On December 7, 1998, the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve Board, and the Federal Deposit Insurance Corporation published proposed regulations that were known as the "Know Your Customer" regulations. They would have required banks and thrifts to:
- identify their customers;
- determine the sources of funds for each customer;
- determine the "normal and expected" transactions of each customer;
- monitor each customer's account activity, measuring it against historical patterns; and
- report any transactions that appeared "suspicious" in light of historical patterns.
These reports - called Suspicious Activity Reports - would be sent to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). FinCEN was to evaluate the reports and send them to the Attorney General when it had "reason to believe that the records may be relevant" to a crime. In addition, FinCEN would allow law enforcement access to the records regardless of whether an SAR reflected evidence of crime.
This government surveillance scheme caused a great deal of public outrage because it threatened the privacy of citizens' personal financial information. Over 250,000 citizens wrote to regulators objecting to the proposal, and the "Know Your Customer" regulations were ultimately withdrawn.
Nonetheless, financial institutions are still required to spy on their customers by the Bank Secrecy Act.
Know Your Customer: Know Your Comrade by Solveig Singleton, Cato Institute (February 4, 1999)
Comments? firstname.lastname@example.org (Subject: KYC)