PRIVACY ISSUE SCRAPS NEW BANK RULES

WASHINGTON (AP) Bending to a public outcry over privacy concerns,
bank regulators have scrapped proposed anti-money laundering rules
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.

Earlier 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.