PATRIOT ACT PROVISION HAS BANKS, PLANNERS FRETTING.

Byline: Brent Hopkins Staff Writer

A little-known provision of the Patriot Act could turn an innocuous trip to the bank or chat with a financial planner into a Treasury Department probe of personal financial accounts.

One of the less controversial and less publicized parts of the sweeping law enforcement act, aimed at preventing terrorists from laundering money, gives the federal government power to scrutinize financial institutions' customer records.

Other portions of the act expire this year but the financial provisions section will likely remain on the books permanently.

Banks and other firms that offer financial advice have to notify U.S. Treasury officials if they sense something's amiss by filing Suspicious Activity Reports.

But some have taken the responsibility too seriously and inundated the department with a blizzard of paperwork.

``The scary thing to me is if I get a new client, I have to act like a policeman and make sure he's not laundering money,'' said Melanie Woloz, a financial planner based in Los Angeles. ``If he is, I can get thrown in jail. It's getting tougher and tougher to do our job because we spend all our time trying to do this.''

Woloz said she hasn't filed an SAR defensively, but feels the pressure to scrutinize her clients compromises relationships she's nurtured for 20 years.

Any hint of something improper can trigger a report to the department, which has used the regulations to force financial institutions to adopt stricter identification procedures.

Though written to catch suspicious transactions like large cash deposits or unusual wire transfers from foreign sources, experts say that fear of noncompliance with the regulations has scared some in the financial community into filing Suspicious Activity Reports at even minor discrepancies.

A client listing a cellular phone instead of a home phone could be deemed suspicious, as could someone opening an account far from their listed home address.

And ignoring the regulation can be costly.

The Financial Crimes Enforcement Network, a Treasury Department agency tasked with tracking the reports, in October fined AmSouth Bank of Birmingham, Ala., $10 million for failure to establish an anti-money laundering program and for not filing ``timely, accurate and complete'' reports.

There's a legitimate need for such reports, according to Scott Wedgbury, a certified financial planner in Glendale. If a new client opened an account and didn't care much about how their assets were allocated or had a lot of wire transfers, he'd grow suspicious. While always careful in getting to know his customers, he said the Patriot Act regulations made him even more mindful of the need to be vigilant.

``People are devious,'' Wedgbury said. ``All they need is to get the money in one legitimate place then move it out and suddenly the money's clean. Now it could be for terrorists, not just drugs.''

John Ensmiger, who teaches tax law at St. John's University, said that fear of multimillion dollar penalties have led to a spike in defensive filings.

``With women (clients), it might be because they have two names because they got married or divorced or whatever,'' Ensmiger said. ``There's a very minor level of suspicion there, but an overly cautious financial institution might want to file an SAR on it just to be safe. It's getting to be a problem.''

It's become so much of an issue that FinCEN has begun counseling the financial community to use a little more common sense.

The Federal Bureau of Investigation and the Internal Revenue Service must review every report, which diverts resources from their primary terrorist targets.

William Lankford, FinCEN's associate director for regulatory policy and programs, agrees too many reports are being filed and there is some confusion about the policy.

``The concept of SAR is fuzzy, because you don't want bad guys to game the system,'' he said. ``The problem is when people are filing defensively, regular people like yourself could end up in the system.''

Brent Hopkins, [phone]

brent.hopkins(at)dailynews.com