FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
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Remarks by D. Scott Parsons, DAS for Critical Infrastructure Protection Before the National Association of Federal Credit Unions Regulatory Compliance Seminar Albuquerque, New Mexico
I want to thank you for the opportunity to be here today in Albuquerque with the community of credit unions represented by the National Association of Federal Credit Unions. Today, you have asked me to talk about the Treasury Department's approach to rule making for the USA Patriot Act. I also want to provide you with an update of some of our policies on the growing problem of identity theft.
The Importance of Credit Unions
Credit Unions are important to our financial system, providing services to many citizens. Your motto says it all – "not for charity, not for profit – but for service." The service you provide to your members and the communities you serve enable Americans to pursue their dreams and to take ownership of their futures. The seminar today on regulatory compliance is an example of how the credit union community works together to provide your members with good service and to ensure you are meeting the safe and sound regulatory requirements.
Treasury Secretary Snow has said that the financial system is the engine of our economy, and credit unions play an important role. Our economy is strong. For example, the President's pro-growth economic policies have created over 1.9 million jobs since August of 2003 and the national home ownership rate is at an all time high. Real after tax income is up over 10% since President Bush took office, which means your members have more money to save, invest, and provide for their families.
I want to make one more point about tax policy. The President is very clear about this – he strongly supports the tax-exempt status of credit unions and will oppose any effort to change your tax status.
Your leadership in supporting financial literacy is exemplary. The Department of the Treasury has awarded the John Sherman Award for Excellence in Financial Education to several credit unions for their innovative financial education efforts. And just yesterday, the Treasury, which chairs the Financial Literacy and Education Commission, partnered with the National Credit Union Administration (NCUA) to announce a new Financial Education Website and Hotline that will promote financial literacy and education. This is yet another example of the outstanding service that credit unions provide.
Why the Patriot Act was Created
Before commenting on specific sections of the USA Patriot Act, I think it's important for us to step back and remember why the Patriot Act was created in the first place. It was created in response to the unprovoked terrorist attacks on America on September 11, 2001. It rose out of the rubble of the World Trade Center, the Pentagon, and the wreckage in a Pennsylvania field. On that day, 3,000 of our fellow citizens lost their lives. The terrorists have continued their violent and destructive killing spree elsewhere in the world, striking in Indonesia, Spain, Saudi Arabia, Pakistan, Morocco, Turkey, the Philippines, Israel, and most recently in a school house in Russia.
The Patriot Act was created to make Americans safer by providing law enforcement the tools it needed to investigate and prosecute those who wish to do harm to Americans. Preventing attacks like these is why Congress passed the Patriot Act and why we need your continued partnership in fighting the war against terror. Because, while hatred fuels the terrorist agenda, money makes it possible.
USA PATRIOT Act
Our primary philosophy in our rule making is, where possible, to provide you with the flexibility to implement rules in a manner that best meets your members' needs.
Section 326
Customer Identification Programs (CIPs): These regulations, issued jointly with the NCUA, require credit unions, as a part of their anti-money laundering program, to have procedures to verify the identity of all new accountholders.
The goals set a target, rather than describing in minute detail how best to achieve that target. As you all know from your own organization, credit unions are organized around a group of members that are related by a common field of membership, such as a common employer, membership in a common association or another linkage. Credit unions often will have a far better understanding of the identity of their members than larger financial institutions, because your members and those working in your credit unions literally know each personally, from the office space, from neighborhood, or from the community organization where both volunteer.
In addition to verifying the identity of a member, credit unions must collect the member's name, physical address, date of birth, and taxpayer identification number or foreign government issued document number, such as a passport number issued by a foreign government.
The bottom line is that Section 326 and the CIP obligation contained therein require verification of identity. How that goal is achieved is up to each credit union to decide for itself. We've worked hard to make sure that your members are able to make responsible decisions regarding the many forms of identification used by your members. We believe that the flexibility makes it easier for you to be vigilant, and to have an effective anti-money laundering program.
Section 312
This regulation applies to financial institutions with international correspondent accounts, and to financial institutions with a large customer base of foreigners, generally living abroad.
It is the Treasury Department's understanding that most credit unions do not have international correspondent accounts directly with foreign depository institutions. Where this rule may apply is to credit unions that have in their field of membership non-U.S. citizens. For those credit unions where this is applicable, please do not hesitate to discuss your situation with the FinCEN panelist.
Section 314
Your compliance with Section 314 of the Patriot Act – which requires everyone to share information – has been extraordinary. I know you are going to be hearing about this directly from FinCEN later this morning, but we want you to know that we recognize that cross referencing your list of members against the list of terrorists every two weeks is a big job. We are in this fight together, and your efforts help make the country safer.
It's important for you to know that your efforts are making a difference. Working together, you have accomplished a lot in the last three years. The United States has designated 387 entities as terrorists or supporters of designated terrorists and frozen over $142 million in terrorist-related assets. More than $37 million has been frozen in the United States.
Identity Theft
Identity theft is another issue that we at Treasury have spent a good deal of time on in the past couple of years. The Federal Trade Commission has estimated that as many as 10 million Americans a year fall victim to some form of the crime somewhere. Identity theft is an epidemic across the entire United States. While many may believe that this crime only affects residents of highly populated states, for instance New Jersey, you may be surprised to find out that the residents of New Mexico have an even higher incidence of this crime. .
In 2003, the FTC, which keeps a centralized data base of victims' identity theft reports, found that 70.3 of every 100,000 New Mexicans reported being a victim. In New Jersey, where there were more than four times as many reported crimes over all, only 68.9.out of every 100,000 citizens reported being a victim of identity theft.
Identity theft is a crime that keeps on taking. That is what spurred the Administration's concern and subsequent action. Secretary Snow announced Administration proposals for combating identity theft in June 2003, and by the end of the year President George W. Bush had signed the Fair and Accurate Credit Transactions Act (FACT Act).
In July this year the President went on to sign the Identity Theft Penalty Enhancement Act that increases federal criminal penalties for identity theft.
Together, the new laws will increase our ability to stop the crime and increase our ability to catch the crooks. Both laws complement each other and give new tools to members, business, regulators and law enforcers. Both statutes strengthen collaboration between Federal, State, and local law enforcement, and the Federal Trade Commission by creating joint task forces, specialized training, and citizen education and outreach programs.
Rulemaking on the FACT Act
Treasury is closely involved with implementation of the FACT Act. Two of our bureaus, for example, are involved in promulgating a host of new rules to help consumers and financial institutions deter, detect, and derail the criminals.
Beginning on December 1, 2004, the three nationwide consumer reporting agencies will roll out the system for requesting one free credit report every 12 months. Implementation of this important new system will begin in the Western United States and is scheduled to be available to all U.S. citizens by September 1, 2005. All Americans will be able to check their credit reports for errors without charge, by making a single contact to one of the three agencies.
The FACT Act also established a fraud alert system. Regulators are working on the final rules for how this one-call system will work and how consumers will be able to show that they have been victimized. The idea is that consumers will be able to report the theft of their identity to one consumer reporting agency and the information will be shared with the other national agencies.
Let me spend a moment on this, because the alert system will include a special alert for military personnel to activate with the national credit bureaus before the soldiers are sent on active duty. The Administration and the Congress wanted to give our soldiers, sailors, marines, and airmen a chance to let prospective lenders know that they were away from home and not likely to be requesting credit to remodel the kitchen. We know that many credit unions have a military base as their field of membership or have many military members within their membership. This new alert will benefit both you and your members by cutting down on fraud, both by making it easier for your members to rectify the situation and by reducing the financial losses you may incur. We expect the new rule to go into effect shortly.
Credit union officials no doubt are waiting for implementation of the red flag indicators of identity theft. Again, the regulators are working hard to develop guidance for spotting red flag indicators of identity theft in member account transactions. The rule makers understand that the red flags must be easy to update, because the criminals are highly adaptive and constantly developing new techniques.
One last matter. The Treasury is working aggressively with the financial services industry to find more ways to address "phishing" – a form of online identity theft in which criminals pose as a member's financial institution and request sensitive personal information in order to steal funds or to establish new lines of credit using the member's identity. We have a "Lessons Learned" brochure on detecting and fighting phishing on our website. I also encourage you to look at the NCUA's website for a document entitled "You Can Fight Identity Theft", available in a print ready version that you can distribute to your members, either by printing or by linking it to your website, and also to visit the FTC's website for valuable information.
Closing
Our commitment to you is to continue a dialog, to clearly explain what regulations mean, and to tailor the regulations to both the threat and to the specific sector within the financial services industry. Let us know when we're confusing you, or when we can do better – because the better you understand our regulations, the more successful our efforts will be. Although we continue to have much work to do, we have a bright future ahead of us. Thank you for your time, and for all that each of you do to keep our country safer.
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