MONEY-LAUNDERING INQUIRIES COULD INVADE YOUR PRIVACY

What's happening in Washington besides all Monica all the time? Here's
an interesting item: Federal banking regulators want to draft your
banker in the war against drugs.

They want banks and thrifts to draw up specific rules about what they
need to know about you and me to make sure we aren't laundering money.
They want financial institutions to designate a vice president in
charge of suspicious accounts.

It is "fundamental for safe and sound operations that financial
institutions take reasonable measures to identify their customers,
understand the legitimate transactions typically conducted by those
customers, and, consequently, identify those transactions conducted by
their customers that are unusual or suspicious in nature," the Federal
Deposit Insurance Corp declares.

The rule would apply to all financial institutions and all customers,
large and small. It's being proposed simultaneously by the FDIC, the
Federal Reserve, the Comptroller of Currency and the Office of Thrift
Supervision.

The FDIC, for its part, specifically invites comment on whether it
needs to be all-inclusive. You'll find the proposed rule and an email
link at www.fdic.gov.

This is dangerous ground, gentle readers. No one would mistake me for
someone with gobs of cash, which is the given in money laundering. But
my finances are just strange enough that I could fall under suspicion
if my bank put Barney Fife in charge.

It gets worse. Banks may soon be unraveling the ownership of trust or
business accounts that won't pass muster with ex-wives, say, even if
they comply with the Bank Secrecy Act.

Don't assume that tougher rules will catch the bad guys. Folks who
deposit gobs of cash earn deference at the bank, as a rule, rather
than close questioning.

A case in point: Raul Salinas, elder brother of former Mexican
President Carlos Salinas, used Citibank to move $100 million to
Switzerland between 1988 and 1994. The bank handled the transfers even
though R. Salinas earned only $190,000 a year as a public official.

The bank told The Washington Post that it thought the money came from
the sale of a construction company. The bank said its officers didn't
seek details, in apparent violation of its voluntary
know-your-customer policy.

Citibank denies wrongdoing, as does Salinas, and the bank hasn't been
charged. Prosecutors must show that a bank willfully disregarded the
illicit source of transferred funds in order to win
convictions.

The proposed rule would give regulators an administrative remedy in
cases that fall short of criminal wrongdoing. Regulators have
considerable power to address problems that affect safety and soundness.

So what should banks know about their customers? The FDIC says banks
should know their customers' true identities, their customary sources
of funds, and their pattern of "normal and expected
transactions."

The regulators leave the implementation to the banks, except to
suggest that banks set priorities based on motive and
opportunity.

In the case of wage earners, "it should be relatively simple task to

identify and document the source of funds as payroll deposits," the
FDIC says.

Oh? The Internal Revenue Service routinely targets waiters, taxi
drivers and others who deal primarily in cash. I'm guessing that the
most successful of these workers would be suspicious characters down
at the bank also.

Businesses and individuals with ties to Mexico would automatically
incite doubt. So would private banking customers with complicated
finances. Rich customers, at least, would be worth the trouble from
the bank's point of view.

I don't want to sound too hysterical. Maybe the regulators can strike
a balance that respects privacy and motivates the banks to turn away
drug money.

We should be talking about it. Unlike Monica, this one matters.

Checked-by: Rich O'Grady