After the tragic events of Sept. 11, 2001, Congress passed the Patriot Act in October 2001 and, in November 2002, created the Department of Homeland Security, or DHS. To open a mutual fund account, you need to satisfy the provisions of both the law and DHS. Opening bank savings or checking accounts or mutual fund accounts requires that you establish your identity with two government-issued IDs, such as a driver's license, a valid passport or an original Social Security card.
The Department of Homeland Security works closely with the Financial Crimes Enforcement Network, called FinCEN. As a bureau of the Department of the Treasury, FinCEN's mission is to guard the financial system from illegal use, combat money laundering and promote national security through financial intelligence, while reporting to the Treasury undersecretary for terrorism and financial intelligence. Along with enforcing Title III of the Patriot Act and monitoring uniform bank and investment firm customer identification procedures, FinCEN works with Homeland Security to prevent potential terrorists from laundering money and establishing funding sources with bank accounts or mutual funds.
Department of Homeland Security
Preventing terrorism on American soil is one of the responsibilities of Homeland Security. When you open a mutual fund account, Homeland Security verifies whether you or an organization with which you are associated appears on any database of potential terrorist entities. Opening a mutual fund account, while similar to opening a bank account, can be more complex, involving Homeland Security searches of various law enforcement databases around the world.
Ongoing Background Checks
Providing the ID necessary to open a mutual fund account may not be your last encounter with Homeland Security. As government databases are updated daily, your account may be subject to future verification, particularly if the government questions the source of your investment funds. Keeping a paper trail that proves the legitimacy of your initial and future investments in mutual funds should answer any Homeland Security questions of your lack of terrorist connections, should you ever need proof.
SEC and Homeland Security
All mutual funds must register with the Securities and Exchange Commission, or SEC, and comply with all investment regulations. When you ask to open a mutual fund with a licensed investment firm, the company will access government databases, as do all banks, and must verify your identity and make sure your name has no terrorist links to satisfy Homeland Security regulations. Your mutual fund investment firm cannot share your information with any entity other than Homeland Security or other government databases.
Bank Security Act
Enacted in 1970 and also called the Currency and Foreign Transaction Reporting Act, the Bank Security Act requires that financial institutions report cash transactions in excess of $10,000 or any suspicious activity that indicates money laundering or criminal activity. Homeland Security monitors Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) from banks and mutual fund firms that may indicate terrorist group funding sources or accounts.