A Simple Reform to Protect the Fourth Amendment and Bank Customers

By Kanisorn @ Adobe Stock

At the Cato Institute, Norbert Michel discusses ways to improve the Bank Secrecy Act to protect the Fourth Amendment, bank customers, and banks themselves. He writes:

Last week my Cato colleagues and I held our second annual Center for Monetary and Financial Alternatives conference. The theme was Financial Privacy under Fire: Protecting and Restoring Americans’ Rights.

It was a great conference, and there were many lively discussions throughout the day. While everyone didn’t agree on exactly how to fix it, there was widespread agreement that the existing anti-money laundering regulatory framework needs a massive overhaul.

Pretty much everyone agreed, for example, that the existing regime, built on the Bank Secrecy Act of 1970, is outdated. It’s poorly designed, too costly, ineffective, and rests on shaky legal grounds.

Its poor design and ineffectiveness are easy to spot in the Financial Crime Enforcement Network’s annual review for 2023.

The existing regime requires almost 300,000 financial institutions to report to the government, a requirement that resulted in FinCEN receiving almost 30 million total BSA reports in 2023. From all those reports, “approximately 1,575 cases referred for prosecution involved BSA filings.” And the IRS “opened about 372 investigations as a result of BSA filings.” That’s a very low batting average.

Nobody should be surprised by these incredibly small percentages because bankers, brokers, and car salesmen don’t specialize in catching criminals. And when the government forces them, under threat of criminal liability, to report people who might be criminals, the obvious thing to do is err on the side of reporting too much.

So that’s what we have – 30 million reports for less than 2,000 investigations. These numbers alone suggest that society would be better off if, instead of relying on this reporting regime, law enforcement placed more emphasis on conducting their own criminal investigations.

It would be very easy to fix this problem. All Congress would need to do is maintain the BSA’s record keeping requirements while ditching its reporting requirements and ensuring that law enforcement can only access those records with a valid search warrant. This reform would simply reaffirm the importance of the Constitution’s Fourth Amendment, something which shouldn’t be too controversial in the United States.

Read more here.