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Ron Paul Dear Colleague askingIs Know Your Customer Dead?

Ron Paul Dear Colleague askingIs Know Your Customer Dead?
April 27, 1999

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

Is Know Your Customer Dead?

April 27, 1999
Dear Colleague,

Congress passed the misnamed Bank Secrecy Act of 1970 in an attempt to stop money laundering and get drugs off the streets. That approach failed. Recognizing that failure, the regulators attempted the hated “Know Your Customer” proposal under the Bank Secrecy Act. Deluged with protests, the regulators withdrew the formal KYC rule. They are still requiring it.

Explains the American Bankers Association in their letter to the regulators, “ABA recommends that the agencies also immediately eliminate the ‘Know Your Customer’ policy requirements from the Bank Secrecy Act (BSA) examination manual. Today, each bank must produce a KYC policy to the bank examiner even though there is no regulation mandating this. This ‘de facto’ regulation caused the confusion and uncertainty that faces our industry in 1999 — having KYC policies but having [them] criticized because an examiner may disagree with its scope and coverage.”

It continued, “A January 1999 phone survey [of ABA members] found that over 88% of the institutions polled had KYC [Know Your Customer] policies in place.”

The banking industry faces as difficult a challenge as any group with privacy protection responsibilities. The policy debate over how to reconcile the inherent conflict between fraud prevention and money laundering deterrence, on one hand, and customer privacy, on the other hand, should continue. The compliance manual of the Bank Secrecy Act specifically calls for KYC:

Cosponsoring and passing HR 518, the Bank Secrecy Sunset Act,
∙forces a review of the issue,
∙is the only permanent solution to Know Your Customer,
∙devolves the issue back to the States-where many already had laws on the books anyway,
∙takes a strong stand in defense of financial privacy.

To cosponsor, please contact Bradley at 5-2831.


Ron Paul