On Monday, December 7 the Federal Depositors Insurance Corporation (FDIC) as well as three other financial regulatory agencies published their versions of the "Know Your Customer" (KYC) rules in the Federal Register. When these rules go into effect after 90 days they will "level the playing field" between institutions that have their own KYC policies and those who don't. This will make the system of banking surveillance universal and mandatory, effectively closing the gap to bank customers who wish to avoid invasive snooping into their personal affairs.
Last week's entries into the Federal Register revealed a sweeping effort to impose KYC regulations on U.S. banking institutions. "Know Your Customer" is a laundered term for the practice of spying on bank customers, although its ostensible purpose is to stop money laundering. The new regulations will require bankers to develop profiles on their customers, monitor their transactions and report any "suspicious" or irregular transactions to the authorities. The new reporting requirements will be in addition to the "Suspicious Activity Reports" (SAR) that banks are already required to file on "suspicious" cash transactions. "Suspicious" means whatever the bank decides it means. You don't have to violate the law for the bank to report you to the Treasury Department. It can be your looks, your demeanor, or a teller's bad hair day that triggers a report on that cash you withdrew.
Cash is something used by criminals, we're told, and the new "Know Your Customer" requirements will make it even harder for honest people to use cash. Already bank patrons are criminalized if they "structure" their bank withdrawals, taking out small amounts over time so as to avoid the reporting requirements on cash transactions over $10,000. "Structuring" is a federal crime.
As expected, the FDIC published its NPRM (Notice of Proposed Rulemaking) which was brought to light last week. However, the Federal Reserve (FRB), the Comptroller of the Currency (OCC), and the Thrift Supervision Office (OTS) also published similar NPRM's on Monday, each announcing rules to enforce KYC in their particular jurisdictions of the banking industry. While each rule is worded to enforce the KYC program, they are based on varying legal authority, creating a multiplied tangle of legal arguments that has effectively watered down any opposition.
The "Know Your Customer" program is not a recent innovation by federal regulators. It didn't even originate in Congress at the behest of the American public or the U.S. banking industry. It is a program that was conceived on the international level at the Organization for Economic Development and Cooperation (OECD), that secretive trade organization in Paris that tried to ram through the neutron bomb of trade agreements, the Multi-lateral Agreement on Investment (MAI). "Know Your Customer" is more or less becoming law around the world.
The OECD is made up of the world's wealthiest nations. In 1989 OECD delegates met in Paris and declared that money laundering was a threat to democracy and that steps had to be taken to tighten banking practices. They formed the Financial Action Task Force (FATF) which produced a document containing forty Recommendations, a word capitalized throughout their documentation. These Recommendations created the basis for the "Know Your Customer" program.
The Recommendations began by calling on all signatory nations to implement steps called for in the 1988 United Nations Convention against Illicit Traffic. The ostensible purpose of this convention was to combat illegal drug and arms trafficking by cracking down on, among other things, money laundering. The free and unmonitored movement of money was identified as a serious threat to the rule of law in the world.
The U.S. government's response to the FATF's Recommendations seem to imply they were more than, well--just recommendations. Following came the typical Byzantine legislation and administrative rule making in Washington in response to the international edict. Bills such as the Crime Control Act of 1990 and the Banking Secrecy Act of 1992 contained provisions that introduced "Know Your Customer" principles into U.S. banking. Reporting requirements on cash transactions over $10,000 and other "suspicious" financial activity are a product of the FATF's forty Recommendations.
Even though KYC practices were encouraged by federal law, banking regulators had not yet drafted rules requiring a universal implementation. Some U.S. banks had developed their own KYC programs and some had not, while a majority of the OECD countries had mandated KYC rules for all their banks through a variety of legislation or administrative fiats. The United States was falling dreadfully behind.
On April 28, 1998, ministers of the FATF held a meeting at the OECD in Paris where they reaffirmed their purpose to build a strong global alliance against money laundering. They announced a five year plan (1999-2004) to introduce KYC into all regions of the world, a monumental task that would include bringing other nations into the OECD's FATF, as well as creating regional FATF's that would be plugged in to a global money financial crimes network.  In other words, by the year 2004 they plan to have all the holes in the global financial system plugged up, and that included the holes in the U.S. banking system.
Congress once again had its marching orders. On June 5, 1998, a little over one month following the FATF meeting, Congressman Jim Leach introduced H.R. 4005 entitled The Money Laundering Deterrence Act. This bill would have required the Secretary of the Treasury to draft rules that would make KYC practices universal and legally binding throughout the United States banking system. H.R. 4005 has not yet been signed into law, but a similar and more comprehensive bill entitled The Money Laundering and Financial Crimes Strategy Act of 1998 (H.R. 1756) was introduced on June 28 and later signed into law by the president. The recent NPRM's issued by the FDIC, the Federal Reserve Board, the Comptroller of the Currency, and the Thrift Supervision Office on December 7 is the merely the end result of a policy that was conceived on the international level, rubber stamped by Congress and passed down to federal regulators for implementation. We are now at the final step.
Like other decrees that are issuing from the gilded palaces of international finance, this one is accompanied by a media event contrived to create public acceptance for the new regulations -- and to make an example for all to see. On December 4, just a couple of days before banking regulators published their NPRM's in the federal register, bank officials everywhere as well as the rest of America woke up to the morning news which announced that Citibank had been accused in a congressional report of money laundering.
Citibank has allegedly failed to abide by its own KYC procedures when it handled $100 million for Raul Salinas, brother of former Mexican President Carlos Salinas, from 1992 to 1995. There is no evidence that the money was obtained illegally, and Raul claims he received the money from rich Mexicans as part of an investment scheme. According to the government's report the problem isn't that Raul's money was illegally obtained, but that Citibank should have done a background check on him when he opened his account. CNN announced on December 4 that Citicorp's CEO informed stockholders that the company could be criminally indicted and convicted for money laundering -- that is, failure to identify and determine the source of this customer's funds.
The point made to the banking industry is clear. It doesn't matter if there is any proof that the customer's funds are illegally obtained. Failure to "Know Your Customer" -- that is, intrude into the details of their lives -- and you and your bank will suffer the consequences. We can be sure that the lesson is not lost on the CEOs and officers of this nation's financial institutions.
Of course, as representatives of international finance, the U.S. government would like to spare every financial institution the humiliation and expense of being charged with money laundering because they failed to adequately spy on their customers. Because the government cares so much it is moving forward now with universal and mandatory KYC requirements. The FDIC's NPRM summary reads:
When transactions at financial institutions involving illicit funds are revealed, these transactions invariably damage the reputation of the financial institutions involved....
By requiring ... banks to determine the identity of their customers, as well as to obtain knowledge regarding the legitimate activities of their customers, the proposed regulation will reduce the likelihood that insured nonmember banks will become unwitting participants in illicit activities conducted or attempted by their customers....
The OCC's summary makes the same statement:
Illicit activities, such as money laundering, fraud, and other transactions designed to assist criminals in their illegal ventures, pose a serious threat to the integrity of banks. When transactions at banks involving illicit funds are revealed, these transactions invariably damage the reputation of the banks involved.
How thoughtful of the government to worry about the reputation of our local bank in this manner, a reputation that could be easily smeared by an ugly money laundering case spread across the headlines. No, a criminal indictment would not be pretty, so making KYC procedures a federal law will protect bankers from slipping up and letting someone keep their privacy. How considerate.
So far the feigned concern over the "reputation" of this nation's banks wears quite thin. The possible implications of a bank becoming an "unwitting accomplice" to money launderers fail to justify such a comprehensive surveillance network that will encompass everyone doing business with a bank.
It's not just our banks reputation that federal regulators are concerned about, but the problems they may have with angry customers who don't care for being spied on. A Federal Reserve Board memo, released by Congressman Ron Paul's office, puts it this way:
Banking organizations that already recognize the value of effective "Know Your Customer" programs and have implemented such programs may have found it difficult to convince customers of the need to provide certain information, especially when other financial institutions do not ask for such information. Because such programs will now be required by regulation, financial institutions will not be prejudiced or criticized for needlessly inquiring into the affairs of their customers. Moreover, legitimate customers should be more willing to provide the information requested by the financial institutions because they will be aware that a similar legal responsibility exists for all banking organizations supervised by the federal bank supervisory agencies.
In other words, pulling personal information out of customers is an unsavory task. The Fed will help by making all banks do it, that way customers won't have any alternatives. In fact, when they see it is the law they will comply like good little sheep. This memo also urges that the "bank establish, to its own satisfaction, that it is dealing with a legitimate person... " What in the world is a "legitimate person"? And since when should the public accept something because it is universally applied? Such statements reveal the incomprehensible logic of federal banking manipulators.
The stated purpose of "Know Your Customer" policies is to prevent criminals from using financial institutions to handle the proceeds from their illicit activities -- a practice called "money laundering." While there may be wisdom in targeting the proceeds of illegal activities, does that merit putting the entire world under surveillance? There is a saying in American jurisprudence that it is better for ten guilty men to go free than for one man to be wrongly convicted, and yet this American government wants to treat everyone like a criminal because just a few people "launder their money" -- a phrase that really means nothing to anyone but an army of bankers, accountants and government officials.
In America today we often think of crime as something that is against the law, as though man-made laws were the highest arbiter of right and wrong. We tend to view criminals in the same light -- those people who have broken the laws of the land. But crime is more than breaking the law, and a criminal more than someone who has violated the letter of the law. A crime occurs when a person or a group of conspirators, by using force or subterfuge, act to enrich themselves at the expense of others. As the founders of the American republic agreed, the purpose of laws and government was to protect the weak from the strong, the few from the many, and thus ensure domestic tranquility.
But those high principles quickly faded as government became more and more hostile to the governed and those principles that justify its existence. Augustine wrote: "Justice being taken away, then, what are kingdoms but great robberies?" , and we must ask ourselves the same question. When government becomes a tool of an influential group of people who would enrich themselves at the expense of the less powerful and influential, it becomes a system of organized crime. Every law is passed for the purpose of increasing its profits and rubbing out the competition. Law has become a tool of extortion and oppression. In many cases the criminals are not those breaking the laws but those who are making them.
The right to property and the freedom to conduct an economic transaction is among the most fundamental of human rights. "Know Your Customer" is an international spy network designed to restrict the exercise of this right, first, by marginalizing and restricting cash and, second, by monitoring and tracking every transaction. When economic freedom is destroyed, every other freedom becomes meaningless.
"Give me control over a man's economic actions, and hence over his means of survival, and except for a few occasional heroes, I'll promise to deliver to you men who think and write and behave as I want them to." Benjamin A. Rogge
FDIC to Force Banks to Spy on Customers
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