- ALBANY, N.Y. - He works for a big banking outfit, and he's fairly high up
in the organization. He was telling me about a new proposed federal banking
regulation called the "Know Your Customer" program. The thing
had just hit his desk.
- "I'm still waiting for my blood
pressure to go down." he said.
- "What does it do?" I asked.
- "It'll require financial institutions
to do six things - some of which we already do. The first one is to determine
the true identity of a bank's customers. In a business situation, that's
just common sense. If Dan Lynch walks into XYZ Bank and says, 'I want to
open a checking account,' it's good, prudent business sense for XYZ Bank
to determine that Dan Lynch is really Dan Lynch."
- "Then it goes on. It's going to
require a bank to determine a customer's source of funds for transactions
involving a bank, including the types of instruments used and where the
funds were derived or generated. OK, Dan Lynch goes into the bank and opens
an account. He has a thousand bucks he wants to put in the account. Now,
we're going to ask Dan Lynch where the money came from."
- This is about drug dealers," I said.
- "Oh, yeah, the drug dealer thing
is the whole basis for this. ... Then we're going to determine the particular
customer's normal and expected transactions involving the bank. Based on
a bunch of questions we're going to ask you, we're going to find out how
much money is regularly going to go into your account, how much money is
going to come out, and when these transactions are going to take place."
- "Then we're going to monitor all
of your transactions...And, based on this monitoring of your account, we're
going to determine if any of your transactions are unusual or suspicious.
And if any of them appear to be, we're going to report them to the appropriate
- This banking executive is fairly horrified
that the federal government wants his bank to serve as a law enforcement
arm of the federal government - as snitches, essentially, who'll surely
end up siccing the feds on a whole squad of people who've done nothing
- What's odd about this is that I have
a friend who worked for years for a large federal agency that I won't name.
That agency has a strong interest in how much money people put in bank
accounts. If a suspected drug dealer made a big deposit, then my friend
and his fellow computer geeks would go into the bank's computers, grab
the money and keep it until the suspected drug dealer decided to explain
to the authorities where he got the cash. The federal government grabs
millions of dollars in drug money that way every year.
- Under this plan, though, the feds would
end up with a whole new list of names and bank accounts to watch.
- My friend the banker says that this possibility
makes his blood run cold.
- How about yours?
- Banking regulations
- As publicly regulated entities, banks
are "quasi-governmental" agencies that must comply with federal
laws. They are supposed to comply with the requirements and prohibitions
of the Privacy Act, though most agencies now completely ignore the Act's
limiting language. They also must enforce all federal regulations regarding
financial transactions. In addition, banks establish internal, industry-wide
policies which all banks typically implement; a good example is the requirement
for non-member customers to submit a fingerprint when cashing a check.
Below is an excerpt from SCAN's SSN FAQ regarding federal banking requirements
for reporting customer SSNs and other information. These same reproting
requirements apply to postal money order transactions. The FAQ is posted
- Banks (Financial Institutions)
- Banks may deny service or resist opening
an account or transferring funds for an individual who does not provide
a social security number upon request.
- Banks are required by federal regulations
to make and file certain reports on the purchase of money orders and other
transfers of funds. As of January 16, 1996, Title 31 U.S.C. Sec. 5325,
Subtitle IV - Chapter 53 - Subchapter II, imposes a requirement upon financial
institution for the filling of reports for certain financial transactions.
- Title 31 U.S.C. Sec. 5325 Section 5325,
titled "Identification required to purchase certain monetary instruments"
- "(a) No financial institution may
issue or sell a bank check, cashier's check, traveler's check, or money
order to any individual in connection with a transaction or group of such
contemporaneous transactions which involves United States coins or currency...
in amounts or denominations of $3,000 or more unless the individual has
a transaction account with such financial institution...; or the individual
furnishes the financial institution with such forms of identification as
the Secretary of the Treasury may require in regulations..."
- The "regulations" state that
banks must request a social security number when establishing a bank account
for an individual and from anyone that does not have an established account
seeking to obtain "bank checks, cashier's checks, traveler's checks,
or money orders". Pursuant to Title 31, Code of Federal Regulations,
Section 103.34, banks are required to ask for the Social Security number
when opening a bank account or issuing a certificate of deposit for a new
customer. But "In the event that a bank has been unable to secure,
within the 30-day period specified, the required identification, it shall
nevertheless not be deemed to be in violation of this section if (i) it
has made a reasonable effort to secure such identification, and (ii) it
maintains a list containing the names, addresses, and account numbers of
those persons from whom it has been unable to secure such identification,
and makes the names, addresses, and account numbers of those persons available
to the Secretary as directed by him." This provision applies also
to purchases of bank checks, cashier's checks, traveler's checks, or money
orders without providing a SSN.
- Under the federal regulations (with the
exception of casinos and the Postal Service) financial institutions are
required to file "reports" for all financial transactions in
amounts of $10,000.00 or more. And all institutions which issue or sell
"bank checks and drafts, cashier's checks, money orders and traveler's
checks" must file a report on all purchases made by a single person
totaling $3,000.00 or more.
- The Code of Federal Regulations states
that (as of July 1, 1997):
- Title 31CFR103 "Subpart A - Definitions"
"Sec. 103.11 Meaning of terms." "(l) Established customer.
A person with an account with the financial institution, including a loan
account or deposit or other asset account, or a person with respect to
which the financial institution has obtained and maintains on file the
person's name and address, as well as taxpayer identification number (e.g.,
social security or employer identification number) or, if none, alien identification
number or passport number and country of issuance, and to which the financial
institution provides financial services relying on that information."
- "Subpart B--Reports Required To
- "Sec. 103.20 Determination by the
Secretary." "The Secretary hereby determines that the reports
required by this subpart have a high degree of usefulness in criminal,
tax, or regulatory investigations or proceedings."
- "Sec. 103.22 Reports of currency
transactions." "(a)(1) Each financial institution other than
a casino or the Postal Service shall file a report of each deposit, withdrawal,
exchange of currency or other payment or transfer, by, through, or to such
financial institution which involves a transaction in currency of more
- "Sec. 103.28 Identification required
(for filing reports)." "Before concluding any transaction with
respect to which a report is required under Sec. 103.22, a financial institution
shall verify and record the name and address of the individual presenting
a transaction, as well as record the identity, account number, and the
social security or taxpayer identification number, if any, of any person
or entity on whose behalf such transaction is to be effected..."
- "Sec. 103.29 Purchases of bank
checks and drafts, cashier's checks, money orders and traveler's checks."
- "(a) No financial institution may
issue or sell a bank check or draft, cashier's check, money order or traveler's
check for $3,000 or more in currency unless it maintains records of the
following information: (2) If the purchaser does not have a deposit account
with the financial institution: (i)(A) The name and address of the purchaser;
(B) The social security number of the purchaser, or if the purchaser is
an alien and does not have a social security number, the alien identification
- U.S. Post Office: Being denied service
may not be the biggest problem for a person refusing to provide their SSN
when purchasing a money order. The U.S. Postal Service has implemented
a policy requiring that Postal employees must report as "suspicious"
anyone who resists giving their social security number when purchasing
a Postal Money Order in amounts over $3,000.00. Postal employees are instructed
to obtain SSNs on Form 8105A when a Money Order is purchased. And they
are instructed to use Form 8105B to report anyone who resists, or even
acts reluctant to, supplying their social security number. A Money Order
purchase absent a SSN is considered a "suspicious transaction"
according to the new Postal guidelines.
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Net unless: 1) you can confirm it with another source, and/or 2) it is
consistent with what you already know to be true.
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