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Ron Paul Statement on Bank Secrecy Act Hearing

Ron Paul Statement on Bank Secrecy Act Hearing
April 20, 1999

(J. Bradley Jansen was the legislative staffer for Ron Paul on these issues at this time)

Opening Statement of
Rep. Ron Paul
Joint Hearing on Bank Secrecy Act Reporting Requirements
Subcommittee on General Oversight and Investigations
Subcommittee on Financial Institutions and Consumer Credit
House Committee on Banking and Financial Services
April 20, 1999

Thank you for calling this hearing on such an important and timely subject. When Congress passed the Bank Secrecy Act in 1970–and it should be pointed out that the act undermines, not protects, consumer financial privacy, it was argued that the act would “have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.” When its Constitutionality was challenged in California Bankers Assn v. Shultz, 416 U.S. 21 (1974), Supreme Court Justice William O. Douglas found the Bank Secrecy Act unconstitutional, writing:

“It is, I submit, sheer nonsense to agree with the Secretary that all bank records of every citizen ‘have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.’ That is unadulterated nonsense unless we are to assume that every citizen is a crook, an assumption I cannot make,” Justice Douglas concluded. He added, “A mandatory recording of all telephone conversations would be better than the recording of checks under the Bank Secrecy Act, if Big Brother is to have his way [emphasis added].”

Supreme Court Justice Thurgood Marshall in the same case warned of the gradual erosion of our Constitutional rights and added, “[The] crucial factor is that the Government has shown no need, compelling or otherwise, for the maintenance of such records. Surely the fact that some may use negotiable instruments for illegal purposes cannot justify the Government’s running roughshod over the First Amendment rights of the hundreds of lawful yet controversial organizations like the ACLU. Congress may well have been correct in concluding that law enforcement would be facilitated by the dragnet requirements of this Act. Those who wrote our Constitution, however, recognized more important values [emphasis added].”

This act has shown that it does not have a high degree of usefulness and violates consumers’ expectations of privacy rights. In fact former Federal Reserve Board Governor Larry Lindsey (“Invading financial privacy,” Financial Times, March 19, 1999, p. 20) and the banking industry–as well as consumer and privacy advocates– have questioned the efficacy of the reporting requirements. Mr. Lindsey has labeled the success of this approach of unreasonable searching without a warrant or probable cause akin to finding a needle in a haystack; such a rate of success lampoons the claims that the reporting requirements have a “high degree of usefulness” and runs counter to our fourth amendment Constitutional rights.

Erza Levine of Howrey & Simon Attorneys at Law, on behalf of a group representing Western Union Financial Services, Inc., Travelers Express Company, Inc., and other money transmitters, during the April 15, 1999 hearing (the Subcommittee on General Oversight and Investigations and the Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Banking and Financial Services), cautioned, “The public and many members of Congress are beginning to realize that certain aspects of the BSA [Bank Secrecy Act] program, including the filing of SAR’s [Suspicious Activity Reports], involve the maintenance by the government — at the IRS Detroit Computing Center — of extensive data banks of unsupported allegations relating to individuals and companies in the United States; a privacy concern generally ignored until recently. An SAR is just that — it reflects someone’s suspicions, it does not reflect proof of misconduct or wrongdoing. The [Non-Bank Funds Transmitters] Group believes that a legitimate concern exists regarding the long term maintenance of records of suspicions and rumors about individuals. This data may leak or be misused.”

Arguments that these regulations deter crime are not substantiated empirically nor does the argument convince bankers. One bank corporate compliance manager wrote to the regulators protesting the Know Your Customer rule, “The intended targets of the regulations [i.e., the criminals] will likely find ways to get around these requirements . . . It seems unlikely that individuals who smuggle drugs, commit murder or engage in other criminal acts will be seriously discouraged from those acts by the prospect of having to lie to a banker.”

Richard W. Rahn, Senior Fellow of the Discovery Institute, argues in his book, The End of Money and the Struggle for Financial Privacy, that the rapid development and dissemination of technology is going to force policy makers to make different choices than we did in the past. Now is the time to reevaluate past decisions in a relatively lower-tech period and reaffirm our pledge of support to respect our constituents’ privacy expectations. We need to pass H.R. 518, the Bank Secrecy Sunset Act, and force a review of our policies regarding financial privacy.