Page 144 - Information and American Democracy Technology in the Evolution of Political Power

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Consumer Protection and Privacy
disclosure and reporting requirements of the network of laws and reg-
ulations organized around the original Bank Secrecy Act, U.S. banks in
1998 filed about 100,000 reports of suspicious activities and 13 million
reports of currency transactions. 35
As a matter of private banking policy, most banks operating in the
United States in the 1980s and 1990s also employed some form of vol-
untary practice referred to in the industry as “knowing your customer.”
These practices were based on the principle that by learning individual
customers’ banking habits and patterns, banks can more readily distin-
guish legitimate and illegitimate financial dealings. Regular, large cash
transactions could be routine for one customer, who might be involved
in a retail business in a fully legal way, while a single large cash trans-
action by another customer might signal illegal activity. A report by the
American Bankers Association in 1994 showed that 86 percent of mem-
ber associations operated a “know your customer” policy of some kind
to aid in identifying crimes. 36
In the early and mid-1990s, some banks, as well as federal banking
authorities, developed interest in standardizing and formalizing these
37
policies. Standardization would provide banks with clearer guidelines
as to what constitutes “suspicious” activity, thereby helping them comply
with their reporting obligations, and it would streamline the workload
at the Treasury department where suspicious activity reports were man-
aged. In 1992, the Treasury department began discussing the possibility
of drafting federal regulations. In 1994, the American Bankers Associa-
tion released a position paper stating that “the banking industry is poised
to cooperate with the Treasury’s efforts to formalize what, to a large de-
gree, already exists in the commercial banking industry.” Many bankers
sought new rules to help them define their own requirements and avoid
potential competition between banks that were profiling their customers
and those that were not. By 1997, agency officials were prepared to ad-
vanceregulations,andthroughoutthatyearandthenext,FederalReserve
Board staff and officials of the FDIC, the Office of the Comptroller of
the Currency, and the Office of Thrift Supervision prepared and revised

35
Robert O’Harrow, Jr., “Disputed Bank Plan Dropped: Regulators Bow to Privacy
Fears,” Washington Post, March 24, 1999, pp. E1–E2.
36
American Bankers Association, “ABA Money Laundering Task Force Position on
Establishing a Know Your Customer Policy,” position paper (Washington, D.C.:
American Bankers Association, 1994).
37
Scott Barancik, “Know Your Customer Debate Cases a Widening Shadow,” American
Banker, Feb. 10, 1999, p. 4.
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