Customer Due Diligence and Risk Assessment Beyond simple identification, the act introduces the concept of Customer Due Diligence (CDD), which obligates institutions to understand the nature and purpose of customer relationships. The Core Requirements of the Patriot Act The backbone of the legislation is Section 326, which mandates that financial institutions implement a Customer Identification Program (CIP).
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This involves analyzing transaction patterns to identify deviations that might indicate money laundering, such as structuring deposits to avoid reporting thresholds or moving funds in a way that lacks a clear business purpose. This involves gathering information to assess the risk that a client might be involved in illicit activity.
This program requires institutions to verify the identity of any individual attempting to open an account or conduct specific financial transactions. Ongoing Monitoring and Suspicious Activity Reporting Compliance does not end once an account is opened; it is a continuous process.
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When a financial institution detects activity that suggests internal controls are being circumvented or funds are tied to illegal activity, a Suspicious Activity Report (SAR) must be filed promptly with the Financial Crimes Enforcement Network (FinCEN), regardless of the amount involved. Verification must be "reasonable," relying on document checks, non-documentary methods, or a combination of both to ensure the person is who they claim to be.
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