79%

79% of Americans believe that it is unreasonable for your bank to share your financial records and bank transactions with the federal government.

83%

And an even bigger majority (83%) think that the government should have to obtain a warrant to be able to access your financial records.

What many Americans aren’t aware of, however, is just how much financial information banks already report to the federal government.

Most of those reporting requirements come from The Bank Secrecy Act (BSA), which requires financial institutions to help federal agencies detect and prevent money laundering and other crimes. This essentially forces private financial companies to act as law enforcement agents. If judged by the standard of reducing criminal activities, there is virtually no empirical evidence to suggest that the approach has worked.

Instead, the evidence suggests that the BSA framework has proven a minor inconvenience for criminals…

…but a major burden on law abiding citizens.

Wright Patman

Much of the credit for getting the Bank Secrecy Act (BSA) through Congress belongs to Rep. Wright Patman (D‑TX), the Chairman of the House Committee on Banking and Currency.

In 1968, Patman held a hearing to address the alleged problem of people using secret foreign bank accounts to hide their financial transactions.

Patman alleged that Americans were increasingly using foreign accounts to commit acts such as “the illicit financial manipulation of huge sums of money,” income tax evasion, the theft of Treasury bills, corporate kickbacks, and securities fraud.

Abstract gray background

Witness U.S. attorney Robert Morgenthau (pictured) decried how secret Swiss bank accounts had become an “increasingly widespread and versatile tool” to evade U.S. laws and regulations. He explicitly accused many of the “millions of Americans” who vacation in Europe of finding that “secret foreign banks are available readily to them for lucrative criminal purposes.” He provided no data to support his claims.

In December 1969 Patman held another hearing and introduced his draft legislation, which made two major changes to existing federal laws. The legislation required:

  • U.S. financial institutions to maintain records “where such records have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.”
  • The reporting of certain financial transactions to the U.S. Treasury.
    • For instance, the bill specified that transactions of more than $5,000 in monetary instruments transferred from (or to) the United States had to be reported.
    • The bill also required reporting on domestic transactions, which became the legal basis for Currency Transaction Reports (CTRs).

The bill left most of the details on these reporting requirements up to Treasury.

  • would violate the privacy of bank customers.
  • would unduly burden legitimate commercial transactions.
  • delegated too much power to the Treasury Secretary.

Patman’s legislation passed anyway. It still forms the core of the anti-money laundering regulatory framework in the United States.

Congress and Treasury have spent more than 50 years building on this framework to supposedly better deter criminals; instead, the evidence shows the expansion of the BSA has dramatically increased compliance costs for financial institutions and diminished Americans’ constitutionally protected rights.

1970s bank customers wait in line

Treasury implements the first BSA rules, requiring financial institutions to file a report for every deposit, withdrawal, payment, and transfer over $10,000.

This $10,000 reporting threshold remains in place today and transactions exceeding this amount trigger surveillance.

BSA EQ DV: Inflation Adjusted Threshold

Congress passes the Money Laundering Control Act, establishing money laundering as a criminal offense.

The Act also made it a criminal offense to structure transactions to evade the reporting requirements of the BSA.

A bank employee wheels bags of cash into a safe.

The Annunzio–Wylie Anti-Money Laundering Act strengthens sanctions for BSA violations and provides the legal basis for requiring financial institutions to file what are now known as suspicious activity reports (SARs).

The Financial Crimes Enforcement Network (FinCEN) finalizes the first regulation to require banks (and other institutions) to file SARs.

The rule requires banks to file SARs for transactions of at least $5,000 that they believe are derived from illegal activity, or those that they believe are designed to hide profits derived from illegal activity.

President Bush makes remarks on the PATRIOT Act

After the September 11th terrorist attacks, Congress passes the USA PATRIOT Act.

Eleven sections of the Act added provisions to the Bank Secrecy Act (BSA) in an effort to stop terrorist financing internationally.

From the beginning, there were serious constitutional concerns with the BSA. In 1974, in California Bankers Association v. Shultz, the Supreme Court upheld the constitutionality of both the recordkeeping and reporting provisions of the BSA, finding no violation of the Fourth Amendment. Two years later, in United States v. Miller, the Supreme Court held that the Fourth Amendment does not protect an individual from his bank’s provision of financial records to the government.

But several supreme court justices raised constitutional concerns in dissent. Justice Thurgood Marshall, for example, wrote that:

“By compelling an otherwise unwilling bank to photocopy the checks of its customers the Government has as much of a hand in seizing those checks as if it had forced a private person to break into the customer’s home or office and photocopy the checks there.”

Even the concurring justices recognized these problems, warning that expanding the BSA requirements would likely violate Americans’ constitutional rights:

“Financial transactions can reveal much about a person’s activities, associations, and beliefs. At some point, governmental intrusion upon these areas would implicate legitimate expectations of privacy.”

The BSA has dramatically expanded since the 1970s, so it stands to reason that the BSA endangers Americans’ constitutional rights.

3D render of a bank safe

These reforms would have the twin benefit of protecting individuals’ financial privacy and improving federal agencies’ abilities to prosecute criminal activity instead of devoting so much effort to examining program compliance and ensuring that financial institutions file millions of low‐​value reports.

The basic framework to balance the competing interests of individuals’ financial privacy and the government’s ability to gather evidence to enforce laws is already present in the Fourth Amendment. This constitutional right generally requires the government to obtain a warrant upon a showing of probable cause to obtain access to an individual’s person, house, papers, and effects.

Congress should restore these constitutional protections.