Governments force banks to report your activity, judge whether you are being suspicious, and close your accounts when you step out of the norm. How? It dates back to 1970. President Richard Nixon had not yet been caught surveilling his political opponents. Instead, Oct. 26, 1970 marks when President Nixon signed the Bank Secrecy Act and set the foundation for a new regime of financial surveillance.
Since then, the American public has been forced to endure 55 years of ever-expanding financial surveillance. Congress should not let the Bank Secrecy Act have a 56th anniversary — at least not in its current form.
Often abbreviated as “the BSA,” the Bank Secrecy Act was originally enacted over fears that the rise of air travel in the late 1960s would lead to Americans hiding their money in Swiss bank accounts. While it’s questionable how realistic that fear was, Congress passed the legislation. At the time, it required banks to keep records on customers 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 didn’t need to be a crime or a suspicion of a crime. Just crossing that threshold was enough to get on the government’s radar. (We will come back to these reports in a moment.)
As the times changed, so did the concerns. Congress initially targeted tax evaders, but the Bank Secrecy Act was later expanded to also go after drug traffickers. Later, it would be expanded again to go after terrorists. Most recently, Congress has been weighing where and how to apply it to cryptocurrencies.
Yet, it hasn’t just been the targets that have changed. Congress has also steadily expanded who must report their customers 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, currency exchangers, insurance companies, travel agencies, casinos and much more. Even the U.S. Postal Service is on the list. In fact, most recently, Congress added stablecoin issuers.
This ever-growing list of both targets and informants is partly why more than 27.5 million reports were filed on customers last year.
Now, remember the currency transaction reports that I mentioned? Those reports are one of the other reasons that there are so many reports filed each year. One problem I didn’t mention before is that the $10,000 threshold was not indexed for inflation. That might seem like a small, clerical error in the legislative language, but the real-world impact is huge.
In the 1970s, you could buy two new Corvettes for $10,000. The median American household didn’t even earn that much money in a year. And people interacted less frequently with their bank as cash was used much more commonly. Today, $10,000 wouldn’t even cover 15% of the price of a new Corvette. The median American household earns that much money in less than two months. And the digital era has meant banks have records of most of our transactions.
The Supreme Court knew that there was a problem with this regime. They just didn’t anticipate how quickly it would get out of control. Although they approved of it in 1974, Supreme Court Justices Lewis Powell and Harry Blackmun warned that “A significant extension of the regulations’ reporting requirements … would pose substantial and difficult constitutional questions for [us.] At some point, governmental intrusion upon these areas would implicate legitimate expectations of privacy.”
We have hit that point. In fact, that point was crossed a long time ago. Congress has prioritized ever-increasing financial surveillance over protections for people’s privacy for 55 years now. It’s time for that to change.
Congress has three main options on its plate.
At a minimum, all of the thresholds for reports required under the Bank Secrecy Act should be adjusted for inflation. For example, the $10,000 threshold should be adjusted to at least $77,000. Some members of Congress have introduced legislation in recent years to get near this goal, but more support is needed to make this change a reality.
Yet, adjusting the thresholds is akin to treating the symptom instead of the cause. The Fourth Amendment does not say people have a right to be secure in their papers unless it involves a lot of money. So, Congress should go further and eliminate the reporting requirements entirely. Law enforcement could still go after criminals in this scenario. They would just need to get a warrant to prove they have a legitimate need for someone’s records.
Even then, eliminating half of the regime would not solve all of the problems. Issues like know-your-customer requirements, transnational repression, derisking, and debanking all tie back to these laws. Therefore, the third option for Congress is to repeal the entire Bank Secrecy Act regime. Let banks decide what information they need, who they do business with, and what risks they take on. It would still be illegal to knowingly assist criminal activity and law enforcement would still be able to get a warrant should an investigation justify it.
Whichever path Congress chooses, reform is long overdue. It’s time to respect financial privacy and stop treating ever-expanding surveillance as the norm. Reform needs to happen before the Bank Secrecy Act gets to celebrate its next big milestone. Fifty-five years is enough.