Chapter 32: U.S.A. Patriot Act

The USA Patriot Act

[Understanding Financial Implications for Healthcare Entities] 

By David Edward Marcinko

By Hope Rachel Hetico

The ability to sign a check is the least reliable guide to a company’s fitness and security – David Plowright


In the wake of the September 11, 2001, terrorist attacks against the United States, the U.S. Congress passed Public Law 107-56 whose short title is “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001.” It has been modified for terrorist activities of 2010.

Also, in the wake of well-publicized scandals involving Enron Corporation and its auditor, Arthur Andersen, the U.S. Congress passed Public Law 107-204, whose short title is “The Sarbanes-Oxley Act of 2002.” It too was modified after the domestic financial implosion of 2009.

Today, these two pieces of legislation should increasingly be on the radar screen of all physicians and medical executives as the healthcare reform debates rages on.

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5 thoughts on “Chapter 32: U.S.A. Patriot Act


    Evan was the chief financial officer of a community hospital in San Marcos, Texas. His hospital had recently been acquired by an insurance company.

    As he left the hospital, he reflected on the events of the day. During a meeting of the management team, the issue of the USA PATRIOT Act had come up. Evan knew that it contained many diverse sections, and he was concerned that the legislation might affect his job duties. His grandfather, who lived in Las Vegas, had told him that some of the hospitals in Las Vegas had once been used for money laundering, and he knew that there was a money laundering section of the USA PATRIOT Act.

    When he asked the CEO if he thought the money laundering section might apply, the CEO laughed. He said that the money laundering in Las Vegas was concerned with illegal activities of the “Mob,” and that the USA PATRIOT Act was aimed at terrorists. Besides, he added that the money laundering prevention and detection activities were designed for financial institutions, not hospitals.

    Evan also asked about the section on bioterrorism and whether the community hospital had an emergency preparedness plan. The CEO responded that the hospital had a disaster preparedness plan that had been instituted after the disastrous floods that had occurred some years earlier. Further, the CEO said that the terrorists would most likely attack San Antonio because of its huge military bases or Austin because of its large population of narcissistic yuppies who could be easily terrorized.

    In any event, attacks on San Antonio or Austin would not likely affect San Marcos, so contingency plans were not needed.

    Evan said nothing, but he felt uneasy. Instead of driving home to Buda, he drove to the library of the Texas State University and sought an authoritative interpretation of the USA PATRIOT Act from a private clearinghouse publication. He also spent some time doing a database search.


    Was the CEO correct or not with regard to the following assertions:

    1) The USA PATRIOT Act money laundering detection and prevention sections do not apply to the hospital?

    2) The USA PATRIOT Act sections on bioterrorism attacks have little relevance for the community hospital in San Marcos?

    Any thoughts on this sample case model after reading this chapter in the BMP 3.0?

    1. I was made aware of the above video a few minutes ago. Did a dolube take when it appeared on my monitor. Listened carefully and heard what has been running through my head for the past few years. The feeling grows exponentially as each day passes.Why did I give 9-1/2 years wearing my countries green suit? Because I love my country and believe in the efforts that some 50 plus me put into the beginnings of this great country. I respect the sacrifices they knowingly made when they penned their names to that first document, the Declaration of Independence and then backed those words with their actions, their blood their sweat and tears.I agree with the young man. We have been going down this path of self destruction for many years because we have been self absorb in our daily lives. We have failed to keep a close eye on the men we have placed our trust in to do what is right by our country. The time has come to reverse the actions of these so-called leaders. I have no idea how that will be done but it will be our responsibility to right the wrongs they have done and bring this country back in line with the thinking of our Founding Fathers and the words and spirit of our founding documents.God bless and save the United States of America

  2. About the Sarbanes-Oxley Act

    In response to the failure of public accounting firms to detect corporate fraud, the Sarbanes-Oxley Act requires rotation of auditors to maintain independence, increases accountability for corporate fraud, and prescribes changes in governance, internal controls, ethics, and disclosure.

    Previously, the Treadway Commission Report: (Fraudulent Financial Reporting: 1987-1997 – An Analysis of U.S. Public Companies) was its equivalent, sponsored by The Committee of Sponsoring Organizations (COSO) to provide:

    …an analysis of financial statement fraud occurrences. While the work of the National Commission on Fraudulent Financial Reporting in the mid-1980s identified numerous causal factors believed to contribute to financial statement fraud, little empirical evidence existed about other factors related to instances of fraud prior to release of the 1987 report (NCFFR, 1987). Thus, COSO commissioned this research project to provide information that can be used to guide future efforts to combat the problem of financial statement fraud and to provide a better understanding of financial statement fraud cases…

    In other words, the Treadway Commission Report first spelled out the whys and wherefores of internal control as the original de facto standard for defining such corporate controls.

    Unfortunately, many leaders, including some hospital administrators and physician-executives, still think that the Sarbanes-Oxley Act only applies to investor-owned or publicly traded healthcare organizations. While this is partially true, the legislation does contain some provisions that are applicable to non-profit hospitals. And, moral persuasion is increasing in the healthcare sector.

    For example, provisions relating to the retaliation against hospital whistleblowers, and to medical document retention and/or destruction provisions, are applicable to non-profits healthcare entities as well their for-profit counterparts. Moreover, non-profit hospitals that issue tax-exempt bonds and/or rely on bond ratings from services such as Moody’s and Fitch have to comply with Sarbanes-Oxley provisions to obtain and maintain those bond ratings.

    In addition, Sarbanes-Oxley provisions do have some implications for all hospitals, regardless of ownership type.


  3. On Sar-box and the US PATRIOT Acts

    Social unrest typically prompts lawmakers to react to enacting laws that affect our society. The U.S. Patriot Act and Sarbanes-Oxley Act are two such laws passed during social unrest. Many question if these laws are necessary and overarching.

    A Brief Review of US Patriot Act and Sarbanes-Oxley Act

    “United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstructing Terrorism Act” (“USA PATRIOT ACT”), was sign by President George W. Bush on October 26, 2001. The Act was passed in the wake of September 11 attacks.

    The USA Patriot Act has ten titles that have broad and extensive powers. Title II and V are examples of the titles that give the government extensive reach. (Title II) is the ability to monitor communication continuously if they are related to terrorist activities, the search of premise with out court order. (Title V), the use of National Security Letters, which is a demand for release of information related to an individual, which is also allowed to be used against U.S. citizens with out their knowledge and it requires no judicial review.

    The July 2004 report from the DOJ stated several cases that were successful due to the US Patriot Act, for example; “The Luckawanna Six” were six Yemeni-American who traveled to Afghanistan in 2001 to receive training at an Al Queda – affiliated camp near Kandhar.; Enaam Arnaout, the Executive Director of Benevolence International Foundations, who pleaded guilty to racketeering charge, admitting that he deviated thousands of dollars to support Islamic militant groups in Bosnia and Chechnya; and Ltif Dumeisi, who was convicted by jury in January 2004 of illegally acting as an agent of the former government of Iraq.

    However, some critics of the US Patriot Act claim that the act was passed too quickly and it removed civil liberties from US Citizens such as the “Right to Privacy”, In addition, they claim the Act expands the executive branch and removes checks and balances from judicial review.

    The Act allows the government to seize records, including medical records and list of individuals of political organizations, without consent of the individual.

    Reform the Patriot Act. Org reported that the ACLU detail abuses of the US Patriot Act, in the report for example it discussed, Brandon Mayfield, who was wrongfully accused of the involvement in the Madrid bombing and Tariq Ramadan, whose visa was revoked to teach at the University of Norte Dame. However the extent of the abuse is yet unknown since the government can use the US Patriot Act and require the investigation to be kept secret.

    The Sarbanes-Oxley Act was passed on July 30, 2002. The act was passed in response to some major corporate accounting scandals like Enron and WorldCom. The Act contains eleven titles that provide new accountability and corporate standards required by public companies.

    Title III and IV are some examples on the impact of Sar-Box; Title III, mandates that cooperate executive to take financial responsibility for the accuracy and completeness of corporate records; and Title IV, describes enhanced reporting requirements for financial transactions, including off balance sheet transactions, pro-forma and stock transactions of corporate officers.

    The Institute of Internal Auditors indicated that the law has improved investors confidence with improvements of board, audit commitment and senior management engagement in reporting and improvement in financial controls. In addition, Glass Lewis and Co, March 2006 report showed 1295 restatements in financial earning in 2005, twice the amount in 2004.

    A report by Foley & Lardner LLP reported some concerns regarding companies that are willing to be listed in the US markets due to reporting regulations and stated and the cost of regulation have increased.

    In a commentary posted at Yale Law School by Jonathan Marcey and published in the Wall Street Journal, discusses the concerns regarding Sar-Box and its effect on capital markets in the US. It also stated a study commissioned by New York Senator Charles Schumer and New York City Mayor Michel Bloomberg urging some deregulations.

    In addition, Larry Rabstein, uses Sar-Box to illustrate three reasons why government regulations would not necessary help regulate. “First, the appropriate regulatory course is often unclear, given the uncertain cost and benefits of regulations. Second, even if the theoreticians can propose a regulatory solution that sees to work, political realities and the interplay of interest groups often intervene to prevent this solutions from being adopted. Third, even if markets have malfunctioned, markets actors often are better than politicians to correct them,”

    Furthermore, it is evident that enactments of these two laws have affected our society and our business. In my opinion, the US Patriot Act has clear violation of civil liberties and the Sar-Box has not deterred corporate fraud or abuse.

    Amaury S. Cifuentes; CFP®

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