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Terrorism has been a major issue in many countries, especially in the United States. Perhaps that’s why the USA Patriot Act was signed into law.
If you’re an ordinary citizen, you wouldn’t care much about this term. After all, it mainly concerns the country’s terrorism matters. But if you’re a lender, you might’ve come across this topic countless times by now, so you’re probably thinking, what does this act has to do with lenders, and why should you concern yourself with it? Read on to know more about the correlation between lenders and the USA Patriot Act.
What’s the USA Patriot Act?
The USA Patriot Act is an act that was signed into law in October 2001. As previously said, it mainly concerns terrorism, and the reason the act was made is because of the recent terrorist attacks during that year. The act aims to provide the country with the necessary preparations to intercept or prevent terrorism. So, what does this have to do with you?
USA Patriot Act Compliance
As a lender, you might’ve heard of USA Patriot Act Compliance from your fellow lenders or perhaps from the internet. The main reason for that is because terrorists, just like everybody else, need money to pull off their attacks, and people like you, the lenders, are the perfect source of this money. In other words, they engage in money laundering through lenders.
Hence, lenders need to know if their customer is trustworthy or not, and that’s where the USA Patriot Act Compliance or the Customer Identification Program (CIP) comes in. The CIP requires financial institutions to do the following:
- Verify the customer’s identity that wants to open an account
- Search up the customer’s name if it’s in any government watchlist
- Maintain records of the entire transaction five years after the account’s closing
- Inform customers about the requirements for customer identification
To ensure that customers aren’t involved in any terrorism-related activities, lenders must comply with the aforementioned requirements. Unfortunately, unless they have some sort of business ID verification tool, lenders often struggle with these requirements, especially if they’re working independently. If that’s the case, here are a few tips you can use.
1. Identity Verification
The first step, and perhaps the most challenging part, of complying with the USA Patriot Act is when you verify your customer’s identity. You don’t know who they are, where they live, or what they do for a living, but it’s still possible to confirm their identity by following these tips:
- Prompt the customer to take a selfie and compare this selfie against their documents like passports, license, or national IDs to verify its authenticity.
- Ask them to answer a series of questions, which you’ll then compare against the information from public databases to see if they match.
- Try analyzing their social media accounts if their information from the account matches the information they provide you personally.
You can do a lot more to verify their identity, but these are the least you can do if you’re new to this game. After confirming that they’re who they say they are, you can proceed by checking if they have any record concerning terrorism.
2. Watchlist Search
Now that you know their identity, it should be a lot easier to confirm if they’re not associated with any terrorism-related activities. To do that, you can check the databases or watchlists of government agencies like:
- Office of Foreign Assets Control (OFAC)
- FBI Most Wanted Lists
- Interpol – Wanted Persons
- US Department of Commerce
Since it’s challenging to gain access to their databases, it’s much easier to seek the help of an agency that specializes in this field, or you can also use a third-party tool. If you prefer the latter, you can try looking into Microbilt’s solution on a watchlist search.
3. Record Keeping/Retention
Even after verifying that your customer is indeed clean of any terrorist acts, you should always keep their records. Perhaps this is because if this is their first time engaging in money laundering, you won’t find any inconsistency in their identity, and they’ll have no criminal records. The USA Patriot Act requires lenders to maintain records on the following:
- Basic identifying information such as full name, taxpayer ID number, date of birth, occupation, and physical address
- Any inconsistencies in the identifying information
Furthermore, this information should be kept intact within your system at least five years after their account’s closure. After that, you can freely erase their data from your system.
4. CIP Notice
Lastly, lenders must also inform the customer about the CIP compliance, especially since most people don’t know how it works. This is so that it doesn’t become a one-sided transaction. In other words, your customers must be aware that you’re complying with all these requirements. That’s pretty much what you need to do for the fourth requirement.
Final Words
While it may seem unlikely for your customer to be a part of a terrorist organization, it’s still a good idea to always verify your customer’s identity. After all, not only are you complying with the USA Patriot Act, you’re also reducing the risks of falling for a loan fraud, which can be financially devasting. Hence, it’s a win-win scenario for you, whatever the outcome.
You may also like: PCI DSS Compliance: 12 Requirements
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