NCPA - National Center for Policy Analysis

Regulators Want Banks To Monitor And Report On Accounts

December 10, 1998

A proposal by the Federal Deposit Insurance Corp. to instruct banks to monitor their customers for signs of money laundering has civil libertarians and privacy advocates up in arms.

  • The proposal calls for banks to set internal policies to verify customers' identities and sources of income.
  • Banks will then have to monitor the accounts for evidence of unusual transactions that might indicate illegal activities or money laundering.
  • If they detect a "suspicious transaction," they are required to alert law enforcement authorities.
  • The Clinton administration is also locked in a dispute with telephone companies and civil libertarians over the degree to which new phone equipment should be designed to facilitate wiretaps.

An earlier version of the "know-your-customer" rule, as it is called, was floated two months ago and drew little public attention. But when the latest version was published on Monday, privacy advocates such as U.S. Rep. Ron Paul (R-Texas) took up the matter. Paul's office began circulating a draft of the proposal and a full-fledged letter-writing campaign bloomed on the Internet and on talk-radio programs.

Between Monday and yesterday, the FDIC received nearly 3,000 complaints. An FDIC spokesman said that during his seven years on the job there, "I haven't seen anything like this."

Critics argue the directive violates the Fourth Amendment protection against illegal searches and seizures and that bankers should not be "deputized" as criminal investigators. Some bankers noted that "unusual" transactions are perfectly common. Small banks and customers are reportedly worried over the costs of complying with the rules. "If they have to charge me $27 to stop payment on one check," a customer wrote, "imagine what they will charge me to spy on me and my banking activities."

Source: Michael Allen, "Privacy Concerns Spark Criticism of Bank Rule," Wall Street Journal, December 10, 1998.


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