Civil libertarians and investors alike should be concerned about the growing threat to their financial privacy. Washington summers tend to be pretty sleepy, particularly in an election year. But this year, while most politicians and bureaucrats languished, the Supreme Court and the Treasury were quietly but busily rewriting constitutional protections of our privacy—particularly as they relate to financial matters.
Taking another look at the Internal Revenue Service's notorious Operation Tradewinds, the high court overruled a court of appeals decision and decided that it's okay for government agencies to use illegally obtained financial information to convict a third party. You will recall the case of a few years ago. While a Bahamas bank officer was being wooed by a female IRS agent, two other agents rifled through his briefcase and made copies of a client list. The IRS then proceeded to audit those clients, obtaining tax judgments against a few. No violation of those bank customers' Fourth Amendment rights, our "strict constructionist" bench declaims.
About the same time, the Treasury Department was tightening its regulations of domestic currency transactions. And Congress obligingly moved toward expanding Customs authority over international currency movements.
The Treasury announced that henceforth those benighted misfortunates who hold savings bonds and notes must give their Social Security numbers when cashing them. Not to be outdone, the Commodity Futures Trading Commission proposed a rule requiring US brokers who trade on behalf of foreign banks or brokers either to supply the CFTC with information on the account or to close it. The agency sought to bar Banque Populaire Suisse from trading on US markets because it refused to reveal the identity of its clients.
Under such incessant pressure from US authorities, there is evidence that the vaunted Swiss secrecy is beginning to crack. The upper house of the Swiss Parliament has passed a bill broadening Swiss cooperation in cases of foreign tax evasion. And some Swiss banks now ask new customers to swear that they are not violating the laws of their country and to waive their secrecy rights in the event of governmental inquiry.
To gain a full appreciation of the scope of this broad federal assault on financial privacy, it is necessary to look at its legislative and judicial backdrop. It all started in earnest with the "Bank Secrecy Act" of 1970. That laughably titled statute required banks to make and retain copies of all checks and to report to the Treasury any transaction over $10,000. Further, it required citizens to report whether they held a foreign bank account or trust and to disclose any movement of international currency amounting to $5,000 or more.
The Supreme Court entrenched and embellished the legislation in 1976, when it ruled that the constitutional prohibition against unreasonable search and seizure does not protect the privacy of bank records. Warren Burger and company reasoned that bank records are not "private papers" but business records that banks must keep under the Bank Secrecy Act. More recent law has conceded the procedural right to be notified of a government subpoena of one's records and to resist their release. But there is ultimately no substantive right to prevent the government from seizing them.
Now the Treasury is working hand-in-hand with Congress to widen federal surveillance even more. New Treasury regulations sharply restrict "financial institutions" from exempting customers from transaction reporting requirements and provide for more complete identification and recordkeeping on people who make "large" transactions. (Of course, that sum's size dwindles in significance by the day.) The new regs would bring securities and foreign exchange dealers, as well as foreign banks and money order issuers, into the reporting net.
The monitoring of international transactions is also being beefed up with little regard to traditional conceptions of privacy and due process. The House Banking Committee has passed and other committees are studying Treasury-pushed legislation that would make it illegal merely to "attempt" to transport "monetary instruments" in excess of $10,000 in or out of the country without reporting them to Customs. The bill provides for warrantless searches on "reasonable" (not "probable") cause and authorizes an army of paid informers to finger suspects.
Predictably, the justification for all this snoopery is the need to control drug traffic. For most politicians, that's hard to vote against. One of the few dissenters has been Rep. Ron Paul (R.-Tex.) who suggests that "there may be other reasons behind the obvious one of drug trafficking for the Treasury Department's support of this bill." He warned that the bill really looks toward "establishing or strengthening the legal framework for the total control of international capital flows by the federal government." As if to confirm these ulterior motives, Treasury Assistant Secretary Richard J. Davis regaled a congressional committee with horror stories of "how foreign accounts are used in tax evasion, bribery, securities violations, black marketing and smuggling."
One need not be involved in any of these activities in order to be disturbed by the steady squelching of our financial privacy. America has admirably survived nearly 200 years with a minimum of government supervision, after all.
Books have been written on the "how tos" of protecting the confidentiality of one's financial affairs, most notably Mark Skousen's Complete Guide to Financial Privacy. But there is no foolproof way. Those who feel they must use extralegal means to protect their capital (a growing class) should take due note of the risks involved.
Steve Beckner is a free-lance financial writer, the editor of Deaknews, and the author of The Hard Money Book.
This article originally appeared in print under the headline "Money: Right to Privacy Under Fire".