The existing regime requires almost 300,000 financial institutions to report to the government, a requirement that resulted in FinCEN receiving almost 30 million total BSA reports in 2023. From all those reports, “approximately 1,575 cases referred for prosecution involved BSA filings.” And the IRS “opened about 372 investigations as a result of BSA filings.” That’s a very low batting average.
Nobody should be surprised by these incredibly small percentages because bankers, brokers, and car salesmen don’t specialize in catching criminals. And when the government forces them, under threat of criminal liability, to report people who might be criminals, the obvious thing to do is err on the side of reporting too much.
So that’s what we have – 30 million reports for less than 2,000 investigations. These numbers alone suggest that society would be better off if, instead of relying on this reporting regime, law enforcement placed more emphasis on conducting their own criminal investigations.
It would be very easy to fix this problem. All Congress would need to do is maintain the BSA’s record keeping requirements while ditching its reporting requirements and ensuring that law enforcement can only access those records with a valid search warrant. This reform would simply reaffirm the importance of the Constitution’s Fourth Amendment, something which shouldn’t be too controversial in the United States.
Some critics suggest that moving to such a system would require a massive expansion of policing (check out our Bank Secrecy Act reform panel), but that view misses the mark by a mile. It assumes, like the current system, that everyone is either guilty or potentially guilty of committing crimes. It ignores the core presumption of innocence that our judicial system is supposed to be built on, and it effectively calls for law enforcement on every corner, watching everything we do.
It also maintains the current imbalance in the current regime so that the needs of law enforcement remain heavily favored over citizens’ rights to privacy. The proper balance between these two needs is in the Fourth Amendment, and Congress should restore it.
There are so many other problems with the existing BSA/AML regime that we really had a hard time picking which topics we wanted to build each panel around.
One that hit the cutting room floor was financial privacy in capital markets. But the topic still came up, and there was broad agreement that the SEC’s Consolidated Audit Trail, a database that contains private identifying information on all U.S. stock and option trades, rests on shaky legal ground.
And, as I mentioned in my opening remarks, we didn’t build a panel around several international financial privacy issues, but we haven’t forgotten about those. Just three years after Congress enacted the BSA, the Association of Americans Residents Overseas was established, and they’ve been fighting for BSA reforms ever since.
Their members face BSA consequences more than most citizens. Because of the BSA/AML regime, Americans living abroad often find it difficult to maintain a U.S. bank (or investment) account simply because they live abroad. But because so many other countries have adopted the U.S. system, Americans living abroad also have a hard time maintaining a foreign account simply because they’re a U.S. citizen.
FinCEN regularly disregards this kind of problem in its regulatory rulings, and there’s no justification for turning such a blind eye to the damage the BSA/AML regime has done.
After passing the Bank Secrecy Act in 1970, the federal government basically spent the next five decades expanding that regime and encouraging other countries to adopt a similar approach. What the U.S. should do, instead, is lead the way by enhancing financial privacy and encouraging other countries to adopt the kinds of protections Americans used to have before 1970. It’s not too late.
