Financial Regulation

Kiss Your Financial Privacy Goodbye

American politicians are systemically destroying the right to confidential banking.

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Finance
kenteegardin / Foter / CC BY-SA

It started, as so many bad things do, with Richard Nixon. In 1970, in the midst of a national panic over crime and illegal drugs, the man whose presidency would later become synonymous with official criminality signed the Bank Secrecy Act, which compelled all U.S. financial institutions to create a Currency Transaction Report-containing name, address, bank account data, and Social Security number-every time a client executed a cash transaction larger than $10,000.

"While an act conferring such broad authority over transactions such as these might well surprise or even shock those who lived in an earlier era," wrote Supreme Court Justice William Douglas four years later, upholding the law in California Bankers Association v. Shultz, "the latter did not…live to see the heavy utilization of our domestic banking system by the minions of organized crime as well as by millions of legitimate businessmen." Airy principles may sound nice on paper, but these were dangerous times.

Before that moment, banking privacy had been broadly understood to be protected by the Fourth Amendment's invocation against "unreasonable searches and seizures" of Americans' "persons, houses, papers, and effects," unless the searchers were backed by a warrant. Behind that constitutional interpretation was a moral argument, backed by centuries of experience.

Financial anonymity as we know it was invented in Geneva, Switzerland, in the 16th century, by Protestant Reformation leader John Calvin. In converting his pretty mountain lake town into a refuge for Europeans fleeing marauding Catholic governments, Calvin loosened papal restrictions on lending at interest and embraced individual privacy as a means of self-defense against a predatory state.

As banker Xavier Comtesse explained to Swiss Info in 2009, "The description 'banking secrecy' is actually incorrect-'protection of the private sphere by the bank' would be more appropriate." The Swiss, Comtesse continued, seek to "protect against any state despotism. This way of thinking has historical roots in Protestantism, which in Calvin's time sought to protect the people against the despotism of the powerful Catholic Church."

Financial privacy and religious freedom-including separation of church and state, another Calvinist specialty-went hand in hand. So, too, would prosperity. The lessons of Geneva were not lost on the founding generation in America, who created in their First and Fourth Amendments a zone of religious and personal autonomy never before respected by a national government. It was no luck of the draw that the fourth ever secretary of the U.S. Treasury, and the longest-serving one in history, was a Geneva-born Swiss American named Albert Gallatin.

We have wandered far from that original path, particularly in the last few years under President Barack Obama. Switzerland and most other onetime outposts of financial secrecy have been dragged kicking and screaming by Uncle Sam into a banking world of global government surveillance. In July, the Organization for Economic Co-operation and Development (OECD) quietly created something called the Standard for Automatic Exchange of Financial Account Information in Tax Matters, based on Obama administration specs, to make all private financial accounts the reciprocal business of national governments. Scores of countries have already signed up.

But before detailing the latest U.S.-led clampdown, it's worth reflecting on some other panic-induced milestones on this road from Enlightenment Era financial freedom to 21st century subjugation.

The Money Laundering Control Act of 1986, passed at the height of the crack cocaine freakout, made "structured" evasions of the Bank Secrecy Act's $10,000 reporting limit a crime-depositing $9,999.99 to avoid scrutiny became a crime in itself, even if your reasons for doing so were not criminal-and gave government the power to seize assets it deemed to have been used in "specified unlawful activities." As John Yoder and Brad Cates, two Reagan-era directors of the Justice Department's Asset Forfeiture Office, pointed out in a September Washington Post op-ed, "more than 200 crimes beyond drugs came to be included in the forfeiture scheme."

A Post investigative series in the fall described the grim results: More than 60,000 people have had cash seized without ever having been hit with a criminal indictment or search warrant since 2000. Instead of protecting property, police forces nationwide have an incentive to steal it, lawfully, from non-criminal citizens.

And still we are not done with the encroachments on financial privacy in the name of battling dangerous drugs. In 1988, the Anti-Drug Abuse Act expanded the prior laws' definition of "financial institutions" to include car dealers and other non-bank dispensers of credit. It also compelled said creditors to check the legal identification of anyone engaging in transactions larger than $3,000. A trio of money laundering laws in the 1990s boosted penalties, imposed more reporting requirements on banks, and demanded more proof of ID for transactions, among other intrusions.

Then 9/11 changed everything, again. The PATRIOT Act one-upped prior bank snooping schemes by forcing still more reporting requirements on ever lower transaction amounts to still greater numbers of institutions that deal with money. With the financing of terrorism now a specified (if vaguely defined) crime, and with response time requirements to federal law enforcement whittled down to 120 hours, banks were terrified of crossing Washington.

In retrospect, we should have realized that the aforementioned context had a greater influence on the Obama administration's strange obsession with cracking down on Americans' foreign accounts than the estimated $1 billion extra a year that the Internal Revenue Service reaps from hassling our more globalized citizens. The awful Foreign Account Tax Compliant Act (FATCA) of 2010, which I wrote about in this space in October 2012 ("The Insatiable Taxman"), is certainly annoying in its own right. The law inconveniences the estimated 7.6 million Americans living abroad (who can no longer get bank accounts in their host countries) and anyone else who holds more than $10,000 in foreign financial institutions by imposing on non-American banks a host of invasive, privacy-violating reporting requirements.

But the dwindling defenders of global financial privacy have come to realize that Washington's eye may have been on a bigger prize all along. Forget FATCA. This is all about GATCA. (The G is for "global.")

"This has been in the works since 2009," Deloitte partner Jim Calvin told the industry news site Compliance Complete in January 2014. "The U.S. was the only jurisdiction with a single capital market that could force FATCA to work. Once the U.S. effort was underway, it became apparent in 2012 with the release of the proposed regulations and the simultaneous announcement by the U.K., France, Germany, Spain, and Italy to enter into intergovernmental agreements (IGAs) that this was not just the U.S. acting alone."

The fruit of that labor arrived in July, with the publication of the OECD's new proposed financial rules for the developed world. "In creating the standards," noted JD Supra Business Advisor, "the OECD drew upon the experience gained through" implementing FATCA. "The OECD hopes that a commonality in approach will limit arbitrage opportunities for tax evaders."

So what started with drugs and evolved to terrorism has at long last settled on a more primal fear that's been around much longer than the Constitution: that someone, somewhere, may be saving or spending money without the blessing or even knowledge of the state. Money, in this view, does not strictly belong to the individual who "owns" it. It is tolerated only after full disclosure-and tribute-to the government.

Want to know why reason, after a long interregnum, has once again put together an issue focused on financial topics? Because your money is inextricably linked to your freedom. And government everywhere is punitively jealous of both.

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  1. Never mind your own financial privacy. Consider the millions of innocent persons around the world who are finding out that they are considered U.S. citizens under U.S. laws, and subject to criminal prosecution and devastating financial penalties for failing to file tax returns and FBAR’s for their “offshore” bank accounts in their home towns. These people are about as “American” as U.S. Senator Ted Cruz was a “Canadian” when he learned in 2013 that he was still a citizen of Canada. What if Kenya claimed President Obama as a citizen born overseas (in Hawaii) to a Kenyan father, and then ordered him to pay taxes and report his bank accounts to Nairobi bureaucrats?

    1. This is insane. This what broke desperate governments do when they can’t pay their bills. Are we now a nation of bureaucratic thieves who shake down the entire world for their identity and data hedge capital? We need help. The American people need to help themselves or they need to realize they need help to overcome the endless devouring that is US economic and foreign policy. They come for all of us.

  2. If you’re not doing anything wrong, why are you sweating?

    HMMMMMMMM?

    1. The question asked by every tyrant.

  3. In 1970, in the midst of a national panic over crime and illegal drugs, the man whose presidency would later become synonymous with official criminality signed the Bank Secrecy Act, which compelled all U.S. financial institutions to create a Currency Transaction Report-containing name, address, bank account data, and Social Security number-every time a client executed a cash transaction larger than $10,000.

    According to this, that 10k adjusted for inflation currency debasement should be $61,348.20.

    In case anybody’s interested.

    1. What a shock that the government doesn’t keep the rules paced with reality.

    2. Just like the Alternative Minimum Tax.

  4. If you’ve got nothing to hide…

    1. the government will try to find ways to steal what you have anyway.

  5. In July, the Organization for Economic Co-operation and Development (OECD) quietly created something called the Standard for Automatic Exchange of Financial Account Information in Tax Matters, based on Obama administration specs, to make all private financial accounts the reciprocal business of national governments. Scores of countries have already signed up.

    Hey, look over there! Putin’s a despot and a bully!

  6. my co-worker’s sister makes $75 every hour on the internet . She has been out of work for seven months but last month her pay was $16763 just working on the internet for a few hours. pop over to this web-site….

    ?????? http://www.payinsider.com

    1. 223.5 hours in a month is not “a few hours.”

      1. I wonder if the co-worker’s sister has paid the Obamacare penaltax.

  7. I have read that this is why a lot of capital is going from Switzerland to Singapore. People are pretty confident that they aren’t going to bend over for the US.

  8. In 1970, in the midst of a national panic over crime and illegal drugs,

    In the words of the greatest philosopher that ever not existed, Yoda: “Wars do not make one great!”

    These abuses of power and constrictions on our rights stem directly from these prohibitions, be it the war on alcohol, the war on recreational drugs, the war on analgesic or medicine trafficking. But what bewilders the mind is how much tyranny the different Congresses have piled on on top each new set of anti-trafficking laws as if it was a competition. And now we have the new war on “terror” to thank for more erosion of our rights.

    Of course, the talk around the water-cooler will address the issue of financial privacy with the usual superficiality shown by the living results of the Amerikan Pulvic Skool Seistem Dat Teeches Kidz To Reed an Writ: “These are rich folks who inherited/stole the money anyway.”

  9. Switzerland and most other onetime outposts of financial secrecy have been dragged kicking and screaming by Uncle Sam into a banking world of global government surveillance.

    I burn with shame.

    1. The Swiss and others burn with anger

  10. So, matt, making sure that billionaires pay a few shekels to the governments where they are naturalized is a bad thing?

    1. Extortion is a bad thing.

    2. Of course a socialist would be in favor of mass surveillance of every dollar every person owns.

    3. Re: American Stolid,

      So, matt, making sure that billionaires pay a few shekels to the governments[…]

      You see? Right on cue. What did I just say?

      Of course, the talk around the water-cooler will address the issue of financial privacy with the usual superficiality shown by the living results of the Amerikan Pulvic Skool Seistem Dat Teeches Kidz To Reed an Writ: “These are rich folks who inherited/stole the money anyway.”

      1. Hi,

        I was going to respond to your post above in order to say that I, too, don’t think we should be involved in a war against drugs and if the point of these regulations is to go after drug traffickers than that’s something I oppose. Because I don’t care if you buy, sell, use, or manufacture meth, cocaine, MDMA, etc.

        I do think rich people should pay taxes and that the rate of taxation on rich people should be more than the rate that middle class people pay. If we make laws that make that happen then I really don’t have a problem with that. I merely think we can do this without inconveniencing the people that supply the drugs that my dealer sells me.

        Quick question: do libertarians think misspelling words is an argument. Seems childish to me.

    4. That would be a great argument, if these laws only affected billionaires.

      Since it effects a lot more normal people than billionaires, it seems somewhat out of touch.

      And, since it harms normal people more than billlionaires, who see shit like this as the minor annoyances one deals with whole being fabulously rich, while normal people have large portions of their wealth confiscated for how they deposit money, it’s wildly out of touch.

      But, keep fighting the fight for the little people, brave socialists.

    5. Billionaires, millionaires, and thousandaires. And it ain’t a few shekels dumbshit.

  11. Unfortunately our today’s world is based on consumerism, and we must understand that our politic makes us want to work and earn money just fr one reason ? to make more and more purchases. And this is just a loop, in which we are running like rabbits. However someone have understood this and changed the situation. But for the time being much people just live using pay day advance for people in need, because they have no enough money even for the necessities. And in such way our world is divided for people who earn enough, but spend everything for the modern items, and for those who can not afford even a restaurant.

  12. My buddy’s step-aunt makes $89 every hour on the laptop . She has been without work for 8 months but last month her check was $14034 just working on the laptop for a few hours. check out here. ???? http://www.jobsfish.com

  13. It’s bad, but I wonder just how sincere the governments signing up to these deals are or will be. Belgium and Luxembourg are still signing private and generous tax deals with Coco-Cola and the like. I hope crypto-currency will be the next hiding spot.

    1. Good luck running your network-based cryptocurrency unmonitored over a Title II public utility.

    2. Ha, crypto-currencies will not be a hiding spot.

      It is already nearly impossible to get any substantial amount of fiat value into or out of crypto-currencies without disclosing who you are.

  14. B-b-but… TEH RICH!!!1!!!!!!!! SWISS BANK ACCOUNTZ!111!!!! EKONOMIC PATRIATIZM!!!11!!!!eleventybillion!!11!!!!

    1. Please, calm yourself Senator Schumer!

  15. “Money, in this view, does not strictly belong to the individual who “owns” it. It is tolerated only after full disclosure-and tribute-to the government.”

    In other words, people seeking to hide revenue from the government shouldn’t be taxed. Golly.

    1. And by “hide revenue from the gov’t” you are presuming that all money belongs to the gov’t.

    2. Pretend people are depositing their uterus and then maybe the right to privacy would make sense to you.

    3. A better way to express it would be: wanting to hide their money from the junkie thieves who want to steal it.

      Governments really are junkie thieves. They’re addicted to power and they have to buy that power but they don’t create anything of value to trade for money so, they need to steal other people’s money instead. Just like any other junkie thief.

  16. my classmate’s step-mother makes $76 hourly on the laptop . She has been out of work for 5 months but last month her pay check was $21931 just working on the laptop for a few hours. visit the website….

    ?????? http://www.payinsider.com

  17. State Your Assumptions, Sirs

    “Those Who Sacrifice Liberty For Security Deserve Neither.” -Benjamin Franklin (1706-1790)

    Citizens should read any article involving governmental bureaucrats associated with spying with scepticism. Typically, said bureaucrats neglect to describe the assumptions underlying their argument, including the following:

    Assumption #1: Interventionism is more in the national interest then non-interventionism (not to be confused with isolationism).

    Assumption #2: Economically, politically, militarily, and sociologically, interventionism effectively can protect the national interest.

    History belies the validity of both assumptions. In fact, that we Americans continue to lose our liberty to governmental spying on us ourselves in the name of security speaks to the failure of our foreign policy beginning with Bush the First and his double-cross of our erstwhile ally … the homicidal thug, Saddam Hussein. A foreign policy reflecting the Scientific Method instead of ideology, power, and profit would serve us better (www.nationonfire.com).

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