-Caveat Lector- from: http://www.zolatimes.com/V3.8/pageone.html <A HREF="http://www.zolatimes.com/V3.8/pageone.html">Laissez Faire City Times - Volume 3 Issue 8</A> The Laissez Faire City Times February 22, 1999 - Volume 3, Issue 8 Editor & Chief: Emile Zola ----- Pearl Harbor, FDIC Style by Don L. Tiggre These days, you can hardly log on to the Internet without getting some alert or call to action forwarded by a friend, warning you of some dastardly plot by the Bad Guys. Often these are chain letters that are nothing more than scams created to waste the time of the gullible. Even more often they are genuine, but all the efforts of the well-intentioned come to naught, and the new regulation, tax, rights violation�whatever�goes into effect anyway. However, with Big Brother�s latest attempts to seize yet more power through unabashed snooping on everyone�s bank records, we may be seeing a change in the tide of futility. It started on December 7 (Pearl Harbor Day), 1998, when the Federal Deposit Insurance Corporation (FDIC) "joined other federal banking agencies in issuing for public comment proposals that would require banks and savings institutions to have policies and procedures in place for screening transactions that may be tied to money laundering, drug trafficking or other criminal activities." Word of the proposed regulation, called "Know Your Customer", was immediately flashed around the Internet, causing great dismay, even among people not normally politically inclined. The Know Your Customer rule (12 CFR 326) basically would turn all banks in the United States into unpaid informants for the IRS and a whole slate of federal and state law enforcement agencies. The banks would have to create, at their own expense, systems for monitoring all transactions of all of their customers, and report anomalous transactions to authorities. The given reason for the regulation are laws aimed at preventing the laundering of money earned through illegal enterprises. The upshot is that Joe Blow Taxpayer, who deposits his paycheck regularly and tries hard not to break any laws, can receive a modest inheritance and find himself at the center of an automated investigation. Or Josephine Blow, who takes a vacation in Vegas and deposits a modest amount of cash winnings in her bank account upon her return, can find herself being questioned by the FBI. Or kindly old Mrs. Goodneighbor, who withdraws a large amount of cash from her bank to pay a contractor to fix the corner of her house where a tree fell on it during the last storm, may get a call from her friendly neighborhood IRS agent. It wouldn�t even take a human to start the investigation, and it could happen to absolutely anyone. According to the FDIC, "The proposed regulation is intended to help protect the integrity and reputation of the financial services industry and assist the government in its efforts to combat money laundering and other illegal activities that may be occurring through financial institutions. It is intended to detect patterns of illegal activity often characterized by large cash deposits and withdrawals that are outside the normal and expected activity." Somehow, it just doesn�t seem that bankers have been having trouble sleeping night, worrying about what their customers might think if a drug dealer "laundered" his or her money in their banks. Declan McCullagh, of Wired and other magazines, reports that banks would send their reports to "the Suspicious Activity Reporting System [see FinCEN Advisory, Issue 8], a mammoth searchable database jointly administered by the IRS and FinCEN that went online in April 1996. Over a dozen agencies�including the FBI, IRS, Secret Service, bank regulators, and state law enforcement�share access to the data." It makes a lot more sense to suspect that overzealous law enforcement officers, the friendly kind who want to read everyone�s e-mail and put TV cameras at every traffic intersection, are just trying to bring the United States one step closer to the Orwellian nightmare that is their wet dream, than to think that bankers want their reputations protected. It is not much comfort when the FDIC says: "It should not affect, in any way, the vast majority of individual customers whose accounts are funded by payroll or other similar types of recurring deposits. Financial institutions are cautioned to avoid invading the privacy of customers by safeguarding and handling their financial information responsibly." Yeah. Right. It�s not the bankers people are worried about (though nobody likes having nosy bankers sniff through their every transaction either). No wonder a huge number of bankers have objected to the new regulations; they get to take the heat for snooping on their customers, and have to foot the bill for the privilege. A letter from FDIC director Nicholas J. Ketcha Jr. to bank CEOs says that the new rule "would require each financial institution to have a written program, approved by the bank's board of directors, that would include provisions to enable the bank to: delineate appropriate documentation requirements and due diligence procedures, provide for identification and transaction monitoring procedures, and identify transactions that would be subject to the suspicious activity reporting requirements." No wonder bankers don�t like the proposed rule. But wait, there�s good news for the bankers who get stuck doing the dirty work: "Additional guidance will be issued in the form of a booklet or brochure that will give more detailed information on how to comply with the requirements, and will include examples of the types of procedures or documentation that would achieve compliance." Oh joy. The letter also states that "the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision have also proposed similar �Know Your Customer� regulations." This offensive against the financial privacy of all individuals living in the United States is obviously being coordinated�possibly from the White House directly, or from other offices high up in the federal government�by people who either are completely out of touch with "the people" or who genuinely don�t care what the peasants think. Almost surprisingly, the people do seem to care, and have turned up the heat on the FDIC and its cronies. It must have come as quite a shock to some folks in Washington when an obscure entry in the federal register stirred up a torrent of angry responses from large numbers of individuals all across the country. Comments on the proposed regulation are due by March 8, 1999. "The FDIC welcomes public comment, an important element in the federal rulemaking process." What a laugh! Mr. Robert E. Feldman, Executive Secretary (who can be reached at [EMAIL PROTECTED]) must be just delighted by the flood of e-mail he�s getting and has to tabulate. As of February 12, 1999, Mr. Feldman had received some 30,000 comments tabulated as follows: KNOW YOUR CUSTOMER ISSUES ISSUEASSOCATIONBANKBANK HOLDING COINDIVIDUALLAW FIRMLEGISLATORSTATE REGULATORUNKNOWNOTHERTOTALCustomer Definitions7231226461040515Cost Burden1468761198530191923Competitive Disadvantage104260571310411016 Privacy567528180523070495619010Account Size Threshold15118112000137 Authority1719516204102022196470Y2K6101239640111512Significant Adverse Impact9298336851012687Electronic Banking Compliance280470100361Scope of Regulation3153220822001371Redundant8404047221024893Effective Date3401151 000060Establish Plan w/in 6 months119010000021Program Contents0500972100 1151Internal Controls/Training2270550000185Documentation Availablility1 240112000038Ineffective Crime Measure416421435500281620Opposed in General (no reason)4180205100011102094Other**15304235235411311387816339523035049 8326211012739542 * Numbers do not match for technical reasons, information requests marked initially as comments, duplicates, etc.** Examples of substantive comments in OTHER-- Abuse of Power-- Criminalizes citizens-- paper work burden The table above is from the FDIC�s web site. It�s structured in an odd way that makes it difficult to see what�s being reported, but it does show a great deal of opposition from individuals and bankers on the grounds of privacy and "authority", and more clumps of objections nearer to the hearts of bankers. Note that there is no row for "approve" or "we think this rule is just wonderful!" The "OTHER" comments are quite telling too�Mr. Feldman is indeed getting quite an earful. So are members of Congress. On February 11, the House Banking Committee discussed the "Know Your Customer" rule with Federal Reserve Chairman Alan Greenspan. Representative Ron Paul was, as might be predicted, trying to get Greenspan to back the Fed off the rule, but Dr. Paul was clearly not the only member who had heard from a large number of constituents who wanted to see the rule quashed. Greenspan was cagey with his replies, but the bottom line of the conversation was that the committee was telling the Fed they wanted to see the rule deep sixed, and Greenspan was saying that the Fed would do the right thing after the comment period is over. Remember: that period will be over on March 8, 1999, so interested parties should go ahead and write to Mr. Feldman ASAP�vote early and vote often! If the "Know Your Customer" rule does get scuttled, the implications for advocates of the freedom philosophy will go far beyond the issue of privacy in banking. Unlike victim disarmament laws and other rights-violating measures the Feds take that pick on minorities small enough to be ignored, this one touched on every adult American in a way they could easily understand. And it was largely through the Internet that word got out and gave people the opportunity to voice their displeasure with the Beltway Bandits. Make no mistake, if the "Know Your Customer" rule is stopped, it will be because of the Internet. The inability of Internet activists to stop the "Communications Decency Act" may have emboldened the Washington crowd, lulled many of them into a false sense of security about being able to ignore the "information superhighway." But that was several years ago, and the number of people who are on-line is growing so quickly that what was true then is no longer true now. Jesse Ventura�s use of the Internet to upset the establishment and take the Minnesota governorship may have been the first wakeup call that really forced establishment types to face the fact that times are changing. The demise of the "Know Your Customer" rule, if it comes to pass, will send another shudder through their collective body�an adrenaline-driven shudder of pure fear. With luck, the pro-freedom coalition will be able to stave off the renewed attacks statists direct at the Internet, and we will be able to use the power of information to turn the tide even further against statism with every passing year. ------------------------------------------------------------------------ Don L. Tiggre is the author of Y2K: The Millennium Bug, a suspenseful thriller. Tiggre can be found at the Liberty Round Table. -30- from The Laissez Faire City Times, Vol 3, No 8, Feb. 22, 1999 ------------------------------------------------------------------------ Published by Laissez Faire City Netcasting Group, Inc. Copyright 1998 - Trademark Registered with LFC Public Registrar All Rights Reserved Disclaimer The Laissez Faire City Times is a private newspaper. Although it is published by a corporation domiciled within the sovereign domain of Laissez Faire City, it is not an "official organ" of the city or its founding trust. 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