Extraterritorial US banking regulation and international terrorism: The Patriot Act and the international response

Abstract

This paper addresses the extraterritorial legal controls of recent US legislation and regulations aimed at the financing of international terrorism. Specifically, US Executive Order 13224, issued on 24th September, 2001, imposes extra-territorial jurisdiction on foreign banks, companies and individuals who conduct, facilitate or assist transactions involving US-designated terrorist organisations. Title III of the US Patriot Act contains a comprehensive statutory framework that creates significant new reporting requirements and due diligence standards for US and foreign financial institutions designed to combat international money laundering and to interdict terrorist financing. The Patriot Act also requires increased cooperation with foreign regulators and supervisors and enhances the role of the Financial Action Task Force. Although the primary focus of this paper is to examine the new US legislation that applies to money laundering and terrorist financing, recent international and European Community efforts to interdict terrorist financing are relevant for understanding the international context in which the US legislation will be interpreted and enforced. Of particular relevance at the international level are the Special Recommendations of the Financial Action Task Force and a recent European Community Regulation that requires Member States to prohibit the financing of terrorism, with special focus on the role of banks and financial service firms.