BANKING RULE CONDEMNED; SENATE SHOWS DISAPPROVAL FOR CONSUMER REPORTING STANDARD.

Byline: Marcy Gordon Associated Press 

The Senate, joining a torrent of criticism from people worried about privacy, told the government Friday to withdraw proposed anti-money-laundering rules that would track bank customers' habits.

By an 88-0 vote, the Senate expressed support for a measure directing bank regulators to drop the proposed rules, called ``Know Your Customer'' regulations. Senate Democrats blocked a vote on actual adoption of the measure, sponsored by Sens. Phil Gramm, R-Texas, and Wayne Allard, R-Colo., so it lacks the force of law.

``This is such a broad-reaching regulation that it infringes on our constitutional rights,'' Gramm, chairman of the Senate Banking Committee, said on the Senate floor. He maintained that the rules would violate the Fourth Amendment prohibition against unreasonable search and seizure.

``If you ever wondered whatever happened to the people in the former Soviet

Union who used to run things there and now are permanently out of work, the answer is they're all in the Clinton administration, and they're running the banking authorities of this country,'' Gramm said.

In the House, the Banking Committee on Thursday adopted an amendment to a big financial services bill that would kill the proposed banking rules.

Privacy advocates, conservative groups, ordinary people and the nation's bankers have complained that the rules would transform every bank teller into a spy for Big Brother.

At least one federal regulator agrees with the Senate. U.S. Comptroller of the Currency John D. Hawke Jr., who oversees nationally chartered banks, told a House subcommittee hearing Thursday that the rules should be scrapped.

``It is my judgment . . . that the proposal should be promptly withdrawn,'' Hawke said.

Hawke and Donna Tanoue, head of the Federal Deposit Insurance Corp., said recently they were reconsidering the proposed rules, which have been denounced in a flood of angry e-mail starting in December. The FDIC has received more than 170,000 e-mail messages and letters during the 90-day public comment period, which closes on Monday.

The other agencies involved in the matter are the Federal Reserve and the Office of Thrift Supervision.

The nation's bankers recently joined the chorus of people and groups urging banking agencies to withdraw the proposals, warning they could make Americans lose confidence in the banking system and government.

The proposed regulations would require banks to verify their customers' identities, know where their money comes from and determine their normal pattern of transactions.