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12 - 22 - 98

Know Your Customer

by Leon Felkins

But the men would not hearken to him: so the man took his concubine, and brought her forth unto them; and they knew her, and abused her all the night until the morning: and when the day began to spring, they let her go.
Judges 19:25 (English-KJV)

As you can see from the Biblical quote, the word "know", and its past tense, "knew" has a meaning that may be closer to the government's intent in its "Know Your Customer" program than the common meaning of the word. That should be made clear as we examine in detail this latest civil liberties busting scheme by the federal bureacrats. They are so clever.

The "Know Your Customer" is the latest in a series of regulations that require banks and other financial institutions to collect private information on their customers far in excess of what is needed to provide normal banking services. The justification given for this encroachment into our private lives is the same given by similar snooping being done by the government and its representatives, which is that it is to fight crime. The specific crimes being "fought" here is the so-called "money-laundering" crimes which are somehow related to "forfeiture" from the governments viewpoint (the Department of Justice's action in this area is managed from the "Asset Forfeiture and Money Laundering Section (AFMLS)" - which is a puzzling combination of functions when you think about it).

Here I will outline the basics behind this program and provide links to other pages with considerable detail.

Crime Fighting 101

The government's approach to crime fighting is best characterized by its mindless simplicity. Basically the technique is "to punish the criminal, who most likely is not identified, just punish everyone". Most of us who have served in the military or attended public schools have experienced this form of "justice" before, so it is not an original idea with the current government. It was also used extensively in the various wars wherein a whole village might be bombed or torched because there was a suspected sniper or some such hiding in the village.

Extensive use of this technique has developed in the last 20 or 30 years in the US. Examples are the gun control laws, the drug laws, highway road blocks, and now the "money-laundering" laws.

Money Laundering

The stated reason for the passage of the raft of laws that included asset forfeiture provisions starting in 1970 was to "separate the criminal from the proceeds of crime". And the government agencies claim much success with these laws and fight enthusiastically to retain them. Apparently "success" is in the eye of the beholder as the program just doesn't appear to be all that successful! Both drug usage and crime in general still seem to be quite common.

Of course, criminals and even innocent citizens don't cotten to having their wealth consfiscated by the government with little on no due process and have therefore taken measures to hide their assets. Such actions are called "money laundering" and is considered very bad form by the government. The government has taken extensive measures to combat money laundering and will likely become far more oppressive before it's over.

A quote from a government document, "International Narcotics Control Strategy Report", U.S. Government Printing Office, April 1994, referenced by the online document "The End of Ordinary Money, Part I" illustrates their enthusiasm:

"We must effect greater asset seizures, not just of bank accounts, but also corporate assets and even corporate entities . . . We must be ready to impose appropriate sanctions against banking institutions, as well as bankers . . . The FATF [Financial Task Force] countries, the 12 EU [European Union] nations, the EFTA countries, and the majority of the 95 states party to the 1988 UN Convention are adopting (if not yet fully implementing) legislation that will ultimately improve individual and collective capabilities."

A short summary of the growth of the money laundering legislation and prosecution is given by Michael G. Kessler & Associates' page, "Money Laundering" (take particular note of the sidebar that tells how easy it is for innocents to get sent to prison). I quote a segment on history:

The government began cracking down in 1970 with the Bank Secrecy Act, which required the filing of a report every time a cash transaction exceeded $10,000.
However, criminals quickly found a loophole in this law and began making deposits just under the $10,000 limit, employing "smurfs" or couriers to spread the cash drops among different tellers at different banks in many cities. The government then attempted to end such "structuring" of transactions with the Money Laundering Control Act of 1986, requiring the filing of a report even if an employee only "has knowledge of" an attempt to purposely deposit under the limit to avoid the filing.

Other laws have been added since then. More importantly, large goverment organizations have been put in place to combat this menace. In April 1990, the Financial Crimes Enforcement Network (FinCEN) located in Vienna, Virginia, "was set up to track money laundering, and given computerized access to data from pretty much everyone--FBI, DEA, Secret Service, Customs Service, Postal Service, CIA, NSA, Defense Intelligence Agency, National Security Council, the State Department's Bureau of Intelligence and Research, and, yes, the IRS (despite denials). FinCEN has a $2.4 million contract with Los Alamos National Laboratory to develop artificial intelligence programs to look for unexplained money flows . FinCEN also proposed a "Deposit Tracking System" (DTS) that would also track deposits to, or withdrawals from, U.S. banks accounts in real time." according to the "The End of Ordinary Money" article.

The Financial Action Task Force, (FATF), was established in 1989 by the G7 and European Community to assess the problem of money laundering and prevent the financial system being used for its purposes. FATF now includes 26 governments.

Of course, as with all government initiatives, there are many other agencies also involved. In particular, the FDIC is involved and that brings us to "Know Your Customer".

Know Your Customer (KYC)

"Know Your Customer" is a proposed rule that "if adopted by the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift Supervision, would require all banks and savings institutions to have Know Your Customer programs." according to the FDIC. Apparently this rule is just a clarification of guidelines that have been in existance for some time. "The FDIC issued guidelines on money laundering in July, 1996, requiring that banks have a know-your-customer program in place, while the Office of the Comptroller of the Currency issued its new examination guidelines in November, 1996. In June 1997 the OCC formed an internal 11-member task force, the 'Anti-Money Laundering Task Group' [which] serves as the focal point for the OCC's efforts to address the risks posed by money laundering" according to the article, "The private banking paradox".

What YOU need to do NOW!

The FDIC has provided means by which you can easily post your views on this latest plan for more infringement of liberty and privacy. They have published a page, "Know Your Customer" that outlines the proposed regulation and provides an email address for comments. The email address for comments is The news media reports that they have just been flooded with negative comments on this proposal. But they need more. Government agencies do not give up easily. Jump in there and express your opinion -- you will, at least, feel better and it might just do some good!

References and other interesting articles on KYC

[FEAR, 12/12/98]

More of Leon Felkins' essays may be found on his webpage, A Rational Life. Leon's other pissedOff rants can be found here.

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