The Patriot Act, passed by Congress earlier this year, provides for the Securities and Exchange Commission (SEC) to create rules that will prevent terrorists from using U.S. mutual funds and brokerage accounts as a channel for money laundering.
In the spirit of the authority created by this law, the SEC has announced plans to require U.S. brokerages and mutual fund companies to verify the identity of anyone opening a new account. The SEC has proposed that such companies check the name of the new account applicant against a government-provided list of known and suspected terrorists and terrorist organizations in addition to requiring applicants to provide proof of name, address, and date of birth.
In addition, brokerage and mutual fund companies will be required to maintain customer identification records for at least five years after an account has closed.
Should these rules be made into law, this will open the door for middleman companies to handle this identification process, using databases that have been deemed reliable to verify the identity of investors.
The rules, should they become effective, will apply to new accounts opened after October 25, 2002. The next step in the implementation of these rules is a duplicate proposal by the Treasury Department, followed by a 45-day consultation period. The Treasury Department is expected to issue its proposal imminently.