The U.S. Patriot Act, including the provisions that apply to banks, has been a tremendous boon to the country’s efforts to detect and prevent terrorist attacks, a U.S. Treasury Department official told a Congressional committee today.

One critically important tool against terrorist financing was the mandate that the financial sector share information with the government, said Stuart A. Levey, under secretary of terrorism and financial intelligence. The Treasury Department has implemented a system that allows law enforcement to transmit names of persons of interest to the financial sector to determine whether those institutions have any relevant transaction or account information. The industry reports back only when it has information, Levey said.

Since the 1970s, banks have been required to have anti-money laundering programs in place, so those provisions of the Patriot Act simply expanded slightly the requirements on banks already specified in the Bank Secrecy Act. But because of the Patriot Act, banks now must collect and verify certain information from customers.

“A critical element in the expansion of the regulatory regime is ensuring that banks and other financial institutions understand and are complying with their BSA obligations,” Levey said.

But confusion currently abounds over how the Patriot Act actually applies to the real estate industry as a whole, and some of that may be because the government has yet to implement some of the rules.

Under the Patriot Act, all 24 classes of financial institutions identified in the Bank Secrecy Act must implement money laundering compliance programs. That includes those involved in real estate closings and settlements. The typical money-laundering scheme with real estate occurs when someone uses all cash from hidden or “dirty” sources to purchase a home.

But the Treasury Department has not yet specifically defined the real estate category, so it remains unclear exactly which businesses in the real estate industry will be subject to the rules. The department, however, has essentially put the industry on notice, announcing that it may soon come up with a proposed rule on the topic.

Levey didn’t directly comment on the Patriot Act’s expansion to the real estate industry, but he did mention sharing information “will be especially useful as we expand the reach of our regulations to new segments of the financial sector.”

He said the government also must be acutely sensitive to citizens’ privacy and reputations, and must make sure controls are in place to safeguard information.


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