Since 1970, the Bank Secrecy Act (BSA) has required U.S. banks to spy on their customers and report to government regulators any "suspicious activity" in their bank accounts. Originally, this applied to transactions above $10,000; later this threshold was lowered to $5,000. Because the BSA caught very few criminal money launderers -- the alleged purpose of the BSA -- the FDIC and U.S. Treasury Dept. last winter proposed to amend the BSA with extensive "Know Your Customer" rules, which would have required banks to monitor *all* accounts for unusual activity -- defined as anything that doesn't match a bank's customer profile.
After harsh public criticism, the FDIC and Treasury withdrew their proposal last March. However, the Bank Secrecy Act is still alive and well -- and an obviously huge waste of time and money.
As economist Richard Rahn (author of THE END OF MONEY AND THE STRUGGLE FOR FINANCIAL PRIVACY) has written in the WALL STREET JOURNAL ("Financial Privacy in Peril," 6/1/99), "Between 1987 and 1996, banks filed more than 77 million Currency Transaction Reports with the Treasury. This deluge of paperwork resulted in a mere 580 convictions.... The total private- and public-sector costs have been tens of millions of dollars per conviction, many times what Independent Counsel Kenneth Starr has spent per conviction in his allegedly extravagant investigation."
The inevitable rise of encryption technology makes the Bank Secrecy Act even less useful for catching criminals. "Yet it is also true that the digital age has given law enforcement many more tools to observe and detect criminal activity," Rahn writes. "Law-enforcement officials must learn to adapt new technologies to their purposes, rather than outlaw them in the futile hope that they will simply go away."
"As the digital revolution takes hold, laws that were written for another era will become increasingly difficult to enforce. Americans can choose either to jettison these laws and take advantage of new technologies and the opportunities they create, or keep the laws and pay the price in economic inefficiency, technological backwardness and government intrusiveness," Rahn concludes.
For information on Richard Rahn's Oct. 20th talk (with Peter Thiel) at the Independent Institute, "Virtual Money, Privacy, and the Internet," see: http://www.independent.org/tii/lighthouse/LHLink25-1.html
For Peter Thiel's thoughts on the impact of the Internet, see http://www.independent.org/tii/lighthouse/LHLink25-2.html
### Excerpted via: The Independent Institute <mailadmin@independent.org> THE LIGHTHOUSE "Enlightening Ideas for Public Policy..." VOL. 1, ISSUE 25 October 18, 1999
The e-mail newsletter of The Independent Institute, the non-politicized public-policy research organization <http://www.independent.org >. We provide you with updates of the Institute's current research, publications, evens and media programs.
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