Are you engaged in suspicious banking behaviors? If so, take note that a recently proposed set of rules would require U.S. banks to report a detailed accounting of your activities to a database-driven system that is accessible to the FBI, IRS, Secret Service, bank regulators and state law enforcement officials.

Current rules require that when a bank detects any suspicious activity, a five-page report be filed that includes: the customer's name, address, social security number, driver's license or passport number, date of birth, and information about the transaction

The proposed new rules would require a more personalized hands-on approach. The rules would require each bank to: develop a program designed to determine the identity of its customers; determine its customers' sources of funds; determine the normal and expected transactions of its customers; monitor account activity for transactions that are inconsistent with those normal and expected transactions; and report any transactions of its customers that are determined to be suspicious, in accordance with existing suspicious activity reporting regulations.

Why is the government interested in requiring banks to do this type of detective work? According to the U. S. Treasury Department, Office of the Comptroller of Currency (OCC), the proposed rules, known as the "Know Your Customer" regulation, "will reduce the likelihood that banks will become unwitting participants in illicit activities conducted or attempted by their customers." Further, Herbert A. Biern, Associate Director of the Division of Banking Supervision and Regulation, argues that not only will the regulation protect banks from becoming vehicles for, or victims of illegal activities, but it should also "enhance the relationship between the bank and its legitimate customers."

Privacy rights advocates have argued that the proposed regulations are nothing more than the Federal government requiring the private sector to act as its private investigator. According to an article in Wired News, economist Richard Rahn argues that the sky-high cost of compliance for banks is not worth the relatively few money laundering prosecutions. Rahn was quoted as saying that, "The real cost of each money laundering conviction is more than $100 million dollars."

Does the OCC have the authority to pass such a regulation? The OCC contends that the proposed regulation is authorized pursuant to section 8(s)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(s)(1)), as amended by section 2596(a)(2) of the Crime Control Act of 1990 (Pub. L. 101-647), which mandates that the OCC issue regulations requiring banks under its supervision to establish and maintain internal procedures reasonably designed to ensure and monitor compliance with the Bank Secrecy Act. Effective Know Your Customer programs serve to facilitate compliance with the Bank Secrecy Act.

However, a Republican member of the House Banking Committee, Congressman Ron Paul of Texas, plans to introduce legislation early next year to prevent the Know Your Customer regulation from becoming a regulatory requirement.