The Public Policy: Rout of the Regulators
Bovard, James
ITHE PUBLIC PO CY by James Bovard Rout of the Regulators U ncle Sam wants banks to start treating ordinary citizens like drug kingpins. On December 7, 1998, four federal agencies —the Federal...
...The trouncing of the proposed regulations will be a hollow victory unless Congress abolishes the bad laws that already mean a federal thumb in every pie...
...Ron Paul (R-Texas) led the opposition on Capitol Hill...
...On December 7, 1998, four federal agencies —the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Office of Thrift Supervision—jointly proposed regulations to force banks to report even more information on their customers to the federal government...
...Rep...
...But the intrusive roots go to 1970, when banks and other financial institutions were required to submit a Currency Transaction Report (CTR) to the feds for every transaction involving more than $1o,000...
...It is ludicrous to assume that profiling the salary deposits, ATMfees, and mortgage payments of millions of Americans will have a significant impact on the activities of criminals," Barr said...
...Privacy may be the new rallying ground for activists of both left and right...
...forged a vital, partnership to fight financial crime...
...The House Banking Committee adopted an amendment sponsored by Rep...
...Had the legislation passed, banks would have been required to disclose any financial information within 48 hours after receiving a request from law enforcement—no search warrant required...
...Why did the regulators who authored the KYC proposal want so much information on private citizens...
...So there was no reason not to be completely unreasonable in the amount of information demanded...
...Ostensibly, KYC legislation would empower the government to better "combat illicit activities," but many perceived the act as an attempt to turn banks into conspirators against their depositors...
...The KYC debacle signified the first time congressional Republicans have torpedoed a drug war-related expansion of government power...
...Many home buyers have thus been reported to the IRS as potential money launderers when they have gone to a closing to buy a home with a cashier's check over $1o,000...
...During the 1980's, federal banking agencies pressured banks to enact some type of KYC program to curb money laundering and, by extension, help curb the flow of drugs...
...But only 58o people were convicted of money laundering during that period, according to former Fed Governor Lawrence Lindsey...
...54 May r 9 9 9 The American Spectator Currency Transaction Reports to the fedsover 77 million separate reports...
...Paul has 56 co-sponsors, including House Whip Tom DeLay (R-Texas...
...A senior Treasury Department official told American Banker that the government "did not want to see the pendulum be permitted to swing the other way [against regulation], so that legitimate law enforcement" tools are destroyed...
...The GAO reported last summer that 13 state agencies have violated federal rules for the use of SAR information they receive, and Money Laundering Alert, a leading newsletter, cited reports that "in two major U.S...
...Senate Democrats blocked an effort by Gramm to officially prohibit the banking agencies from issuing their regulations, so the Senate resolution does not have the force of law...
...Actually, the rout was achieved by JAMES BOVARD is the author of the new book Freedom in Chains: The Rise of the State and the Demise of the Citizen (St...
...Paul is sponsoring legislation to immediately abolish existing KYC regulations and block any attempt to revive or expand such intrusions in the future...
...And a federal appeals court ruled in February that banks do not need a "good faith belief" of criminal activity before filing an SAR on someone: The "safe harbor provisions" provided by federal regulators allow defamatory statements by anonymous informants against innocent citizens, thus making the reports an easy way to smear people...
...The reporting standards were so vague that anyone who has a one-time surge in income—from selling a car, for instance, or receiving a bonus at work—could be reported with ominous overtones...
...Even the American Banking Association turned against the federal agencies and publicly denounced their proposal...
...Rep...
...The entire episode is significant for another reason, too: It was a warning to all future regulators of the danger of clear English...
...an unlikely combination: the WorldNet Daily website, the Libertarian party (which delivered over 150,000 signatures to the FDIC), the American Civil Liberties Union, the Christian Coalition, and other organizations and Internet activists...
...The burden was placed elsewhere, too...
...This requirement floods federal agencies with paperwork, and actually undermines law enforcement: The vast majority of the CTRs are never even examined by bureaucrats...
...Phil Gramm (R-Texas), chairman of the Banking Committee, impaled the regulators: "If you ever wondered whatever happened to the people in the former Soviet Union who used to run things there and now are permanently out of work, the answer is they're all in the Clinton administration, and they're running the banking authorities of this country...
...But the regulations proposed last December went far beyond what any bank was already doing—and thus a routine tightening of the screws turned explosive...
...If the banking agencies had simply proposed convoluted amendments to existing statutes—and avoided the "Know Your Customer" title —the regulations would have generated far less controversy...
...The government would provide no compensation to banks for the extra paperwork or to citizens for the destroyed privacy...
...The proposed regulations specified, for instance, that a bank must "determine its customers' sources of funds, determine, understand and monitor the normal and expected transactions of its customers, and report appropriately any transactions of its customers that are determined to be unusual or inconsistent...
...Bob Barr (R-Georgia), prohibiting the feds from enacting the regulations...
...the fate of his bill will determine whether Congress is serious about respecting Americans' privacy...
...On March 4, Gramm's Senate resolution objecting to the proposed regulations passed 88-o...
...The feds now receive almost 100,000 SARs a year...
...GOP indignation is a bit ironic, since 12 Republican senators are co-sponsoring the "Drug-Free Century Act," which urges that KYC regulations be "expedited...
...Twelve million Currency Transaction Reports (CTRs) were filed in 1997 alone...
...The agency's discretion in passing out titillating tidbits is effectively unlimited...
...These "Know Your Customer" (KYC) regulations stirred up one of the biggest firestorms in recent regulatory history...
...Regulators like to err on the side of caution, and since there might be something worthwhile in all the information they demanded, why not grab it all...
...The FDIC alone was hit with more than 250,000 comments opposing the regulations—and only 105 comments in favor of them...
...What's more, as Greg Nojeim of the American Civil Liberties Union observed, "Congress barred financial institutions from telling their customers that their bank had spied on them by reporting their transactions to the federal government...
...The comptroller of the currency issued a rule last November authorizing the release of SARs to "any supervised entity and to other persons, without a request for records or testimony...
...On March 23, the proposed regulations were withdrawn—though banking officials made it clear that they might issue a new proposed regulation or simply announce "guidelines" or a "policy statement," which could still bind banks but would not stir the public to a furor...
...One federal banking official whined to the Associated Press that "anti-government groups" were to blame for the backlash...
...By 1990, most banks had some system of this type in place, at least on paper...
...Gramm's committee sent the federal agencies a letter objecting to the regulations on February 10—but heard no response...
...Subsequent laws created new crimes and reporting requirements...
...His local bank notified the government of "suspicious transactions," but the bureaucrats were so swamped by other reports they never checked it out...
...A money laundering bill that passed the House by voice vote last fall would have required banking agencies to speedily issue the same regulations...
...The feds have chutzpah demanding more personal financial information on citizens considering their abysmal record of safeguarding the information they already collect...
...cities local police departments have made SAR filings available to private investigators...
...After the banking agencies were deluged by hostile comments, other congressmen joined the battle...
...T he KYC regulations were, in part, a logical extension of the growing pressure on banks to become government informants...
...Over the past 15 years, banking organizations and law enforcement authorities have44 Regulations allow defamatory statements by anonymous informants against innocent citizens...
...Banks would be obliged to create "profiles" of each customer and undertake "a risk assessment of the customer and the intended transactions of the customer...
...T he U.S...
...The legislation was based on the Bank Secrecy Act of 197o, which made it a federal crime for banks to keep secrets from the government...
...Since 1996, banks have been required to file Suspicious Activity Reports (SARs) to FinCEN on any transaction involving $5,000 or more which "has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and [the institution] knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction...
...Between 1987 and 1995, banks and other institutions delivered 62 tons of The Feds lose a power grab for your financial records...
...Were this to occur, it could do lasting damage to our banking system...
...comptroller of the currency, John D. Hawke, warned the House Judiciary Committee in March that the proposed regulations could encourage Americans to believe that "their banks have turned into an extension of the law enforcement apparatus...
...And much of the information the banks gathered on their customers could be transferred to a database maintained by the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and accessed by any law enforcement agency in the nation...
...Since the New Deal, federal bureaucrats have become masters of subjugation through obfuscation...
...This helps explain why the feds failed to notice the suspicious actions of notorious CIA-turncoat Aldrich Ames, who was receiving wire transmissions of more than S5o,000 from Switzerland...
...The American Spectator • May 1999 55...
...But it is hardly a "partnership" when the government has a wide array of screws it can put to bankers to compel them to subvert the privacy of their customers...
...The agencies issued a joint statement: "The Agencies' withdrawal of the proposed rule does not diminish in any manner our longstanding support for the anti-money laundering provisions of the Bank Secrecy Act...
...The Texan denounced the regulations as "an unconstitutional, unjustified, and unwarranted search and seizure...
...Martin's Press...
Vol. 32 • May 1999 • No. 5
