Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.

October 23, 2003

"Big Brother Arrives in the Anti-Money Laundering Act"

As part of the USA Patriot Act of 2001, the U.S Treasury has implemented the Anti-Money Laundering Program, which requires the Customer Identification Program -- something that further requires any financial institution such as a bank, brokerage firm, mutual fund or insurance company to verify that you are who you say you are before you are allowed to open an account and make a large deposit.

The financial institution has to go through a three-step process before they let you open the account. First, the bank has to verify your identity and keep detailed records of how they positively identified you. Second, they have to check your name against a database of suspected terrorists and terrorist organizations. Finally, they have to notify you about why they are asking for all of this information.

But all of this is just the beginning of the process. Once you have opened the account, bankers or brokers have to ask you a series of questions, such as where the funds have come from and what your investment objective is. If you are depositing the proceeds from the sale of your house, you have to identify who purchased the house from you and what relationship, if any, you have with that person. If you are depositing an inheritance, you have to identify who died and how they are related to you.

All of the answers to these rather intrusive questions will be entered into the Treasury Department's Suspicious Activities Report (SAR), in which financial activities are constantly monitored. Banks and brokers are required to maintain a "risk-based" computer system to flag unusual transactions. For example, if you make several deposits for $9,990 -- just below the $10,000 threshold to report cash deposits -- the bank has to report you to the SAR.

You will have to be particularly careful if you deposit a large check from a retirement fund rollover into an IRA or trust. In the case of a trust, the bank will want to know where the money came from, who the beneficiaries are, and who the lawyer is that drew up the trust.

You cannot protest any of these moves since they are part of the USA Patriot Act. In fact, if you ask too many questions about the procedures, you will probably have your name entered in the SAR database. If you decide not to provide the required information, or your identity cannot be positively identified, the financial firm is not allowed to open the account. And, if you have an existing account and can't comply, they are forced to close the account.

All of these new regulations are designed to catch terrorists from laundering money and financing terrorist acts in America, but they will also impose a stunning new level of regulations and government intrusion into our everyday financial lives.

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