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Dealers impacted by USA PATRIOT Act regulation

November 23, 2010

A final ruling by the Financial Crimes Enforcement Network (FinCEN) requires automobile dealers and other financial institutions to respond to information requests from FinCEN on behalf of federal law enforcement agencies that are investigating money-laundering or terrorist acts. FinCEN, a bureau in the U.S. Treasury Department, issued the regulation to implement Section 314 of the USA PATRIOT Act, a law created in the wake of Sept. 11, 2001, and designed to strengthen law enforcement's ability to investigate and penalize moneylaundering and disrupt terrorist financial networks. The regulation took effect Sept. 26, 2002.

The USA PATRIOT Act is an acronym for "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism." There are two components to the regulation. The first part, which implements Section 314(a) and is summarized below, provides law enforcement with the means to quickly locate accounts and transactions associated with suspected terrorists and money launderers. The second part, which implements Section 314(b), is not summarized below.

The regulation is primarily a reporting requirement. It does not require dealers to take (or decline to take) any action on accounts or transactions that are the subject of a FinCEN request. New Requirements The FinCEN regulation imposes the following requirements on automobile dealers:

1. If requested by FinCEN, a dealership must expeditiously search its records to determine whether the dealer has maintained (or currently maintains) an account for or has engaged in a transaction with any individual, entity or organization identified by FinCEN. Unless FinCEN indicates otherwise in its information request, a dealer may limit the search of its records to: a. any current account maintained for the named suspect; b. any account the dealer maintained for the suspect during the preceding 12 months; and c. any transaction conducted by (or on behalf of) the named suspect during the preceding 6 months that the dealer is required by law or regulation to record or that the dealer has, in fact, recorded and maintained electronically. Note: If the dealer has questions about the scope or terms of the request, the dealer should contact the federal law enforcement agency that forwarded the information request to FinCEN. (The contact information of that agency will be included in the information request.) However, if the dealer finds a match, the dealer should send the report described below to FinCEN and not to the requesting federal law enforcement agency.

2. If the dealer identifies such an account or transaction, the dealer must send a report to FinCEN in the manner and time frame specified in the FinCEN request. Unless otherwise indicated in the request, the search requirement is retrospective and does not require dealers to report on future account opening activity or transactions. Note: In the short term, FinCEN anticipates that its requests and the reports it receives will be accomplished through a combination of e-mail and fax transmissions. FinCEN may determine later to use a secure network to send requests and receive reports.

3. The report must contain: a. The name of the individual, entity or organization; b. The number of each such account, or in the case of a transaction, the date and type of each such transaction; and c. Any Social Security number, taxpayer identification number, passport number, birthday, address, or other similar identifying information provided by the individual, entity or organization when each such account was opened or each such transaction was conducted.

4. If a dealer receives an information request, it must designate one person at the dealership to be the point of contact regarding the request and any future requests which the dealership receives from FinCEN. If requested by FinCEN, a dealer must provide FinCEN with the person's name, title, mailing address, e-mail address, telephone number and facsimile number in the manner specified by FinCEN. Dealers who have provided FinCEN with contact information must promptly notify FinCEN of any changes to that information.

5. Dealers are prohibited from using information provided by FiCEN for any purpose other than: a. Providing FinCEN with the required report; b. Determining whether to establish or maintain an account or engage in a transaction; or c. Assisting the dealer in complying with the anti-money laundering program requirements set forth in FinCEN regulations. Note: As indicated above, FinCEN has not applied anti-money laundering program requirements to automobile dealers as of September 2002.

6. Dealers also are prohibited from disclosing to any person, other than FinCEN or the federal law enforcement agency for whom FinCEN is requesting information, the fact that FinCEN has requested or obtained such information (except as necessary to process the request).

7. Dealers must maintain adequate procedures to protect the security and confidentiality of requests from FinCEN for such information. This requirement is deemed satisfied if a dealer applies to this information the same procedures it has established to comply with section 501 of the Gramm Leach Bliley Act (15 U.S.C. 6801) and the Federal Trade Commission's implementing regulation (16 CFR Part 314) regarding the protection of nonpublic personal information. Note: The FTC regulation referred to above is separate from the FTC's Financial Privacy regulation that dealers were required to fully comply with by July 1, 2001.

The FTC regulation referred to above creates Standards for Safeguarding Customer Information that dealers must comply with by May 23, 2003. (To obtain the FTC standards, visit safeguardfrn.pdf) If a dealer has not yet created FTCcompliant safeguarding standards to apply to the FinCEN information requests, the dealer must nevertheless ensure it presently "maintain[s] adequate procedures to protect the security and confidentiality of requests from FinCEN."

Related Issues
The International Emergency Economic Powers Act (IEEPA) and Executive Order 13224 prohibit "any transaction or dealing" with named individuals or entities who have been linked to terrorism. An alphabetical master list of those named individuals and entities (also known as "blocked persons") is maintained by the Office of Foreign Asset Control (OFAC) at Dealers are prohibited from entering into transactions with, and must freeze the existing accounts of, any "blocked person" identified on the OFAC list. This requirement does not apply to persons who are not identified on the OFAC list.

If dealers are unsure how to respond to a FinCEN request or to transactions initiated by "blocked persons" or others identified by FinCEN, they may request guidance from FinCEN by calling its toll-free Financial Institutions Hotline (1-866-556-3974). The final regulation can be viewed in its entirety at releases/docs/314finalrule.pdf