[Congressional Record (Bound Edition), Volume 147 (2001), Part 18]
[Senate]
[Pages 25047-25048]
[From the U.S. Government Publishing Office, www.gpo.gov]



                      THE USA PATRIOT ACT OF 2001

  Mr. BENNETT. Madam President, I rise to offer some guidance to the 
Secretary of the Treasury on the regulatory authority assigned to him 
by the Congress with the recent enactment of H.R. 3162, ``The Patriot 
Act of 2001.''
  As a member of the Senate Banking Committee, I authored an amendment 
to that legislation's anti-money laundering title, title III, the 
``International Money Laundering Abatement and Financial Anti-Terrorism 
Act of 2001,'' which was included in the final legislation as signed by 
the President at Sec. 311. My amendment directs the Secretary of the 
Treasury to promulgate regulations defining ``beneficial ownership of 
an account'' for purposes of Section 5318A and subsections (i) and (j) 
of Section 5318 of the Bank Secrecy Act. I would like to offer some 
guidance to the Secretary of the Treasury concerning the Secretary's 
determination of ``reasonable'' and ``practicable'' steps for domestic 
financial institutions to ascertain the ``beneficial ownership'' of 
certain accounts as provided in Section 311 of the bill.
  Section 311 of this legislation authorizes the Secretary of the 
Treasury to require domestic financial institutions and agencies to 
take one or more of five ``special measures'' if the Secretary of the 
Treasury finds that reasonable grounds exist to conclude that a foreign 
jurisdiction, a financial institution operating outside the United 
States, a class of international transactions, and/or types of accounts 
is of ``primary money laundering concern.''
  The second measure would require domestic financial institutions to 
take such steps as the Secretary determines to be ``reasonable'' and 
``practicable'' to ascertain beneficial ownership of accounts opened or 
maintained in the United States by a foreign person, excluding publicly 
traded foreign corporations, associated with what has been determined 
to be a primary money laundering concern.
  In both Section 5318A(b)(1)(B)(iii) and (b)(2), the Secretary is 
given the authority to require steps the Secretary determines to be 
``reasonable and practicable'' to identify the ``beneficial ownership'' 
of funds or accounts. Neither the phrase ``beneficial ownership'' nor 
the phrase ``reasonable and practicable steps'' is defined in the 
legislation, and there is no single accepted statutory or common-law 
meaning of either phrase that the legislation is meant to incorporate.
  During the 106th Congress, the issue was dealt with by the House 
Banking Committee, which favorably reported H.R. 3886, which contained 
provisions nearly identical to those contained in Section 311 of H.R. 
3162, but without the mandatory rulemaking requirement which my 
amendment added this year. Both in the 106th Congress and again this 
year, the concern has been expressed that this lack of statutory 
definition conceivably could result in a rule or order under either 
Section 5318A(b)(1)(B)(iii) or (b)(2) that requires financial 
institutions to identify all beneficial owners of funds or of an 
account, which in turn might result in some circumstances in clearly 
excessive and unjustifiable burdens. As the author of the amendment 
requiring the Secretary to undertake rulemaking in this area, I am 
sensitive to this concern, and I would expect the Secretary to address 
it when implementing this act, including when making determinations 
under the following provisions: (1) Section 5318A(a)(3)(B)(ii), which 
requires the Secretary to consider, in selecting which special measure 
to take, ``whether the imposition of any particular special measure 
would create a significant competitive disadvantage, including any 
undue cost or burden associated with compliance, for financial 
institutions organized or licensed in the United States;'' and (2) 
those above-referenced provisions that permit only those steps that the 
Secretary determines to be ``reasonable and practicable'' to identify 
the beneficial ownership of accounts or funds, which provisions impose 
an enforceable constraint on the substance of any rule or order under 
either Section 5318A(b)(1)(B)(iii) or (b)(2).
  In addition, Section 5318A(e)(3) requires the Secretary to 
``promulgate regulations defining beneficial ownership of an account'' 
for purposes of Section 5318A and subsections (i) and (j) of Section 
5318. This is the Bennett amendment. Section 5318A(e)(4) gives the 
Secretary the authority, inter alia, to ``define . . . terms for the 
purposes of'' Section 5318A ``by regulation.'' I would strongly 
encourage the Secretary to define the meaning of the

[[Page 25048]]

phrases ``beneficial ownership'' as well as ``reasonable and 
practicable steps'' for the purposes of Sections 5318A(b)(1)(B)(iii) 
and (b)(2), through formal rulemaking subject to notice and comment, 
taking due consideration of the potential impact of such regulations on 
smaller institutions, and on all institutions, with an eye toward 
balancing regulatory burden, legitimate privacy interests, and the 
ability of United States financial institutions to compete globally. To 
the extent the Secretary opts for informal guidance on ``reasonable and 
practicable steps,'' I would urge informal consultation with interested 
parties.
  Specifically, I would note that several agencies have issued 
regulations or supervisory guidance defining the term ``beneficial 
owner'' or outlining what constitutes reasonable steps to obtain 
beneficial ownership information, in each instance for the issuing 
agency's own purposes. See, e.g., 17 C.F.R. Sec. 228.403; 26 C.F.R. 
Sec. 1.1441 1(c)(6); 28 C.F.R. Sec. 9.2(e); Letter re: Public 
Securities Association (Sept. 29, 1995) (SEC staff ``no action'' letter 
addressing 17 C.F.R. Sec. 240.10b 10); Guidance on Sound Risk 
Management Practices Governing Private Banking Activities, prepared by 
the Federal Reserve Bank of New York (July 1997); and Office of the 
Comptroller of the Currency Bank Secrecy Act Handbook (September 1996). 
These sources may be instructive for the Secretary in providing 
definitions of the phrases ``beneficial ownership'' and ``reasonable 
and practicable steps.''

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