Deputizing Banks: Is American Competitiveness Being Harming?
To what extent should banks be deputized to conduct law enforcement activities? The long-running debate was heightened by the Unlawful Internet Gambling Enforcement Act (UIGEA) which required financial institutions to prevent adults from engaging in unidentified and undefined activities that might be construed by a federal or state authority as illegal internet wagering.

Concern over increased deputization of banks recently increased when newspapers reported that the Treasury Department was publishing a proposed regulation that would require banks to report all international money transfers irrespective of size. A senior agency official was quoted as saying that the rule “will greatly assist law enforcement” at only a “modest cost to industry.”

An official with the American Bankers Association disagreed saying that the “benefits of this reporting are far outweighed by the costs, to both the banks and the federal government.” The industry official explained that if “you think about the volume of transactions going in and out of the country on a daily basis, they’re going to be overwhelmed with data. Someone’s going to have to sift through and analyze it and figure out what it means.”

Privacy watchdogs are also concerned about the proposal. The Electronic Privacy Information Center described the proposed rule as “an extraordinary overreach by the U.S. government. This looks like a big electronic fishing expedition.”

Potential problems associated with over-deputization of banks include degrading their ability to perform their core anti-money laundering (AML) functions, harming the competitiveness of US banks, and reducing the desirability of the dollar as a reserve currency.

Prior to finalizing the rule, Treasury will need to certify that they have a plan for the effective use of the data collected. The Department should also engage the public in a wide-ranging discussion on how far the government should go in using the private sector to collect information.

See CRE white paper, "Unwarranted Deputization: Increased Delegation of Law Enforcement Duties to Financial Institutions Undermines American Competitiveness"