Keep those grandfathered bank accounts

Remember the proposed "Know Your Customer" (KYC) rules, where the U.S. government was going to force banks and related financial institutions to develop a profile on each of the insitution's customers?

But Know Your Customer was defeated, right? Not so fast.

Know Your Customer rules have been quietly resurrected as two separate programs, with other benign-sounding names.

Meet Customer Identification Program (CIP) and Enhanced Due Diligence (EDD).

Customer Identification Program, or CIP, requires that financial institutions (including casinos, pawnbrokers, insurers and money transmitters) positively identify the individual or organization with which they have a formal business relationship. The actual CIP procedure will vary by institution, but will be documented.

CIP requires the following information on each customer: legal name, date of birth (DOB), street address, and taxpayer identification number. Taxpayer Identification Number, or TIN, is usually a Social Security Number for U.S. citizens, or a Social Identification Number, or SIN, for Canadians. For addresses, P.O. boxes and accomodation addresses are explicitly disallowed for accounts opened after October 1, 2003.

Almost all financial institutions require goverment-issued ID for the CIP process, although many banks are accepting the Mexican matricula consular card in an effort to garner the business of Mexican nationals who may not have identification documents issued by U.S. agencies.

Enhanced Due Diligence is a program where banks monitor their customer's activity on an ongoing basis for illegal activity or suspicion of illegal activity. Bank compliance officers are looking for evidence of terrorist financing, transactions with blacklisted entities, fraud, check kiting, identity theft, tax evasion and money laundering.

Enhanced Due Diligence screening is usually done by data mining account transaction records, looking for patterns that might be indicative of these crimes. Many firms offer software packages to help automate the data sifting, but similar results can be obtained with basic data analysis tools like a spreadsheet, as long as criteria are previously defined. It's worthwhile to keep grandfathered bank accounts that date from before the Patriot Act. These accounts, and accounts at the same institution, are not subject to Customer Identification Program requirements.

In other words, if you are a long-time customer of a bank, but that bank doesn't already have a full CIP profile on you, they are not required to collect all of the CIP information for you to open additional accounts or financial products with them. Sometimes bank procedures encourage account representatives to collect the information, but most do not.

Be aware that this only applies if you are a grandfathered, existing customer of the bank. If you have previously closed all of your accounts with that institution, you're classified as a new customer for purposes of the Customer Identification Program and will have to supply all of the ID and documentation required of a new customer. Accounts opened after October 1, 2003 cannot be opened with P.O. box or commercial mailbox, as many people used to do to preserve their privacy.

Keeping those grandfathered accounts around, with minimum balances if necessary, can save you from having to provide information that you'd rather not provide to open an account in the future. This includes keeping your old accounts open when you move, especially if you are going to open a new account at the local branch of the same institution at your new home or office.

Remember, though, to keep old account checkbooks and paperwork in a very secure location with the rest of your financial documents.