[Congressional Record Volume 145, Number 24 (Wednesday, February 10, 1999)]
[Senate]
[Page S1425]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD (for himself and Mr. Santorum):
  S. 403. A bill to prohibit implementation of ``Know Your Customer'' 
regulations by the Federal banking agencies; to the Committee on 
Banking, Housing, and Urban Affairs.


     legislation to prohibit implementation of know your customer 
                              regulations

 Mr. ALLARD. Mr. President, I rise today to introduce 
legislation to help protect the financial privacy of Americans. The so-
called Know Your Customer regulations proposed by Federal banking 
agencies threaten the privacy of our financial transactions. My bill 
would ensure that those regulations are not enacted, and that Americans 
can be confident in the privacy of their bank account.
  Governmental overregulation has invaded nearly every aspect of our 
lives, often at the cost of our privacy. Technology has the potential 
to accelerate the invasion of our privacy.
  The Know Your Customer regulations have been proposed by the four 
banking regulators: the Federal Reserve, the FDIC, the Office of the 
Comptroller of the Currency, and the Office of Thrift Supervision. 
These regulations may force banks to snoop through customers' bank 
accounts under the guise of looking for ``suspicious activity.'' Banks 
would have to know the source of funds for all financial transactions. 
Specifically, the regulations would require banks to develop standards 
of normal and expected transactions for all accounts. The bank then 
would be required to monitor all account activity to see if it fits the 
normal and expected activity profile. If a financial transaction takes 
place that doesn't fit the model, the bank could be forced to file a 
suspicious activity report with a federal law enforcement agency, such 
as the FBI or DEA.
  Imagine that you sell an old car and then go to the bank to deposit 
the money in your account. You explain that you simply sold your car 
and this is the money from the sale. However, you are informed that the 
explanation is insufficient. The deposit does not fit your usual and 
expected transaction profile, so you might be reported to law 
enforcement officials. You may now have to prove to the satisfaction of 
the FBI or other federal agency that you are not a drug dealer or money 
launderer. These proposed regulations could force you to prove your 
innocence before you have even been accused of a crime.
  Unfortunately, this scenario is one that could be repeated many times 
over. Anytime someone receives a bonus at work, receives an 
inheritance, receives a large gift, sells a large item, or withdraws 
money to make a major purchase it could trigger a suspicious activity 
report and an investigation by law enforcement. The perverse effect of 
causing law enforcement officials to investigate so much mundane 
financial activity merely because it deviates from some profile of 
``normal'' is that resources will be unavailable to combat genuine 
financial fraud.
  Would all this happen? We don't know, but the extremely broad and 
vague wording of the draft regulations could certainly permit it to 
happen.
  Furthermore, these regulations are unnecessary because banks already 
partner with law enforcement to fight financial crime without invading 
the privacy of customers. Banks currently report insider abuse, 
violations of federal law, and potential money laundering activity. But 
these are after the fact. Banks are also required to report all cash 
transactions over $10,000. By contrast, the proposed regulations would 
force them to snoop through accounts to look for transactions to 
report, merely because they are deemed ``suspicious.'' Banks are then 
transformed from an agent monitoring regulatory compliance to an 
investigator and enforcer for the government. This creates a 
significant unfunded federal mandate for the banking industry.

  Accordingly, the proposed regulations are opposed by major banking 
groups, including the American Bankers Association and the Independent 
Bankers Association of America. They fear a loss of privacy for their 
customers that would negatively impact their industry. In addition, 
these regulations are very selective-credit unions, securities firms, 
and insurance firms would not be subject to the proposed regulations.
  Obviously, these proposed regulations could be detrimental to the 
millions of Americans who use a bank for their financial transactions. 
This legislation would prevent the Federal banking agencies involved 
from implementing the proposed Know Your Customer regulations. We must 
protect the financial privacy of Americans, and prevent the proposed 
regulations from being enacted.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 403

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. PROHIBITION ON IMPLEMENTATION.

       (a) In General.--No regulation or amendment thereto 
     prescribed by the Secretary of the Treasury or any Federal 
     banking agency under subchapter II or III of chapter 53 of 
     title 31, United States Code, chapter 2 of Public Law 91-508, 
     or any other provision of Federal law, that requires a 
     depository institution or any other private entity to obtain 
     information concerning any person in connection with a 
     financial transaction between such person and the depository 
     institution or other private entity (commonly referred to as 
     ``know your customer'' regulations) may be implemented or 
     otherwise take effect on or after the date of enactment of 
     this Act.
       (b) Definitions.--The terms ``Federal banking agency'' and 
     ``depository institution'' have the same meanings as in 
     section 3 of the Federal Deposit Insurance Act.
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