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The Patriot Act and American Expatriates

In June of 2001, the writer was in New York City with two of his sons.  The eldest one was working as a sound engineer for a Microsoft convention in the heart of the city.  The other one was on break from his studies at the College of Music at Berklee in Boston.  Together we intentionally and occasionally lost ourselves in the concrete canyons of the Big Apple.

We took the metro to the Staten Island Ferry and over the harbor snapped pictures of Ellis Island, the Statue of Liberty, and the financial district in the distance.  Later, continuing our meanderings on Manhattan Island, we paid homage at Federal Hall on Wall Street where George Washington gave his inaugural address in 1789, wondered at the 1846 Trinity Church building which is today dwarfed and hemmed in by loftier structures, pondered the volatile history of the New York Stock Exchange, and wandered into the Twin Towers at the World Trade Center.

Dedicated in 1973, the Twin Towers exuded an all-business-like atmosphere which seemed to beckon to all who entered therein to follow the money.  Awed by the enormity of the structures, we could have drawn comparisons with the Empire State Building which was in sight of our hotel.  The scene of King Kong's capitulation rises 1,250 feet and embraces 102 floors.  The Towers, by comparison, rose 1,360 feet and hosted 110 floors.  Little could we have imagined the destruction that would soon occur on another date that would live in infamy; a date on which the world watched unbelievingly as two hijacked passenger airlines slammed into and brought down both titans of world commerce: 9/11.

One of the immediate consequences of that horrific event was the U.S. Patriot Act.  Enacted by Congress in October, 2001, the Act authorizes enforcement officials to both protect against similar attacks and punish the perpetrators of 9/11.  It 'grants federal officials greater powers to trace and intercept terrorists' communications both for law enforcement and foreign intelligence purposes.  It reinforces federal anti-money laundering laws and regulations in an effort to deny terrorists the resources necessary for future attacks.  It tightens our immigration laws to close our borders to foreign terrorists and to expel those among us.  Finally, it creates a few new federal crimes, such as the one outlawing terrorists' attacks on mass transit.' (The USA Patriot Act: A Sketch, CRS REP NO. RS21203)

In consequence of the Patriot Act, financial institutions are now required to file SARs (Suspicious Activity Reports) to the Treasury Department's Financial Crimes Enforcement Network (FinCEN) on any transaction involving more than $5,000 which they suspect may be derived form illegal activity.  Businesses dealing in traveler's checks and money orders involving more than $2,000 must also file reports.  SARs obligate financial firms to better know their customers by keeping a closer eye on who opens and uses financial accounts.  Customer names must be checked against government watch lists as well as verified along with sources of their money.

This investigative phenomenon has spread to other countries as well.  Clients of Swiss-based financial institutions, for instance, are asked to provide information on the origin of certain assets, the disclosure of beneficiaries, and statements about the intended use of the assets.

Although there are no clear rules on what constitutes suspicious activities, the costs to financial firms of implementing regulations under the Patriot Act are formidable.  And because negligence penalties can include criminal charges and fines up to $1m, it is not surprising that some U.S. banks will not accept customers with foreign addresses.  Other financial institutions may arbitrarily close a trade sharing account for lack of verification.  Perhaps the hottest new profession to emerge is that of Compliance Specialists familiar with the regulations.

While financial institutions are thus compelled to be watchdogs of monetary flows under the Patriot Act, currency smuggling is presently a serious law enforcement problem.  Hundreds of millions of dollars in U.S. currency are taken annually in a variety of subterfuges out of the United States to foreign countries.  This is one reason why U.S. customs officials ask travelers leaving the United States whether they have in their possession $10,000 or more in cash.  Banks, credit unions, and financial institutions are required to report customer transactions in excess of $10,000 to the Treasury Department.  Non-financial institutions must pay attention to Form 8300.  Also U.S. expatriates and foreign nations can now face stiff penalties for failure to disclose on form TDF 90-22.1 whether they have more than $10,000 in foreign accounts.  American expatriates and foreign nationals who maintain financial accounts and activity abroad are thus affected by new and old regulations dealing with money laundering.

So what is money laundering?  Money from ill-gotten gains is cleaned in three phases: '(I)n the first stage, the cash is often exchanged for traveler's checks, international money orders, or other negotiable forms.  In the second phase . . . the funds are separated from their illegal sources.  This is usually achieved by transferring the money to and from fictitious businesses which may only exist on paper but have been designed to eliminate any possibility of an audit.  The third phase . . . involves returning the laundered funds to general circulation.' (www.us-expatriate-handbook.com)  Ranked as the third largest business activity behind foreign exchange and the petroleum industry, money laundering allows as much as $300 billion in dirty money to infiltrate the world economy annually.  While most of this money flows through the banking system, offshore banking and financial services can be targets for money laundering schemes.  But regardless of whether one questions the relevance of regulations to money laundering or simply considers her or him self inconvenienced, the business of doing business has been complicated by 9/11.

When the writer returned home and developed his New York City photos some months later, he was amazed to discover that he had unwittingly preserved several extraordinary snap-shots of the Twin Towers.  The quality of these photos taken on that pristine Saturday morning from Staten Island Ferry is amazingly clear and tranquil; one of which he keeps on his desk to remind him of those two vanish sentinels that once stood guard over New York City's financial district.