USA PATRIOT Act, Title III, Subtitle A - Sec. 311: Special Measures For Jurisdictions, Financial Institutions, or International Transactions

Sec. 311: Special Measures For Jurisdictions, Financial Institutions, or International Transactions

A new section was added to Title 31, subchapter IV, chapter 53, subchapter II ("Records and reports on monetary instruments transactions") of the U.S. Code. The section was 5318A, entitled "Special measures for jurisdictions, financial institutions, or international transactions of primary money laundering concern". It specifies that financial institutions or financial agencies may be required to take special measures when so directed by the United States Secretary of the Treasury. Any such order by the United States Treasury, with the exception of orders that require additional record keeping or reporting for any transaction over an amount greater than the Secretary describes, is issued with a notice of rule making regarding the special measure. Orders may not remain in effect for more than 120 days, though any ruling may be extended by the Treasury.

When the Secretary of Treasury orders special measures, that person must first consult with the Chairman of the Board of Governors of the Federal Reserve System, any other appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act), the Secretary of State, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the National Credit Union Administration Board and any other relevant parties the Secretary of Treasury decides to call on. The special measures must take into account whether similar actions were taken by other nations and multilateral groups; whether the measure will cause any competitive disadvantage for U.S. financial organizations; how the timing or impact of the decision will affect legitimate business activities; and what effect the action would have on U.S. national security and foreign policy.

The special measures must be undertaken for all transactions that are made outside the U.S. in areas where money-laundering has been identified as a concern. The measures involve:

1. the maintenance of records of the aggregate amount of transactions made in such areas. Such records must include:
   • the identity and address of the participants in a transaction or relationship, including the identity of the originator of any funds transfer;
   • the legal capacity in which a participant in any transaction is acting;
   • the identity of the beneficial owner of the funds involved in any transaction, in accordance with such procedures as the Secretary determines to be reasonable and practicable to obtain and retain the information; and
   • a description of any transaction.
2. undertaking reasonable steps to obtain and retain information on foreigners who gain a benefit of ownership of an account which is opened and maintained in the U.S., and yet who do not own the account itself (this is called beneficial ownership)
3. the identification of any foreign customers who are authorized to use or route transactions through a payable-through account in the U.S.

The section also details what is considered a "primary money-laundering concern". The Secretary of Treasury ultimately makes the decision on such areas in consultation with Secretary of State and the Attorney General. Several jurisdictional factors must be taken into account, including:

• evidence that organized crime, international terrorists, or both, have transacted business in that jurisdiction;
• the extent to which bank secrecy or special regulatory advantages are given to nonresidents or nondomiciliaries in the jurisdiction;
• the substance and quality of administration of the bank supervisory and counter-money laundering laws of the jurisdiction;
• the relationship between the volume of financial transactions occurring in the jurisdiction and the size of the economy of the jurisdiction;
• the extent to which the jurisdiction is characterized as an offshore banking or secrecy haven by credible international organizations or multilateral expert groups;
• whether the U.S. has a mutual legal assistance treaty with the jurisdiction, and the experience of U.S. law enforcement officials and regulatory officials in obtaining information about transactions originating in or routed through or to the jurisdiction; and
• whether there are high levels of official or institutional corruption

The Secretary of Treasury also considers whether financial institutions facilitate or promote money laundering, balanced against the extent to which they perform and promote legitimate business activities. He or she must also decide whether the financial institutions is undertaking any of the special measures specified above when considering whether the jurisdiction, financial institutions, types of accounts, or transactions are or are not primarily a money laundering concern.