What is the PATRIOT Act?
The official name of the statute is "The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act." It was passed by the Senate (S.1510) on October 11, 2001 and the House (HR 3162) on October 24, 2001 and was signed by President Bush on October 26, 2001; thus becoming Public Law 107-56. The Act strengthens existing requirements and enacts new regulations dealing with terrorism, homeland security and financial disclosures to prevent the funding of terrorist activities, domestically and abroad.
What is the Patriot Act’s implication for auto dealerships?
The Act requires dealerships to establish and maintain anti-money laundering programs. As of November 18, 2002, final rules implementing these requirements had not been published by the Treasury Department. The Act also requires dealers to respond to information requests from Federal government law enforcement agencies. Upon receipt of such a request, a dealership must expeditiously search its records to determine whether it maintains or has maintained any account for, or has engaged in any transaction with, each individual, entity or organization named in the government's request. The final rule implementing this requirement was published September 26, 2002 and was effective immediately.
What is OFAC?
"OFAC" stands for Office of Foreign Asset Control. The Office of Foreign Assets Control is the division of the Treasury Department that administers economic and trade sanctions. It also targets and blocks the financial transactions and assets of terrorists, narcotics traffickers and foreign countries posing a threat to our national security and economy. OFAC publishes a list of individuals, businesses, charitable organizations and governments restricted from financial transactions facilitated by or through US financial institutions, businesses and others. The list published by OFAC is known as the SDN list and is updated regularly. Updates may add names to the list or delete names from the list.
Who are “Specially Designated Nationals,” or SDNs?
As part of its enforcement efforts, OFAC publishes a list of individuals, companies and other entities owned or controlled by, or acting for or on behalf of, targeted countries. The list also includes individuals, groups and entities, such as terrorists and narcotics traffickers, designated under programs that are not country-specific. Collectively, such individuals, companies and other entities are called "Specially Designated Nationals" or "SDNs". The assets of SDNs are blocked and US persons are generally prohibited from dealing with SDNs.
What are the fines for violating these regulations?
The fines for violations can be substantial. Depending on the program, criminal penalties can include fines ranging from $50,000 to $10,000,000 and imprisonment ranging from 10 to 30 years for willful violations. Depending on the program, civil penalties range from $11,000 to $1,000,000 for each violation.
What’s the difference between the OFAC requirements and the anti-money laundering requirements?
The requirements are separate and distinct. The OFAC requirements have been in place for many years. The anti-money laundering requirements, as they apply to dealers and sales finance companies, were imposed by the USA Patriot Act, which was signed into law in 2001.
The OFAC requirements apply to all transactions, including any business relationship established to provide regular services, dealings and other financial transactions. The OFAC requirements apply to both cash and credit transactions and apply to all US persons, including all US citizens and permanent resident aliens regardless of where they are located, all persons and entities within the US and all US incorporated entities and their foreign branches.
This means that any US person or entity must check the name of a person or entity against the OFAC list to determine if the person or entity is barred from entering into financial transactions facilitated by US persons and/or entities before transacting business with that individual or entity.
The anti-money laundering requirements were imposed by the USA Patriot Act. Prior to the Act, dealers and loan and finance companies were required to report cash transactions in excess of $10,000. This requirement has not changed. However, this reporting requirement will be only one component of a dealership's formal anti-money laundering program. Although the final requirements have not been published, it is likely that dealerships will have to, at a minimum, develop internal policies, procedures and controls designed to deter money laundering activities, designate a compliance officer for the dealership's anti-money laundering program, provide on-going employee training on anti-money laundering and establish an independent audit function to test the anti-money laundering program. The Treasury Department may also require dealerships to report certain "suspicious activities". A final anti-money laundering rule applicable to dealers will likely be published in early 2003 and will become effective in late 2003.
What is the FinCEN?
"FinCEN" is the Financial Crimes Enforcement Network. It is the governing office for anti-money laundering and is overseen by the Treasury Department. The main goal of FinCEN is to facilitate information sharing and cooperation between federal and state agencies and the financial community and their regulatory agencies. FinCEN administers compliance with the federal Bank Secrecy Act, which was amended by the USA Patriot Act to impose anti-money laundering requirements on dealerships.
Is a car dealership considered a ‘financial institution’ under these guidelines?
The OFAC requirements apply to everyone. It is not necessary to be classified as a "financial institution" in order to be subject to the OFAC requirements. The anti-money laundering requirements apply to "financial institutions" and that term is broadly defined to include dealerships. If a dealership administers its own loan portfolio (e.g., Buy-Here-Pay-Here dealers) or the dealership is the creditor identified on a contract subsequently assigned to a bank or finance company, the dealership would be considered a financial institution. If the dealership sells any insurance or warranty product, it may also be considered a "financial institution".
How does this affect the Privacy Act requirements? Do I need an authorization from my customer to check their name on the list?
No. The federal financial privacy provisions, as implemented by the Federal Trade Commission, require you to provide your customers with a written notice of your privacy practices and, in certain cases, your customers may exercise the right to opt-out to prevent you from sharing their personal information with third parties. The OFAC guidelines are established to verify identity and are required by law. Thus, you do not need to obtain the authorization of any customer before checking their name against the OFAC list.