Wednesday, April 13, 2005

Patriot Act Title III, The Bank Secrecy Act and Liberty

Today on, Richard W. Rahn wrote an excellent piece directed at financial rules requiring banks and other financial institutions to "know their customers". While this may initially seem a good idea, Mr. Rahn points out that in practice it has hampered the ability of many to obtain bank accounts. Click here for the article.

The rules that he discussed come directly from two sources - the USA Patriot Act Title III and the Bank Secrecy Act. If you do not know about these, allow me to give you some brief highlights:

-Banks and other financial businesses are forced to implement programs to report suspicious activity to the gov't. What suspicious activity means exactly is quite ambiguous.
-"Other financial businesses" include savings and loans, credit unions, casinos, car dealers, check cashing businesses and eventually insurance companies.
-These businesses must know their customers and verify their identities or face stiff penalties.
-Any financial transaction over $10,000 will be reported to the gov't.
-Smaller transactions may also be reported if the business has any reason to believe it involves money laundering.
-The definitions of all the terms used are sufficiently vague that compliance has become an anybody's-best-guess game. A web site had to be set up to take Q&A on compliance issues, and most of the answers are also vague.

Who bears the costs of these programs? WE ALL DO. The financial institutions must set them up, monitor them daily, assign a specific person for accountability and train their staff to recognize possible suspicious activity. Do you think that translates into higher fees, premiums, and service charges? Absolutely.

What we do not know is how much of this information is actually used in the curtailment of terrorist activity. Every article I can find on the subject indicates a high amount of information reported to the gov't but a small percentage actually used for the intended purpose of "fighting terrorism."

My question - "Who are the terrorists wreaking havoc on domestic financial businesses?" It appears to me that it would be the Secretary of the Treasury.

Next time you visit the bank, remember, you are being watched.

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