Friday, May 23, 2008

Show Us Your Money - Patriot & Bank Secrecy Act

The Patriot Act authorized broad surveillance of financial transactions, bypassing the Fourth Amendment's normal protections against "unreasonable searches and seizures" by requiring businesses to collect and share information with the government.

After the measure passed and was signed into law, the debate was far from over. The American Civil Liberties Union and other critics continued to rail against the law as an unnecessary breach of privacy.

"Under the act and regulations the reports go forward to the investigative or prosecuting agency...without notice to the customer," one civil libertarian wrote. "Delivery of the records without the requisite hearing of probable cause breaches the Fourth Amendment....I am not yet ready to agree that America is so possessed with evil that we must level all constitutional barriers to give our civil authorities the tools to catch terrorists."

These may sound like the arguments for and against the USA PATRIOT Act, passed immediately after the attacks of September 11, 2001. But they concern another piece of legislation, the Bank Secrecy Act (BSA) of 1970. The only change I made to these decades-old quotes was to substitute the word terrorist for criminal and terrorism for crime.

The congressman was Wright Patman, the populist Texas Democrat who pushed through the bill on the premise that it would help fight drug trafficking, tax evasion, and other crimes, including the then-prohibited ownership of gold as a commodity. The civil libertarian was Supreme Court Justice William O. Douglas. In the 1974 case California Bankers Association v. Shultz, Douglas wrote a dissent, joined by Justices William Brennan and Thurgood Marshall, concluding that the Bank Secrecy Act violated the Fourth Amendment. The final quote is from William Rehnquist, now the Court's chief justice, who wrote the majority opinion upholding the law.

The reason the arguments sound familiar is that the BSA set the precedent for much of the PATRIOT Act, not to mention government fishing expeditions such as the Pentagon's aborted Total Information Awareness program. The law authorized the government to require bank reports of all transactions over a dollar value set by the Treasury Department, even if there is no reason to suspect a criminal connection. For the first time, in the words of the U.S. District Court for the Northern District of California, "the government claim[ed] the legal right to maintain routine surveillance, without summons, subpoena, or warrant, over the details of citizens' financial transactions."

The district court struck down the BSA's reporting requirement, but its decision was reversed by the Supreme Court. In a complicated majority opinion, Rehnquist said that banks, as businesses, don't have the same Fourth Amendment rights as individuals. The opinion relied on the many post-New Deal cases that minimized economic liberties, including one that said "corporations can claim no equality with individuals in the enjoyment of a right to privacy." In this and in a subsequent BSA case, U.S. v. Miller (1976), the Court ruled that a bank's customers generally lack standing to challenge the law.

Law enforcement agencies thus found a convenient end run around the Fourth Amendment. They can access the details of a bank customer's transactions from the Treasury Department's Financial Crimes Enforcement Network (FinCEN) without showing probable cause -- or any evidence at all.

The paperwork is indeed massive. Even before the PATRIOT Act, banks sent more than 12 million transaction reports to the government in 2000 alone.

Despite such concerns, financial surveillance has been massively expanded during the last 30 years, while other intelligence-gathering techniques, such as the use of informants, have been sharply restricted. The Treasury Department's BSA regulations required banks, subject to some exemptions, to file a currency transaction report (CTR) on every cash transfer of $10,000 or more. In the 1990s, the department established FinCEN, which expanded the regulations to require that banks file "suspicious activity reports" (SAR) on all transactions of $5,000 or more if they have "no apparent lawful purpose or are not the sort in which the particular customer would normally be expected to engage." Banks are forbidden to notify customers about the reports. "In effect, bankers have been drafted as spies and snitches," wrote banking industry consultant Bert Ely in a 2002 paper for the conservative Free Congress Foundation.

The PATRIOT Act extended the requirement to many more businesses. FinCEN, pursuant to the act, recently put the "suspicious activity" reporting rules into effect for brokerage houses, and real estate transactions are next on the list. The law also specifically covers casinos, credit card agencies, and life insurers. In the next few months, the Broward Daily Business Review reports, "the Treasury Department will decide whether the act covers travel agents, automobile dealers, mutual funds and dealers in precious metals and stones." And under the law, virtually all businesses, including the "hardware and retail stores" mentioned by Douglas, now have to report to the government any cash purchases over $10,000.


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