Client Advisory: USA PATRIOT Act Compliance

By Marc Spitzner

The USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) was enacted in October of 2001 in response to the events of September 11, 2001. The Patriot Act broadens and extends anti-money-laundering (AML) regulations and applies them to all financial institutions, not just retail banks. Financial institutions, as broadly defined by the Patriot Act, include (but are not limited to) retail banks, institutional banks, securities firms, broker/dealers, private investment funds, mutual funds, futures/commodities traders, credit card companies, wire-transfer businesses, check cashiers, and insurance companies. The Act requires financial institutions to: establish anti-money-laundering policies and procedures, train employees, designate a compliance officer, establish Customer Identification Programs (CIP), and file Suspicious Activity Reports (SAR) for questionable transactions. These provisions are just the tip of the iceberg, and are likely to be revised and enhanced as money laundering and fraud techniques change. As these rules change, financial institutions will have tight deadlines to enhance systems and procedures to meet new regulations.

Risks of Non-Compliance
The greatest risk for not complying with the Patriot Act will be measured in dollars. Heavy fines will be leveled against financial institutions that do not comply with Patriot Act rules. The Treasury Department has already fined some large financial institutions for violations. Any legal action associated with non-compliance will certainly create unwanted legal fees and management overhead to deal with the issue. The Treasury Department has also promised heavy media coverage for financial institutions that do not comply. Negative media exposure will have an impact on the financial institution's reputation with the general public as well as industry peers.

Challenges & Opportunities
The greatest challenge the Patriot Act presents is updating or implementing new systems. Detecting money laundering and fraud is not a process that can be performed manually, especially for financial institutions dealing with large volumes of transactions on a daily basis. Most retail banks already have systems in place that will require a smaller development effort. For other financial institutions, the challenge will be researching vendors, making build-versus-buy decisions, determining their business and data requirements, integrating with current architectures, and implementing any new systems. Once these systems are in place, the challenge will be keeping up with changing requirements within the tight timeframes set forth by the Treasury Department.

As great as these challenges appear to be, financial institutions can create opportunities:

  • By improving systems and systems procedures, financial institutions can reduce losses from fraud.

  • Implementing new systems and business procedures can replace currently out-dated and inefficient processes.

  • While implementing new systems, financial institutions can take the opportunity to update legacy systems and architectures.

  • Finally, financial institutions can take advantage of the data they gather on their clients for marketing and client relationship management purposes.

Solutions & Products
Patriot Act compliance monitoring is no simple task for any system. There is an enormous amount of data from various systems that needs to be analyzed together to detect money laundering and fraud. There are different types of technical solutions available to financial institutions. These solutions range from basic rules and exception-reporting-based systems and transaction-filtering technology, to artificial intelligence and adaptive-learning systems that search for patterns in transactions to detect money laundering and fraud.

Regardless of the type of technology used, these systems will need to meet certain critical criteria:

  • High performance

  • Real-time processing and reporting

  • Intuitive front-end design

  • Robust SAR reporting & general reporting

  • Storage facility to meet data retention requirements

  • Access to data across platforms

  • Access to data from external sources/data feeds

  • Security for protecting customer information

Beyond AML and fraud detection, financial institutions must also update and enhance current systems. Customer Identification Program regulations may require financial institutions to gather additional information on customers. This will require updates and enhancements to current account-application systems and web-based systems.

There are some big players and established software companies that have systems specifically designed for AML & Patriot Act compliance:

  • Sybase, Inc.: PATRIOTcompliance Solution

  • SAS Institute, Inc.: SAS AML Solution

  • Mantas, Inc.: Behavior Detection Platform

  • Computer Sciences Corporation: Patriot Protector

  • STB Solutions, Inc.: STB Detector & OFAC Agent

  • NetEconomy: ERASE

  • Concord EFS, Inc.: IDENTITY CHEK

  • GIFTS Software, Inc.: GIFTSWEB EDD

  • TREEV, Inc.: Compliance Solution

  • Actimize, Ltd.: Anti-Money Laundering Solution

  • Prime Associate, Inc.: OFAC Reporter

  • Searchspace, Inc.: Intelligent Enterprise Framework and AML Sentinel

These packaged solutions allow financial institutions to avoid long-term, costly, in-house development. However, financial institutions will still be required to evaluate products and vendors, perform significant business, data and technical analysis, to integrate these solutions within current architectures, and perform the final implementation of the solution.

Venture Financial Systems Group - How We Can Help
As a leading consulting company with a proven track record, Venture Financial Systems Group, Ltd. offers multiple services for companies considering implementing new business processes and systems for Patriot Act compliance.

  • Vendor and Product Evaluations Solutions to your business problems can often be found through existing software or outside vendor services. These avenues are often less expensive than building an internal system. However, your needs may be so customized that in-house development is the correct approach. Venture FSG's experienced consultants can help you with your build-or-buy decision using a structured methodology tailor-made to your organization. Venture will guide you through the complex product selection process and collaborate with your staff to arrive at a recommendation.

  • Business Requirements and Data Analysis Venture FSG's experienced consultants offer unparalleled experience in the Financial Services industry. Our Business Analysts and Business Systems Analysts can assist you in determining your business requirements and data needs for your Patriot Act compliance initiatives. Venture consultants have experience in multiple lines of business in financial services operations and systems development projects. Our knowledge of the business problems, technical issues and data needs gives us the ability to understand your needs and perform the superior analysis of your business's needs.

  • System Integration & Implementation Whether you are buying or building, Venture's experts ensure that the end result is a streamlined process that suits your organization. We offer complete project management services, data conversion expertise, workflow design solutions, and end-user training. Venture has extensive experience integrating vendor packages across many lines of business. A well thought-out process and identification of critical steps in the planning stages of any integration are essential to success. Our consultants are adept in working with the complexities of investment management data and processes. Because of our extensive experience, we understand the integration process and are keenly aware of issues that may occur throughout all phases of the lifecycle and are able to keep the project on course.

For additional information on how Venture Financial Systems Group, Ltd. can assist in your Patriot Act technology initiatives, please contact us by e-mail at or call 781.932.7544.