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The Pulpit
The Pulpit

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Weekly Column

Please, May I Use My Own Money?: How the Internet Saved Us (Again) From a Bad Government Idea

Status: [CLOSED]
By Robert X. Cringely

A lot of things happened last week. Monica Lewinsky earned another 5,400 frequent flier miles. The Pope flew back to Rome, freeing the residents of the Towne House Apartments at 4400 Lindell Avenue in St. Louis from the visiting Secret Service, who were afraid the retired folks and Washington University medical interns might try to kill the Pontif during the two nights he slept across the street. And an insidious threat to our privacy was apparently turned back thanks to the Internet.

Back in December, a "Notice of Proposed Rulemaking" was published in the Federal Register on behalf of four agencies — the Federal Reserve System, U.S. Controller of Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision. Under the title "Know Your Customer," these four agencies were proposing new rules for bankers, with the stated goal to fight money laundering. The proposed rules require all financial institutions regulated by these four agencies to monitor the activities of their customers, assign customers to risk groups, create economic activity profiles of those customers, including ranges of expected financial activity for each customer and account, require from customers an explanation of any financial activity outside the range of expected activity defined by the profile, and report to the Feds any suspicious activity.

The idea is simple. If some guy who owns a dry cleaning store that normally deposits $4,000 per week suddenly deposits $40,000, that's suspicious activity. The bank is supposed to ask where the $40,000 came from and where it is going. If the answers aren't for some reason acceptable to the bank, they are supposed to file a report with the U.S. government. It is not clear whether banks are required to refuse the deposit (have you ever heard of a bank refusing a deposit?) or later to refuse to give the money back (this, I believe).

The proposed rules make it quite clear that banks are to monitor every individual, business, and non-profit account — that's tens of millions of accounts, each with a separate profile, risk rating, and continuous monitoring — but also specifically state that banks aren't required to use computers for this purpose. Citibank will of course do the whole project on index cards, right? OF COURSE they'll use computers. There is no other way to comply with these proposed regulations and remain in business. But not requiring banks to use computers to accomplish a task that can only be done with computers puts the onus of Big Brother-type monitoring on the banks, not the Feds.

I don't like any of this. Of course, this is a gross invasion of privacy. Do you want the government to keep a continuous record of every bank deposit and withdrawal you make? When it comes time to pay your kid's college tuition or fund your Keogh retirement plan, or pay off those gambling debts, do you want to have to ask the permission of some bank teller to use your own money? Neither do I.

But there is an even worse aspect of this. It's that the rules were proposed in December at a time when the public was generally preoccupied with Christmas and the genetic testing of blue dresses. The four agencies complied with the word of the law, but did so as inconspicuously as possible. And only one of the four agencies — the Federal Deposit Insurance Corporation — accepted comments by e-mail. The other three agencies required that comments be mailed or delivered by hand.

Of course, somebody noticed this attempt to slide through the new regulations. A shockwave went across the Internet and last week, more than 14,000 negative comments and fewer than 100 positive comments flooded the FDIC. Suddenly, the FDIC doesn't like its own regulation. Nor suddenly does the American Bankers Association, which helped to write the regulation. Only the Federal Reserve System seems to be still firmly behind the idea, and I find myself struggling to figure out why the Federal Reserve has the slightest interest in money laundering. Does it cause inflation? Does it drive interest rates up or down? These people have too much time on their hands.

Of course, it is a good thing to be against money laundering, and it is a bad thing to hide income from taxation, which is I think the real basis for these regulations. Then there are those delightful parts of the RICO anti-racketeering statues that allow regulators to summarily confiscate not just money that is being laundered, but any money controlled by the accused money launderer WHETHER OR NOT THAT CHARGE IS EVER PROVED. Now there's a nice new source of non-tax revenue.

The social cost of this particular technique seems just too high. It assumes that people are crooks and asks them to prove their innocence. It suggests that people ought not to be allowed to do reckless and stupid things with their money. It leaves so much of the process up to the individual banks (with federal approval of their written plans) that the regulations can be an easy cloak for racism, xenophobia, blackmail and blue-lining. And remember that really serious money laundering usually requires the complicity of a banker — the very folks who are supposed to make this scheme work by keeping the rest of us honest.

But here's the part that bothers me the most: Almost all the comments that appear to have stopped this scam in its tracks came over the Internet. What if the FDIC had not allowed electronic comment? Would we have simply allowed these regulations to go into effect after March 8? That's the way it looks. Has the Internet made it so easy to communicate in one medium that we lose our ability to communicate in another? This is scary.

Another thing that is scary is how few people even know this particular incident took place. Here we are, getting our news on the Net, being up-to-the-second on every breaking story, yet where was this one? Why, after seven weeks of comment, were there only 14,000 responses? Why not 1.4 million? Because the Internet reflects not only our views, but our apathy and laziness. The Internet makes it easier to be informed, but it doesn't make us want any harder to be informed.

Remember the Clipper Chip? This was a government-designed encryption chip that the Bush and early Clinton Administrations wanted placed by law in every digital telephone. It would have allowed the wiretapping of any phone in the country just by tapping a few keys on a computer keyboard in Washington, DC. While there have never been more than 1,500 approved wiretaps in any year, the FBI was pushing the Clipper Chip with the stated goal of enabling it to monitor up to 10 million phone lines simultaneously. So I asked the FBI Director back then — Judge Sessions — whether this didn't present an opportunity for abuse. "Of course not," Sessions said. "That would be illegal."

The "Know Your Customer" plan looks dead for now, but it will return before long in some other guise. And the next time, too, we can probably count on the Internet to alert us, inform us, then give us a channel for communicating our concerns as citizens.

At least, I hope that's what happens.

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