Financial Regulation

Did Banks Hand Private Financial Data to the FBI Without Legal Process?

Banks routinely snitch on customers and even deny services to people politicians don’t like.


The House Judiciary Committee is investigating banks for sharing Americans' financial information with the FBI without regard for privacy concerns. In fact, there's no doubt about the threat to civil liberties posed by the government's leverage over the financial industry; that's long established. At question in this investigation is whether the danger to our freedom inherent in that cozy relationship is being wielded in political warfare between the country's political factions. But the larger problem should be fixed no matter what lawmakers discover.

"Today, Chairman Jim Jordan (R-OH) subpoenaed Citibank for documents and communications related to the Judiciary Committee's and Weaponization Select Subcommittee's investigation into major banks sharing Americans' private financial data with the Federal Bureau of Investigation (FBI) without legal process for transactions made in the Washington, D.C., area around Jan. 6, 2021," the House Judiciary Committee announced August 17.

The subpoena followed June 12 queries to Citigroup, JPMorgan Chase & Company, PNC Financial Services, Truist, U.S. Bankcorp, and Wells Fargo after testimony by FBI whistleblowers that Bank of America voluntarily handed the FBI records on people who had used its services in the Washington, D.C. area around the time of the January 6 Capitol riot. "Individuals who had previously purchased a firearm with a BoA product were reportedly elevated to the top of the list," according to a May report.

Banks Have Long Been Government Snitches

If the banks in question surrendered private financial information to federal officials based on little more than "please," that's disturbing. It's also believable since financial institutions have long operated as surveillance arms of the state, tracking transactions and movements, making assumptions about what they might mean, then turning that information over to government officials under regulatory pressure.

"The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence," boasts the federal agency, which operates under the umbrella of the U.S. Department of the Treasury. To that end, it administers a host of rules including customer due diligence mandating that banks "identify and verify the identity of customers," larger "know your customer" rules specifying that financial institutions profile clients once they're identified, the misnamed Bank Secrecy Act which requires "financial institutions to, among other things, keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount)," and suspicious activity reports which banks must file on "suspicious or potentially illicit activity."

As it did in many areas, the USA PATRIOT Act tightened the screws of surveillance when it came to financial activity.

"The National Security Letter provision of the Patriot Act radically expanded the FBI's authority to demand personal customer records from Internet Service Providers, financial institutions and credit companies without prior court approval," notes the ACLU.

Regulators Strong-Arm Industry Compliance

The financial industry is heavily regulated by government officials. That gives them the ability to torment private businesses based on idiosyncratic interpretations of vague laws and regulations.

"The SEC staff told us they have identified potential violations of securities law, but little more," Paul Grewal, chief legal officer for the crypto exchange Coinbase, complained in March about a nastygram from the Securities and Exchange Commission. "We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so." Grewal went on to detail his company's efforts to comply with rules and regulators' refusal to respond, except with threats.

Unfortunately (but probably not accidentally), such power creates incentives to over-interpret activity as "suspicious" and to snitch on customers to stay on the good side of federal agencies.

"Government officials can use informal pressure — bullying, threatening, and cajoling — to sway the decisions of private platforms," the Cato Institute's Will Duffield wrote regarding federal efforts to strong-arm tech companies into suppressing disfavored speech. Such "jawboning" is easily applied to any heavily regulated industry, including finance. It can also be used to encourage more than snooping, such as outright denial of service.

"According to our data, nearly 2 out of 3 people who earn money in the adult industry have lost a bank account or financial tool, and nearly 40% have had an account closed in the past year," the Free Speech Coalition, an adult-industry trade group, reported of the results of a survey earlier this year.

While the report didn't speculate as to the cause of the closures, the problem looks very much like a continuation of the Obama administration's Operation Choke Point, under which federal agencies including the Department of Justice and the Federal Deposit Insurance Corporation leaned on banks to deny services to businesses which government officials just didn't like.

"Operation Choke Point was created by the Justice Department to 'choke out' companies the Administration considers a 'high risk' or otherwise objectionable, despite the fact that they are legal businesses," summarized a 2014 House Oversight Committee report. "The sheer breadth of industries affected – including firearms and ammunition sales, adult entertainment, check cashing, and payday lending – has generated significant concern with the objectives and scope of Operation Choke Point."

While Operation Choke Point officially ended in 2017, the Free Speech Coalition survey is only part of the evidence that government still cuts off disfavored individuals and industries from financial services. And if the feds are willing to lean on banks to deny service to targeted customers, they're certainly willing to use their tools to conscript bankers as informants.

Rein In Regulators, No Matter What

So, did the FBI squeeze banks for information on people who were present in Washington, D.C. on the day of a riot, without providing evidence that they participated in the violence or even went near the related and perfectly legal election protests? That would certainly be a dangerous escalation in the abuse of government officials' leverage over the financial industry. If House Judiciary Committee Chairman Jim Jordan finds evidence to support his allegations, heads should roll.

But even if he finds no evidence to support those charges, government regulatory power is too intrusive and arbitrary, and easily abused. Just as politicians have leaned on the tech sector to muzzle speech, they have long pressured banks to spy on customers and deny services to people whose existence offends officialdom. That power is a problem in itself, no matter what this investigation uncovers.