The US Patriot Act prescribes regulations under which the Treasury is required to issue rules that must be followed by the financial institutions to identify and verify the identity of their customers. This is important for establishing effective money laundering programs.
These rules were established and jointly issued by the Treasury and the CFTC, in 2003.
These final regulations that require banks, savings associations, broker dealers, trust companies, credit unions, mutual funds, futures commission merchants (FCMs) and futures introducing brokers (IBs) to adopt written customer identification programs (“CIPs”) that will require these institutions to:
(1) Verify the identity of any person seeking to open an account;
(2) Maintain records of the information used to verify identity; and
(3) Consult government known or suspected terrorist lists to determine whether the customer appears on any such list.
With respect to the 3rd point above, no specific list has been designated. However, financial institutions are separately required to comply with the rules of the Office of Foreign Assets and Control (OFAC) and must consult OFAC’s lists of sanctioned countries and specially designated nationals and blocked persons. This establishes the relation between OFAC and money laundering activities.
About the OFAC List: As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called “Specially Designated Nationals” or “SDNs.” Their assets are blocked and U.S. persons are generally prohibited from dealing with them. The OFAC list of sanctioned countries can be found on the Treasury’s official website.