Surveillance

Feds Propose Even More Surveillance of Your Banking Habits

By lowering the “travel rule” threshold to $250, the government could access more of our financial data.

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It is remarkable just how unremarkable America's massive financial surveillance system has become to most people. Americans were rightly outraged when Edward Snowden revealed the government's widespread spying campaigns on online communications. Yet every day, our financial transactions are subject to similar scrutiny. The programs aren't even secret: you can read up about them on official government websites. But for some reason, we accept this surveillance as a fact of life. We shouldn't.

If you give an agent a surveillance program, he will try to expand it. This is the case with the many legally questionable financial reporting requirements sprung forth from the Bank Secrecy Act of 1970 (BSA), which is kind of like the PATRIOT Act for money. 

Most recently, the Federal Reserve and Treasury Department have proposed expanding what is called the "travel rule" to capture international funds transfers above $250. Currently, financial institutions are required to make certain reports on customers when they send international transactions in excess of $3,000. This has been the threshold since the travel rule was first adopted in the U.S. in 1996, despite inflation since then.

Here's how it works: Let's say someone wants to send $5,000 to someone else in the U.S. or abroad. That person goes to their bank and tells them where they'd like to send the money. The bank, by law, must collect, store, and send certain identifying data to the receiving financial institution, including the name, address, and account information for the sender and receiver. This data must be passed along intermediary financial institutions and stored for at least five years. It isn't immediately shared with the government unless it is determined to be "suspicious" enough to trigger Suspicious Activity Report (SAR) requirements under the BSA. In other words: banks must keep this data on hand in case the government needs it.

These surveilled people are suspected of no crime, nor are they given any opportunity to opt out of this data collection. Still, the government preemptively requires that their transactions be tagged and tracked as if they had done something wrong.

The threat of government involvement is apparent. It has effectively deputized banks to keep treasure troves of transaction data on hand in case it should become useful. 

But there are many other good reasons that innocent people should oppose these programs that don't have to do with the government at all. Forcing third parties to maintain financial records on transactions gives them an intimate window into your life. As Supreme Court Justice William Douglas wrote of the BSA in 1971:

"The records of checks—now available to the investigators—are highly useful. In a sense, a person is defined by the checks he writes. By examining them, the agents get to know his doctors, lawyers, creditors, political allies, social connections, religious affiliation, educational interests, the papers and magazines he reads, and so on ad infinitum."

Maybe you just don't want the data quality manager at Bank of America to have access to the knowledge that you've been sending money to your preferred political or religious causes. It's not their business and you haven't done anything wrong. Plus, you need to trust that they will protect this data and not expose it to hacks or leaks. Yet this is the current state of play for American funds transfers, and it may soon be considerably expanded.

The proposed rule change would apply to traditional currency transfers as well as cryptocurrency transactions. The travel rule also applies to domestic funds transfers, but the limit for those would be kept at $3,000.

There is some good news: The Treasury Department generally understands the distinction between custodial cryptocurrency transactions (those that are facilitated by third parties like exchanges) and non-custodial or peer-to-peer cryptocurrency transactions that involve no third party. It also understands that software developers and miners have no direct control over fund transfers. Non-custodial transactions, developers, and miners are exempt from surveillance requirements. So there is at least a little bit of privacy breathing room when it comes to non-custodial cryptocurrency uses. 

(Of course, not every federal regulator is this astute when it comes to the networking properties of cryptocurrencies: the Department of Justice recently described the use of privacy-preserving cryptocurrencies to be "a high-risk activity" that is inherently "indicative of possible criminal conduct.")

Still, it's worrying that government agencies don't even consider personal privacy when proposing new regulations. My colleagues at Coin Center have filed a comment on the proposed travel rule change pointing to the lack of privacy considerations. 

By law, federal agencies must issue cost-benefit analyses that weigh the trade-offs of a proposed new rule to industry and society. The travel rule analysis only considers the costs that would be imposed on banks on regulators. The extreme cost to privacy for millions of Americans is not even an afterthought: it's not a thought at all. That's a big problem.

If the Federal Reserve and Treasury Department had considered the proposed $250 travel rule's privacy costs on individuals, perhaps it would not pass a cost-benefit test. Actually, maybe it would prompt the agencies to rethink the architecture of our financial surveillance altogether. 

Justice Douglas foresaw the grave dangers to privacy posed by intermediated financial surveillance all the way back in 1971. Today, when so much more of our financial lives are channeled through third parties, the danger is that much greater. 

The many problems with America's financial surveillance system are apparent, setting aside these grave threats to our personal privacy. It creates compliance and hacking risks for institutions that must store this data. And it doesn't even work very well. Criminals are routinely able to get the finance they need despite this web of data tracking. Meanwhile, innocent people may have trouble making transactions or get caught in the hassle of some overzealous agent. It's a big mess.

Let's hope that financial regulators listen to the many public comments encouraging an explicit consideration of how privacy is affected by financial surveillance programs. But these questions should not only be considered by regulatory agencies: it is perhaps time for the Supreme Court to once again examine the legality of these surveillance programs that hoover so much of our financial lives into exploitable central datasets.

NEXT: Brickbat: The Walls Have Ears

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  1. No doubt about it, Justice Douglas, on the whole, was a far better friend to liberty than any RINO.

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  3. Finally some good stuff that doesn’t mention You Know Who, or He Who Must Not Be Named!

    If the Federal Reserve and Treasury Department had considered the proposed $250 travel rule’s privacy costs on individuals, perhaps it would not pass a cost-benefit test.

    If it might possibly provide any benefit, then any cost is acceptable. After all, it isn’t our money. – The Government

    1. Amen, for if it saves just one life, no cost is too high.

  4. It’s all part of that abomination known as the third-party records exception to the Fourth Amendment. It’s utter bullshit to claim that you have no reasonable expectation of privacy when you elect to disclose information to someone you have hired to act as your representative – and the lawyer/client privilege exception to this exception proves that it’s bullshit. Why is information you disclose to your lawyer any different than information you disclose to your bank or your cellphone carrier or your ISP? It implicates the Fifth Amendment self-incrimination clause just as much, it implicates the Fourth Amendment search and seizure clause and the right to a defense clause just as much, it implicates the “chilling effect” on Free Speech just as much, it implicates the “innocent until proven guilty” principle just as much – why is your lawyer given “privileges” which should be rights? Well, other than the obvious answer that it’s because these laws were written by fucking lawyers and it’s “one law for me, a different law for thee”. Look, if I hire somebody to be my agent, to act in my behalf, it should be treated as if that person is me. No access to the records of my transactions with my agent without a warrant and a probable cause affidavit. Period.

    1. How about no access period? No exceptions, period, except, of course, for state actors.

    2. Well, after all, there is no reason you cannot transact all your affairs in hand written coded messages, and using only cash.

      OK, other than the stores that refuse cash.
      And the businesses that only use direct deposit.
      And the US government primarily using electronic transfers, with an occasional check in unusual situations.

    3. Especially when as they move to outlaw cash, there will no way to hold any “transactable” wealth besides contracting with a bank.

      They only want one thing: everything.

      They hate us in ways we can’t imagine.

  5. The author is preaching to the choir here.

    Perhaps she might gain more converts if she were to troll NRA member on how greater financial surveillance will allow Hillary Clinton and Nancy Pelosi to track down every single gun purchase, and eventually James Comey and Zombie Janet Reno will come to confiscate all those guns.

    1. ^This. This is how people will end up getting their accounts closed for making disfavored transactions like paying NRA dues. The woke scolds go after the banks, and they cave because the woke scolds are so shrill.

      1. And Reason supports the woke scolds.

        1. We need a MAGA wet mop on aisle 2; Trumpista mistook Reason for Fox news and had an oopsie when reality dawned.

          1. It is amazing a juvenile idiot reads Reason,

      2. To be clear, I don’t think Nancy and Hillary are going to come a’grabbin’ for guns (yet, but President Kamala might entertain the notion). It’s not confiscation that worries me about this, it’s that a bank may arbitrarily decide to make someone an unperson by saying your business is not welcome here. That’s fine for a private business to do, but I don’t lump any overly-federally- and state-regulated bank into “private business.”

        1. It’s already been done with certain businesses; the government hints at banks that they’ll get in trouble for associating with them, and the business suddenly can’t get any financial services.

    2. What part of ‘international transactions’ do you think fits any of this? Yes I’m sure there are some American mercenaries buying rocket launchers in Belgium for use in the Congo. But I doubt financial tracking is very relevant. And honestly I’ll bet that most of the R’s here would be perfectly happy with that too as long as it involves ragheads not patriots who bleed red white and blue.

  6. Boiling the frog. Do that long enough and you can cook the son of a bitch beyond recognition and they won’t even complain about it.

  7. Will transferring $249 result in a structuring charge?

    1. Not in the first year – – – – – – – – –

    2. No, but it will be enough to get a FISA warrant to cover anything in your life that cost money.

      1. We’ll be back to pre revolutionary general warrants in no time; that would be I have a judges order to look around for anything that might seem useful to me.

    3. what about $248?

  8. In other words: banks must keep this data on hand in case the government needs wants it.

    Andrea, dear, you’ve drunk their koolaid if you think the government actually needs even the tiniest fraction of the data they collect.

  9. Justice Douglas foresaw the grave dangers to privacy posed by intermediated financial surveillance all the way back in 1971.

    The founders and framers saw it all the way back in 1789. Then some damn fool judges made up this idiotic third party doctrine to subvert the fourth amendment. Unfortunately, the framers were a bit short-sighted there, and apparently never considered the possibility that the three branches would collude to strengthen government.

    When monopolistic coercive government defines its own limits, it has none.

  10. Americans were rightly outraged when Edward Snowden revealed the government’s widespread spying campaigns on online communications. Yet every day, our financial transactions are subject to similar scrutiny. The programs aren’t even secret: you can read up about them on official government websites. But for some reason, we accept this surveillance as a fact of life.

    Because “money is gross” or some such non-sense.

    1. And most Americans weren’t even outraged, because most Americans are too stupid to understand why they should be. Most were apathetic, and a not insignificant number view Snowden as a traitor, not the whistle-blower hero that he is.

  11. Most Americans have no idea who Edward Snowden is, especially those who live in inner cities and vote democrat.

    1. And I am sure you are right. Some white dude in Russia maybe.

      Rogan did an interview with Snowden a couple of weeks back; it is excellent

    2. Also those that are dead and vote democrat have no idea who Snowden is.

      Depending on how good the day is, Biden may not know who Snowden is.

      But Kamala knows and has plans.

      1. Where are the Snowdens of yesteryear? –Catch-22

      2. Judging from the Trump administration’s actions in collusion with the UK on Assange, that is a concept that seems to have bilateral support – which almost guarantees it is wrong and a shit idea.

  12. ”The extreme cost to privacy for millions of Americans is not even an afterthought: it’s not a thought at all. That’s a big problem.”

    The end goal being that anyone, anywhere is committing a crime and can be brought in as necessary. Metadata collection is not only immoral, but should have been declared unconstitutional as soon as it was it was exposed to the public. Including prison terms for those in authority who lied about its existence under oath.

  13. Not easy in today’s CV19 crisis, but we have always relied on friends coming s and goings to Europe or Japan to hand deliver $10K or less. Nobody’s business why!

  14. ya like it’s about criminals lol

    1. They gonna get those criminals sending $300 overseas.. lol

      1. Hey, you might have 10,000,000 people working for you – at $300 apiece that would be $3 billion – good thing the government is prepared for such a crime cabal.

  15. “The Feds.” So some un-elected overpaid bureaucrats.

    1. Yes, and Congress has been kicking the can to them for years, helped along by progressive minded judges.

      1. Well you don’t expect anyone in Congress to do anything resembling work, do you?

  16. Oh come on man! We’re in the middle of a deadly pandemic and you want to object to such common sense precautions that certainly will save people’s lives according to every reputable expert?

    1. ^ generic argument #1 right now

  17. Relax, when has government ever abused such power?

  18. our slow descent into authoritarian totalitarianism continues. It will not end.

  19. Why bitch? Just make your own Federal Reserve.

  20. One of the biggest expanding threats to your privacy is not about your finances. It’s about your medical record.

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    1. Weren’t you paying attention? That’s over $250 and “euros” implies an overseas transfer. The government is going to be all over that.

  22. I’m sure when we switch over to all digital currency this will all get straightened out.

  23. Andea nicks the surface, but the Flash Crash of May 6 2010 coincided with Financial Action Task Force gloating over seizure of bank accounts–the exact same faith-based asset forfeiture G. Waffen Bush used to wreck the economy and elect Obama. This dark network of financial looters was handed over to Xiangmin Liu, of the Bank of Communist China, and Marcus Pleyer, ecological National Socialist from former communist soldier Merkel’s Democratic Republic of Antifaschistischer Germany. These are now the ones writing Knife Your Customer rules banks must obey or be shut down. (https://tinyurl.com/y5mduoo2)

  24. Good thing we are finally getting a real civil libertarian in the white house this january.

  25. Do you suppose your readers have heard of FATCA and FBAR? Do you think they’d be interested in learning that US Persons living abroad are forced to hand over *all* banking information to the US government? Might they find it curious that as a result many have lost their bank accounts?

    Would they even care? Or have Americans now accepted the idea that they are the property of the government, wherever they live?

    1. It’s the foreign banks that have to hand over the info because of FATCA – which is why it is more difficult than ever for USA expats to find banks that will do business with them.

      But it’s the expats’ fault for leaving the plantation…

  26. As a retired banker, I can assure you that the government is everywhere in your finances, conscripting banks to serve as unpaid tattletales, discerning the slightest suspicious comment as something that has to be reported to the feds. Even the otherwise lightly regulated credit unions must do this.

    It’s terrifying. I realize that most of us have little to fear, not because we aren’t doing anything wrong, because that doesn’t stop prosecutors at all, but because we simply don’t attract the government’s attention. This is little comfort, since federal prosecutors can charge anyone with anything and it will likely stick. They don’t have trouble themselves with things like probably cause, or evidence, like state and local prosecutors do.

    1. Where’s the like button when you need one…

  27. This entire business, above described might be taken to say that according to “government”, the citizenry is less than trustworthy, and must be constantly “supervised”. Another point of view is described by the following question. Is government trustworthy? How the answer to that question comes out is likely more than casually interesting, a lot more I submit.

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  29. Crypto currency getting another boost.

  30. The best defense against this type of unconstitutional-authoritarianism is to focus maximum resources on “Judicial Branch” court cases (plaintiffs in court). Congress won’t fix this.

    In the past 20 years the political branches have embraced torture, warrantless domestic spying, Cointelpro-style blacklisting for life [worst form of torture] and gross exploitation of the Espionage Act of 1917 [used primarily for non-espionage cases].

    Any American harmed can file a “pro se plaintiff” lawsuit or there are many organizations that provide free legal counsel like the Institute for Justice, ACLU affiliate in your state or the Pacific Foundation. The political branches (Legislatures and Executive Branch) have had almost 20 years, spend your resources in federal court with constitutional lawsuits.

  31. Oh, now we see it – the whole Libertarian Bitcoin psyop – getting us all enslaved by the “public ledger” used for surveillance because the psyop harnessed the hate for the Fed toward an even greater enslavement and totally avoided any discussion of fungibility.

    It disgusts me the Libertariantards are so gullible – they were afraid of Ellen Brown’s “public banking” because they had been been brainwashed to think it was socialism. I tried. I really did.

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  33. Oh, now we see it – the entire Libertarian Bitcoin psyop – getting us all enslaved by using the “public ledger” used for surveillance because the psyop harnessed the dislike for the Fed closer to an even greater enslavement and definitely prevented any discussion of fungibility.

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  35. Banks like this. Regulatory capture costs upstarts too much to enter the market to compete. The paperwork burden reduces competition.

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