Brokers and the Patriot Act

Discussions about brokerage firms for futures, stocks and other tradeable instruments.
Post Reply
Roscoe
Roundtable Knight
Roundtable Knight
Posts: 250
Joined: Sat Jan 24, 2004 2:06 am
Location: Houston TX

Brokers and the Patriot Act

Post by Roscoe » Sat Dec 31, 2005 5:21 am

I read somewhere in the media that the Patriot Act now requires, among many other things, that your bank or broker file a ‘Suspicious Activity Report’ to the Federal government on any client who transfers more that some nominal sum like $10,000 or any repetitive transfers of smaller amounts. Upon receipt of these reports the FBI has the power to freeze any bank or broker account while they investigate further. If this is actually true it would make normal trading activity rather difficult (as well as sounding a lot like life in Russia). Has anyone here been involved in or affected by this rather extreme provision of the Patriot Act?

sluggo
Roundtable Knight
Roundtable Knight
Posts: 2986
Joined: Fri Jun 11, 2004 2:50 pm

Post by sluggo » Sat Dec 31, 2005 8:28 am

If you have several accounts with several different firms, you can perform experiments and see what they do in common, also what they do differently. (For fans of Hugh Laurie / Gregory House MD, you can actively perform "Differential Diagnosis".) I have done so.

What I've discovered is that a large account at a full service broker, gets a lot fewer intrusions and headaches and annoyances from the Patriot Act, than a small account at a do-it-yourself super deep discount broker. Isn't that odd? I mean, the Patriot Act is the Patriot Act and it applies equally forcefully to all transactions at all brokers and all account sizes. Doesn't it?

Yes. The Patriot Act actually is wealth-neutral and broker-indifferent, just as you would expect. But what I've discovered is that each brokerage firm has its own internal policies and procedures, its own way of doing things. I've found that brokers have gradually learned to blame all inconveniences and intrusions upon the Patriot Act, because that shuts customers up and they meekly do what is asked.

However, differential diagnosis to the rescue. I find that the following sentence truly is a magic phrase: whenever I speak it to a broker, a stunning metamorphosis occurs.
  • I don't think the Patriot Act requires that; I did the same transaction last week in my Goldman Sachs account and Goldman didn't require me to fill out that form. Maybe you should transfer me to your supervisor or your Compliance Officer so we can straighten out this difference.

RedRock
Roundtable Knight
Roundtable Knight
Posts: 941
Joined: Fri Jan 30, 2004 3:54 pm
Location: Chicago

Post by RedRock » Sat Dec 31, 2005 1:27 pm

sluggo wrote:at; I did the same transaction last week in my Goldman Sachs account and Gold[/list]
Name dropper.... :-)

teasing.....


Good info.

Roscoe
Roundtable Knight
Roundtable Knight
Posts: 250
Joined: Sat Jan 24, 2004 2:06 am
Location: Houston TX

Post by Roscoe » Sat Dec 31, 2005 8:45 pm

Thanks Sluggo, I appreciate your reply. As a card-carrying alien I think I might be better to use a non-us broker until this “Patriotâ€

AFJ Garner
Roundtable Knight
Roundtable Knight
Posts: 2040
Joined: Fri Apr 25, 2003 3:33 pm
Location: London
Contact:

Anti Terrorism Legislation

Post by AFJ Garner » Sun Jan 01, 2006 4:50 am

Yep, I'm a Brit but the situation is much the same throughout Europe.

You can not carry more than £5,000 cash (or somesuch ) across borders: if you do and customs find it they can confiscate it and it leads to all sorts of unpleasant enquiries with the police.

You can transfer what you wish by bank transfer but again repeated transfers can cause suspicion and lead to investigations for money laundering and terrorist activities. Each transfer in Europe is now by law bound to state the beneficial owner of the funds sent. When opening a new bank or brokerage account, the entity concerned is bound to ask where the money comes from, how it was generated etc etc. and make appropriate investigations and written records Even 8 years ago when I opened an account at Goldman in London I had to explain that some cash came from the sale of a business years prior and to my amazement they managed to dig up all sorts of records pertaining to the transaction.

I find it an irritant, nothing more............but it IS big brother, I have to agree. Fortunately I have nothing to hide. As to hindering business, I have not found this to be a problem: after all with futures you simply trade off an account or accounts opened at one or more brokers so once the initial hassle is over you do not often need to transfer money into or out of these accounts.

In one area I DO need to transfer shares and money into and out of accounts regularly but again this is perfectly legitimate and no one bothers me. I have a prime brokerage account with one bank and buy and sell shares through a number of different third party banks and brokers on a "delivery versus payment" basis. When I buy through Morgan Stanley and sell through Merrill, Morgan Stanley delivers shares to my prime broker against payment from my prime broker and Merrill receives shares from my prime broker against payment for those shares to my prime broker.
.

Roscoe
Roundtable Knight
Roundtable Knight
Posts: 250
Joined: Sat Jan 24, 2004 2:06 am
Location: Houston TX

Post by Roscoe » Sun Jan 01, 2006 5:03 pm

Thanks for that AG, from what you say it seems that Britain may not have an equivalent to the Patriot Act’s power to freeze accounts and the “guilty until proven otherwiseâ€

AFJ Garner
Roundtable Knight
Roundtable Knight
Posts: 2040
Joined: Fri Apr 25, 2003 3:33 pm
Location: London
Contact:

Post by AFJ Garner » Mon Jan 02, 2006 4:26 am

I'm afraid I'm not up on British Constitutional law these days. In my days as a law student close to 30 years ago, "innocent until proven guilty" was the watchword of the British constitutuion but in the back of my mind I know that one serious concern about the Blairite Government is the erosion of civil liberties. Whether anti terrorist legislation has reversed this vital safeguard in specific instances I could not say. But I am sure that the power to freeze accounts pending investigation will be there.

Re commissions I'm afraid I do not know - I use a broker in the US. Try www.mandirect.com - they operate in London and you could ask for a quote.

A

kianti
Roundtable Knight
Roundtable Knight
Posts: 335
Joined: Fri May 02, 2003 6:10 am
Location: Florence - Italy

Re: Brokers and the Patriot Act

Post by kianti » Mon Jan 02, 2006 6:17 am

Roscoe wrote:.......transfers more that some nominal sum like $10,000 or any repetitive transfers of smaller amounts......
I don't know if you could find it interesting or amusing, in Italy there's still a shady character called the "spallone", so called because it's job used to be to cross the Alps by foot with a back-pack and deposit cash in Switzerland.

best regards, as ever

AFJ Garner
Roundtable Knight
Roundtable Knight
Posts: 2040
Joined: Fri Apr 25, 2003 3:33 pm
Location: London
Contact:

Post by AFJ Garner » Mon Jan 02, 2006 7:52 am

Kianti
It would not surprise me in the least that such a charachter still exists. I find corruption in the financial world still exists everywhere - not the least in Switzerland.

Certainly in the IPO business, where high ranking account executives in certain banks split IPO profits with certain favoured clients. Although they claim that recent "improvements" have made this impossible. Very funny.

And where certain banks allocate IPOs after the market in the stock concerned has already started trading-----GOSH! I wonder WHY they do that!!!!!!! Could it be that that bank is still a privately owned partnership and just happens to have a nostro trading book? Hmmm, I wonder.

I have recently closed my account at just such a bank where in every single case of a duff deal I would be allocated absurdly large proportions of what I had indicated for AFTER the market had started trading. Down ususaly. And on hot deals - hey, no problem. You get blanked bright and early first thing in the morning Eurpoean time.

kianti
Roundtable Knight
Roundtable Knight
Posts: 335
Joined: Fri May 02, 2003 6:10 am
Location: Florence - Italy

Post by kianti » Mon Jan 02, 2006 8:32 am

AFJ,

I agree with you, many of the bad practices are still around.
I've the feeling that some areas becoming more and more regulated with no real results, while others are still far-west.

You mentioned some kind of front-running+nostro account.
Public exchanges should be deemed to offer for free and make easier to get tick data, maybe some bad practices could be reduced.

best regards, as ever

Post Reply