Banks and Suspicion: Government-Required Surveillance Provisions in the Newly Passed Antiterrorism Bills Could Force Banks to Rob Their Customers of Both Financial Privacy and Convenience. but How Will the Provisions Aid in Curtailing Terrorism? (Cover Story)

Article excerpt

Air travel isn't the only industry hit with big changes in the aftermath of the Sept. 11 terrorist attacks. Depending on how regulators interpret the anti-money-laundering provisions of the hastily passed House and Senate antiterrorism bills, your relationship with your banker -- or, for that matter, any business with which you conduct financial transactions, from buying stock to cashing checks -- is likely to change forever in ways you will and will not be able to see. That's what insiders of the financial-services industry tell INSIGHT. Many on both the left and right are afraid that in the zeal to stop terrorists from moving their assets into the United States the financial privacy of law-abiding Americans will be sacrificed.

"It's going to be a great inconvenience to people, a great regulatory burden, and no real benefit to what they're trying to do," says J. Bradley Jansen, director of the conservative Free Congress Foundation's Center for Technology Policy. Jansen has coauthored several appeals to Congress on privacy issues with liberal groups, including the American Civil Liberties Union.

Traditionally, Americans have come to expect their banks to protect their privacy and resist sharing sensitive depositor information. Banks, in fact, long promised and delivered such confidentiality, though it never was absolute. Even the most security-conscious bank would cooperate when law-enforcement agencies went to court, showed probable cause and then presented a search warrant or subpoena for access to bank records connected to a crime.

But since Richard Nixon signed the Bank Secrecy Act in 1970, the federal government gradually has required banks routinely to disclose transactions above a certain dollar amount and other alleged "suspicious activity" by customers, regardless of any showing of probable cause. Such information is shared, in turn, among law-enforcement agencies worldwide, and banks are forbidden to tell their customers when a report on them has been filed.

This type of government-required surveillance reached a high-water mark in the Clinton administration when the Federal Reserve and other agencies that regulate U.S. banks jointly issued the now-infamous "Know Your Customer" (KYC) regulations in 1998 (see "Snoops and Spies," Feb. 22, 1999). The rules would have required banks to determine "the source of a customer's funds" and the customer's "normal and expected transactions" to monitor each customer's account activity and to report to the feds any deviation from a customer's "historical patterns."

The agencies withdrew the rules after massive bipartisan opposition and more than 300,000 opposing comments. But, in the aftermath of the recent terrorist attacks, regulators were announcing that KYC was back even before the so-called emergency legislation was signed into law. At a late October conference of the American Bankers Association (ABA) in Arlington, Va., Federal Reserve Bank of Atlanta Vice President Suzanna Costello said that her agency already was "looking for ... effective Know Your Customer" programs at the banks it regulates. "A year ago I wouldn't have even said, `Know Your Customer,'" she told the gathering of top bank officials. "The KYC word was `Kill Your Career' at the Fed. But I see that it's back."

While the new law carefully avoids references to KYC, it contains stiffer fines for financial institutions found to be in violation of "suspicious-activity" reporting on its customers. It also gives broad enforcement powers to the secretary of treasury and financial-regulatory agencies. And it expands the reporting requirements from banks to all "money-service businesses," such as convenience stores that sell money orders and cash cards, as well as stockbrokers and insurance companies. It also requires U.S. banks to know and investigate many of the customers of the foreign banks with which they do business.

The antiprivacy provisions are measures that have been pushed for years by Democrats such as Sens. …


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