July 31, 2003
US Department of the Treasury
Re: Notice of Inquiry regarding Recordkeeping Requirement and Documentary Verification of the Identity of Foreign Individuals
As a leader in the financial services industry ("the industry"), Wachovia Corporation1 ("Wachovia") welcomes the opportunity to join the United States Department of the Treasury ("Treasury"), other federal regulatory agencies (collectively, "the Agencies") and the industry in reaching the goals set by Congress in the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.
Wachovia is committed to support the efforts of all branches of the United States Government to detect terrorist financing, money laundering, and other illegal activity.
With the above in mind, Wachovia believes the risk-based approach adopted by Treasury and the Agencies in promulgating the final Customer Identification Program (CIP) rules published in the Federal Register/Vol. 68, No. 90, Friday, May 9, 2003 / Rules and Regulations (hereinafter, the "CIP rules"), met the USA PATRIOT Act's "reasonable" and "practical" standards. For purposes of commenting on the Notice of Inquiry published in the Federal Register/Vol. 68, No. 126, Tuesday, July 1, 2003, Wachovia supports the position adopted by Treasury in coordination with the other Agencies on CIP rules in which identity cards were not required to be photocopied and where passports were one of several potential forms of identity available for foreign persons when opening an account in the United States.
Since the final regulations were published Wachovia has been working diligently to meet the compliance deadline of October 1, 2003. Two months into the process of designing systems, revising procedures, and otherwise moving toward compliance, the Notice of Inquiry reopens decisions made by law enforcement and regulatory Agencies during an extensive comment period involving comments from legislators, the industry, and other interested parties. At the point at which Treasury published the final rules, we contend that all parties had had ample information and input upon which to make reasoned decisions. No new information has come to light that would provide a sound basis for reopening these issues.
To reopen these issues creates question about whether a complex financial institution, such as Wachovia, can be ready to comply with the CIP rules on October 1, 2003, as required. In order to comply with the October 1st deadline, financial institutions have already made far-reaching decisions about systems changes, additional systems requirements, processes, procedures, and training. Uncertainty, particularly regarding retention of copies of documents creates gaps in systems and procedures. Wachovia respectfully suggests that most in the industry are improperly positioned to stop the current efforts, change direction, and still meet the compliance date set by Treasury of October 1, 2003.
In order to comply with the efforts and directives underway based on the final CIP rules and given the fact that Notice of Inquiry poses uncertainty upon this directive, Wachovia requests that (1) if changes are made to the regulations, the industry be given substantial additional time to comply with the regulations as amended, or alternatively, (2) if changes are made to the regulations, compliance with any changes to the CIP rules resulting from the responses to the Notice of Inquiry, be separate and apart from the current directive, and subject to a later compliance date.
Wachovia agrees with Treasury's observation that the approach published in the CIP final rules is the most reasonable, timely, and effective method for identity verification due to the current unavailability of a standard form of identification provided to foreign nationals residing in the United States2. Until such standard form of identification is adopted for foreign nationals, Treasury and the Agencies have properly deferred the risk analysis of accepting foreign issued identifications to the financial industry.
As part of Treasury's continuing efforts to strike the appropriate balance between the benefits of preventing money laundering and terrorist financing and the resulting cost burden, Wachovia recommends that Treasury and the Agencies continue to grant the financial industry the risk-based position that is engineered into the CIP rules. If the suggested changes described in the Notice of Inquiry were adopted, the risk-based approach of the CIP rules would be substantially undercut.
Wachovia's comments on the two issues raised by the Notice of Inquiry are detailed below at sections A and B.
A. Recordkeeping Requirement
As Treasury states in the Notice of Inquiry, the majority of the industry has already raised many arguments opposing the requirement to photocopy identification documents, including the costs and obstacles of such a mandate3. Wachovia agrees with this general proposition.
Wachovia's responses to the specific questions posed by Treasury are provided below:
Maintaining a photocopy of the identification documentation will not enhance nor assure that the financial institution know the identity of its customer anymore than viewing the documentation at presentment followed by recordation of the identification itself. Specifically we offer the following comments:
Quality of photocopy: All other information except the photo will already be in the file under the current regulations. Identity photo themselves can be of poor quality and the photocopies made from them are of even poorer quality. This is particularly true when dealing with identity photos from jurisdictions attempting to prevent forgery of documents. For example, one technique effectively obliterates the digital image (the "photograph") and it appears as a blotch on the photocopy. Another laminate overlay contains an anti-copy feature that obscures the face of the license, rendering either the word "void" or a smear on the photocopy4. Additionally, these forgery preventing practices are becoming the standard for driver's license/identification documents issued by many of the offices of Department of Motor Vehicles throughout the United States.
Information availability: Law enforcement is able to obtain the information needed about a customer using the information required to be maintained under the current CIP rules.
Capture cost: Getting photocopies of documents from account opening locations to a central location, scanning the documents, and indexing them is largely a manual process and therefore a costly one. There will be additional costs (real and in terms of customer service) to track missing documents and secure them from the customer.
Consistency: This requirement could not be effectively applied to the non-face-to-face account opening transactions (i.e., telephone customer service, internet). Thus, to avoid the requirement, a criminal would simply open his/her account over the phone or via the Internet. Even if the identification containing a photo were received subsequently, comparing the customer to the identification may not be practical or particularly effective.
Wachovia believes that there are substantial risks in relying upon US issued driver's licenses, passports, and other generally used forms of identification, since they are easily stolen or forged5. Consequently, a regulation mandating when any one of these forms of identification must be copied raises serious questions as to whether such a practice would achieve its desired goal.
Wachovia respects Treasury's findings and recommendations regarding the development of worldwide forms of identification sources to make fraud and forgery more difficult6. In the event such a worldwide identification method is developed, Wachovia might reconsider whether there are certain risk situations in which copies of identifications must be maintained.
If Treasury believes that guidance to the industry is necessary, Wachovia would, of course, accept Treasury's recommendation understanding that, as guidance, it is one more matter to factor into our risk-based approach.
B. Documentary Verification of the Identity of Foreign Individuals
Following industry standards, Wachovia, like many others, currently accepts many foreign forms of identification and wishes to continue to do so. Because the Bureau of Immigration and Customs Enforcement (formerly known as Immigration and Naturalization Service) is not currently able to provide a single database that the industry can use to verify the identity of foreign individuals in the United States7, not being able to accept a variety of foreign forms of identifications would significantly affect Wachovia's and the industry's ability to serve a broad range of customers who otherwise are entitled to obtain banking services in the United States.
Wachovia's responses to the specific questions posed by Treasury are provided below:
The basis upon which the CIP rules are grounded is a risk-based approach. Consequently, Wachovia strongly encourages Treasury and the Agencies to continue to grant the industry the ability to choose among a variety of foreign forms of identification to accept from a non-U.S. person. It is now, and should continue to be the responsibility of each financial institution, based upon its assessment of the inherent risks, to determine that the identifying information accepted and verified permits the institution to form a reasonable belief that it knows the true identity of the customer.
2. Should the regulations require financial institutions to obtain a passport number from all customers who are non-U.S. citizens?
It is currently impractical to obtain a passport number from all customers who are non-U.S. citizens. Treasury's Section 326 Report clearly states that a major concern is presented by the fact that no single uniform identification document exists for all foreign nationals. In addition, some visitors (e.g., Canadians, Western Europeans, and certain other nationalities), are exempt from a nonimmigrant visa requirement8. The latter will place the financial industry in a position to ascertain the immigration status of customers wanting to open a new account (i.e., ascertaining whether the customer with a valid passport, but not a current visa is in the country legally).
Wachovia agrees with Treasury that it is unreasonable to expect employees in the industry to be familiar with different types of foreign identification documents available, especially when in a foreign language or in a foreign alphabet.9
What are the anticipated effects on non-U.S. citizens in the United States who are not required to have a passport?
Wachovia supports the opinion of Sheila Bair (Dean's Professor of Financial Regulatory Policy from the University of Massachusetts) in her recent statement before the Subcommittee on Financial Institutions and Consumer Credit, that Treasury should recognize the need to balance issues associated with the use of foreign government-issued identification with the benefits of bringing "unbanked" foreign nationals in the financial mainstream10. Precluding the use of foreign government-issued identifications may effectively bar certain foreign nationals from access to traditional financial service providers in the US.
Precluding this segment of the population from opening an account in the U.S. financial system would have an effect contrary to the benefits referenced by Ms. Bair in her statement.
Some of the benefits Ms. Bair referenced regarding the integration of the unbanked into the financial mainstream are (1) providing a safe, low cost account to deposit their funds; (2) increased safety by minimizing carrying large amounts of cash and exposure to robbery (some with fatal results) as they leave check cashing outlets; (3) lower costs of remittance of funds to countries of origin which in return poses a significant positive outcome on the local economies with the long run effect of decreasing future incentives to immigrate to the United States. In addition, by limiting specific forms of foreign identification, low- to moderate-income sectors of the community would likely be disproportionately impacted having consequences contrary to the mandate of the Community Reinvestment Act ("CRA").
Prior to the passage of the USA PATRIOT Act, many persons without passport identification, used money service businesses as their primary means of effecting financial transactions. Now money service businesses are subject to the requirements of the USA PATRIOT Act. As a result, if all foreign customers must present a passport as identification, these businesses also will be unavailable to many foreign persons. This will serve to further remove certain foreign persons from any access to any organized, legitimate financial system within the United States, and further exacerbate the issues described in Ms. Bair's report.
What are the anticipated effects on non-U.S. citizens who open accounts from abroad, and thus are not required to have a passport?
There are large numbers of non-US citizens who utilize the U.S. financial industry for its integrity, reliability, and quality. Many of these persons open accounts without physically visiting the US. Requiring the use of a passport may discourage fostering legitimate business without furthering the goals of the USA PATRIOT Act.
3. Is there sufficient empirical information to enable Treasury to assess the utility of the various forms of foreign-issued identification for purposes of accurately identifying the holder?
In answering this question, Wachovia supports the findings and recommendations submitted by Treasury to Congress in its Report to Congress in Accordance with §326(b) of the USA PATRIOT Act of 2003 submitted by the Department of the Treasury on October 21, 2002.
4. What would the impact be on the use of the conventional financial system if financial institutions were prohibited from accepting certain forms of government-issued identification?
Wachovia respectfully suggests that preventing financial institutions from accepting reliable foreign government-issued documents in establishing an account might prompt several manifestations: (1) loss of regulatory oversight; (2) retaliatory measures against U.S. government-issued identification in foreign jurisdictions; (3) reduction in U.S. financial industries' ability to attract foreign investment; (4) fostering of alternative remittance systems (i.e., hawala, hundi, black market peso exchange).
Further, the CRA mandates that banks provide products and services to those people in the US who are generally under-banked. The CRA, while it has had its detractors, has served to create needed banking services for many underprivileged and under-banked people. Many of those who currently benefit from CRA will lose those benefits if every foreign person who opens an account with a bank must produce a passport.
Wachovia echoes the widespread support to the approach taken by Treasury and the Agencies in allowing the industry to continue the long-standing practice of accepting reliable identification documentation as long as the identification provides a reasonable basis to know the customer's identity.
We appreciate the opportunity to comment on this proposal, Wachovia also anticipates and appreciates the opportunity in the future to comment on proposed directives, if Treasury determines that such are needed. Should you wish to discuss any elements of this letter further, please call me at (704) 383-5559.
Recipients copied are detailed on the next page
cc: via electronic mail
Donald Truslow, Chief Risk Officer
Office of the Comptroller of the Currency
Securities and Exchange Commission
House Judiciary Committee Chairman James Sensenbrenner
Chairman Michael Oxley,
Attorney General John Ashcroft
The Honorable Richard Shelby
The Honorable Orrin G. Hatch