Valid Extraterritorial Effect of the USA PATRIOT Act

A

The USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) is a US law enacted in 2001, after the 9/11 attacks, with the aim of preventing money laundering, terrorist financing, and other financial crimes.

One of the provisions of the USA PATRIOT Act is that it has extraterritorial effect, meaning that it can apply outside of the United States. This is an important feature of the Act because it allows US law enforcement agencies to investigate and prosecute financial crimes that involve US banks or other US financial institutions, even if the transactions occur outside of the US.

Regarding the options provided in the question, we can analyze each one:

A. Broker-dealers cannot have correspondent accounts with a foreign bank that does not have a physical presence in any country. This statement is partially true. The USA PATRIOT Act does require broker-dealers to conduct due diligence on their correspondent accounts, which includes verifying the identity of the foreign bank and the beneficial owners of the account. However, there is no specific requirement that the foreign bank have a physical presence in any country.

B. Foreign branches of US banks can maintain correspondent accounts with banks that do not have a physical presence in any country. This statement is not true. The USA PATRIOT Act requires US financial institutions to conduct due diligence on their correspondent accounts, regardless of where the correspondent bank is located. The law does not make any exception for foreign branches of US banks.

C. Any deposits into foreign banks are not considered to have been deposited into any interbank account the foreign bank may have in the US. This statement is not true. The USA PATRIOT Act requires US financial institutions to implement adequate policies and procedures to detect and report suspicious transactions, including those that involve foreign banks or their US-based affiliates. Therefore, any deposits into foreign banks that involve US-based interbank accounts would be subject to scrutiny under the Act.

D. Financial institutions are allowed to specifically direct client transactions that move their funds into, out of, or through an internal bank concentration account. This statement is true. The USA PATRIOT Act does not prohibit financial institutions from using internal bank concentration accounts, which are used to consolidate balances from multiple accounts and simplify the management of funds. However, financial institutions must implement adequate policies and procedures to ensure that the use of these accounts does not facilitate money laundering or other financial crimes.

In conclusion, the correct answer to the question is D. Financial institutions are allowed to specifically direct client transactions that move their funds into, out of, or through an internal bank concentration account.