Big Brother Banks? FDIC has snooping plans

[Robert Hettinga <rah@shipwright.com>]

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>Big Brother Banks? FDIC has snooping plans
>By David M. Bresnahan
>Copyright 1998 WorldNetDaily.com
>
>
> Are you a potential criminal? Are you a threat to banks, airlines, a
>potential spy, or perhaps an IRS tax protester? The government
>would like to know and they are about to force banks to be their
>detectives.
>
>The federal government wants banks to investigate you. Soon your
>banker will know more about you than anyone else in town. Banks
>must not only determine your correct identity, they must also know
>how you make your money, and how you spend it. Once you
>establish a pattern of deposits and withdrawals, banks must inform
>federal agencies when you deviate.
>
>Bank customers may soon find themselves explaining to the FBI,
>Internal Revenue Service, and the Drug Enforcement Agency why
>they made a $15,000 deposit to their bank account. According to
>current Federal Deposit Insurance Corporation plans, banks will
>soon establish "profiles" of their customers and report deviations
>from those profiles.
>
>If you sell a car, for example, and place the proceeds in your
>account while you shop for a new one, a red flag may go off in the>bank
> computer. Such a situation puts law abiding citizens in a
>situation where they must prove they are innocent, says Scott
>McDonald of the watchdog group Fight the Fingerprint.
>
>An uproar from grass roots Americans is the only thing that will
>stop the current plans for the FDIC "Know Your Customer"
>program, according to McDonald. His organization has led the
>charge against the national ID, medical ID, and computerized
>information about private aspects of people's lives.
>
>A recent announcement by the FDIC provides for citizen comment
>prior to implementation of their new banking regulations. The
>deadline for comments is Dec. 27, 1998.
>
>"The FDIC is proposing to issue a regulation requiring insured
>nonmember banks to develop and maintain 'Know Your Customer'
>programs," according to a recent FDIC information package sent
>to Congress to provide notice of proposed rulemaking, and to
>banks for comment.
>
>"As proposed," the 29-page FDIC document begins, "the
>regulation would require each nonmember bank to develop a
>program designed to determine the identity of its customers;
>determine its customers' source of funds; determine the normal
>and expected transactions of its customers; monitor account
>activity for transactions that are inconsistent with those normal and
>expected transactions; and report anytransactions of its customers
>that are determined to be suspicious, in accordance with the
>FDIC's existing suspicious activity reporting regulation. By
>requiring insured nonmember banks to determine the identity of
>their customers, as well as to obtain knowledge regarding the
>legitimate activities of their customers, the proposed regulation will
>reduce the likelihood that insured nonmember banks will become
>unwitting participants in illicit activities conducted or attempted by
>their customers. It will also level the playing field between
>institutions that already have adopted formal 'Know Your
>Customer' programs and those that have not."
>
>Many banks across the country have already begun to implement
>such programs, according to the FDIC. A quick search of the
>Internet found many stories in press accounts of problems reported
>at such banks. There have been a number of stories dealing with
>banks requiring fingerprints to open accounts and to cash checks.
>There are several lawsuits presently underway testing the right of
>banks to make that requirement.
>
>McDonald has been fighting that issue, along with fingerprints on
>driver's licenses for some time. He pointed out the many errors
>found on credit reports and suggested that banks will soon make
>similar errors when they begin creating profiles of their customers.
>
>The FDIC is selling the planned regulations by pointing out the
>need for prevention of financial and other crime.
>
>"By identifying and, when appropriate, reporting such transactions
>in accordance with existing suspicious activity reporting
>requirements, financial institutions are protecting their integrity and
>are assisting the efforts of the financial institution regulatory
>agencies and law enforcement authorities to combat illicit activities
>at such institutions," says the FDIC.
>
>The proposed regulation is, according to FDIC spokesperson Carol
>A. Mesheske, authorized by current law. It comes from the
>statutory authority granted the FDIC under section 8(s)(1) of the
>Federal Deposit Insurance Act (12 U.S.C. 18189s)(1), as amended
>by section 259(a)(2) of the Crime Control Act of 1990 (Pub. L.
>101-647).
>
>The FDIC claims that the law requires them to develop regulations
>to require banks to "establish and maintain internal procedures
>reasonably designed to ensure and monitor compliance with the
>Bank Secrecy Act. Effective 'Know Your Customer' programs
>serve to facilitate compliance with the Bank Secrecy Act."
>
>The proposed regulations will mandate that all banks insured by
>the FDIC must maintain an intelligence gathering department that
>screens out customers and keeps an eye on existing customers.
>Before you decide to move your money to a credit union, you
>should know that the FDIC is not the only federal organization
>making such plans.
>
>"Each of the other Federal bank supervisory agencies is proposing
>to adopt substantially identical regulations covering state member
>and national banks, federally-chartered branches and agencies of
>foreign banks, savings associations, and credit unions. There also
>have been discussions with the Federal regulators of non-bank
>financial institutions, such as broker-dealers, concerning the need
>to propose similar rules governing the activities of these non-bank
>institutions," reports FDIC attorney Karn L. Main in the proposal.
>
>The purposes for the regulation are to protect the reputation of the
>banks, to facilitate compliance with the law, to improve safe and
>sound banking practices, and to protect banks from being used by
>criminals as a vehicle for illegal activities.
>
>Current customers will be subjected to the new regulation in the
>same way new customers will be scrutinized. The FDIC does not
>wish to permit any loop hole which would leave any bank
>customer unidentified or unsupervised.
>
>Each bank will create profiles. The first profile will determine the
>amount of risk a potential customer might present by opening an
>account. The system of profiling potential customers will be
>different from one bank to the next, since the FDIC does not
>provide a uniform program. The purpose of the profile is to
>identify potential customers who might use a bank account for
>funds obtained through criminal activity.
>
>The next profile will be one that is used by automated computers
>to determine when suspicious activity is taking place in an account.
>When activity in the account does not fit the profile, banks will
>notify federal authorities so they can investigate.
>
>Banks are expected to identify their customers, determine normal
>and expected transactions, monitor account transactions, and
>determine if a particular transaction should be reported.
>
>The FDIC has sent copies of the proposal to all banks and is
>asking for input. The questions asked by the FDIC in the proposal
>do not ask whether the regulations should be put into place, only
>how to implement them in the best way. None of the questions in
>the proposal are directed to bank customers.
>
>The FDIC reassures banks that because the requirements will be
>universally applied to all banks it will not hurt their business and
>drive away customers. The proposal does not mention penalties for
>non-compliance, nor is there any mention of regulations to provide
>access to bank records by customers so errors can be found and
>corrections made.
>
>"If 'Know Your Customer' programs are required, insured
>nonmember banks can more easily collect the necessary
>information because customers cannot turn readily to another
>financial institution free of such requirements," stated the proposal.
>
>Comments from the public may be sent to Robert E. Feldman,
>Executive Secretary, Attn: Comments/OES, Federal Deposit
>Insurance Corporation, 550 17th Street N.W., Washington, DC
>20429 or faxed to (202) 898-3838 or e-mailed to
>comments@FDIC.gov.
>
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-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'