Patriot Act Compliance and Identity Verification

Michelle Thiel
October 24, 2008 — 1,618 views  
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Section 326 of the Patriot Act required the U.S. Secretary of the Treasury to develop regulations setting forth minimum standards regarding customer identification for opening new accounts at certain financial institutions. The federal banking regulatory agencies together developed regulations to implement Section 326. That regulation is known as "the CIP rule" because it requires banks, savings associations, credit unions and certain non-federally regulated banks to have written Customer Identification Programs (CIP).

The minimum standards established for CIPs are intended to enable financial institutions to form a reasonable belief about the true identity of their customers. One of the components of a CIP is therefore to verify the identity of each customer. Another component is to scan each customer against government list(s) of known or suspected terrorists or terrorist organizations.

Patriot Act Compliance and Your Customers

When a new customer opens an account to receive services from a financial institution, CIP requirements apply and can sometimes impact the customer experience. Such services may include deposit accounts, transaction accounts and other types of accounts. Customers can include individuals, corporations, partnerships, trusts, etc. The way a financial institution approaches identity verification and watch list scanning efforts carries the potential to shape its overall customer experience. Identity verification tools and watch list checking software can play important roles in a financial institution's Patriot Act compliance program. Streamlining certain Patriot Act compliance efforts can lead to a more effective compliance program because software tools typically bring higher levels of accuracy and process efficiency. Perhaps equally important, many software tools can do this while minimizing the friction experienced by customers. As financial institutions compete for revenue, the overall customer experience can contribute to brand value and the financial institution's bottom line.

Patriot Act Software Can Streamline Patriot Act Compliance

Meeting specific Patriot Act compliance requirements can be costly to an organization, but failing to do so can be vastly more expensive. Fines and penalties related to inadequate Patriot Act compliance programs have been significant, but the damage to a financial institution's reputation can be even more costly. If negative publicity erodes customer trust, financial institution customers may choose to reduce the number of products and services they use, or perhaps completely sever their relationships with the institution. This can negatively impact bottom line figures and lower an institution's brand value. In addition, regulatory actions may divert resources - including senior level managers - from focusing on revenue and profitability while they develop and implement necessary corrective actions. Patriot Act software can help financial institutions to meet certain compliance requirements and protect their organization's bottom line.

Tip: Customer Identification Methods

As you select documents, consider associated risks. If this document is not well known to your personnel, will they be able to spot a fraud? If this is a foreign document, will you accept it only when accompanied by another form of identification? Will you require certified copies of any documents? Remember it is important to provide reasonable belief that you know the true identity of each customer.

Confronting identity fraud begins with vigilant identity verification. Being aware of potential identity fraud risk will keep you alert to potential tactics and deceptive individuals.

About the Author

Michelle Thiel is an advocate for the information industry with an interest in bankruptcy public records , id authentication and mortgage fraud protection.

Michelle Thiel