Copyright 1999 The Omaha World-Herald Company
Omaha
World-Herald
March 5, 1999, Friday METRO EDITION
SECTION: ;BUSINESS; Pg. 16
LENGTH: 1213 words
HEADLINE:
Bank Rule Plan Raises Privacy Flag How To Be Heard
BYLINE: STEVE JORDON
SOURCE:
WORLD-HERALD STAFF WRITER
BODY:
A proposal intended
to stop illegal money-laundering by making banks keep closer track of their
customers' transactions has drawn a record number of public comments - more than
40 times as many as any other proposed banking rule.
And nearly all of
them are negative.
Termed the "Know Your Customer" rule, the proposal
hit the public consciousness over the past three months at a time of heightened
concern over privacy, an age when personal
information seems to be an open electronic book.
Opponents of
the rule tapped into Web sites, radio talk shows and citizen groups concerned
about government intrusion into people's lives. As a result, the proposal
appears headed for a quick demise, even though the public comment period is open
through Monday. "I certainly hope that the proposal that's been issued is going
to be laid to rest," said Bob Hallstrom, legal counsel for the Nebraska Bankers
Association. "We have recommended that the proposal be withdrawn."
Sen.
Bob Kerrey, D-Neb., said the rule should be withdrawn because it threatens the
privacy of Nebraskans. He said enforcing the rule would strain the relationships
between banks and their customers and would subject bank customers to "uninvited
searches."
The House Banking Committee approved an amendment Thursday
that would kill the proposed rule. Reps. Lee Terry and Doug Bereuter, both
R-Neb., said they oppose the measure, and Bereuter wrote a letter saying he
can't understand the thinking of people proposing the rules.
"Are they
my fellow Americans?" he asked. "What planet do they come from?"
Even
Donna Tanoue, chairman of the Federal Deposit Insurance Corp., one of four
regulators proposing the rules, has said, "We are going to have to do something
different than what was proposed."
The FDIC, with its name displayed at
every bank, has gotten the most comment, counting about 150,000 responses
already. The previous record was under 3,500 comments, said Phil Battey,
director of communications for the FDIC.
The other regulators, which are
making nearly identical proposals, are the Federal Reserve, the Comptroller of
the Currency and the Office of Thrift Supervision.
The FDIC's governing
board expected a response, said spokesman Steve Katsanos, and specifically tried
to let as many people as possible know about the rule. The board wanted to hear
what the public had to say about the issues of privacy and the reporting burden
on banks.
The bankers' response was almost predictable. Any federal rule
that would require more forms and more reporting is met with opposition by
industry groups.
But this time, bankers said, the public had even more
to say about the proposal because it appeared the banks would have to pry into
their private financial lives - sources of income and specific banking
transactions.
Rep. Ron Paul, R-Texas, who ran for president on the
Libertarian Party ticket in 1998, posted the proposal on his Internet Web site,
calling it an example of government intrusion.
Religious broadcaster and
conservative politician Pat Robertson has discussed the proposed rule on
television, giving out the FDIC telephone number even though comments must be in
writing or sent electronically to be part of the review process.
The
Libertarian Party and other groups also have denounced the proposed rules and
organized letter-writing campaigns.
In the beginning, Katsanos and other
banking officials said, the proposal was rooted in a sound issue: Drug cartels
and other illegal syndicates had learned how to use banks to launder millions of
dollars in illegal sales. Law enforcement agencies would sometimes discover that
banks had been the unwitting channels of the illegal profits, and that sort of
publicity isn't good for a bank's reputation.
So Congress passed new
laws, including the Bank Secrecy Act, in the early 1990s, tightening up the
reporting that banks had to do when large sums of money flowed in and out of
accounts. The rules worked to some degree, but the law enforcement agencies
wanted closer controls, and Congress agreed, passing a general "know your
customer" requirement for banks.
But without specific standards on how
to spot potentially illegal transactions, bankers found themselves in uncertain
territory. They asked regulators to come up with more specific ways to follow
Congress' intent.
The current proposal was the result.
If
enacted, the proposal would require commercial banks to track financial activity
by their customers and to develop customer "profiles" that could be used to flag
unusual transactions. If a transaction didn't fit with the customer's normal and
expected mode of financial activity, there might be a report to file or an
inquiry.
For example, a large deposit in an account might trigger an
inquiry, even if it involved a customer who deposited an inheritance check
instead of a weekly paycheck.
Dodie Bauman, compliance manager with the
Iowa Bankers Association in Des Moines, said the association's members generally
believe that existing financial record-keeping rules provide enough safeguards
against illegal activity.
People now realize that their private
financial transactions are part of an electronic system. Banks promote home
computer banking, promising that other people can't tap into your account.
"I think there's still a really healthy skepticism about whether
(financial) information is truly encrypted or if it's available to be hacked
into," Bauman said. "This rule kind of hit in the middle of that concern and set
people off."
Hallstrom, from the Nebraska Bankers Association, said the
proposal sounded fairly reasonable when it was first raised. "But when you see
the profiling and monitoring activities in the rule, this would require a lot
more than anybody had envisioned."
So who still favors the rule?
"I haven't heard anybody that's been singing from that songbook,"
Hallstrom said.
After the comment period is over, the FDIC's staff will
review the comments and make recommendations to the FDIC board, which will
decide what will happen next.
Katsanos, the FDIC spokesman, said that
even though the current proposal has little chance of being enacted, there's
still a concern that banks may be vulnerable to being used for money-laundering
and other illegal transactions.
There's also a broader issue at stake,
he said: Should there be some sort of national legislation dealing with the
overall issue of consumer privacy?
How to Be Heard
To comment on
the proposed regulations, write:
Office of the Comptroller of the
Currency
Communications Division
250 E. St., S.W.
Washington, D. C. 20219
Attention: Docket No. 98-15
Jennifer J. Johnson, Secretary
Board of Governors, Federal
Reserve System
20th and Constitution Avenue N.W.
Washington,
D.C. 20551
Attention: Docket No. R-1019
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corp.
550
N. 17th St. S. W.
Washington, D.C. 20429
Attention: Comments/OES
Manager, Dissemination Branch
Records of Management &
Information Policy
Office of Thrift Supervision
1700 G St.
Washington, D.C. 20552
Attention: Docket No. 98-114
LOAD-DATE: March 5, 1999
