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Businesses hope software can help them meet reporting requirements of the Patriot Act


by  Karen Ann Kidd  |  More from Karen Ann Kidd  |  Published: 5/9/03

Category: Technology  |  Audience: CIO
Rating:  4.5 (out of 5) Rate it   Comments:  43  |  0 NEW  |  View all

Takeaway:
One provision of the U.S. Patriot Act requires financial services companies to develop improved capabilities to identify customers and flag suspicious transactions. New software offerings may help enterprises stay in compliance.



As the U.S. Patriot Act and other controversial legislation threaten to make criminals of bankers, librarians, and others, those same people are hoping an old friend, software, will keep them out of trouble.



“The last thing these people want is to be on the front page for noncompliance,” explained Steven Lindseth, founder and Chairman of Axentis.

Axentis recently released the results of a six-month study; it indicates that most companies are still scrambling to implement operations to comply with legislation such as the Patriot Act, Sarbanes-Oxley, and the Health Insurance Portability and Accountability Act (HIPAA). And just as they’re figuring out that much, the Domestic Security Enhancement Act of 2003, or “Son of Patriot Act,” is coming soon.

As they scramble, they also realize the legislation is more than a little vague and comes with no guarantees. “There is no silver bullet,” said Jeff Guilfoyle, founding partner and vice president of e-security for Solutionary, Inc.

“There is nothing you can do that will guarantee you are fully compliant.”

That bitter fact was clear before President George Bush signed the Patriot Act in October 2001. The act broadly expanded law enforcement's surveillance and investigative powers. It also, for the first time, made businesses responsible for seeking, detecting, and reporting computer trespasses. Banks, in particular, are expected to identify, discover, gather, amass, investigate, and report on financial activity to a far greater degree and depth than ever before.

“For example, they may need to verify not only the owner of an account but also the originator of a transaction involving that account, the individual at the bank who may have approved a transaction, and any other individuals who may have been involved in executing that transaction,” Lee Kidder, TowerGroup wholesale banking director, said in an interview released by Sun Microsystems. “If the transaction failed, they will need to know why it failed and how it was reconciled. In other words, every financial transaction has multiple tidbits of information associated with it, and the new regulations are forcing banks to be able to break down that transaction more and more finely so that the tidbits of information can be sorted and reassembled according to reporting requirements.”

Penalties and culpability
The penalties for not complying with the Patriot Act are steep. A bank could find itself hit with a $1 million fine for civil or criminal violation and complete forfeiture of any money that might have been loaned to an individual or group found to be questionable. Individual executives can also be fined. Then there’s the inevitable bad press about activities labeled not only criminal but traitorous.

“A lot of these transactions are handled completely over the Internet,” Guilfoyle pointed out. This means an account can be opened and money can flow in and out of it without any face-to-face contact between the financial institution and the account holder. It doesn’t take much imagination to realize how easy it could be for a terrorist or anyone else to open an account or compromise an existing one to launder money. And the thought of being held potentially culpable in that illegal activity is enough to keep any bank president up nights.

Businesses and business executives need to know what they’re going to tell law enforcement “or the jury” if the worst should happen, Lindseth warned. “If it happens and they don’t know about it and they don’t find out about it and they don’t report it, then they’ve broken the law,” he said.

It wasn’t long before companies like Axentis and Solutionary began hearing from banks, librarians, universities, and others covered by the act. “The question became, is there a way to apply software to this problem,” Lindseth said.
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Law and Architecture   
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A nation of sheep   
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The act isn't about vendor selection   
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Assaulting Civil Liberty More Efficientl   
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