ANTI-MONEY LAUNDERING PLANS SCRAPPED

WASHINGTON -- Banking regulators, responding to a public outcry over privacy
concerns, scrapped proposed anti-money laundering rules Tuesday that would
have tracked the transaction patterns of bank customers.

The "Know Your Customer" rules were put out for public comment in December
by four federal banking agencies.

Since then, the Federal Deposit Insurance Corp. alone has received some
225,000 e-mail messages and letters, nearly all opposing the rules.

Privacy advocates, conservative groups, ordinary people and the nation's
bankers have complained that the rules would turn every bank teller into a
spy for Big Brother.

They maintained the rules were unconstitutional and would violate
prohibitions against unreasonable search and seizure.

Early this month, the Senate joined the deluge of criticism, voting 88-0 to
express support for a measure directing the regulators to drop the proposals.

In a statement issued Tuesday after agency officials voted at open meetings,
the four agencies said they had received "an unprecedented number" of
comments protesting the proposal on privacy grounds.

The regulations would have required banks to verify their customers'
identities, know where their money comes from and determine their normal
pattern of transactions.

The current requirements for banks to report any "suspicious" transactions
to law enforcement authorities would have been expanded.

Lawmakers and bankers reacted swiftly and positively to the regulators'
action. Senate Banking Committee Chairman Phil Gramm, R- Texas, for example,
said he was "glad to know that there are regulators who will listen to real
people and walk away from a bad idea."

Donald Ogilvie, executive vice president of the American Bankers
Association, said the rules would have put banks "in the untenable position
of invading their customers' privacy and potentially could have eroded
public confidence in the banking industry."

The regulators' decision to withdraw the proposal "does not diminish in any
manner our long-standing support" for other federal laws designed to fight
money laundering, the agencies' statement said.

The statement was issued by the FDIC, the Federal Reserve Board, the Office
of Thrift Supervision and the office of the Comptroller of the Currency,
which oversees nationally chartered banks.

Money launderers should not be encouraged because the "Know Your Customer"
rules are being scrapped, a senior Treasury Department official said. The
official, who spoke on condition of anonymity, said the department is still
engaged in "vigorous enforcement" of existing rules prohibiting money
laundering.

The proposed rules were designed to combat money laundering techniques used
by drug traffickers and other criminals to hide illegal profits. Money
laundering, which is a major concern of law enforcement officials, reached
an estimated $30 billion in this country last year.

Laundering includes the use of wire transfers and bank drafts as well as
"smurfing," the practice of breaking down transactions into smaller amounts
that do not have to be reported under the Bank Secrecy Act.