knowing everything you should about your bank’s · pdf fileknowing everything you should...

Knowing Everything You Should About YourBank’s Customers

PHILLIPS NIZER LLP Resourceful Representation SM

A CABA Seminar Presented by

Sandra DuBoff, Esq.

Brian Brodrick, Esq.

Michael Galligan, Esq.



The Patriot Act

Sandra DuBoff, Esq.

PHILLIPS NIZER LLP

USA Patriot Act

Resourceful Representation SM

î United and Strengthening America by ProvidingAppropriate Tools Required to Obstruct Terrorism

USA Patriot Act• Signed into law October 26, 2001• Executive Order 13224 signed into law

September 23, 2001

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USA Patriot Act


î Executive Order 13224• Impacts attorneys, bankers, title companies• US Treasury website

www.ustreas.gov• Specifically Designated Nationals• Blocked Persons

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USA Patriot Act


î 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 onrestricted list

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USA Patriot Act


î Title III• Comprehensive statutory framework for imposing new

reporting requirements and due diligence for US andforeign financial institutions

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USA Patriot Act


î 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 handlefinancial transactions on behalf of a foreign financialinstitution

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USA Patriot Act


î Key Definitions in the Patriot Act• Payable through account - account opened at a depository

institution by a foreign institution by means of which theinstitution permits customers to engage in bankingactivities usual in connection with banking in the US

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USA Patriot Act


î 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

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USA Patriot Act


î Key Definitions in the Patriot Act• Private banking account - account in excess of

$1,000,000 established for one or more individuals andthat is assigned to, administered or managed by, anemployee, officer or agent of financial institution acting asa liaison between the owner and the institution

• Beneficial ownership interest - non-contingent legalauthority to fund, direct or manage an account

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USA Patriot Act


î Key Definitions in the Patriot Act• Senior foreign political figure - current or former senior

official in the executive, legislative, military or judicialbranches of foreign government, political party or foreigngovernment owned corporation

• immediate family member• person who is widely and publicly known to maintain close

personal relationship with such a person

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USA Patriot Act


î 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

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USA Patriot Act


î 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

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USA Patriot Act


î 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 withanti-money laundering principles

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USA Patriot Act


î Section 312• Determine risk of money laundering

• line of business• size• customer base• products/services offered

• Consider publicly available information with respect toforeign institution

• Consider guidance issued by Treasury or regulators

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USA Patriot Act


î 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 ofany 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

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USA Patriot Act


î Section 312• Covered financial institution’s due diligence program for

foreign correspondent accounts must include proceduresto be followed when due diligence cannot be adequatelyperformed

• If reasonable steps cannot be taken, or covered institutionis unable to obtain adequate information, steps should beprovided for refusing to open account, closing account,suspending transaction activity, filing suspicious activityreports

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USA Patriot Act


î 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 mustreceive certification that correspondent account is notbeing used to provide banking services to any foreign shellbank

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USA Patriot Act


î Section 314(a) and (b)• Encourage cooperation between institutions, including

sharing information regarding• individuals• entities• organizations

engaged in or reasonably suspected of engaging in terroristacts or money laundering

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USA Patriot Act


î Section 314(a) and (b)• Institutions should appoint one or more persons to receive

information and monitor accounts of suspectedpersons/organizations

• Federal enforcement agency can request FINCEN to solicitinformation

• Financial institutions can share information requested byFINCEN with each other, but cannot discuss the fact thatFINCEN has requested such information

• Any institution which intends to share information has togive notice to FINCEN every year and has to verify withwhom it is sharing the information

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USA Patriot Act


î Section 314(a) and (b)• If as a result of information, an institution has a suspicion

that an individual or organization is engaged in terroristactivity or money laundering, the institution must file asuspicious activity report

• October 2002 - FINCEN initiated Patriot ActCommunications System

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USA Patriot Act


î Upon notification to the Secretary of the Treasury, twoinstitutions 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 adisclosure

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USA Patriot Act


î 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 anti-money laundering compliance, the institution shall makeavailable information and account documentation for anyaccount opened/administered/managed in US by coveredfinancial institution

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USA Patriot Act


• Secretary of Treasury or Attorney General may issue asubpoena to a foreign bank that maintains acorrespondent account and request records related tosuch foreign account

• Covered financial institutions have to havecertification/documentation from foreign banks for whichit maintains correspondent accounts by March 2003

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USA Patriot Act


î 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 untilthe relationship is terminated

• An institution or its officers/directors/partners whowillfully violate the anti-money laundering rule orcustomer identity rules is liable to the US governmentfor a civil penalty

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USA Patriot Act


î 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)

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USA Patriot Act


î 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 evidencingnationality (Non-US persons)

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USA Patriot Act


î 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

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USA Patriot Act


î 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



Relevant Sarbanes- Oxley Issues

Brian Brodrick, Esq.

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Sarbanes-Oxley Act of 2002 Overview


î 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 disclosureand management oversight to the detriment of investors

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î 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

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î General• Sarbanes-Oxley Act of 2002 achieves goals by:

• imposing new and increased penalties on publiccompanies, their officers, directors and independentaccountants for failure to comply with the provisions ofthe act and securities laws in general

• Some provisions were effective immediately, while others willgo into effect on a delayed basis or require further SEC rulemaking to be implemented

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What Issues Are Subject to the Act?


î 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 federalbanking regulator, bank regulators (and not the SEC)would have enforcement authority with respect tocorporate governance and pension provisions

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What Issues Are Subject to the Act?


î Banks are indirectly affected through the impact ofthe act on their customers, including publiccompanies and accounting firms

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Issuers


î The Act will have the following consequences forissuers• 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 specifically-

listed categories of non-audit services

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Issuers


î The Act will have the following consequences forissuers• Issuers must disclose off-balance sheet transactions• Issuers must reconcile pro forma information with

GAAP and not omit information that makes financialdisclosures misleading

• Issuers may not extend personal loans to directors orexecutive officers

• Issuers must disclose transactions involvingmanagement and principal stockholders

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Issuers


î The Act will have the following consequences forissuers• 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

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Audit Committees


î 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

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Audit Committees


î 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 offiduciary duty

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Directors and Officers


î The Act imposes the following on boards of directorsand 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 ofsecurities laws or breaches of fiduciary duty.

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Accounting Firms


î The Act’s new regulatory board provisions requireaccounting 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

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Accounting Firms


î The Act’s new regulatory board provisions requireaccounting 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’sCEO, CFO, CAO or equivalent

• Submit audits to second partners review• Rotate audit partners every five years• Comply with board-issued internal controls testing

standards

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Accounting Firms


î The Act’s new regulatory board provisions requireaccounting 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



Banks & Immigrationin a Post 9/11 World

Michael Galligan, Esq.

PHILLIPS NIZER LLP

Banks in A Post 9/11 World


î Banks and their clients

î Banks and their US employees

î Banks and their high-level employees from abroad

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Post 9/11: Banks & Their Clients


î 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 childrenIRS Adoption Taxpayer Identification Number (“ATIN”)Form 7-WA

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î 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

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î Lawful presence in the United States for non-citizens• Permanent residence• Authorized non-immigrant status

• Work-relatedE, H, L, O, P, R

• Diplomatic statusA, G

• Non-work authorizedB-1, B-2

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î 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

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î 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

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î New Systems• “Interoperable law enforcement and intelligence data

system” mandated by 2002 Enhanced Border Securityand Visa Entry Reform Act of 2002

• Purpose is to make available information from the FBIand intelligence databases to the immigrationauthorities and the State Department

• Could the Interoperable System become a databaseavailable to banks for establishing client identity or forother law enforcement purposes?

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î Treasury Department’s October 2002 report underSection 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

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î Treasury Department’s October 2002 report underSection 326(b) of the Patriot Act• Recommendations

• Consideration of requiring all foreign nationals who dealwith financial institutions to have identification numbers

• Financial institutions should use ITINs and SSNs buthaving one should not be a requirement that suchnumbers be obtained before opening an account

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î Section 326 of the Patriot Act• Mandates minimum standards for financial institutions

(“Banks”) regarding the identity of customers inconnection with the opening of customer accounts

• Banks are required to consult lists of known orsuspected terrorists or terrorist organizations providedby government agencies

• Banks are not required to ascertain the immigrationstatus of any customer

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î Section 351 of the Patriot Act• Protects from liability any bank “that makes a voluntary

disclosure of any possible violation or regulation to agovernment agency”

• Generally forbids disclosure to the persons involvedthat a disclosure to the government has been made

• Permits certain employment references and notices oftermination to include information that was included ina voluntary disclosure

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Banks & Their US Employees


î 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

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î Verification of employment authorization• Process must generally be started on first day of work

and must be completed within three (3) daysExceptions• 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

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î Verification of employment authorization• Choice of document is choice of employee• Obligations of employer

• Make sure information on documents match informationon Form I-9

• No obvious forgery• No obvious inconsistencies

• Completed forms I-9 must be maintained for one yearafter employment was terminated or three years fromdate of hire, whichever is later

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î Documents to establish employment authorization• Documents to establish identity of employee• Documents to establish employment eligibility

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î 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

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î 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

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î Documents that establish identity• Military dependent’s ID card• US Coast Guard Merchant Marines card• Native American tribal document• Canadian driver’s license

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î 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

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î 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 ofprison

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î Problem of Social Security “no match” letters• Social Security Administration is now sending back “no

matches” of Social Security information provided byemployers on regular basis

• A “no match” should not be presumed to mean theemployee is not authorized to work, especially if theSocial Security card was not a document on which theemployer relied for I-9 purposes

• A “no match” should be investigated for possiblemistake with employer or explanation by employee

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î 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 bargainingagreement

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î Maintain public examination file for H-1B workers• File must include

• Explanation of system used to determine wages paid forposition

• Documentation establishing “prevailing wage”• Approved LCA and union/employee notification, if

applicable

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Banks & High Level Employees Abroad


î Consequences of untimely renewal of work-relatedvisas• Loss of benefits in making immigration transitions

• Inability to “adjust status” from temporary status topermanent residence

• Inability to seek visas at consulate outside of country ofnationality

• Possible impact on changing from one non-immigrantstatus to another

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î Consequences of untimely renewal of work-relatedvisas• Possible inability to enter the U.S. because of “unlawful

presence”• Six (6) months of unlawful presence à three (3) year

ban against reentering the U.S.• One (1) year of unlawful presence à Ten (10) year ban

against reentering the U.S.• Very narrow waiver

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î 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

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î Visa renewal• At US Consulate abroad• Through State Department Visa Office

Only if applicant has not “overstayed” in the USat any time

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î Extension of stay application must be submittedduring APS. Applicant may continue to work for240 days after APS if application not adjudicated.

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• 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 afterAPS if application is not adjudicated.

• Visa can be renewed at consulate abroad or throughState Department Visa Office (if applicant has neveroverstayed APS)

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• 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 neveroverstayed APS)

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î 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

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î 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

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î 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

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î 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

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î Expansion of grounds for excluding personsconnected 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

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î Definition of engaging in terrorist activity includes• Planning, inciting, preparing for terrorist activity• Soliciting funds for

• terrorist activity• terrorist organizations

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î 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



Thank You For Joining Us

Sandra DuBoff 212.841.0510 [email protected]

Brian Brodrick 212.841.0700 [email protected]

Michael Galligan 212.841.0572 [email protected]