On July 23, 2002, the Treasury Department issued the Proposed Rules for Section 326, which received overwhelming criticism from all sides. The criticism ranged from one side advocating for a rule containing an entirely risk-based approach without any minimum identification and verification requirements, to the opposing side desiring a rule with more specific requirements [because a completely] risk-based approach would leave too much room for interpretation.
The overwhelming sentiment from all sides, however, was that the Treasury Department had underestimated the compliance burden that would be imposed on financial institutions.
On April 30, 2003, the Treasury Department adopted the Joint Final Rule for Section 326, which attempted to both increase the verification effectiveness for new accounts and decrease the needless drain on financial institutions. Changes from the Proposed Rules to the Joint Final Rule included a narrowed definition of customer (i.e., by excluding signatories on accounts) and redefined record-keeping requirements (i.e., by requiring only notations from, not copies of, identity-verifying documents such as driver’s licenses).
Most notably, the Joint Final Rule implemented the Customer Identity Program (C.I.P.) rules.
Pa Patriot Act – C.I.P. Rules
On October 1, 2003, the C.I.P. rules became mandatory, which dictated that “[a]ll financial institutions, regardless of size, have a C.I.P. that contains customer identification and verification procedures.”
The purpose of the Customer Identity Program (C.I.P.) rules, which attempt to ensure that financial institutions know the true identity of those opening accounts, shall be explained in the next part.