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Note: Since this article was written in 1999, Congress passed into law in 2001, what I refer to as, "KYC on steroids", as a part of the (ANTI)Patriot Act. It's interesting that it became part of the (ANTI)Patriot Act, since most of our alphabet soup federal agencies admitted shortly after the 9-11 attacks, that there is every reason to believe that terrorists did not, do not and would not use our banking system to acquire and launder money. KYC is just one of the many parts of the (ANTI)Patriot Act that has nothing to do with fighting terrorism.

by John Gaver
June 14, 1999


In the face of overwhelming opposition from the American people, the FDIC withdrew its proposed "Know Your Customer" (KYC) rule, which would have forced banks to "monitor" customers' accounts, develop customer "profiles" and report any "unusual" transactions to federal investigators.



The FDIC withdrew its proposed "Know Your Customer" (KYC) rule after more than 250,000 public comments were filed against this assault on financial privacy, while it received only 6 favorable comments. This should have been enough to stop it dead in its tracks. But, remember, we are dealing with the federal bureaucracy. These comments by Rick Small, Assistant Director of the Federal Reserve System, after the defeat of "Know Your Customer", show the total disdain that these bureaucrats hold for the American people.

"Is know your customer dead? No, I don't think it is dead. Do I think there will be a regulation? No. I would like to develop some broad based guidance [But] No one is going to let me talk about it for six months."

Statements made during the Mid Atlantic Compliance Conference
held on March 18-19, 1999
Source: Ron Paul's Freedom Watch

Rick Small went on to say that they would have to repackage it [Know Your Customer] differently such as "Enhanced guidance for reporting suspicious activity". He said we'll have to be careful how we re-package it saying "It's a marketing issue." Further comments from others within the FDIC leave no doubt that they still plan to implement KYC in some form or another. In fact, the Federal Reserve's Bank Secrecy Act Compliance Manual "effectively" requires banks to implement their own Know Your Customer programs, and that, voluntarily, over 88% of banks already have them in place. But, don't believe me. Ask your banker if they adhere to the FDIC's "Know Your Customer" recommendations. You will probably be surprised.

When the FDIC tries again, they will not call it "Know Your Customer" and they will not use terms like "monitor" or "profiling", but the effects will be the same. By the time the spin doctors get through, look for a deceptive name like the "Protect the Children" rule.


"Know Your Customer" is a rule originally proposed by the Federal Deposit Insurance Corporation (FDIC) that would require banks and financial institutions to monitor customers' accounts and report any "unusual transactions" to federal investigators. It would require banks and financial institutions to set up customer profiles, then notify government investigators if you "deviate" from your profile. It would require banks to determine the customer's "sources of funds," determine the customer's "normal and expected transactions," monitor customer transactions and identify transactions that are "inconsistent with normal and expected transactions," and report any "suspicious activity" to federal investigators. This means that if you deposit a large insurance settlement or inheritance or withdraw a large sum of money to send your child to college or take that once-in-a-lifetime vacation, that transaction must be reported by your bank as suspicious (unless, of course, you are a drug dealer whose profile shows that you often deal in large sums of money - then it's OK).


As a direct result of Know Your Customer type rules, BILLIONS of DOLLARS are being sent offshore by individual investors and companies engaged in strictly legal activities, but who just don't want the government monitoring their financial activities. In most cases, these offshore investments are structured in such a way as to reduce their US tax liability. Who has to make up for that lost tax revenue? But, to make matters worse, those dollars represent jobs that are going offshore. Who ends up supporting (right or wrong) those who lose their jobs to offshore investment? And, all because the government wants to know where our money comes from and where we spend it.


What ever happened to search warrants? By requiring banks to do the spying, the government is circumventing our Constitutional protection against unwarranted searchs. If it were a government agency doing the searching, they would be required to get a search warrant. So, to get around that, they require the banks to perform the search of everyone's accounts on an ongoing basis and report "suspicious activity" to the government. The government agents then use that illegally obtained information to obtain a legal search warrant. But they say that the information was not illegally obtained, since no government agent went in to look at your account. Furthermore, the Suspicious Activities Reporting Act ("SAR") filings are NOT reported to the customer. You may have already been investigated by federal authorities. They could be investigating you even now and you would not know it, until you are arrested, that is.


Congressman Ron Paul has introduced The Know Your Customer Sunset Act (HR 516) and The Bank Secrecy Sunset Act (HR 518) that together will repeal existing Know Your Customer reporting requirements and prevent new KYC rules from being implemented.

Note:  This article was written in 1999 and neither HR 526 nor HR 518 became law.  As mentioned at the beginning of this article, in 2001, "KYC on steroids" was passed as a part of the (ANTI)Patriot Act.

A thorough reading of the Constitution and the Amendments will reveal that the government has no business spying on our bank accounts or requiring our banks to do it for them. Know Your Customer rules, no matter how they are "repackaged" have no place in a free society and must be repealed immediately, with provisions that will prevent such attempts to circumvent our Constitutional protections in the future.

I urge you to Contact your Congressman and both Senators and ask them to support HR 516 and HR 518.

Since KYC is now a part of the (ANTI)Patriot Act, we urge you to ask your Congressman and Senators to work with Congressman Ron Paul, to pass a law that will permanently remove the Know Your Customer provisions that were introduced in the (ANTI)Patriot Act and prevent any government agency from implementing such rules, by any name or re-packaging.



Copyright 1999 John Gaver
All rights reserved


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