Banks Are Narcing on You Because Congress Forces Them To
The Bank Secrecy Act regime forces banks to report customers to the government for an ever-growing list of “red flags.”
Walking into a bank feels like walking into any other business. Sure, there are a few extra cameras and an armed guard or two, but otherwise, it's a typical experience. What you don't see is the flood of reports—tens of thousands every day—that banks and other financial institutions file with the government, logging what Americans are doing with their money.
Banks may look like private businesses on the outside, but they have long been deputized on the inside as undercover agents for federal law enforcement.
Finance is among the most private aspects of our lives—we cover the keypad at ATMs, shred financial statements, and use multifactor authentication for online accounts. Yet what we really have is the illusion of financial privacy. Our information might be shielded from much of the general public, but not from the government.
The problem stems from a series of laws now known as the "Bank Secrecy Act regime." Beginning in 1970, the Bank Secrecy Act made two major changes to the financial system. First, the law requires banks to maintain records on customers "where such records have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings."
Second, the law requires banks to report certain transactions to the government. Since 1972, banks have been required to file a currency transaction report any time a customer makes a transaction over $10,000.
Congress didn't stop there.
In 1992, Congress expanded the regime to require banks to start reporting "any suspicious transaction relevant to a possible violation of law or regulation" in what's now known as a "suspicious activity report." The process is shrouded in secrecy; if one of these reports is filed on you, the bank can't tell you why. It can't even confirm the report exists.
Still not content with the surveillance system it had amassed, Congress expanded the regime further in the wake of the 9/11 attacks. Among other things, it required banks to collect identifying information and run checks on potential customers before opening new accounts. Referred to as Know Your Customer requirements, these identity-verification measures are now seen across financial services large and small.
Today, the Bank Secrecy Act regime forces banks to report customers to the government for an ever-growing list of "red flags." That includes when it is unclear where a customer's money came from, when a customer gets close (but does not cross) the $10,000 reporting threshold, and so much more. Something as simple as depositing money after selling your car or withdrawing money to cover an emergency expense can land you on this list.
During the 2023 fiscal year alone, financial institutions filed more than 27 million reports on customers. That amounts to more than 75,000 reports each day. Every day people are unknowingly being treated as potential criminals by the institutions they trust with their money. The vast majority of these reports are filed for nothing more than a customer making a transaction over $10,000.
Although this regime is more than 50 years old, it has only been in the last two years that the government has made some limited data available to the public about how it is using these reports. Those data so far confirm that this regime is far from effective or efficient.
From the information in those 27 million reports filed last year, the IRS initiated only 372 criminal investigations. How many of those investigations ultimately led to a conviction remains an open question.
If a bank worries there might be unlawful behavior taking place, it can report that—just as you can call the cops if you're worried a crime might be taking place. Eliminating this regime of mandated surveillance does nothing to change this. It would only stop countless innocent Americans from having their privacy regularly violated.
Ultimately, Congress got us into this mess and it should get us out. It's time to end this decades-old practice of forcing banks to act as informants. Congress should repeal the laws underpinning this regime and restore financial privacy.
This article originally appeared in print under the headline "The Banks Are Narcing on You."
