Page 145 - Information and American Democracy Technology in the Evolution of Political Power

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preliminary regulations that would be called “Know Your Customer.” Ac-
cordingtoofficialsoftheagencies,membersofthebankingindustrywere
very active in crafting the regulations with agency staff. Although the four
agencies possessed the authority to act without additional authorization
from Congress, in 1998, a bill passed the House without fanfare that
required the Treasury Secretary to promulgate “Know Your Customer”
rules within 120 days. 38
By the end of the year, the House bill had not been taken up in the
Senate, but the four agencies proceeded with the rule-making process
anyway.OnDecember7,theypublishedNoticesofProposedRulemaking
for nearly identical versions of a “Know Your Customer” policy that
was structured as further implementation of the Bank Secrecy Act. 39
The proposed regulations “would require each banking organization to
develop a program designed to determine the identity of its customers;
determine its customers’ sources of funds; determine, understand and
monitor the normal and expected transactions of its customers; and
reportappropriatelyanytransactionsofitscustomersthataredetermined
to be suspicious.” 40
In their regulations, the agencies revealed more of the nature of in-
dustry support than perhaps they should have. They wrote that the rules
were an aid to banks who were already required to report “suspicious”
activity and in particular to those already profiling their customers who
might have found it “difficult to convince customers of the need to
provide certain information.” Because customer profiling and report-
ing would “now be required by regulation, financial institutions will not
be prejudiced or criticized for needlessly inquiring into the affairs of
their customers” as compared with banks not using Know Your Cus-
tomer rules. 41 The regulations therefore constituted support for ma-
jor, mainstream banks over institutions not engaged in typical ABA
practices and provided them with an excuse for actions that might
be offensive to customers. From the perspective of December 7, when
the Federal Register published the proposed regulations, “Know Your
Customer” had all the earmarks of favored regulation provided by the

38
The Money Laundering Deterrence Act of 1998. See http://www.house.gov/banking/
hr4005rp.pdf.
39
Federal Register vol. 63, no. 234, part 2 (Washington, D.C.: Government Printing
Office), Dec. 7, 1998 (Federal Reserve System, 12 CFR Parts 208, 211, 225; U.S. De-
partment of the Treasury, Office of the Comptroller of the Currency, 12 CFR Part 21;
Federal Deposit Insurance Corporation 12 CFR Part 326; Department of the Treasury,
Office of Thrift Supervision, 12 CFR Part 563).
40 41
Federal Register, p. 67516. Ibid., p. 67517.
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