SNOOPING EYES ON SAVINGS?

New proposed federal regulations will convert banks into conspirators
against their depositors. The "Know Your Customer" rules, announced last
month in the Federal Register, could be a landmark in the history of the
subversion of American privacy and property rights. But enough Americans
may yet rally in time to block this power grab.

The new rules vastly expand the number and types of private activities that
bankers must report to federal overseers. The effect will be to treat law-
abiding citizens like drug kingpins. Under the new rules, banks must
"determine its customers' sources of funds, determine, understand and
monitor the normal and expected transactions of its customers, and report
appropriately any transactions of its customers that are determined to be
unusual or inconsistent."

The purpose of the rules, according to regulators, is to let the government
better "combat illicit activities." And since Congress has criminalized so
many different types of private behavior, efforts to "combat illicit
activities" could just-ify providing the government information on almost
any bank transaction of private citizens.

Any bank failing to report "unusual or inconsistent" behavior by its
depositors could face major investigations and an array of sanctions. Thus,
the regulatory sword of Damocles will be hanging over the head of any bank
official who hesitates to "drop a dime" on customers who trusted him.

In fact, the standards for violations are so vague that anyone who has a
one-time surge in income -such as selling a car or receiving a bonus at
work - could be reported as a suspected drug dealer. Barry Steinhardt of
the American Civil Liberties Union warned that "every time little Billy
gets a large gift from his grandmother, there's going to be a
suspicious-activity report. It turns banks into cops, into police spies for
the government."

The new rules will oblige bankers to allow the feds to see private
financial records within 48 hours of a request - no search warrant
necessary. Money Laundering Alert newsletter reported that the "big
winners" from the "revolutionary" new rules will be "U.S. law enforcement
agencies."

Many citizens may shrug this off, assuming that since they have nothing to
hide, they have nothing to fear. But laws are extremely complex and
prosecutors can be very arbitrary. The Justice Department is adamant that
criminal intent is not necessary for a citizen to be a criminal under
banking laws. In 1994, the Supreme Court overturned the money laundering
conviction of an elderly couple who had paid off their Nevada casino debts
in large cash payments. (The couple did not know their action broke the
law). The Justice Department responded to the court's decision by racing to
Capitol Hill and persuading Congress to revise the law to remove any
requirement that a citizen have willfully violated the law before being
convicted and sent to prison. Treasury Undersecretary Ron Noble proclaimed
at the time that that law would "further the growing partnership between
the banking industry and law enforcement."

The new regulations could make it easier for government agencies to
confiscate people's property. Banks will be pressured to create "dossiers"
on their customers to satisfy the new regulations. Divergences from their
customary pattern could create a presumption of illicit behavior. And,
unfortunately, a mere suspicion is often all that is required for federal
agents to confiscate private property. Federal agencies routinely
confiscate a person's property without even filing criminal charges based
only on hearsay evidence - mere gossip or rumors. If the citizen wants his
property back, he must sue the government and prove in court that his
property is innocent; the government has no burden of proof.

Can government be trusted with more information that it could use to punish
citizens? Consider the pretexts that government uses to confiscate cash
from people on the street or driving their cars. Federal, state and local
police routinely seize money from people they stop and search - merely
because the cash causes a policedog to "alert" to some trace of cocaine on
the money. But a federal appeals court noted in 1995 that more than 75
percent of all circulated currency is "contaminated with drug residue."
Thus, the court noted, "it is extremely likely a narcotics detection dog
will positively alert when presented with a large sum of currency."

Though prosecutors know most American currency is tainted with cocaine
residue, they still invoke the "tainted currency" ruse to steal as much as
they can.

The proposals have sparked a firestorm of opposition: The Federal Deposit
Insurance Corp. has been hit with more than 10,000 comments on the proposed
regs, most of them in opposition. A federal banking official told the
Associated Press that the deluge of responses stemmed from "anti-government
groups." However, this is how some federal employees characterize anyone
seeking to block bureaucratic tyranny. Rep. Ron Paul, Texas Republican, is
leading the fight in Congress against the regs.

If people acquiesce to this expansion of federal power, it is certain that,
in future years, regulators will come back and demand even deeper intrusion
into people's lives. The "Know Your Customer" regulations are the latest
warning sign that government agencies feel entitled to gather practically
unlimited information about citizens.

The banking agencies invite public comment on, among other issues, "whether
the actual or perceived invasion of personal privacy interests is
outweighed by the additional compliance benefits anticipated by this
proposal." Citizens can voice their appreciation for the pro-posed regs by
emailing to comments@FDIC.gov or by faxing to (202) 898-3838.