Bank of America recently announced its plan to nationalize its pilot program which provides credit cards to individuals who do not have credit histories and social security numbers. These individuals only need to have maintained overdraft-free checking accounts with Bank of America for at least three months and have a taxpayer identification number.[1] This program, which has been the target of criticism, is the latest of a series of programs commenced by various financial institutions that allows undocumented immigrants and other non-U.S. resident aliens to obtain certain financial services that would not have otherwise been available to them. Although Bank of America has asserted that its program complies with U.S. banking and anti-money laundering laws, many critics argue that this program opens business to illegal immigrants and undermines the anti-money laundering efforts of the U.S.A Patriot Act of 2001. [2]
The U.S.A. Patriot Act of 2001 is a comprehensive anti-terrorism law which has implemented several measures to strengthen homeland security, detect terrorist activities, and combat money laundering.[3] One of the primary purposes of the U.S.A. Patriot Act is to strengthen the anti-money laundering laws, specifically with respect to transactions by foreigners and foreign institutions in the United States. [4] Hence, section 312 of the U.S.A. Patriot Act requires U.S. financial institutions that "maintain private banking accounts or correspondent accounts for any non-U.S. persons or institutions to establish appropriate, specific, and if necessary, enhanced due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering through these accounts."[5]
Requiring financial institutions to establish procedures for identifying, verifying and monitoring their customers has been financially burdensome to many banks, especially community-based banks which have a significant number of customers who are undocumented immigrants. [6] Verifying the identity of undocumented immigrants for the purpose of detecting money laundering is difficult because they are usually not in INS record system. Regardless, these undocumented immigrants can obtain taxpayer identification numbers from the Internal Revenue Services ("IRS") allowing them to access mainstream financial services such as mortgages. [7] The availability and use of taxpayer identification numbers undermines the anti-money laundering standards put in place by the U.S.A. Patriot Act.
An individual taxpayer identification number ("ITIN") is a tax processing number issued by the IRS to aliens who have to file income tax returns but are not eligible for social security numbers. [8] The main documentary evidence required to establish alien status for the purpose of obtaining an ITIN is an original or certified copy of an unexpired passport.[9] The immigration status of the applicant is not taken into consideration. Although the ITIN is a nine-digit number similar in format to a social security number, its purposes are different. ITINs are created solely for federal tax purposes and are not intended to be used as formal identification for nontax purposes such as obtaining a driver's license. [10] Yet, individuals with only ITINs can open bank accounts and obtain mortgages and other financial services. For example, Wells Fargo & Co. currently offers checking accounts and mortgages to non-U.S. resident aliens who only have ITINs. [11]
ITINs represents a significant hindrance to the U.S.A. Patriot Act because the IRS does not enforce rigorous identity verification procedures. [12] An individual may apply for ITINs via mail or through a registered agent. Also, undocumented immigrants who are not in the INS record system can easily obtain ITINs because their immigration status is not considered. The manner in which these undocumented immigrants obtain their jobs is also not considered. The IRS receives 1 million applications for ITINs each year and has issued over 5 million ITINs since 1996. [13] Yet, not all individuals with ITINs actually file income tax returns. [14] Hence, ITINs can be easily stolen or fraudulently obtained, making it easy for an individual to engage in money laundering.
Bank of America's credit card program sheds light on the shortcoming of the U.S.A. Patriot Act. Although the U.S.A. Patriot Act is aimed at ensuring homeland security and preventing money laundering, it does not prohibit financial institutions from providing their services to individuals with only ITINs. Rather, the Act specifically states that ITINs can be used as an identification number to open bank accounts. [15] In light of this, critics like Congressman John Doolittle have argued that ITINs are problematic because they allow undocumented immigrants assimilate easily into the society thereby hindering efforts to ensure homeland security. [16]
As long as an ITIN is an acceptable form of identification under the U.S.A. Patriot Act, financial institutions will continue to create programs allowing undocumented immigrants to obtain mainstream financial services that would not otherwise be available. The ITIN, itself, does not facilitate money laundering but rather the problem lies in the IRS procedures pertaining to the issuance of ITINs which make it easy for an individual to fraudulently obtain an ITIN. It would not be plausible to eliminate ITINs because they are necessary for federal tax purposes. However, anti-money laundering efforts of the U.S.A. Patriot Act can be strengthened by requiring the IRS to implement more reliable and rigorous identification verification procedures when issuing ITINs.
[1] Will Edwards, B of A Loosens its Policy on Credit Cards, BLOOMBERG NEWS, Feb. 14, 2007, http://seattlepi.nwsource.com/business/303574_bofacreditcards14.html?source=mypi.
[2] Id.
[3] Joseph B. Tompkins, Jr., The Impact of the USA Patriot Act of 2001 on NON-US Banks, available at http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/tompki.pdf.
[4] A Report to Congress in Accordance with sec. 326(b) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act), Oct. 21, 2002, Department of the Treasury, available at http://www.treasury.gov/press/releases/reports/sec326breport.final.pdf.
[5] Tompkins, Jr., supra note 3. (internal quotation omitted).
[6] Larry Tung, Unpatriotic Banking?, GOTHAM GAZETTE, Dec. 2003, available at http://www.gothamgazette.com/article/immigrants/200031201/11/787.
[7] Azam Ahmed & Karoun Demirjian, Undocumented Immigrants Enter Financial Mainstream in U.S., CHICAGO TRIBUNE, Feb. 14, 2007, available at http://www.kansascity.com/mld/kansascity/news/nation/16703298.htm.
[8] Individual Taxpayer Identification Number (ITIN), Internal Revenue Service Website, at http://www.irs.gov/individuals/article/0,,id=96287,00.html#apply.
[9] Id.
[10] Id.
[11] Edwards, supra note 1.
[12] Department of the Treasury, supra note 4.
[13] Id.
[14] Id.
[15] The IRS Individual Taxpayer Identification Number: An Operational Guide to the ITIN Program, 2004, Center for Economic Progress, available at http://www.nilc.org/immsemplymnt/ITIN_Paper_2004_web.pdf.
[16] Edwards, supra note 1.
Subscribe