SPY ON YOUR CUSTOMER

The Government Wants To Know Where You Get Your Money And How You Spend It.

How much money do you have? Where do you get it? What do you spend it on?
The federal government wants to know, and it's asking your bank to tell.

New rules proposed by the Federal Deposit and Insurance Corp. would require
banks to profile every customer, find out the source of depositors' funds,
monitor their transaction patterns and report transactions that deviate
from the pattern.

Under that scenario, if you sell your car and put the money in the bank
while you shop for a new vehicle, you might find yourself explaining to the
FBI, the Internal Revenue Service and the Drug Enforcement Agency why you
made a $15,000 deposit.

The rules, scheduled to go into effect in April 2000, would require the
nation's 6,000 banks and credit unions (savings & loans will likely be
required to do the same) to establish the benignly titled "Know Your
Customer" programs. The ostensible justification is to "deter and detect
financial crimes."

The proposal has drawn an enormous public response. At last count, the FDIC
had already received more than 6,000 comments. The most comments received
in the past was 3,498, regarding a 1984 broker deposit regulation. Banking
industry groups, privacy advocates and anyone else can speak out on the
proposal during the public comment period that ends March 8, 1999.

"They might as well call it 'Spy on Your Customer,'" says Barry Steinhardt,
associate director of the American Civil Liberties Union, saying the rules
would essentially "turn banks into surveillance agents for the government."

The rules, explains John Byrne, senior counsel and compliance manager of
the American Bankers Association, have been in the works for years, and are
actually a refinement of rules stemming from laws Congress passed in the
wake of the B.C.C.I. and Bank of Boston banking scandals of the 1980s.
Those rules, which require banks to report transactions in excess of
$10,000 (Currency Transaction Reports) or any suspicious activity
(Suspicious Activity Reports), have been effective in catching and curbing
criminal activity, says Byrne--prompting some to wonder why the new rules
are needed.

That wonder only increases with the knowledge that the Treasury Department
already collects an overwhelming amount of data: 100,000 Suspicious
Activity Reports and more than 12 million Currency Transaction Reports per
year.

While banks have adapted well to the current regulations, Byrne insists the
new rules would necessitate sophisticated (and expensive) computer programs
to track all the data requested. And without similar rules being applied to
non-banking institutions, such as the securities industry, banks could be
at a competitive disadvantage.

While the ABA won't lobby against the new rules, it will seek to have them
amended, Byrne says. The Connecticut Bankers Association has yet to comment.

Lawmakers have been noticeably silent on the issue. U.S. Sen. Christopher
Dodd, ranking Democrat on the Senate Banking Committee, issued a statement
saying only that he lauded the goals of the regulations, but understood the
concerns of the banking industry and consumer advocates.

The ACLU and other privacy advocates worry about how all this information
will be used. Collected by the Treasury Department's vast Financial Crimes
Enforcement Network, the data will presumably be accessible to any
government agency. As the recent IRS scandals show, the potential for abuse
is high when government has so much confidential information.

"They always do these things for the most benign reasons," says Steinhardt.
Whatever assurances the government gives that this information be collected
only for reasons specified by the rules' original intent isn't worth the
paper it's printed on. Take mandatory DNA testing, which was originally
proposed only for sex offenders. Soon, New York City will take DNA samples
from all arrested suspects, a trend likely to be followed nationwide. For
those in government, says Steinhardt, "There will always be another good
reason to open up the database."

The feds already have created a national registry to record each new hire
in the country and collect 160 million wage reports each year. The
ostensible justification is to track down deadbeat parents. States are also
collecting Social Security number information on individuals who marry,
apply for drivers' licenses, acknowledge paternity or sign up for service
with a utility (phone, electric, even cable TV), all of which is available
to the federal government. And earlier this year, President Clinton moved
to create a national medical identification number that would track each
citizen's medical history from cradle to grave.

Technology, says Steinhardt, has enabled the government to collect more and
more information on citizens and to tie these databases together.

"We are moving toward 1984," he says. "Maybe 25 years late, but it's coming."

Whereas 25 years ago this turn of events would spur public outrage, he
adds, "People now are getting increasingly immune to this trend."