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WASHINGTON-The Treasury Department plans to delay financial institutions’ compliance with Patriot Act Section 326 for six months after the date the final regulation is issued, according to reliable sources. An additional three months will be given before enforcement measures are taken, the same sources said. The final regulation was expected to be issued by the end of last week, after deadline. Section 326 is the provision that requires financial institutions to verify the identity of accountholders, store the documents used to verify identity for five years, and ensure they are not included on terrorist lists compiled by the federal government, among other things. The law originally contained a compliance date of October 25, but because of the technical difficulties in complying with the requirements and the absence, so far, of a final rule, it has been delayed. Treasury explained that official comment letters turned in by interested financial services providers “revealed substantial issues” that the department and regulators needed to analyze in drafting the final rules. Treasury announced earlier this month that it would put off compliance for financial institutions, but it did not indicate how long that would be. In doing so, Treasury is not overstepping the bounds of its regulatory authorities by not requiring financial institutions to come into compliance with the law by the statutory date of October 25, because they plan to have the regulation out by that time. According to CUNA Associate General Counsel Mary Dunn, the department has the power to delay enforcement of the regulation. Additionally, Treasury submitted a report to Congress on October 22 regarding Section 326 compliance, which recommended that credit unions and other financial institutions need only “make reasonable efforts to verify identity using existing and available identifying information and documents” with regard to verifying the identification of foreign nationals absent a “reliable and standardized” foreign national identification system. These methods will be included in the regulation, according to Treasury’s report. The report also recommended that the Department of Homeland Security, once it is created, and others, study the development of a uniform system of identification concerning foreign nationals by creating a unique identification number after their information has been verified. “Treasury finds,” the report read, “that there are significant impediments to domestic financial institutions’ ability to identify, much less verify the identity of, foreign nationals. The wide disparity in identification documents, the pervasive problem of fraudulent identification documents, and the fact that many foreign nationals who establish accounts in the United States are not physically present here mean that it might not be practicable for Treasury to prescribe rigid rules of acceptable or unacceptable forms of identification. “Moreover, there currently is no single, reliable system within the Federal government that domestic financial institutions could access to verify the identity of foreign nationals for any of a variety of purposes, including opening accounts.” Treasury also recommended that financial institutions collect social security numbers, individual tax identification numbers, or other identifiers, when possible, but feels it should not be required that all foreign nationals obtain such a number prior to opening an account in an American financial institution. Finally, the report suggests that financial institutions not be required to consult government databases as part of the identity verification process until those lists are complete and made available, “preferably in one location,” according to a statement from Treasury. The department also said that financial institutions should file a Suspicious Activity Report at account openings if the circumstances warrant it. Treasury consulted with the financial services regulators, including NCUA, the Internal Revenue Service, and the Immigration and Naturalization Service in developing its recommendations to Congress. Both CUNA and NAFCU had written Treasury and talked with officials requesting more time for compliance, though they both have supported the 9-11 inspired law. “We want to be very clear about our message,” CUNA President and CEO Dan Mica wrote in a recent letter to Treasury Secretary Paul O’Neill. “We are not seeking to shirk any responsibility under the Act. What we are requesting, as we did in our comment letter, is that Treasury and the federal financial regulators provide institutions with reasonable and sufficient time to meet their obligations under the Act, which we believe would be at least six months.” NAFCU Communications Manager John Zimmerman commented, “That is really good news and is consistent with our strong concerns that the issuance of the final reg and effective date were extremely close. The new compliance date does not change what we believe is credit unions important role in combating terrorism and money laundering,” “We are pleased with this extension,” CUNA Senior Vice President of Communications Mark Wolff said. “We have heard from our credit unions that more time is necessary, and this is very helpful.” Treasury is still considering further guidance on other provisions in the law with October deadlines. Section 314 of the Patriot Act provides for information sharing practices between the private and public sectors, but is not covered by this latest guidance. -

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