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Letters to Regulators

Customer Identification Programs for Financial Institutions

July 23, 2003

U. S. Department of the Treasury
Office of the General Counsel
1500 Pennsylvania Avenue, NW
Washington, DC 20220-0002

Dear Sir or Madam:

The Independent Community Bankers of America (ICBA)1 appreciates the opportunity to comment on two issues that have been raised since the final Customer Information Program (CIP) rule under section 326 of the USA PATRIOT Act was issued on May 9: whether banks should be required to retain copies of documents used to verify a customer's identity and whether banks should be precluded from relying on certain forms of identification issued by foreign governments.

The ICBA is concerned about the potential disruption that will result if changes are made at this late stage so close to the compliance deadline. The final rule was issued using the normal rulemaking process in accordance with the Administrative Procedures Act with comments from all interested parties, including the law enforcement community. When the CIP rule was issued, it was hailed as a model of how the process should work. There are only two months until full compliance with the new requirements becomes mandatory, and any changes at this stage will be very disruptive. Banks have already begun revising systems and procedures to comply with the new rule. Now they face the prospect of having to go back to the drawing board should their new systems and procedures be deficient if the rule is changed.

Under the requirements of the CIP rule as it now stands, banks will retain information about the documents used to verify a customer's identity. Although banks have followed many of these procedures for years, the new regulation formalizes and raises the bar on the steps that banks must take to identity new customers. Critics of the final rule contend that not requiring copies of documents used to verify identity will eliminate the money trail, but the ICBA believes that the current procedures will ensure any pertinent information is available and readily accessible to support law enforcement efforts as necessary. Similarly, critics contend that it is inappropriate for banks to accept certain forms of identification issued by foreign governments, but the ICBA believes that encouraging resident non-U.S. citizens to open bank accounts can do more to provide information useful for law enforcement than denying them access to the banking system by refusing certain forms of identification.

General Comments

The ICBA believes that the current rule is appropriate and that no further revisions should be made until the final rules have been in effect for some time and bankers and regulators have experience with the requirements. Requiring banks to retain copies of documents used to verify identity will be burdensome and will disrupt normal bank operations without any demonstrated benefit to the law enforcement community that would justify the costs. Finally, if any form of identification meets the mandates of the rule, i.e., that it is a valid, government-issued identification, the ICBA finds that the grant of flexibility to banks to determine whether to accept a particular form of identification is appropriate. Additional restrictions will only serve to drive financial transactions underground where they can be less easily traced.

Record Retention

While under the final CIP rule banks will not be required to retain copies of documents used to identify customers, banks will be required to maintain information about the documents on which they relied, providing an adequate audit trail and information should investigation become necessary by law enforcement agents. In fact, it could be argued that having information from the documents recorded and available in electronic databases rather than in paper files makes it more accessible and provides better information for law enforcement. When the final rule was implemented, the law enforcement community participated in the discussions and agreed that it was not necessary to require retention of copies as long as pertinent information from the documents was recorded. Under the current rule, banks have the option of retaining copies of identification documents, as they deem appropriate and where the risk mandates.

Requiring banks to keep and maintain copies of documents used to verify identity will be burdensome, costly and a substantial departure from existing bank procedures, contrary to the Congressional mandate in the USA PATRIOT Act. The costs for maintaining these systems will far outweigh any benefits that might be provided to law enforcement. Under existing procedures, banks take appropriate steps to identify their customers even if they do not retain copies of documents used to verify that identity. Requiring them to maintain copies will necessitate the creation of new filing systems at significant cost. And, at a time when national attention is directed to concerns about identity theft, creating these filing systems would increase the availability of the type of information that is used by identity thieves.

Guidance issued by the Federal Reserve under the Equal Credit Opportunity Act and Regulation B against maintaining information on the gender and race of loan applicants would also conflict with a rule that requires banks to retain copies of photo identification. These conflicting regulatory requirements will have to be quickly reconciled so that banks are not placed in the awkward position of choosing which regulation to follow, since any procedure will inevitably run afoul of one regulation or the other.

The state-issued driver's license is the most typical form of identification used in the United States today. To ensure the security of their driver's licenses, many states prohibit copying those licenses by statute, and requiring banks to keep copies of documents will conflict with these state laws unless the federal government establishes a clear pre-emption. Even in those states that do not prohibit the copying of a driver's license, many motor vehicle departments have incorporated security features in the licenses that make them impossible to copy, and any change to the Customer Identification Program rule also will have to take these security measures into account. For example, if a bank cannot photocopy a state issued driver's license, either due to security features or state law, then the question becomes whether the bank can use a driver's license as a valid form of identification under these rules.

Finally, requiring copies of documents used to verify a customer's identity will make it very difficult for bank officers to open accounts off-site or over the telephone, through the mail or over the Internet. This will severely disrupt normal operations. Many transactions are currently conducted off-site, such as loan applications and so forth. In fact, bankers report that they periodically go to the home of a disabled customer to accommodate the customer's needs. Lack of access to a photocopier will make these accommodations no longer possible.

Foreign Government Identification Forms

Under the current rule, bankers can establish a CIP based on risk profiles. The rule gives bankers the flexibility to assess the risk of what types of identification forms to accept when they establish a CIP.

It has been suggested that a passport is the current standard form of identification used for non-U.S. citizens. However, many acceptable forms of identification are used. As the U.S. Treasury reported to Congress on October 21, 2002, foreign passports vary widely, may change format frequently, and are not subject to standardization, and so banks often rely on more than one form of identification if a customer is unknown. Therefore, restrictions on any form of foreign identification will make it difficult, if not impossible, for non-U.S. citizens to open bank accounts in the United States.

Driving resident non-U.S. citizens away from the United States banking system is likely to foster the growth of black markets that operate outside the law and that do not provide the kinds of records and audit trails that U. S. banks maintain and that law enforcement agencies depend on to track terrorist finances. Therefore, refusal to accept certain types of identification might actually do more to assist terrorist financing and money laundering than prevent it.

Some have argued that foreign government issued forms of identification are susceptible to fraud. However, the same arguments can be applied to any form of identification, including passports. And, preventing the use of foreign identification forms may have repercussions against United States citizens living and working abroad that rely on similar identification forms issued by the United States.


The final CIP rules that were issued in May provide a well-balanced approach to customer identification. Those rules achieve the appropriate balance between costs and benefits, and should not be changed at this late stage.

Thank you for the opportunity to comment. Should you have any questions or need additional information, please contact Robert Rowe, ICBA's regulatory counsel, at 202-659-8111 or robert.rowe@icba.org.


C. R. Cloutier

1 ICBA is the primary voice for the nation's community banks, representing 5,000 institutions at more than 17,000 locations nationwide. ICBA's members hold more than $511 billion in insured deposits, $624 billion in assets and more than $391 billion in loans for consumers, small businesses and farms. They employ nearly 231,000 citizens in the communities they serve.

2 "A Report to Congress in Accordance with Section 326(b) of the USA PATRIOT Act," October 21, 2002, page 9.


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