Written statement of

J. Bradley Jansen, CFPHR Director

Eminent Jurists Panel

"Terrorism, Counter-Terrorism and Human Rights"

"The Impact on Privacy in the United States"

International Commission of Jurists

American University

Washington, DC

September 8, 2006

1
 Thank you for the opportunity to present my thoughts on these important issues to
you. I will focus my comments more specifically on our anti-money laundering policies
in the war on terrorism.

The Center for Financial Privacy and Human Rights (CFPHR) is one part of the
Liberty and Privacy Network, a 501(c) (3) organization, which was established in 2005.
The CFPHR has submitted regulatory comments on relevant issues (including comments
considering reporting requirement thresholds for wire transfers disproportionately
affecting immigrant workers), publishes the Financial Privacy Weekly, is organizing a
financial privacy working group for DC-based policy organizations, is preparing a report
on the effects of the anti-money laundering laws (especially concerning the unbanked)
and other projects.

The CFPHR aims to address the legitimate security concerns of our anti-money
laundering laws while protecting consumer financial privacy, improving effectiveness of
policies and protectin access to financial services (especially for the unbanked) by
addressing disproportionate regulatory burden, identification verification programs, and
other policies that limit the poor, minorities and immigrants access to financial services.

A brief history of our federal anti-money laundering laws

While some states had their respective state laws prior to any federal law, the U.S.
passed the first Federal law, the misnamed Bank Secrecy Act, in 1970 as part of the war
on drugs. The BSA instituted our reporting requirements on financial institutions for the
first time; it was argued that the act would “have a high degree of usefulness in criminal,
tax, or regulatory investigations or proceedings.” Over the next three decades, the scope
and severity of our AML has been expanded greatly. Money laundering became a crime
in 1986. Title III of the USA PATRIOT Act was the latest great expansion of our AML
laws.

Trying to maintain the confidence of their customers, bankers challenged the

constitutionality of the BSA all the way to the Supreme Court that ultimately ruled
against them. The court held that the government could require record keeping by banks
and that individuals did not have a right to privacy of their private, personal information
in those bank records.

When Congress passed the Bank Secrecy Act in 1970--and it should be pointed
out that the act undermines, not protects, consumer financial privacy, it was argued that
the act would “have a high degree of usefulness in criminal, tax, or regulatory
investigations or proceedings.” When its Constitutionality was challenged in California
Bankers Assn.. v. Shultz, 416 U.S. 21 (1974), Supreme Court Justice William O. Douglas
found the Bank Secrecy Act unconstitutional, writing:

2
 “It is, I submit, sheer nonsense to agree with the Secretary that all bank records of
every citizen ‘have a high degree of usefulness in criminal, tax, or regulatory
investigations or proceedings.’ That is unadulterated nonsense unless we are to assume
that every citizen is a crook, an assumption I cannot make,” Justice Douglas concluded.
He added, “A mandatory recording of all telephone conversations would be better than
the recording of checks under the Bank Secrecy Act, if Big Brother is to have his way.”

Supreme Court Justice Thurgood Marshall in the same case warned of the gradual
erosion of our Constitutional rights and added, “[The] crucial factor is that the
Government has shown no need, compelling or otherwise, for the maintenance of such
records. Surely the fact that some may use negotiable instruments for illegal purposes
cannot justify the Government's running roughshod over the First Amendment rights of
the hundreds of lawful yet controversial organizations like the ACLU. Congress may well
have been correct in concluding that law enforcement would be facilitated by the dragnet
requirements of this Act. Those who wrote our Constitution, however, recognized more
important values.”

In U.S. v. Miller, the Supreme Court held that individuals have no Fourth
Amendment expectation of privacy in their financial records while those records are in
the hands of third parties. In response to this decision, Congress adopted the financial
privacy provisions codified in 12 U.S.C., ss3401, et seq., which limit access to financial
records held by a bank. Under these laws, federal agencies may obtain bank records only
via subpoena or judicial process.

Effect of BSA on privacy

The constitutionality of the Bank Secrecy Act was challenged all the way to the
U.S. Supreme Court. The effect of a pair of decisions (the California Bankers
Association v Shultz and Miller v U.S.) was that bank customers do not have standing to
challenge a regulation on banks (nor the banks on our behalf) and that we have no
“expectation of privacy” of information shared with third parties. These rulings have
ushered in our epidemic of identity fraud--a practice used by in terrorism financing.

This act has shown that it does not have a high degree of usefulness and violates
consumers’ expectations of privacy rights. In fact former Federal Reserve Board
Governor Larry Lindsey and the banking industry--as well as consumer and privacy
advocates-- have questioned the efficacy of the reporting requirements. Mr. Lindsey has
labeled the success of this approach of unreasonable searching without a warrant or
probable cause akin to finding a needle in a haystack; such a rate of success lampoons the
claims that the reporting requirements have a “high degree of usefulness” and runs
counter to our fourth amendment Constitutional rights. Prior to the Bank Secrecy Act
(BSA) that Congress passed in 1970, the U.S. Constitution and common law generally
safeguarded one's financial privacy against indiscriminate privacy violations; there was

3
an implied duty not to disclose private information to third persons unless authorized by
law or the depositor. In short, there existed a general respect for financial privacy
consistent with the principles of our Constitutional rights (including the Fourth
Amendment protection from unreasonable search and seizure). Bankers were aligned
with customers to protect their privacy.

The Court held that the California Bankers Association’s claim that record-
keeping requirements violated it’s members’ First Amendment rights was premature since
the government had not sought disclosure of association’s membership and contributors.

The American Civil Liberties Union (ACLU) joined as a plaintiff “[attacking]

both the Title I record keeping requirements and the Title II foreign financial transaction
reporting requirements . . . on First Amendment grounds, as violating free speech and free
association rights.” Since the records could be used to identify its members and
contributors, the ACLU claimed that the record keeping requirements violate its
members’ First Amendment rights.

However, the Court considered the ACLU’s First Amendment associational

interests contentions to be “too speculative and hypothetical to warrant consideration.”
Additionally, the appellants claimed that the record keeping requirements sought “to
make the banks the agents of the Government in surveillance of its citizens.”

The Supreme Court ultimately ruled against the petitioners holding that the
government could require record-keeping by banks and that individuals did not have a
right to privacy of their private, personal information in those bank records. The majority
ruled that banks could not claim standing on behalf of their customers and that the law
met the “high degree of usefulness” standard set for law enforcement.

Three justices launched forceful dissents. William O. Douglas wrote, “It is, I
submit, sheer nonsense to agree with the Secretary that all bank records of every citizen
‘have a high degree of usefulness in criminal, tax, or regulatory investigations or
proceedings.’ That is unadulterated nonsense unless we are to assume that every citizen is
a crook, an assumption I cannot make.” He added, “A mandatory recording of all
telephone conversations would be better than the recording of checks under the Bank
Secrecy Act, if Big Brother is to have his way . . . In a sense a person is defined by the
checks he writes. By examining them the agents get to know his doctors, lawyers,
creditors, political allies, social connections, religious affiliation, educational interests,
the paper and magazines he reads, and so on ad infinitum.”

Justice Brennan concurred with parts of Douglas’ dissent and filed his own
dissent, “In the case of the Bank Secrecy Act, also potentially involving the First, Fourth,
and Fifth Amendment rights of the vast majority of our citizenry, it exceeds Congress’
constitutional power of delegation to empower the Secretary of the Treasury to require

4
whatever reports and records he believes to be possessed of a ‘high degree of usefulness’
where the purpose is to further ‘criminal, tax, or regulatory investigations or
proceedings.”

Supreme Court Justice Thurgood Marshall warned of the gradual erosion of our
Constitutional rights and added, “[The] crucial factor is that the Government has shown
no need, compelling or otherwise, for the maintenance of such records. Surely the fact
that some may use negotiable instruments for illegal purposes cannot justify the
Government's running roughshod over the First Amendment rights of the hundreds of
lawful yet controversial organizations like the ACLU. Congress may well have been
correct in concluding that law enforcement would be facilitated by the dragnet
requirements of this Act. Those who wrote our Constitution, however, recognized more
important values.”

The BSA and the First Amendment

The BSA has been used repeatedly to undermine our First Amendment rights.
The American Civil Liberties Union was an original litigant challenging the BSA in the
California Bankers Assn v Shultz case because of these issues.

In 1976, the Supreme Court held in Buckley v. Valeo, that the government forced
disclosures by a minor political party which could demonstrate a "reasonable probability"
that the compelled disclosures would subject those identified to "threats, harassment, or
reprisals" and thus violated the First Amendment. The political party disclosures were
required by the Federal Election Campaign Act of 1971. Specifically, the decision
quoting California Bankers Assn. v. Shultz, held that “[F]financial transactions can reveal
much about a person's activities, associations, and beliefs.”

In a rather schizophrenic decision, the Court specifically protected group

association since it enhances “effective advocacy” and cited the NAACP v. Alabama case
(which it specifically rejected in California Bankers Assoc. v. Shultz) then continued with
citing the anti-money laundering case: “Moreover, the invasion of privacy of belief may
be as great when the information sought concerns the giving and spending of money as
when it concerns the joining of organizations, for ‘[f]financial transactions can reveal
much about a person's activities, associations, and beliefs.’” Even more confusingly, the
Court upheld the record keeping, reporting and disclosure provisions of the Act which it
held did not trespass “impermissibly” on the First Amendment and cited the California
Bankers Assn. v. Shultz to justify it.

In 1978, in another election-related case of First National Bank of Boston v.

Bellotti, the court effectively overruled the lower court holding that since the appellants
were national banking associations and business corporations, the First Amendment did
not protect corporate speech other than one materially affecting “any of the property,

5
business or assets of the corporation.” In this case, the associations and corporations
sought to spend money to further their views in the political arena by opposing a
referendum amending the Massachusetts state constitution. A footnote elaborates,
“Corporate identity has been determinative in several decisions denying corporations
certain constitutional rights, such as the privilege against compulsory self-incrimination,
Wilson v. United States, 221 U.S. 361, 382 -386 (1911), or equality with individuals in
the enjoyment of a right to privacy, California Bankers Assn. v. Shultz.” And in another
footnote citing the same case it justified, “the court concluded that a corporation's First
Amendment rights must derive from its property rights under the Fourteenth.”

A 1970s Ohio law had required every political candidate to disclose the names
and addresses of campaign contributors and recipients of campaign disbursements. After
the District Court found that the Federal Bureau of Investigation (FBI) had been
surveilling the Socialist Workers Party SWP through its financial transactions by keeping
track of the payees of SWP checks, the lower court ruled in favor of the SWP. Relying in
part on the finding in the anti-money laundering court decisions, the government had
appealed the lower court decision. In Brown v. Socialist Workers ‘74 Campaign Comm.,
the U.S. Supreme Court ruled in 1982 that the Ohio Campaign Expense Reporting Law
reporting disclosures violated the First Amendment rights of the Socialist Workers Party
(SWP), thereby limiting its decision in California Bankers Assoc. v. Shultz.

In one of history’s ironies, the godfather of our federal anti-money laundering law
himself fell victim to the unintended consequences of his action. Former United States
President Richard M. Nixon sought to maintain the privacy of his own administration’s
nonpublic papers in a suit against the head of the General Services Administration (GSA).

Congress passed the Presidential Recordings and Materials Preservation Act,

which then-President Gerald Ford signed into law, directing the Administrator of GSA to
take custody of the Presidential materials. The former president challenged the Act's
constitutionality that it violated, among other things, his privacy interests and his First
Amendment associational rights.

The court held that President Nixon did not have a legitimate expectation of
privacy regarding the materials since he was a public figure (among other related
findings). While acknowledging that the Act related directly to the “intimate areas of an
individual's personal affairs” and that “One point emerges clearly: The papers here
involve the most fundamental First and Fourth Amendment interests,” the court reiterated
its findings in the cases holding the Bank Secrecy Act constitutional and ruled against the
former president.

The court justified its decision citing precedent, “The Court's refusal to afford
constitutional protection to such commercial matters as bank records, California Bankers
Assn. v. Shultz, . . . only serves to emphasize the importance of truly private papers or

6
communications, such as a personal diary or family correspondence. These private papers
lie at the core of First and Fourth Amendment interests.”

One state law regarding the political activities of a local government employees
union also rested in part on decisions resulting from anti-money laundering challenges.
The Michigan statute reached the U.S. Supreme Court after some Detroit teachers
challenged the validity of a clause in a collective-bargaining agreement between the
Board of Education and the teachers’ union.

Since the union was involved in various political and other ideological activities,
and the appellants disapproved of said activities, they alleged that the clause deprived
them of their freedom of association protected by the First and Fourteenth Amendments.
The court concurred that compelling members to make political contributions infringed
on their constitutional rights.

The employees concerned were opposed to any ideological expenditures not

related to collective bargaining since it would “confront an individual employee with the
dilemma of relinquishing either his right to withhold his support of ideological causes to
which he objects or his freedom to maintain his own beliefs without public disclosure”
whereby the “The Court noted that ‘the invasion of privacy of belief may be as great
when the information sought concerns the giving and spending of money as when it
concerns the joining of organizations,’ and, that, therefore our past decisions have
extended constitutional protection to contributors and members interchangeably”, citing
California Bankers Assn. v. Shultz.

In a question involving doctor-patient confidentiality, the Court considered a 1972

New York anti-drug abuse statute case requiring physician, patient and pharmacy
identification to be filed for Schedule II drugs with the State Health Department which
recorded pertinent data on tapes for computer processing. While holding that “the doctor-
patient relationship is one of the zones of privacy accorded constitutional protection,” and
that the Act's patient-identification provisions invaded that zone with “a needlessly broad
sweep,” it ruled unanimously that “Neither the immediate nor the threatened impact of
the patient-identification requirement . . . suffices to constitute an invasion of any right or
liberty protected by the Fourteenth Amendment” and cited California Bankers Assoc. v.
Shultz as controlling authority.

The two Supreme Court challenges dealt with the more general issue of privacy
and began a series of predominately Fourth Amendment-related cases involving
legitimate expectation of privacy regarding the “trap and trace” and “pen registers” of
telephone conversations that recorded the to-and-from telephone numbers dialed and
received respectively. In these decisions, the opinions specifically cited California
Bankers Assoc. v. Shultz and United States v. Miller to justify the lack of an expectation
of privacy or adequately address First Amendment concerns.

7
 In Smith v. Maryland, the majority held that even if the petitioner were to harbor
some subjective expectation of privacy for telephone conversations, it would not be
“reasonable” because when he “voluntarily conveyed numerical information to the phone
company and ‘exposed’ that information to its equipment in the normal course of
business, he assumed the risk that the company would reveal the information to the
police,” as they explained in United States v. Miller.

Justice Thurgood Marshall, joined by Justice Brennan, repeated their dissents and
again cited California Bankers Assoc. v. Shultz and United States v. Miller. They
explained that “Permitting governmental access to telephone records on less than
probable cause may thus impede certain forms of political affiliation and journalistic
endeavor that are the hallmark of a truly free society. Particularly given the Government's
previous reliance on warrantless telephonic surveillance to trace reporters' sources and
monitor protected political activity, I am unwilling to insulate use of pen registers from
independent judicial review.”

The First Amendment and September 11th, 2001

In response to the events of September 11, 2001, Congress passed the USA
PATRIOT Act which President Bush signed into law. Title III of that Act expanded the
federal anti-money laundering provisions already on the books. The Humanitarian Law
Project affiliated with Georgetown University School of Law is the most prominent
organization challenging these provisions. In the highest court challenge yet to those
provisions, the Ninth Circuit Appeals Court struck down key provisions of the Act.

The most notable case challenging the First Amendment freedoms under restraint
by the anti-money laundering provisions is Humanitarian Law Project v. Ashcroft. A
press release from the Center for Constitutional Rights explained that the criminal statute
barring “material support” to terrorist organizations. The Court of Appeals ruled that the
language prohibiting material support for the provision of “personnel” and “training” to
terrorist organizations to be unconstitutionally vague. The U.S. Court of Appeals for the
Ninth Circuit upheld prior rulings that the material support provisions were “void for
vagueness under the First and Fifth Amendments because they bring within their gambit
constitutionally protected speech and advocacy.”

The Center for Constitutional Rights staff attorney Nancy Chang declared, “The
First Amendment protections that the Ninth Circuit has put into place are especially
important now that the Patriot Act was amended to increase the penalty for the provision
of material support from ten years to 15 years and possibly a sentence life.”

8
 In the United States v. Al-Arian, the district court held that the defendants had
given material suppport to terrorists. Specifically, the court ruled that the First
Amendment claims of protected speech were dismissed as not meeting the standard set in
Buckley v. Valeo and other cases. In essence, the government was not held to be limiting
“pure speech” and that the it was not protected since the organization was raising money
for listed terrorist organizations operating in the Palestinian state.

In another case, a Muslim charitable organization challenged foundation's

designation as terrorist organization and the blocking of its assets as violating its First,
Fourth, and Fifth Amendment rights, among other issues.
Since Holy Land Foundation was held to be a corporation not a person , “its
religious exercise has not been burdened in violation of the statute. Congress in enacting
[Religious Freedom Restoration Act] only sought to provide process and standards for the
protection of religious exercise. It did not purport to extend the definition of that term,
and indeed defined the term ‘exercise of religion’ only as meaning ‘the exercise of
religion under the First Amendment to the Constitution.’” The court decision mirrored
the result in First National Bank of Boston v. Bellotti for this aspect.

The Supreme Court decisions on the anti-money laundering laws severely limited
our First Amendment freedoms. On a fundamental level, they not only truncated a
centuries-long process of expanding legal privilege but reversed its course. While the
Court has upheld protections for explicit political activity, the effects are not prophylactic
and only apply after the fact. Since the United States v. Miller decision, Americans no
longer have an expectation of privacy in the public sphere. That change has chilled our
civil liberties. New times and circumstances bring new examples of the privacy limbo
the Pandora’s Box opened with our anti-money laundering laws.

Unintended consequences

Our anti-money laundering policies have not stopped drug abuse in this country
even when focused on taking the profit out of the crime. Using this failed approach to
find good money that might be used for a bad purpose (eg, terrorism) in the future is
futile. Our AML policies contribute greatly to the regulatory burden on our financial
institutions without demonstrating a “high degree of usefulness” to law enforcement. In
fact, in many ways, our policies are counter-productive.

Financial institutions have an incentive to “overfile” BSA forms in order to

protect themselves during regulatory exams. This problem is well established with law
enforcement repeatedly calling for policymakers to address the “defensive filing”
problem. Flooding law enforcement with thousands of forms of Americans going about
their law-abiding ways merely adds to the haystack making the search for the needle that
much harder.

9
 The marginal cost of each addition to our AML regulatory burden renders more
potential customers uneconomical. Estimates put the number of “unbanked” between ten
and 20% of people in this country. The unbanked do not have established formal
relationships with depository institutions. The added cost to them for using Money
Service Businesses and other alternatives amounts to a “ghetto tax” according to a recent
Brookings Institution report. The post-September 11th, 2001 rules significantly increased
the regulatory burden and forced the closure of many MSBs and other legal avenues for
the unbanked.

The unbanked are disproportionately poor, minority and immigrant. Since our
policies aim to identify “suspicious” activities, bank tellers and others must resort to a
subjective test of what is suspicious.

As more potential customers drop out of the formal sector, law enforcement fails
to gain any benefit from the loss of reporting. The effect is to increase the opportunities
for terrorists and others seeking to skirt the law since it increases the market for
informal--and often illegal--money services.

Conclusion

It is my belief that we need to scrap our current AML policies and start over.
Instead of policies attempting to vacuum up as much data as possible to look for
“profiles” based on incomplete, outdated and often inaccurate data, we should aim to
reduce greatly the amount of reports filed.

By scraping our Currency Transaction Reporting requirements of $10,000 or more

and replacing them with reporting of aggregate capital flows, we would give law
enforcement the information they are trying to glean from our CTRs, reduce the
regulatory burden bringing more people into the formal financial services sector, and
protect consumer financial privacy.

Similarly, the burden should be on law enforcement to identify more specifically

what it considers suspicious behavior or trust the financial institutions to do their jobs.
Our current policies are too often doing more harm than good.

10
CFPHR comments on FinCEN rule to lower
reporting requirements on wire transfers:
To Whom It May Concern:

The Center for Financial Privacy and Human Rights is a public interest research
center in Washington, D.C. Established in 2005, CFPHR is part of the Liberty and
Privacy Network, a 501(c)(3) organization, and focuses on privacy, civil liberties and
human rights including economic rights.

We submit the comments below on the review by the Financial Crimes

Enforcement Network (FinCEN) and the Federal Reserve to determine whether to lower
or eliminate the threshold for collecting and retaining information on funds transfers and
transmittals of funds. Currently, the threshold is $3,000, but FinCEN and the Federal
Reserve are considering decreasing that amount to $1,000 or less.

The lowering or elimination of the reporting threshold must meet the “high degree
of usefulness” standard set out by the Bank Secrecy Act. This proposal outlines no
metrics to justify the presumption that it meets that standard. CFPHR suggests that
proposal must explain the metrics used to determine how, or if, the proposal would meet
the high degree of usefulness standard. 1 Explicit benchmarks must be established, and
that the proposal should be abandoned within a predetermined time period if those
benchmarks were not realized.

Additionally, the proposal provides insufficient information about the usefulness

of the current reporting system. How many reports initiate law enforcement or regulatory
investigations? What percentage of the reports are used in criminal convictions, etc.?
What successes can be identified by the ten years of wire transfer reporting requirements?
The lack of basic usefulness information renders impossible an analysis and
recommendations of the considered marginal benefits of lowering or eliminating the
reporting threshold compared to the marginal costs.

Given that the current $3,000 reporting threshold was established ten years ago
and never adjusted for inflation, there has already been a substantial reduction in the real
value reporting threshold. What marginal benefits--and marginal costs--have already
been realized over the course of the decade? The dearth of information itself to justify

1See “Fighting Terror and Defending Freedom: The Role of Cost-Benefit Analysis,” by Daniel J.
Mitchell, Pace Law Review, Vol. 25, (2005), www.library.law.pace.edu/PLR/25-2/Mitchell.pdf.

11
the high degree of usefulness standard of the Bank Secrecy Act requires that the proposal
be resubmitted for public comment with appropriate information to evaluate the proposal.

A great deal of personally-identifiable information is collected, retained and

transmitted to third parties of law-abiding customers going about their legal financial
transactions. Given the legitimate concerns of identity fraud, the selling and sharing of
information without their true informed consent and other issues, efforts should be made
to minimize the required amount of information collected, retained and transmitted--not
to increase it unjustifiably.

CFPHR shares the view of the Independent Community Bankers of America (and
that of most financial institutions and most other observers) that the unintended
consequences of the regulation would add an increased incentive for potential customers
of the formal financial sector covered by this rule to migrate their business to the
informal sector (which would suffer not suffer the increased intrusiveness or regulatory
burden).2 In truth, lowering--or worse eliminating--the reporting threshold would
jeopardize access to financial services to those with the fewest options since they are
usually the least profitable customers. 3 Thus, in this way, law enforcement would be
relatively worse off than under the current reporting regime if more transactions took
place in the informal sector without reporting regimes.

The increased reporting requirements would dramatically increase the problems

associated with law enforcement complaints of the current “defensive filing” problem of
the Suspicious Activity Report requirements.4 Making the haystack bigger makes the
needle harder to find. The increase in reports would, nearly certainly, increase the delay
of the input of the information from all of the reports thus postponing the potential
benefits to law enforcement of the possibly time-sensitive information.

22 “ICBA Cautions Against Lowering Threshold for Wire Transfers,” August 10, 2006, http://
www.icba.org/files/ICBASites/PDFs/cl081006.pdf.
3 See also the Brookings Institution report “From Poverty, Opportunity: Putting the Market to work
for Lower Income Families” which would characterize the proposal as increasing the “ghetto tax”
on the poor (July 2006), http://www.brookings.edu/metro/pubs/20060718_PovOp.htm, and
“Financial Access for Immigrants: Lessons from Diverse Perspectives” (May 2006), http://
www.brookings.edu/metro/pubs/20060504_financialaccess.pdf.
4 Then-FinCEN Director William J. Fox spoke to the American Bankers Association and American
Bar Association in October 2004 and addressed defensive filing of SARs: “We all know this
phenomenon is occurring – we have both empirical and anecdotal evidence we can cite. We
have seen financial institutions file reports in ever increasing numbers – often upon the
recommendation of their lawyers or risk management teams – when the facts as presented do
not meet this standard. I suspect that this over compliance is occurring for a reason. It is
occurring because financial institutions are – justifiably in my view – unwilling to accept the
regulatory or reputational risk associated with an action by the government that would make it
appear that the institution is soft on anti-money laundering or, even worse, on terrorist financing.”

12
 Other ways could (and should) be employed to address important law
enforcement concerns without the negative unintended consequences of this proposal.
Such efforts should stem from clearly--and narrowly--identified law enforcement
concerns. How to address those concerns should be left to the individual financial
institutions covered by the rule as much as possible in order to avoid the “fatal conceit”
explained by Nobel laureate economist F.A. Hayek.5

Eliminating the reports altogether should be considered. Substituting different

reports tailored to the specific needs of law enforcement might provide a win, win, win
situation for law enforcement, financial institutions and consumers. Consider having
covered financial institutions report only aggregate capital flow information coupled with
expanded safe harbor to report violations of specified important laws or suspicious
transactions. The aggregated capital flow reports would offer law enforcement the
information used to track marginal changes in capital flows useful for investigations such
the Colombian Black Market Peso Exchange case. At the same time, it would better
protect sensitive consumer financial privacy concerns. This proposal would reduce the
regulatory burden on covered institutions and likely increase the share of transactions in
the formal banking sector reporting information useful to law enforcement. Reporting of
aggregate capital flow information would ameliorate the concerns of law enforcement
that money launderers and terrorist financiers of their “structuring” transactions to avoid
reporting requirements.

Again, CPFHR shares the view outlined by the Independent Community Bankers
of America concerning the burden to the public. Some geographic and other populations
would be disproportionately adversely affected by the lowering, or elimination, of the
reporting threshold.

The “unbanked,” who are disproportionately poor, minority and immigrant, would
likely suffer most by this proposed change. Such harms contradict other public policy
concerns.6 The marginal effect of increasing the cost of sending remittances abroad

5 “The Fatal Conceit Always Fails” by Ralph Reiland explains, “In The Fatal Conceit, the Nobel
laureate economist F.A. Hayek writes of the key ideological conflict in economics. On the one
hand are ‘the advocates of the spontaneous extended human order created by a competitive
market,’ and on the other hand, ‘those who demand a deliberate arrangement of human
interaction by central authority based on collective command over available resources.’ What has
failed is the latter, collectivism--the ‘fatal conceit’ that says that a single mind, a single committee,
can somehow do things better than the spontaneous, unstructured, complex, and creative forces
of the market,” http://www.taemag.com/issues/articleID.17894/article_detail.asp.
6For one example, please see U.S. House Judiciary Committee Report, “FINANCIAL SERVICES
REGULATORY RELIEF ACT OF 2005,” http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?
dbname=109_cong_reports&docid=f:hr356p2.109.pdf.

13
increases the marginal benefit of bringing family along for immigrants (legal or
otherwise) working in this country.7

Conclusion

The negative effects to law enforcement, the increased cost of the regulatory
burden, and the increased loss of consumer financial privacy and access to formal
financial services for the unbanked would likely outweigh any alleged benefit to law
enforcement by lowering, or eliminating, the reporting requirement threshold. The
termination of the BSA Direct Retrieval and Sharing Project by FinCEN for exceeding
costs and failing to meet expectations augurs well for a long-overdue consideration by the
regulatory agencies of the “high degree of usefulness” standard mandated by the Bank
Secrecy Act.8

The regulatory agencies cannot legitimately consider the alleged marginal benefits
of lowering, or eliminating, the wire transfer reporting threshold without first outlining
the means of evaluating the current requirements and analyzing its costs and benefits.
The failures of the current system at the root of the concern for this proposal indicate that
scraping and replacing the failed system with one designed to address current needs,
concerns and capabilities would be better.

The current system was designed to stop illegal drug use, among other things, but
has failed: no one believes it is now impossible to obtain illicit drugs nearly everywhere
in this country. The current reporting requirements were designed to report “bad money”
such as profits from illegal drug sales. Instead of expanding the reporting regime to find
legitimate money that may in the future be used for bad purposes (such as terrorism
financing), we should design a system for current goals balanced with current
expectations of regulatory burden and consumer issues including financial privacy and
access to financial services--especially for the unbanked. In short, the Center for
Financial Privacy and Human Rights opposes lowering or eliminating the threshold for
reporting wire transfers.

7See the United States Government Accountability Office Report to the Committee on Banking,
Housing, and Urban Affairs, U.S. Senate “INTERNATIONAL REMITTANCES: Information on
Products, Costs, and Consumer Disclosures,” (November 2005) www.gao.gov/new.items/
d06204.pdf.
8“FinCEN Halts BSA Direct Retrieval and Sharing Project,” July 13, 2006, http://www.fincen.gov/
bsa_direct_nr.html.

14
 Thank you for the opportunity to comment. If you have any questions or need
additional information, please do not hesitate to contact me at 202-742-5949 ext. 101 or
by email at bjansen@financialprivacy.org.

Respectfully submitted,

s/
J. Bradley Jansen, Director
Center for Financial Privacy and Human Rights

15