[Congressional Record (Bound Edition), Volume 145 (1999), Part 3]
[Senate]
[Pages 3835-3837]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      KNOW-YOUR-CUSTOMER AMENDMENT

  Mr. LEVIN. Mr. President, on Friday, an amendment was offered to the 
Ed-Flex bill to block implementation of certain regulations which the 
banking regulators had proposed for financial institutions to establish 
Know-Your-Customer programs. That amendment is still pending before the 
Senate. On Friday, my colleague from the Banking Committee, Senator 
Sarbanes, made a number of thoughtful comments about

[[Page 3836]]

the pending amendment. Today, I would like I to express some concerns 
about it as well.
  First, like Senator Sarbanes, I am struck by the irony of dealing 
with an amendment that addresses banking issues wholly unrelated to 
education, at the same time Democrats are being denied an opportunity 
to offer amendments on educational issues much more relevant to the Ed-
Flex bill before us.
  Be that as it may, this banking issue has been put before us. And 
like all of my colleagues, I voted on Friday against tabling the 
pending amendment. I voted against tabling, because I think the 
amendment properly criticizes the proposed regulations for failing to 
protect ordinary law-abiding citizens from possibly unreasonable and 
invasive scrutiny by their financial institutions.
  At the same time, my vote against tabling was not a general 
endorsement of the amendment. To the contrary, like the proposed 
regulations it criticizes, the amendment is not drafted as carefully as 
it should be.
  The first part of the amendment prohibits the banking agencies from 
publishing ``in final form'' the flawed regulations proposed in 
December. I support that prohibition. But the second part of the 
amendment goes much farther. It also prohibits the banking agencies 
from proposing any regulation ``which is substantially similar to'' the 
proposals condemned in the first part.
  The question is what ``substantially similar'' means.
  If it means that the banking agencies should not propose know-your-
customer regulations without including adequate privacy protections, 
that is fine. But if means that the agencies may not propose any know-
your-customer regulations, no matter how finely tuned and protective of 
privacy, then the amendment is a serious mistake. If it means that 
agencies are not only prohibited from issuing regulations but should 
also start dismantling their existing know-your-customer practices, the 
amendment is a disaster.
  I say that because know-your-customer programs are today a key part 
of law enforcement efforts to stop money laundering. Virtually all 
major financial institutions operating in the United States today have 
well developed know-your-customer programs, and U.S. bank examiners 
already routinely test the adequacy and effectiveness of these 
programs. For example, existing examination procedures testing bank 
compliance with the most important anti-money laundering statute on the 
books, the Bank Secrecy Act, already spell out the elements of an 
adequate know-your-customer program and test that program as part of 
its ``core analysis.''
  The purpose of these know-your-customer programs is to stop financial 
institutions from unwittingly helping criminals to launder illegal 
proceeds.
  Ten or twenty years ago, if an individual walked into a U.S. bank 
with a million dollars stuffed into a duffel bag and asked the bank to 
wire the money to an offshore account in a foreign country, most banks 
would have done so with few or no questions asked. And the bank would 
have collected a nice fee for arranging the wire transfer.
  But that was before the United States embarked upon a world-wide, 
intensive effort to educate banks and foreign governments about the 
benefits of battling crime by stopping money laundering. The goals are 
to make banks wary of moving funds for criminals, to seize illegal 
funds in the banking system, and to put money launderers in jail and 
out of business.
  Congress has played a key role in the advancement of this law 
enforcement strategy. For example, the subcommittee on which I am the 
ranking minority member, the Permanent Subcommittee on Investigations, 
held landmark hearings 15 years ago on how criminals were using 
financial institutions in the United States to launder their funds. The 
House and Senate Banking Committees have held numerous hearings over 
the years outlining the problem and proposing legislation to detect and 
stop money laundering.
  In the last Congress, the House Banking Committee held a series of 
hearings and the Congress passed H.R. 1756, the Money Laundering and 
Financial Crimes Strategy Act. In this Congress, the leading crime bill 
proposed by the majority, S. 5, the Drug-Free Century Act, contains an 
entire title devoted to ``money laundering deterrence.'' Still another 
bill, H.R. 4005, the Money Laundering Deterrence Act of 1998, which 
passed the House by voice vote last year but was not brought before the 
Senate actually directed the banking agencies to propose know-your-
customer regulations within 120 days.
  That's because virtually all money-laundering experts will tell you 
that know-your-customer programs are one of the most important tools 
financial institutions have to prevent money laundering. Two examples 
explain why as well as illustrate how a sensible idea can be pushed too 
far.
  First, suppose a stranger walks into a bank with a million dollars in 
small bills and asks the bank to wire the cash to a foreign bank 
account. Should the bank wire the money and then, after the customer is 
gone, report the transaction to law enforcement, or should the bank 
first determine who the customer is and, if not satisfied, decline to 
transfer the money? To me, the answer is clear that the bank should 
determine who the customer is before moving any money.
  Second example. Suppose a longtime customer of the bank with a modest 
savings account deposits $3,000 into that savings account. Should the 
bank report that $3,000 deposit to law enforcement? To me, the answer 
is obviously no. That type of report would unreasonably invade the 
customer's privacy, as well as be a waste of time for law enforcement.
  Surely, we can design regulations that distinguish between these two 
examples. At a minimum, different rules should apply to customers 
holding assets or conducting transactions below a specified threshold. 
We already do that with currency transaction reports, and the same 
could and should be done with know-your-customer programs. Additional 
privacy protections should be provided to prohibit banks from using 
know-your-customer data for purposes other than law enforcement, such 
as to sell products to the customer or sell the customer's personal 
data to third parties.
  I do not support the current know-your-customer proposals, because 
they do not include these and other privacy protections.
  Unfortunately, the amendment before the Senate, in its zeal to 
condemn the proposed regulations, goes too far. The first section, 
which prohibits the banking agencies from finalizing the regulations as 
proposed in December, is fine. But the second section, which also 
prohibits them from publishing ``substantially similar'' regulations, 
is ambiguous and troubling.
  It is my hope that the supporters of the amendment do not intend to 
reverse the gains of the last twenty years and free banks of any 
obligation to know who their customers are. It is my hope that their 
intent is to protect ordinary law-abiding customers, but to keep the 
heat on money launderers by maintaining longstanding requirements that 
banks ask appropriate questions. It is my hope that their intent to 
require the agencies to correct the flaws in the proposed regulations, 
but not block all know-your-customer regulations no matter how narrowly 
or carefully drawn.
  The pending amendment could easily be clarified. However, given the 
current parliamentary situation, it is not clear that anyone will be 
permitted to offer the additional language. If no clarification is 
provided, I want the record to show that my support for the amendment 
is based on the understanding that the amendment's ban on 
``substantially similar'' regulations is a ban on know-your-customer 
regulations that lack adequate privacy protections for ordinary, law 
abiding individuals. It is not a ban on all future know-your-customer 
regulations, no matter how carefully drafted.
  Financial privacy is an important issue. It needs to be addressed. 
Senator Sarbanes is working on a comprehensive financial privacy bill 
that I hope this body is given an opportunity to consider. It is 
unfortunate that we are

[[Page 3837]]

being asked to address an important aspect of the financial privacy 
debate in such a rushed and inappropriate context. Which brings me back 
to Senator Sarbanes' original question about why we are adding banking 
amendments to an education bill instead of the education amendments 
America wants and needs.

                          ____________________