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Bank Secrecy Act – Noble Undertaking or Big Brother in Disguise?

Enacted in 1970, the Bank Secrecy Act was thought to be America’s weapon against mobsters, crime lords, and drug runners who would use financial institutions to support their money laundering activities. For those of my readers who are not familiar with the money laundering, here is a quick synopsis of the process:
  1. Creative Accountant has cheated his clients out of $200,000 last month. Obviously, he cannot just go ahead and deposit his ill gotten gains into the business operating account. Thus, Creative Accountant purchases a couple of CDs, funds a dummy corporation – Creative Plumber – and also gives cash to an intermediary – Creative Subterfuge – who will write a check from a legitimate business account to Creative Accountant, which the latter can now deposit.
  2. With the ill gotten cash properly hidden, Creative Accountant will now work to move everything into his account. He may cash out the CDs, have Creative Plumber write him a check for services rendered, and deposit Creative Subterfuge’s check as well. Suddenly the $200,000 he stole no longer look like a big amount of money, but instead represent a compilation of different amounts of money.
  3. Last but not least, Creative Accountant is now free to purchase a new car, fund his IRA and make his mortgage payment.

The Bank Secrecy Act is designed to foil the attempts of people such as our imaginary villain simply by requiring banks to track customers’ transactions, flag those that involve any movement of money in excess of $10,000, and then act as a policing agency by alerting Federal Government officials in cases where any kind of criminal activity may be suspected.

For those who suspect that there may be some civil rights problem with the practice, you may be right. After all, consider the implications of this decades old practice:

The common response to those who are concerned that their rights are being violated is the age old adage that if you are not doing anything wrong, you really have nothing to worry about. While this may be true, the very notion that governmental involvement in your financial dealings is being done without checks and balances and full disclosure to the consumer is worrisome. The potential for civil rights abuse is high, yet is the potential for preventing another terrorist attack or organized crime activity higher? Is this one of these instances where – in the immortal words of Star Trek’s Spock, “the needs of the many outweigh the needs of the few”?

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