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Summary of H.R. 3162, the USA PATROIT ACT

November 15, 2001

November 15, 2001

From: David F. B. Smith, Esq, Ryberg and Smith

RE: Summary of H.R. 3162, the USA PATROIT ACT

Congress recently passed and the President has signed H.R. 3162, the anti-terrorism legislation known as the USA PATRIOT ACT.[PDF] H.R. 3162 is a 131-page statute containing a wide variety of anti-terrorist initiatives. Most of these provisions enhance law enforcement powers and provide funding for various anti-terrorist programs, but do not directly affect the title insurance industry. Title III of H.R. 3162, however, the "International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001," deals with money laundering by modifying laws relating to "financial institutions." The definition of financial institution, contained in 31 U.S.C. 5312(a)(2), includes a trust company, an insurance company, and "persons involved in real estate closings or settlements." Therefore, the provisions in Title III of H.R. 3162 affecting "financial institutions" would apply to title companies.

Title III of H.R. 3162 itself contains 46 separate statutory provisions, covering 47 pages. Given the scope and complexity of these Title III provisions, it is difficult to summarize their potential effect on title companies in a few paragraphs. Many of the provisions in Title III appear primarily directed to banks, rather than to other types of financial institutions, and title companies may not as a practical matter be affected by many of the Title III provisions.

The Title III provisions that appear to affect title companies most directly include the following. Section 372 authorizes the forfeiture of "property, real or personal, of property involved in the offense [of failing to file a required currency transaction report] or traceable thereto." Therefore, a title company closing a transaction that failed to file the required currency transaction report could potentially be subject to severe forfeiture penalties. Section 352 requires financial institutions to adopt anti-money laundering compliance programs that reflect minimum requirements that will be developed by the Secretary of the Treasury. Title companies will presumably be required to develop such compliance programs. Section 326 provides for minimum requirements for customer identification that will be developed by the Secretary of the Treasury. This provision appears primarily directed at banks but presumably will apply to title companies in some fashion. Section 316 contains a provision allowing owners of property to be forfeited under the anti-terrorism provisions to establish that they are innocent owners, using the same test that applies is the other federal forfeiture statutes.

Several provisions of Title III seem less likely to affect most title companies, although it is conceivable that they could. For example, section 311 authorizes the Secretary of the Treasury to impose special anti-money laundering reporting requirements on financial institutions. Given the nature of these special requirements, they seem more likely to be applied to banks. Section 312 requires special due diligence regarding foreign accounts. Again, this provision appears more relevant to banks and similar entities rather than title companies.

Section-by-Section Analysis of Title III

The following is a brief section-by-section analysis of Title III.

 

Section 301. Section 301 is the short title of Title III.

Section 302. Section 302 states the findings and purposes of Title III.

Section 303. Section 303 provides that Title III will sunset on and after the first day of fiscal 2005 if Congress affirmatively enacts a joint resolution so providing

Section 311. Section 311 adds a new provision, 31 U.S.C. 5318A, authorizing the Secretary of the Treasury to impose special anti-money laundering reporting requirements on domestic financial institutions aimed at foreign individuals and institutions. Because title companies are financial institutions the Secretary of the Treasury would have authority to impose reporting requirements on title companies, but this provision seems more likely to be applied to banks and securities firms.

Section 312. Section 311 adds a new provision, 31 U.S.C. 5318(i), requires special due diligence by financial institutions regarding private banking accounts and correspondent bank accounts involving foreign persons.

Section 313. Section 313 prohibits certain financial institutions (banks and thrifts) from maintaining correspondent accounts with foreign shell banks.

Section 314. Section 314 authorizes the Secretary of the Treasury to adopt regulations to encourage information sharing about possible money laundering or terrorist activities between financial institutions and government authorities.

Section 315. Section 315 expands the list of predicate offenses for money laundering crimes to include bribery of a foreign public official, embezzlement of public funds and similar offenses by a foreign public official.

Section 316. Section 316 allows owners of property to be forfeited under the anti-terrorism provisions to establish that they are innocent owners, using the same test that applies is the other federal forfeiture statutes.

Section 317. Section 317 amends 18 U.S.C. 1956(b), one of the money laundering statutes, to expand jurisdiction of United States courts over foreign assets.

Section 318. Section 318 amends 18 U.S.C. 1956(c), one of the money laundering statutes, to cover foreign banks.

Section 319. Section 319 adds a new provision, 18 U.S.C. 981(k), permitting forfeiture of funds in interbank accounts.

Section 320. Section 320 amends 18 U.S.C. 981 to permit forfeiture of the proceeds of certain foreign crimes.

Section 321. Section 321 modifies the definition of financial institution with respect to credit unions and adds provisions regarding commodities brokers.

Section 322. Section 322 adds a new provision, 18 U.S.C. 2466(b), regarding corporations owned or represented by fugitives from justice.

Section 323. Section 323 amends 28 U.S.C. 2467 to permit United States courts to issue restraining orders to aid enforcement of foreign forfeiture judgments.

Section 324. Section 324 directs the Secretary of the Treasury to prepare a report to Congress on international money laundering.

Section 325. Section 325 amends 31 U.S.C. 5318(h) to permit the Secretary of the Treasury to enact regulations governing "concentration accounts."

Section 326. Section 326 adds a new provision, 31 U.S.C. 5318(l), directing the Secretary of the Treasury to develop minimum requirements for customer identification. This provision appears primarily directed at banks but presumably will apply to title companies in some fashion.

Section 327. Section 327 adds a new provision, 12 U.S.C. 1842(c)(6), directing the Federal Reserve Board to take into account the effectiveness of a financial institution?s efforts in combating money laundering when approving applications and mergers.

Section 328. Section 328 directs the Secretary of the Treasury to work with foreign governments to require the identification of the originators of international wire transfers.

Section 329. Section 329 imposes criminal penalties on any federal official who demands or receives bribes in connection with the administration of this title.

Section 330. Section 330 expresses the sense of Congress that the United States should negotiate with foreign governmental officials to establish procedures for obtaining financial records of foreign terrorist organizations.

Section 351. Section 351 protects financial institutions from liability for voluntary disclosures of possible violations of law to enforcement authorities, and prohibits financial institutions from notifying anyone that a suspicious transaction has been reported to law enforcement authorities.

Section 352. Section 352 amends 31 U.S.C. 5318(h) to require financial institutions to adopt anti-money laundering compliance programs that reflect minimum requirements that will be developed by the Secretary of the Treasury.

Section 353. Section 353 imposes civil and criminal penalties for violations of "targeting orders."

Section 354. Section 354 directs the Secretary of the Treasury to report to Congress on money laundering activities relating to international terrorism.

Section 355. Section 355 amends the Federal Deposit Insurance Act to allow insured depository institutions to include information about potential unlawful activity in written employment references.

Section 356. Section 356 concerns reports of suspicious activity by securities firms and commodities brokers.

Section 357. Section 357 directs the Secretary of the Treasury to report to Congress on the role of the Internal Revenue Service in administering the Bank Secrecy Act.

Section 358. Section 358 authorizes the Secretary of the Treasury to share information regarding suspicious activity with other law enforcement agencies. Section 358 also authorizes the Secretary of the Treasury to impose certain record keeping requirements on uninsured banks or institutions.

Section 359. Section 359 requires reporting of suspicious activity by companies engaged in informal money transmitting businesses.

Section 360. Section 360 directs the United States to use its representatives to international financial institutions to facilitate actions against international terrorism.

Section 361. Section 361 reorganizes the Financial Crimes Enforcement Network within the Department of the Treasury.

Section 362. Section 362 directs the Secretary of the Treasury to establish a secure data network for reporting suspicious activity.

Section 363. Section 363 increases the civil and criminal penalties for money laundering.

Section 364. Section 364 authorizes the Federal Reserve Board to authorize uniformed law enforcement personnel to protect Federal Reserve facilities.

Section 365. Section 365 adds a new provision, 31 U.S.C. 5331, to require any person engaged in a trade or business to report receiving currency of more than $10,000 in any single transaction or related series of transactions.

Section 366. Section 366 requires a study of the currency transaction reporting system.

Section 371. Section 371 adds a new provision, 31 U.S.C. 5332, to prohibit bulk cash smuggling into or out of the United States.

Section 372. Section 372 authorizes the forfeiture of "property, real or personal, of property involved in the offense [of failing to file a required currency transaction report] or traceable thereto." Therefore, a title company closing a transaction that failed to file the required currency transaction report could potentially be subject to severe forfeiture penalties.

Section 373. Section 373 imposes criminal penalties for knowingly participating in an unlicensed money transmitting business. This provision is aimed at the companies engaged in informal money transmitting business.

Section 374. Section 374 modifies criminal penalties for counterfeiting United States currency abroad.

Section 375. Section 375 modifies criminal penalties for counterfeiting foreign currency.

Section 376. Section 376 amends the money laundering statute to apply to the proceeds of terrorism.

Section 377. Section 377 authorizes extraterritorial jurisdiction for certain financial crimes.



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