Governments force banks to report their activity, judge whether it is suspicious, and close their accounts when it deviates from the norm. As? Its origin dates back to 1970. President Richard Nixon had not yet been caught surveilling his political opponents. Instead, October 26, 1970 marks the moment when President Nixon signed the Bank Secrecy Act and laid the foundation for a new financial oversight regime.
Since then, the American public has been forced to endure 55 years of ever-expanding financial surveillance. Congress should not allow the Bank Secrecy Act to reach 56 years, at least not in its current form.
Often abbreviated to “BSA,” the Bank Secrecy Act was originally enacted out of fear that the rise in air travel in the late 1960s would lead Americans to hide their money in Swiss bank accounts. While it is questionable how realistic that fear was, Congress passed the legislation. At the time, it required banks to maintain customer records and report certain transactions.
The most infamous of these reports is the Currency Transaction Report (CTR). In short, transactions over $10,000 had to be reported to the government. There did not need to be a crime or suspicion of a crime. Simply crossing that threshold was enough to get on the government’s radar. (We will return to these reports in a moment.)
As times changed, so did concerns. Congress initially targeted tax evaders, but the Bank Secrecy Act was later expanded to also go after drug traffickers. It would later be expanded again to pursue terrorists. More recently, Congress has been weighing where and how to apply it to cryptocurrencies.
However, it has not just been the objectives that have changed. Congress has also steadily expanded who must inform clients under this regime. The list of so-called “financial institutions” includes things you might expect, like banks and credit unions. However, it also includes car dealerships, pawn shops, gold shops, exchange offices, insurance companies, travel agencies, casinos and much more. Even the United States Postal Service is on the list. In fact, more recently, Congress added stablecoin issuers.
This growing list of targets and informants is partly why more than 27.5 million customer reports were filed last year.
Now, remember those forex trading reports I mentioned? These reports are one of the other reasons why so many reports are submitted each year. One problem I didn’t mention before is that the $10,000 threshold was not indexed to inflation. This might seem like a small clerical error in legislative language, but the real-world impact is enormous.
In the 1970s, you could buy two new Corvettes for $10,000. The average American household didn’t even make that much money in a year. And people interacted less frequently with their bank as cash was used much more frequently. Today, $10,000 wouldn’t even cover 15% of the price of a new Corvette. The average American household earns that same amount of money in less than two months. And the digital age has meant that banks have records of most of our transactions.
The Supreme Court knew there was a problem with this regime. They just didn’t anticipate how quickly it would get out of control. Although they approved it in 1974, Supreme Court Justices Lewis Powell and Harry Blackmun warned that “a significant extension of the regulations’ reporting requirements… would raise substantial and difficult constitutional questions for [us.] At some point, government intrusion into these areas would imply legitimate expectations of privacy.”
We have reached that point. In fact, that point was crossed a long time ago. For 55 years, Congress has prioritized increasing financial oversight over protecting people’s privacy. It’s time for that to change.
Congress has three main options on its hands.
At a minimum, all thresholds for reporting required under the Bank Secrecy Act must be adjusted for inflation. For example, the $10,000 threshold must be adjusted to at least $77,000. Some members of Congress have introduced legislation in recent years to get closer to this goal, but more support is needed to make this change a reality.
However, adjusting thresholds is similar to treating the symptom rather than the cause. The Fourth Amendment does not say that people have the right to be secure in their documents. unless It involves a lot of money. Therefore, Congress should go further and eliminate reporting requirements altogether. In this scenario, law enforcement could still pursue criminals. They would only need to obtain a court order to prove that they have a legitimate need for someone’s records.
Even then, eliminating half the regime would not solve all the problems. Issues such as know-your-customer requirements, transnational repression, risk reduction, and disenfranchisement are related to these laws. Therefore, the third option for Congress is to repeal the entire Bank Secrecy Act regime. Let the banks decide what information they need, who they do business with, and what risks they take. It would still be illegal to knowingly assist criminal activity, and authorities could still obtain a warrant if an investigation warranted it.
Whatever path Congress chooses, reform is long overdue. It’s time to respect financial privacy and stop treating ever-expanding surveillance as the norm. Reform is needed before the Bank Secrecy Act can celebrate its next big milestone. Fifty-five years is enough.
