Privacy is one of the cornerstone concepts of banking, but it’s being eroded on all sides. Industry experts like Dan Schatt say that a bank was a sanctuary for its customers in the old days, certainly any time before 1984 or so. In general, your funds were safe from prying eyes, and you could live your life in relative anonymity within that fortress of honest money.
Today, things have changed dramatically. Banks have begun to copy all your transactions onto magnetic tapes, not just deposits and withdrawals. Even checks written in your home’s privacy are copied in full on these tapes.
Here are some of the ways your bank spies on you:
Banks are required by law to report certain transactions to the government. These reports are done on magnetic tapes, similar to those with your account activity.
These transactions include cash withdrawals of $10,000 or more in one day, suspicious deposits that fit specific patterns (frequently with an amount ending in “00” or “99”), and just about anything else the government wants to know about.
The cash-reporting requirement was put into force because of the belief that large dollar amounts were being used in the “drug trade.” To fight this, Congress passed a law requiring banks to report any withdrawal or transfer of $10,000 or more – regardless of whether you received full, partial, or no reimbursement from the government.
These reports go to a branch of a special Treasury Department, which is housed at… you guessed it… the Federal Reserve Bank. This department is called the Financial Crimes Enforcement Network (FCEN).
If your bank files enough suspicious activity reports (SARs), you may receive an annual letter from the Treasury Department soliciting your feedback on their performance.
Cash Reporting Thresholds
The cash reporting requirement helps the government track people who withdraw large amounts of cash. However, it also makes it easier for criminals and terrorists to do so without raising suspicion from the authorities.
To stem the tide of “dirty money,” the Treasury and Justice Departments recently announced a new plan: cash deposits and withdrawals will be reported if they exceed $10,000.
This doubles the limit to $20,000 – but again only requires banks to report activity that fits certain patterns. As a result, experts estimate that tens of thousands of transactions that don’t fit these patterns will go unreported every year.
These moves may help catch criminals who try to launder their money through financial institutions. However, it doesn’t address crime at its source: drug trafficking and other criminal activity worldwide. To deal with this problem, you have to look at another part of our economy…
Federal Reserve Banks
In addition to being a major player in the banking industry, the Fed is also the enforcer of U.S. currency laws. Under current law, you can’t legally print your own money (not without heavy penalties). Still, many other things are legal – like creating additional commercial bank accounts to store large amounts of cash or gold.
Federal Reserve Banks operate to ensure that these banks stay solvent and out of trouble with the law. For example, if a bank doesn’t file enough SARs, they might be called to task by their regional Fed office for not following proper procedures…