The Bank Spying Law

A law that only the KGB or the Gestapo could love -- the chilling, so-called "Know Your Customer" proposal that would require banks to spy on their customers -- was scheduled to go into effect unless Americans stopped it by the March 8, 1999 deadline. They did -- for now. 

On that date, the Federal Deposit Insurance Corporation (FDIC) stopped taking public comments about the so-called "Know Your Customer" regulation. Already, more than 240,000 people contacted the agency to oppose the proposal on constitutional, privacy, or civil liberties grounds.

And no wonder. This regulation, published in the Federal Register on December 7, 1998, required banks to create a profile of every customer and then notify the government if they do anything "suspicious." Specifically, it required banks to determine their customer's sources of funds; determine their customer's "normal and expected" transactions; identify transactions that are inconsistent with expected patterns; and report suspicious activity to federal investigators.

In other words, the government wanted to turn every bank teller into a government informer and everyone with a bank account into a criminal suspect -- and still does. God help you if you were ever grouchy to any bank employees (or their relatives) some day, and one of them decides to turn you in. Only the volume of protests stopped them until they can think of a way to get it done surreptitiously. Remember, power corrupts. And these regulators want more. 

The government's rationale for imposing this regulation: To catch money launderers. But how is monitoring everyone's bank account to check for laundered money different from searching everyone's home to check for stolen goods, or stopping every car to check for drunk drivers?

It isn't, of course. In America, we're supposed to be innocent until proven guilty -- not the other way around.

So what kind of "unusual activity" could set off a red flag at your bank under Know Your Customer? Anything that deviates from your normal pattern, like depositing a Christmas bonus or inheritance, or withdrawing money to buy a house or car. Soon, an ordinary trip to the bank could turn into an interrogation, with Americans trying to prove to agents from the FBI, the Internal Revenue Service, or the Drug Enforcement Agency that they are not drug dealers or money launderers.

In order to put the brakes on this Big Brother banking law, the Libertarian Party joined a coalition with the ACLU, the California Bankers Association, the Free Congress Foundation, and others to flood the FDIC with comments by the March 8 deadline. Unless it was stopped, the regulation was scheduled to go into effect on April 1, 2000.

But stopping Know Your Customer wasn't easy. Even after being pummeled by 240,000 comments already -- 3,000 times as many as the FDIC normally receives in response to a proposed regulation -- the bureaucrats still haven't gotten the message. 

It's the same old conflict that has marked the 20th century in America, that between the now-empowered obsessive-compulsive (and often hysterical) control freaks versus the Jeffersonian advocates of live-and-let-live liberty. Thomas Jefferson, you may recall, said, "I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it." as well as, "I own I am not a friend to a very energetic government. It is always oppressive." 

Now they're suggesting that Know Your Customer simply needs to be "reformed." Wrong! The last thing America needs is a reformed bank spying law. Are we supposed to accept poison so long as it's watered-down? Just say "NO!" Our message to the FDIC is: don't reform it; repeal it. Here's why:

* Americans' banking habits are none of the government's business. In a free society, the government has no business asking where innocent Americans get their money or how they spend it. This is the kind of regulation one might have expected in East Germany, North Korea, or Cuba. But in the United States of America?

* It's an illegal, warrantless search that violates the Fourth Amendment. This new rule would force banks to turn over customers' records to government investigators within 48 hours -- without a search warrant. This is unconstitutional, plain and simple.

* There is no money-laundering crisis in America. Of the 7,300 people charged with money laundering between 1987 and 1995, only 580 were convicted. So the government is proposing to invade the banking privacy of over 100 million Americans because of crimes committed by an average of only 72 (yes, that's right -- seventy-two!! ) people a year.

* Know Your Customer could subject customers' money to asset forfeiture. If customers can't immediately prove they're not criminals, the government could seize their money under asset forfeiture laws already on the books which allow police to impound the property of Americans without even charging them with a crime. Perversely, instead of being the safest place to store your money, banks could become the most dangerous place.

If there's anything positive about the unlegislated "Know Your Customer" regulation, it's that it teaches Americans a lesson: Know Your Government. In a supposedly free country, your government is plotting to destroy your financial privacy and force your bank to spy on you, with no evidence that you've done anything wrong.

Now that's a crime. They're going to keep trying new ways to implement it. And we have to prevent it.

Here's how: Visit the website,, follow the suggestions there, send a comment to the FDIC and, if you wish, to your Congressmen. If you don't have internet access you can write to Robert E. Feldman, Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, NW, Washington DC 20429 or fax him at: (202) 898-3838.


Other references: 

Amendment IV to the Constitution of the United States: 
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Amendment X to the Constitution of the United States: 
The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people. 

Rep. Ron Paul introduced "Right to Privacy" Package

Why Government Cares About Your Bank Account

Big Brother at the Bank


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