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Banking: Big Brother
backs down
By Wayne Caparas
If you’re not in banking, you may have completely
missed one of the most lopsided battles in the history of citizens’ rights to
privacy.
The now infamous “Know Your Customer” rule
(KYC) was originally a banking bill defeated in the House of Representatives
in 1998. The second skirmish began as a stealthy end run by the federal big
four (the FDIC, the Federal Reserve Board, the Office of the Comptroller of
Currency, and the Office of Thrift Supervision) in an attempt to implement the
KYC rule without Congressional approval.
On December 7—yes, the day that will live
in infamy—the big four published (for comment) proposed KYC regulatory enforcement
policies that would require bankers to electronically profile, monitor, and
“blow the whistle” on their customers if they registered any “suspicious activities.”
The effort was abandoned in March after
disconcerted bankers and outraged citizens nationwide blitzed the Feds with
more than 300,000 e-mails and letters demanding withdrawal of the invasive proposals.
According to Donald Ogilvie, executive vice president of the American
Bankers Association, the FDIC alone received 254,394 official responses—most
from private citizens—with just 105 endorsing the proposed rules.
The offensive
According to Congressman Mark Sanford, the coalition
of federal agencies had claimed the authority to circumvent Congress by invoking
the highly criticized Bank Secrecy Act of 1970. The law was created to guard against money
laundering by drug traffickers and others involved in organized crime.
Despite the best of intentions, federal regulators
have been wasting millions if not billions of dollars while failing miserably
in their attempts to use banks as secret agents against money laundering. Sanford reports that “between 1987 and 1996,
banks filed [as required by the Act] more than seventy-seven million transaction
reports with the U.S. Treasury.
“As a result of this massive reporting, 7,300 defendants
were charged, but only 580 were convicted. In other words, that’s a success rate of only one 1000th
of one percent [.001%]. So on 99.999
percent of the occasions, law-abiding citizens going about their own business
have had their privacy invaded.”
Even more outrageous, this appalling statistic
is based on current enforcement of the law, which requires reporting only for
transactions over $10,000. If the proposed
KYC rule is ever implemented, banks will be required to report any suspicious
activity.
How do they define suspicious? Any “out of the ordinary” deposit or withdrawal
in the low hundreds of dollars could qualify, so if you suddenly make a transaction—any
transaction—out of your normal patterns, under KYC you must be reported and
could be investigated.
Mitch Godwin, vice president and compliance officer
for the Conway National Bank was instrumental in alerting Sanford to the proposed
regulatory evasion. Godwin wrote to
the Comptroller of Currency that “this proposed regulation is simply so absurd
it should be renamed the ‘Everyone is Guilty Until Proven Innocent’ regulation.”
Godwin adds, and the publication Financial Privacy
Alert confirms, that many letters to the big four liken their regulations to
“Gestapo tactics,” while the Associated Press reported that the rule “would
turn every bank teller into a spy for Big Brother.”
The best defense
Sanford wants to remind constituents that the rule
is far from dead. “It has died as a
‘front burner’ issue in Washington because they have backed down for now,” says
Sanford. But the congressman stresses
the big four could at any time bring the rule back to full boil.
In response to the public outcry, Congressman
Ron Paul has sponsored—with Sanford as a co-sponsor—HR 516, which is a “Know
Your Customer” Sunset Act. According
to Sanford, this proposed law would “basically make it illegal for [the federal
regulatory agencies] to resurrect this issue.”
Sanford credits constituents like Mitch Godwin for
their vigilance and urges them continue their grass roots campaign against the
KYC rule by supporting passage of HR516. Sanford
insists that “if there had not been the outcry from folks back home, we may
not have been able to shoot [the KYC rule] down.”
Quoting Thomas Jefferson, the congressman emphasizes
that “democracy rests on the active participation of its citizens,” and he invites
constituents to contact him by phone at 202-225-3176 or by e-mail at sanford@mail.house.gov.
Writer’s note: This article was a work-in-progress
of fellow Business Journal writer and personal friend, the late Richard Heymann.
It has been an honor to pick up where he left off.