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February 06, 2003
The U.S. Patriot Act and Its Implications for Employers

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In the wake of the September 11, 2001, terror bombings, Congress passed the U.S. Patriot Act, and President Bush signed it on October 26, 2001. The 342-page Act amends 15 existing federal statutes. It is extremely long, sometimes unclear, and has not yet been interpreted by federal courts in light of possible constitutional violations, including the Fourth Amendment's protections against search and seizure without a warrant based upon probable cause. Therefore, employers must approach the Patriot Act with care and caution.

But employers must be equally aware that the Patriot Act contains several sections that affect them. The financial-institution section, the electronic-surveillance section, and the records and documents areas of the statute are especially applicable to employers.

Financial institutions

Included in this category are many industries that might not be recognized as financial institutions—banks, mutual funds, credit card systems, money services businesses, SEC registered securities brokers and dealers, futures commission merchants, credit unions, insurance companies, loan and finance companies, telegraph companies, real estate salespeople and brokers, dealers in precious metals or gems, gaming establishments (casinos) with annual revenues greater than $1 million, travel agencies, and those engaged in the sale of cars, boats, and airplanes. There have been exemptions from the Act for some of these industries, but the final deadline for all of them was October 24, 2002.

What must financial employers do? All of the "financial institutions" mentioned above must establish anti-money-laundering programs. The secretary of the treasury has promulgated regulations under which all of these institutions must file suspicious-activities reports with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury. There will be a communication network between the institutions and FinCEN to enable vital information relating to suspected terrorist financial networks and money launderers to be exchanged quickly. Financial institutions must work out an effective method for verifying the identity of foreign customers. The program must include, at least:

  • Development of anti-money-laundering procedures, policies, and controls, including a "Know Your Customer" program. The latter program should be able to identify customers or clients, and discover the source of their assets.

  • Establishment of an internal compliance officer.

  • Establishment of a employee-training program covering legal requirements, policies and procedures for company financial programs, recordkeeping, and identification of suspicious transactions.

  • Establishment of an independent audit feature and test program.

Employers that already have anti-money-laundering programs in place should assess their programs in terms of meeting requirements of the new Act.

Access to business records

Another section of the Patriot Act amends the Foreign Intelligence Surveillance Act of 1978. It is not confined to financial businesses. The amendment allows the FBI to apply for an order from a judge requiring production of any and all records from any business for an investigation to protect against international terrorism against the United States. These may include confidential medical records and education records. The provision applies to anyone if the FBI says that the information will aid an investigation of international terrorism or clandestine intelligence gathering. The FBI will then send the order to the employer involved, and the employer must not disclose the fact that the FBI seeks the information. An employer acting in good faith compliance with such an order will not face civil liability.

Employers often have written policies relating to the confidentiality of employee files, particularly medical ones. The policies often state that employers will respond only to an outside party's request for verification of employment information. Now, an employer must think about amending its policies to let employees know that employers will fully cooperate with requests from law enforcement agencies or government agencies. This will support protection of the employer from liability.

Monitoring phones, the Internet, and voice mail

The federal government may tap phones and monitor Internet use, or seize voice mail and e-mail, with only cursory judicial authorization. Also, the subject of the action may not have to be notified. The government may intercept computer use reasonably relevant to an ongoing investigation without obtaining written authorization or a search warrant, with the permission of “the owner or operator.”

The interception of computer use must be authorized by the actual user—unless the user is a "computer trespasser"—that is, anyone who accesses a computer without authorization (.e.g., any employee who uses a company computer to transmit a personal message without employer permission or uses voice mail to receive personal messages) and therefore has no further expectation of privacy. Such interception also may include the person responding to the personal message (that is, that person may also be intercepted).

Pen register/trap and trace orders. A law enforcement agent can now require the telephone company to reveal the numbers dialed to (pen register) and from (trap and trace) any phone or computer used by a particular person. That permission was earlier confined to a particular phone number—now it roves with the person. To get such an order, law enforcement must simply certify to a judge that the information to be gained is “relevant to an ongoing criminal investigation”; the judge must then grant the order.

Spy court says no

Although no federal circuit court has as yet ruled on these aspects of the statute, the Foreign Intelligence Surveillance Act Court (FISA Court), which authorizes wiretaps and other surveillance of suspected spies and terrorists, has challenged the Patriot Act. The court ruled against the Justice Department’s request to allow counterintelligence agents and criminal investigators and prosecutors to work together more closely. The Court emphasized that there is and should be an important constitutional wall between terrorists and garden-variety criminals. The government is appealing the ruling to the FISA Court of Review.

In the meantime, employers should:

  • Develop a policy for responding to such an order from a government agency regarding the use of phones, electronic mail, Internet, and computers in the workplace.

  • Inform employees that the employer has the right to and may monitor work phone use, electronic mail, and Internet use.

  • Stay tuned for further developments. There will surely be some.

KF 11-04-02

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