ENFORCEMENT BANKING

One could view a set of regulations proposed last week by the Federal
Deposit Insurance Corporation and three other federal regulatory agencies as
simply a logical and unremarkable implementation of existing federal
guidelines on banking activities.

We're inclined, however, to be cautious about the proposed rules as a
potential threat to the privacy of ordinary Americans and an expensive
effort to push banks - to an even greater extent than they already are -
into the role of surveillance agents for the government.

It's encouraging to note that a significant number of Americans believe so
too, and have already responded with negative comments to the four bank
regulatory agencies.

The rules would make mandatory a similar, voluntary program called "Know
Your Customer" at federally chartered banks and extend that program to
state-chartered banks that aren't FDIC members but have FDIC members but
have FDIC insurance, and to other institutions.

Specifically, the regulation "would require each nonmember bank to develop a
program designed to determine the identity of its customers; determine its
customers' sources of funds; determine the normal and expected transactions
of its customers; monitor account activity for transactions that are
inconsistent with those normal and expected transactions; and report any
transactions of its customers that are determined to be suspicious, in
accordance with the FDIC's existing suspicious activities reporting
regulation," according to the FDIC's summary of the proposed rule. It was
published Dec. 7 in the Federal Register.

Members of an alliance forming against the rule include the conservative
Free Congress Foundation as well as the American Civil Liberties Union and
the Electronic Privacy Information Center.

Lisa Dean, vice president of the Free Congress Foundation, told us that in
the first four days after the proposal was issued, she understood that the
FDIC received 2,700 letters and e-mails in opposition, an almost
unprecedented grassroots outpouring.

"The FDIC claims that these letter were instigated by 'anti-government
groups' who feared serious violations of privacy if the proposal passes,"
Ms. Dean told us. "It's ludicrous to dismiss us and the ACLU as
'anti-government,' but making that simple-minded claim as if it is supposed
to end the argument speaks volumes about the mentality of our federal
government today."

These proposed regulations might not seem a quantum leap in intrusiveness,
given the regulatory requirements that already exist. As J.B. Crowell,
veteran Orange County banker and chairman of PriVest Bank told us, the
federal government already requires that banks report cash transactions of
$10,000 or more, a requirement justified as a way to catch money-laundering
drug dealers. In addition, banks are supposed to report patterns of
suspicious activity, such as repeated cash transactions just under the
$10,000 limit.

But economist Richard Rahn, CEO of Novecon and author of the forthcoming
book "The End of Money," believes the regulations will substantially
increase the cost of doing business and are another example of government
asking the private sector to do its investigative work in catching criminals
in the illegal drug trade.

Once again, it's worth noting that the cost of the drug war is being paid in
privacy and in increased costs to business. Do you really want your bank
wondering whether or not your account activity is "suspicious" on an
ever-larger variety of grounds?

The public comment period has just begun. If you want to find out more and
make your views known, the FDIC's e-mail address is (comments@FDIC.gov). The
Federal Reserve, the Office of Thrift Supervision and the Office of the
Comptroller of the Currency have issued identical regulatory proposals. The
Federal Reserve doesn't maintain an e-mail address for comments, but the
other agencies can receive comments at (public.info@ots.treas.gov) and
(regs.comments@occ.treas.gov) respectively.

Checked-by: Don Beck