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US Patriot Act Section 326 Impacts

Section 326 of the Patriot Act requires financial institutions, such as banks, mutual fund companies, brokers and etc. to collect more information about the account holders. So, next time you have to give the tons of information, don't accuse the financial institution of wanting to pass one of their new products. They don't also use this information for personalization or bettering their customer relationship management (CRM). All they do is abide by the rules of the US Patriot Act Section 326.

The Patriot Act Origins and Section 326 Explanation

The Patriot Act was passed as a response of the 9/11 terrorist acts in October 23, 2001. Its main goal is to prevent terrorist financing and money laundering. The implementation of the rules of the Patriot Act is made in phases.

As a result, financial institutions were required to comply with Section 326 on October 1, 2003, by following minimum requirements for verification of the identity of the holders of new accounts. A denied party list was also created that included the names of well-known terrorists and their partners and was used by the financial institutions for verification purposes. The list compiles the names of the terrorists known by United Nations, US Treasury, US Commerce and it consists of approximately 9,000 names.

New Account Requirements

As a result of the Section 326 of the Patriot Act all new accounts are required to contain:

  1. Name of the holder;
  2. Social security number or tax ID;
  3. Street address, which cannot be just signified as a PO Box;
  4. Date of birth of every person that is included in the account.

The Impact of the Patriot Act Section 326

The Section 326 of the Patriot Act influenced the procedures, which were previously followed. It had impact on:

  • Financial Companies

    The identity verification that is required under the new regulations of the Patriot Act's Section 326 will need more time to be completed due to the new standards that should be followed. These standards apply only for new accounts, whereas those already holding accounts are exempt form these regulations. Even though financial institutions are used to collecting the required data, the novelty will be in the cross-checking with the denied party list and the identity verification itself. Despite the fact that existing account holders are exempt from the new identification standards, they are not free from a review if their account balance is equal to or higher than $5,000. This is done in order to check about any illegal trading activities.

    As a result of the new regulations, the price of opening a new account is increased. This is done in order to cover the increased cost that was incurred due to the need of hiring outside vendors for the execution of the identity verification. Additionally, many companies have put limitations to who may open account with them. For instance, some companies have excluded from their list of eligible account holders people that don't have US resident status, no matter that they legally work in the USA.

  • Investors

    Financial institutions may try to compensate the higher operating costs with higher fees, which will represent a burden to the investors. Additionally, those that are not US residents will have to overcome the obstacles that come up with this fact and it will be harder for them to open an account. Trade restrictions or closure of the account are just a few of the restrictions that new investors may face if they do not accurately and in a timely manner the required data.

The increased security measures imposed by Section 326 of the Patriot Act have several negative impacts on the financial institutions and the investors, but they are not impossible to overcome. It is better to pay the higher price for your security, instead of evading it and being hurt by the sometimes destructive subsequences.

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