Magazine article American Banker

Gauging the New Law's Consumer Impact

Magazine article American Banker

Gauging the New Law's Consumer Impact

Article excerpt

Soon after President Bush signed the USA Patriot Act in October, bankers and consumer privacy advocates learned that the anti-terrorist law would have long-lasting implications on how the financial services industry handles its customers' information.

The act's Title III -- officially the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 -- is causing the most concern in the industry.

Title III targets the relationships between U.S. financial institutions and those based in poorly regulated jurisdictions. It requires U.S. banks to ascertain the true identity of the institutions and individuals with whom they conduct business, particularly through correspondent and private-banking relationships.

But it is unclear how Title III will affect consumers and the private information held about them by their financial institutions. While the specifics of the act are still being hammered out by the Treasury Department (see related story on page 10), consumer advocates and privacy groups continue to mull the act's various provisions.

For now these groups appear evenly divided on their forecasts of the law's ramifications. Some say the act gives the federal government too many new and expanded powers to snoop into consumers' financial lives without their knowledge or consent. Other say it is a generally benign attempt to codify some banking regulations that have existed for nearly 30 years.

"There are a lot of intersecting provisions (in the act) that implicate the privacy of banking customers, and efforts to expand reporting requirements and suspicious activity," said Marc Rotenberg, the director of the Electronic Privacy Information Center, a Washington-based privacy group. "One of the post-9/11 things is to weaken these provisions on law enforcement access, and I think this is happening here."

Gary Clayton, the chairman of Privacy Council Inc., a for-profit company in Richardson, Tex., that specializes in protecting private corporate information, disagreed.

"With any law, it depends on how it is used, and the impact will depend on the final regulations and how banks will implement them," Mr. Clayton said. "I don't have a big concern for now, and for financial institutions, (the act) seems primarily to spell out more clearly what they need to do and expands their ability to fight money laundering as it is explicitly related to terrorism."

The majority of consumers are similarly conflicted, according to a survey conducted by Harris Interactive after the Sept. 11 terrorist attacks. Eighty-one percent of the respondents said they favored increased government monitoring of banking and credit card transactions to intercept terrorists. Similarly, 93% said they favored expanded investigative powers to penetrate suspicious groups.

However, nearly 80% of the consumers said they had either a moderate or high degree of concern that the judges who authorize investigations would not look closely enough at the justification for the increased surveillance. Similarly, 78% said they feared Congress would not include adequate safeguards for civil liberties when authorizing this increased surveillance.

"I don't think people are worried," said Alan Westin, the publisher of Privacy & American Business, a New York-based newsletter, who assisted with the formulation of the Harris survey's questions. "They have drawn a distinction between themselves and a small group of people that are terrorists, but the public is also concerned that judges and Congress won't impose proper and adequate safeguards."

Ironically, much of what the USA Patriot Act codifies has been part of banking regulations since the Bank Secrecy Act was enacted in 1970.

"Most if not everything that affects our members we are already required to do," said John Byrne, the senior counsel and compliance manager for the American Bankers Association in Washington. …

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