincen.gov Physical presence for foreign bank - a place of business maintained by a foreign bank, located at a fixed address, not an electronic address in the jurisdiction in which the foreign bank is authorized to conduct banking activities location with one or more bank employees records related to banking activities is subject to inspection by banking authority

USA Patriot Act Section 312 Interim rules apply until file rules adopted Until final rule is promulgated, banks should focus due diligence on high risk correspondent accounts maintained by foreign financial institutions other than banks private banking accounts

USA Patriot Act Section 312 Determine if correspondent account is subject to due diligence requirements Maintained by foreign bank Foreign bank operates under off shore license Foreign bank operates under license issued by a foreign country that has been designated as uncooperative with anti-money laundering principles

USA Patriot Act Section 312 Determine risk of money laundering line of business size customer base products/services offered Consider publicly available information with respect to foreign institution Consider guidance issued by Treasury or regulators

USA Patriot Act Section 312 Consider if foreign institution is subject of any criminal action Find out about money laundering programs of foreign bank For private banking accounts, take reasonable steps to ascertain the identity of all nominal holders and holders of any beneficial interest in a private banking account line of business source of wealth source of funds deposited in account who can direct funds whether holder is a senior foreign political figure

USA Patriot Act Section 312 Covered financial institution s due diligence program for foreign correspondent accounts must include procedures to be followed when due diligence cannot be adequately performed If reasonable steps cannot be taken, or covered institution is unable to obtain adequate information, steps should be provided for refusing to open account, closing account, suspending transaction activity, filing suspicious activity reports

USA Patriot Act Section 313(a) and 319(b) Must be satisfied by March 31, 2003 Deals with record keeping and due diligence for correspondent accounts for foreign shell banks Record keeping not required for foreign banks that have to file form FRY-7 Within thirty (30) days of opening account -- or three (3) years thereafter -- covered financial institution must receive certification that correspondent account is not being used to provide banking services to any foreign shell bank

USA Patriot Act Section 314(a) and (b) Encourage cooperation between institutions, including sharing information regarding individuals entities organizations engaged in or reasonably suspected of engaging in terrorist acts or money laundering

USA Patriot Act Section 314(a) and (b) Institutions should appoint one or more persons to receive information and monitor accounts of suspected persons/organizations Federal enforcement agency can request FINCEN to solicit information Financial institutions can share information requested by FINCEN with each other, but cannot discuss the fact that FINCEN has requested such information Any institution which intends to share information has to give notice to FINCEN every year and has to verify with whom it is sharing the information

USA Patriot Act Section 314(a) and (b) If as a result of information, an institution has a suspicion that an individual or organization is engaged in terrorist activity or money laundering, the institution must file a suspicious activity report October 2002 - FINCEN initiated Patriot Act Communications System

USA Patriot Act Upon notification to the Secretary of the Treasury, two institutions can share information regarding individuals, entities or organizations suspected of terrorist activity Institutions not liable for such a disclosure or failure to notify the person/organization it is making such a disclosure

USA Patriot Act Section 319(b) Provides for forfeiture of funds in United States interbank accounts No later than 120 hours after receiving a request by a federal banking agency for information related to antimoney laundering compliance, the institution shall make available information and account documentation for any account opened/administered/managed in US by covered financial institution

USA Patriot Act Secretary of Treasury or Attorney General may issue a subpoena to a foreign bank that maintains a correspondent account and request records related to such foreign account Covered financial institutions have to have certification/documentation from foreign banks for which it maintains correspondent accounts by March 2003

USA Patriot Act Terminating a correspondent relationship Financial institution shall not be liable to any person for terminating a corresponding relationship Failure to terminate can subject the covered financial institution for a civil penalty of up to $10,000/day until the relationship is terminated An institution or its officers/directors/partners who willfully violate the anti-money laundering rule or customer identity rules is liable to the US government for a civil penalty

USA Patriot Act Section 326 Deals with identification and verification of account holders A covered financial institution has to establish a Customer Identification Program ( CIP ) Name Date of birth residence and mailing address (if different) principal place of business and mailing address (if different)

USA Patriot Act Section 326 Customer Identification Program ( CIP ) Taxpayer ID number (US persons) Passport number and country of issuance; alien ID card; or any other government-issued document evidencing nationality (Non-US persons)

USA Patriot Act CIP Non-Documentary Verification An individual is unable to present an unexpired government issued ID document that has a photo Institution is not familiar with the documents presented The account is not opened in a face-to-face transaction

USA Patriot Act Other methods for verifying identification Contacting the customer Independently verifying documentary information through credit bureaus, public databases, or other sources Checking references Obtaining a financial statement

Knowing Everything You Should About Your Bank s Customers Relevant Sarbanes- Oxley Issues Brian Brodrick, Esq.

Sarbanes-Oxley Act of 2002 Overview General Sarbanes-Oxley Act of 2002 - signed into law July 30, 2002 Purpose is to protect investors by improving the accuracy and reliability of corporate disclosure Enacted in response to corporate scandals Enron Adelphia Reflects broad concerns that the last bull market created a gold rush atmosphere that weakened corporate disclosure and management oversight to the detriment of investors

Sarbanes-Oxley Act of 2002 Overview General Sarbanes-Oxley Act of 2002 achieves goals by creating a new oversight body for public accountants increasing independence of public accountants expanding authority of the audit committee imposing additional disclosure and oversight responsibilities on senior officers imposing increased disclosure requirements on public companies

Sarbanes-Oxley Act of 2002 Overview General Sarbanes-Oxley Act of 2002 achieves goals by: imposing new and increased penalties on public companies, their officers, directors and independent accountants for failure to comply with the provisions of the act and securities laws in general Some provisions were effective immediately, while others will go into effect on a delayed basis or require further SEC rule making to be implemented

What Issues Are Subject to the Act? Applies to companies that are required to file periodic reports with the SEC or that have filed registration statements with the SEC that have not been withdrawn Banks or their parents companies that are reporting companies are subject to the act To the extent banks or savings associations are required to file 34 Act reports with their primary federal banking regulator, bank regulators (and not the SEC) would have enforcement authority with respect to corporate governance and pension provisions

What Issues Are Subject to the Act? Banks are indirectly affected through the impact of the act on their customers, including public companies and accounting firms

Issuers The Act will have the following consequences for issuers Listed companies must have audit committees consisting solely of independent directors with increased authority An issuer s audit committee must pre-approve all audit and non-audit services Issuers must disclose approvals of non-audit services Issuers must provide audit committees with adequate funding An issuer may not engage its auditor for nine specificallylisted categories of non-audit services

Issuers The Act will have the following consequences for issuers Issuers must disclose off-balance sheet transactions Issuers must reconcile pro forma information with GAAP and not omit information that makes financial disclosures misleading Issuers may not extend personal loans to directors or executive officers Issuers must disclose transactions involving management and principal stockholders

Issuers The Act will have the following consequences for issuers Issuers must make annual internal control reports Issuers must disclose whether they have adopted codes of ethics for their senior officers Issuers must disclose the existence of a financial expert on the audit committee

Audit Committees The Act requires that audit committees Pre-approve all audit and permissible non-audit services (For listed companies) be composed of fully independent members Receive regular reports from the auditor on accounting treatments Be responsible for oversight of the auditor

Audit Committees The Act requires that audit committees Establish complaint procedures Be given authority to engage advisers Receive corporate attorneys reports of evidence of a material violation of securities laws or breaches of fiduciary duty

Directors and Officers The Act imposes the following on boards of directors and corporate officers CEO and CFO must certify financial reports. CEO/CFO must disgorge bonuses and profits after restatements due to misconduct. Officers and directors are prohibited from trading during pension blackout periods. The CEO and chief legal counsel must receive corporate attorneys reports of evidence of a material violation of securities laws or breaches of fiduciary duty.

Accounting Firms The Act s new regulatory board provisions require accounting firms to Be subject to oversight by new accounting oversight board Register with the board Submit periodic reports Pay fees to the board Comply with auditing and other professional standards Comply with quality control standards Submit to quality control inspections

Accounting Firms The Act s new regulatory board provisions require accounting firms to Subject foreign firms to board regulation Members of the audit engagement team must wait one year before accepting employment as an audit client s CEO, CFO, CAO or equivalent Submit audits to second partners review Rotate audit partners every five years Comply with board-issued internal controls testing standards

Accounting Firms The Act s new regulatory board provisions require accounting firms to Attest to management s representations on internal controls Cease offering certain non-audit services to public audit clients Obtain audit committee pre-approval for services Regularly report to audit committees on accounting treatments Be responsible to the audit committee, not management

Knowing Everything You Should About Your Bank s Customers Banks & Immigration in a Post 9/11 World Michael Galligan, Esq.

Banks in A Post 9/11 World Banks and their clients Banks and their US employees Banks and their high-level employees from abroad

Post 9/11: Banks & Their Clients Types of Tax ID numbers Most individuals Social Security Number ( SSN ) Entities Employer Identification Number ( EIN ) Certain foreign individuals Individual Taxpayer Identification Number ( ITIN ) Form W-7 Certain prospective adopted children IRS Adoption Taxpayer Identification Number ( ATIN ) Form 7-WA

Post 9/11: Banks & Their Clients Social Security Numbers US citizens Persons lawfully present in the United States Authorized to work in the United States Not authorized to work in the United States

Post 9/11: Banks & Their Clients Lawful presence in the United States for non-citizens Permanent residence Authorized non-immigrant status Work-related E, H, L, O, P, R Diplomatic status A, G Non-work authorized B-1, B-2

Post 9/11: Banks & Their Clients Lawful presence in the United States for non-citizens Refugees Special situations Temporary protected status Persons authorized to stay pending adjudication of immigration applications Persons authorized to stay pending departure from USA

Post 9/11: Banks & Their Clients Database sharing: Some current databases CLASS: Consular Lookout and Support Systems IBIS: Interagency Border Inspection System TECS: Treasury Enforcement Computer System NAILS: National Automated Inspection Lookout System

Post 9/11: Banks & Their Clients New Systems Interoperable law enforcement and intelligence data system mandated by 2002 Enhanced Border Security and Visa Entry Reform Act of 2002 Purpose is to make available information from the FBI and intelligence databases to the immigration authorities and the State Department Could the Interoperable System become a database available to banks for establishing client identity or for other law enforcement purposes?

Post 9/11: Banks & Their Clients Treasury Department s October 2002 report under Section 326(b) of the Patriot Act Difficulties in establishing identity of foreign nationals, including Limitations in immigration tracking system Danger of discouraging use of banks

Post 9/11: Banks & Their Clients Treasury Department s October 2002 report under Section 326(b) of the Patriot Act Recommendations Consideration of requiring all foreign nationals who deal with financial institutions to have identification numbers Financial institutions should use ITINs and SSNs but having one should not be a requirement that such numbers be obtained before opening an account

Post 9/11: Banks & Their Clients Section 326 of the Patriot Act Mandates minimum standards for financial institutions ( Banks ) regarding the identity of customers in connection with the opening of customer accounts Banks are required to consult lists of known or suspected terrorists or terrorist organizations provided by government agencies Banks are not required to ascertain the immigration status of any customer

Post 9/11: Banks & Their Clients Section 351 of the Patriot Act Protects from liability any bank that makes a voluntary disclosure of any possible violation or regulation to a government agency Generally forbids disclosure to the persons involved that a disclosure to the government has been made Permits certain employment references and notices of termination to include information that was included in a voluntary disclosure

Banks & Their US Employees Verification of employment authorization Verification required of New hires and Rehires if more than three (3) years has expired since last employment Employees with time-limited work authorization

Banks & Their US Employees Verification of employment authorization Process must generally be started on first day of work and must be completed within three (3) days Exceptions Receipt for application of for replacement document - 90 days A temporary I-551 stamp on a form I-94-1 year Refugee admission stamp on form I-94-90 days

Banks & Their US Employees Verification of employment authorization Choice of document is choice of employee Obligations of employer Make sure information on documents match information on Form I-9 No obvious forgery No obvious inconsistencies Completed forms I-9 must be maintained for one year after employment was terminated or three years from date of hire, whichever is later

Banks & Their US Employees Documents to establish employment authorization Documents to establish identity of employee Documents to establish employment eligibility

Banks & Their US Employees Documents that establish identity and eligibility US Passport (unexpired and expired) Certificate of US Citizenship Unexpired foreign passport with I-551 stamp or I-94 indicated unexpired work authorization Alien Registration Receipt Card ( Green Card ) Unexpired Employment Authorization Document (with photograph) Unexpired Temporary Resident Card, Re-entry Permit or Refugee Travel Document

Banks & Their US Employees Documents that establish identity US Driver s License with photo or identifying information ID Card issued by US government agency with photo or identifying information School ID card with photo Voter s registration card US military card or draft record

Banks & Their US Employees Documents that establish identity Military dependent s ID card US Coast Guard Merchant Marines card Native American tribal document Canadian driver s license

Banks & Their US Employees Documents that establish employment identity US Social Security card (unless indicating not valid for employment) US State Department certification of bird abroad Original or certified copy of US birth certificate Native American tribal document US Citizen ID card ID card for use of resident citizen in USA Unexpired employment authorization document issued by BICS

Banks & Their US Employees Penalties for Hiring Unauthorized Foreign Persons Unauthorized Employment Up to $11,000 per person Paper work violations Up to $1,100 per I-9 Possible debarment from government contracts For pattern and practice violations criminal penalties include $3,000 fine and possible six (6) months of prison

Banks & Their US Employees Problem of Social Security no match letters Social Security Administration is now sending back no matches of Social Security information provided by employers on regular basis A no match should not be presumed to mean the employee is not authorized to work, especially if the Social Security card was not a document on which the employer relied for I-9 purposes A no match should be investigated for possible mistake with employer or explanation by employee

Banks & Their US Employees Maintain public examination file for H-1B workers File must be maintained at employer s principal place of business or location of employment File must include Labor Condition Application ( LCA ) Documentation regarding wage rate to be paid to H-1B employee or relevant parts of collective bargaining agreement

Banks & Their US Employees Maintain public examination file for H-1B workers File must include Explanation of system used to determine wages paid for position Documentation establishing prevailing wage Approved LCA and union/employee notification, if applicable

Banks & High Level Employees Abroad Consequences of untimely renewal of work-related visas Loss of benefits in making immigration transitions Inability to adjust status from temporary status to permanent residence Inability to seek visas at consulate outside of country of nationality Possible impact on changing from one non-immigrant status to another

Banks & High Level Employees Abroad Consequences of untimely renewal of work-related visas Possible inability to enter the U.S. because of unlawful presence Six (6) months of unlawful presence three (3) year ban against reentering the U.S. One (1) year of unlawful presence Ten (10) year ban against reentering the U.S. Very narrow waiver

Banks & High Level Employees Abroad Visa and Authorized Period of Stay ( APS ) renewals E Status E visas are generally issued for four or five year periods APS issued on entry to the US is generally for two years

Banks & High Level Employees Abroad Visa renewal At US Consulate abroad Through State Department Visa Office Only if applicant has not overstayed in the US at any time

Banks & High Level Employees Abroad Extension of stay application must be submitted during APS. Applicant may continue to work for 240 days after APS if application not adjudicated.

Banks & High Level Employees Abroad HIB status renewal Validity of visa and APS generally coordinated Application for extension of stay may be filed up to six months before expiration of APS. Extension of stay application must be submitted during APS. Applicant may continue to work for 240 days after APS if application is not adjudicated. Visa can be renewed at consulate abroad or through State Department Visa Office (if applicant has never overstayed APS)

Banks & High Level Employees Abroad L status Period of validity of visa and APS are coordinated Application for extension must be filed between four months and 45 days before expiration of stay Visa can be reviewed at consulate abroad or through State Department Visa Office (if application has never overstayed APS)

Banks & High Level Employees Abroad Change of address Form AR-11 Must be filed by any non-citizen who changes address Must be filed within ten (10) days of change

Banks & High Level Employees Abroad Special registration Does not apply to permanent residents and foreign diplomats (A and G visas) Four groups Group I: Iran, Iraq, Libya, Sudan, Syria Group II: Afghanistan, Algeria, Bahrain, Eritrea, Lebanon, Morocco, North Korea, Omar, Quatar, Somalia, UAE, Yemen Group III: Pakistan, Saudi Arabia Group IV: Bangladesh, Egypt, Indonesia, Jordan, Kuwait

Banks & High Level Employees Abroad Special registration Group I: Individuals registered at port of entry Group IV: Following persons must register on or before April 25, 2003 Born before February 24, 1987 Suspected or was admitted as a non-immigrant on or before September 30, 2002 No application for asylum pending on January 16, 2003 Will be in the USA until April 25, 2003

Banks & High Level Employees Abroad Special registration Group III: The same categories as persons from Group IV countries must register on or before March 21, 2003, except that Asylum deadline is December 12, 2002 Will be in USA until March 21, 2003 Groups I and II: Deadline was January 16, 2003

Banks & High Level Employees Abroad Expansion of grounds for excluding persons connected with terrorist activities (INA 212(2)(3)(B) Exclusion of persons who Have engaged in terrorist activities Have incited or espoused terrorist activities Are members or representatives of foreign terrorist organizations Certain spouses and children

Banks & High Level Employees Abroad Definition of engaging in terrorist activity includes Planning, inciting, preparing for terrorist activity Soliciting funds for terrorist activity terrorist organizations

Banks & High Level Employees Abroad Terrorist organizations Designated by Secretary of Homeland Security Designated by Secretary of State in federal regulations Group of two or more individuals, whether organized or not, which engages in terrorist activities

Knowing Everything You Should About Your Bank s Customers Thank You For Joining Us Sandra DuBoff 212.841.0510 sduboff@phillipsnizer.com Brian Brodrick 212.841.0700 bbrodrick@phillipsnizer.com Michael Galligan 212.841.0572 mgalligan@phillipsnizer.com