Threat of "Know Your Customer" still lingers
By Lisa S. Dean
web
posted May 21, 2001
In 1999 Congress and the American people squashed a program proposed by the federal banking agencies known as "Know Your Customer." Over 300,000 Americans responded to the agencies during the public comment period expressing outrage. Members of Congress expressed outrage that such a proposal was even being considered. Even state banking associations strongly opposed the rule.
Briefly, "Know Your Customer" would have deputized your banker by forcing him to collect your personal information and monitor your bank accounts to determine a pattern of banking activity. If he spotted what he considered to be unusual account activity, that is, if you deposited or withdrew a little more money per month than normal, or deviated from your usual pattern of activity, then your banker had to report you to the federal government, specifically, he had to file a Suspicious Activity Report with the Treasury Department's investigative arm, the Financial Crimes Enforcement Network or FinCEN, without your knowledge. FinCEN would then review your account activity and determine whether it should investigate you for possible money laundering or other financial crime.
If your banker chose not to report you, he could have been subject to fines, imprisonment or loss of employment. Needless to say, that accounts for the overwhelming number of citizens and congressmen who complained about the rule. The agencies were forced to withdraw their proposal and mercifully, "Know Your Customer", as a proposed federal regulation, died and several attempts have been made in Congress to ensure that it does not return. However, those attempts just might be futile if the Organization for Economic Cooperation and Development has its way.
The OECD is a Paris-based international organization charged with handling international money laundering and other financial crimes along with the Financial Action Task Force, also based in Paris. Its current proposal calls for each of the 28-member nations to increase bank surveillance on customers by instituting "Know Your Customer" practices.
For an international organization to twist the arms of democratic nations in order to get them to adopt policies that conflict with the rights and freedoms of their citizens is no surprise. But the thought that these countries, including our own, are considering them is.
Treasury Secretary Paul O'Neill has not calmed the fears of privacy advocates and other Americans who are concerned that this proposal could become a reality. While concerned about the tax implications involving e-commerce is a worthy one, privacy advocates strongly caution O'Neill not to sacrifice our Constitutional rights in the process, especially for a system that has proven itself both unpopular and inadequate.
Larry Lindsey, the current White House Assistant for Economic Affairs, and former member of the Federal Reserve Board has repeatedly denounced "Know Your Customer" as an ineffective program. Last year The Financial Crimes Enforcement Network (FinCEN) estimated that one in five suspicious activity reports filed by banks on their customers are related to a serious crime. 45% of those reports involve amounts of money less than $10,000, the limit that is required by law enforcement to begin investigations against citizens. Which means that banks are forwarding personal financial records of citizens to federal agencies that couldn't legally investigate even if they wanted to. That information, which by nature is confidential between a bank and its customer, can be shared with other agencies as well as state and local law enforcement officials without a warrant.
This year alone banks are expected to file approximately a quarter of a million suspicious activity reports on their customers. If these statistics are any real indicator, tens of thousands of innocent bank customers will be reported to the federal government for alleged financial crimes and some might actually be investigated. Why? Because some relative left you some money or your boss gave you an unexpected bonus? Or perhaps because you needed a little more money for the weekend and withdrew from your account?
Whatever the case, the bottom line is that this country needs a real victory over Know Your Customer rules and its methods of doing so must be conducted through our Constitutional process, and certainly not by international decree.
Secretary O'Neill must part ways with the mindset that was so prevalent
during the previous administration, namely, that our Constitutional rights
are an obstacle to the law rather than the purveyor of it. Bush has so
far been successful at restoring honor and dignity to the White House,
let's hope he will be as successful in restoring our lost rights and sovereignty
as well. 
Lisa Dean is Vice President for Technology Policy at the Free Congress Foundation.