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Kiss your financial privacy goodbye: American politicians are systemically destroying the right to confidential banking.

It started, as so many bad things do, with Richard Nixon. In 1970, in the midst of a national panic over crime and illegal drugs, the man whose presidency would later become synonymous with official criminality signed the Bank Secrecy Act, which compelled all U.S. financial institutions to create a Currency Transaction Report--containing name, address, bank account data, and Social Security number-every time a client executed a cash transaction larger than $10,000.

"While an act conferring such broad authority over transactions such as these might well surprise or even shock those who lived in an earlier era," wrote Supreme Court Justice William Douglas four years later, upholding the law in California Bankers Association v. Shultz, "the latter did not ... live to see the heavy utilization of our domestic banking system by the minions of organized crime as well as by millions of legitimate businessmen." Airy principles may sound nice on paper, but these were dangerous times.

Before that moment, banking privacy had been broadly understood to be protected by the Fourth Amendment's invocation against "unreasonable searches and seizures" of Americans' "persons, houses, papers, and effects," unless the searchers were backed by a warrant. Behind that constitutional interpretation was a moral argument, backed by centuries of experience.

Financial anonymity as we know it was invented in Geneva, Switzerland, in the 16th century, by Protestant Reformation leader John Calvin. In converting his pretty mountain lake town into a refuge for Europeans fleeing marauding Catholic governments, Calvin loosened papal restrictions on lending at interest and embraced individual privacy as a means of self-defense against a predatory state.

As banker Xavier Comtesse explained to Swiss Info in 2009, "The description 'banking secrecy' is actually incorrect--'protection of the private sphere by the bank' would be more appropriate." The Swiss, Comtesse continued, seek to "protect against any state despotism.

This way of thinking has historical roots in Protestantism, which in Calvin's time sought to protect the people against the despotism of the powerful Catholic Church."

Financial privacy and religious freedom-including separation of church and state, another Calvinist specialty--went hand in hand. So, too, would prosperity. The lessons of Geneva were not lost on the founding generation in America, who created in their First and Fourth Amendments a zone of religious and personal autonomy never before respected by a national government. It was no luck of the draw that the fourth ever secretary of the U.S. Treasury, and the longest-serving one in history, was a Geneva-born Swiss American named Albert Gallatin.

We have wandered far from that original path, particularly in the last few years under President Barack Obama. Switzerland and most other onetime outposts of financial secrecy have been dragged kicking and screaming by Uncle Sam into a banking world of global government surveillance. In July, the Organization for Economic Co-operation and Development (OECD) quietly created something called the Standard for Automatic Exchange of Financial Account Information in Tax Matters, based on Obama administration specs, to make all private financial accounts the reciprocal business of national governments. Scores of countries have already signed up.

But before detailing the latest U.S.-led clampdown, it's worth reflecting on some other panic-induced milestones on this road from Enlightenment Era financial freedom to 21st century subjugation.

The Money Laundering Control Act of 1986, passed at the height of the crack cocaine breakout, made "structured" evasions of the Bank Secrecy Act's $10,000 reporting limit a crime--depositing $9,999.99 to avoid scrutiny became a crime in itself, even if your reasons for doing so were not criminal--and gave government the power to seize assets it deemed to have been used in "specified unlawful activities." As John Yoder and Brad Cates, two Reagan-era directors of the Justice Department's Asset Forfeiture Office, pointed out in a September Washington Post op-ed, "more than 200 crimes beyond drugs came to be included in the forfeiture scheme."

A Post investigative series in the fall described the grim results: More than 60,000 people have had cash seized without ever having been hit with a criminal indictment or search warrant since 2000. Instead of protecting property, police forces nationwide have an incentive to steal it, lawfully, from non-criminal citizens.

And still we are not done with the encroachments on financial privacy in the name of battling dangerous drugs. In 1988, the Anti-Drug Abuse Act expanded the prior laws' definition of "financial institutions" to include car dealers and other non-bank dispensers of credit. It also compelled said creditors to check the legal identification of anyone engaging in transactions larger than $3,000. A trio of money laundering laws in the 1990s boosted penalties, imposed more reporting requirements on banks, and demanded more proof of ID for transactions, among other intrusions.

Then 9/11 changed everything, again. The PATRIOT Act one-upped prior bank snooping schemes by forcing still more reporting requirements on ever lower transaction amounts to still greater numbers of institutions that deal with money. With the financing of terrorism now a specified (if vaguely defined) crime, and with response time requirements to federal law enforcement whittled down to 120 hours, banks were terrified of crossing Washington.

In retrospect, we should have realized that the aforementioned context had a greater influence on the Obama administration's strange obsession with cracking down on Americans' foreign accounts than the estimated $1 billion extra a year that the Internal Revenue Service reaps from hassling our more globalized citizens. The awful Foreign Account Tax Compliant Act (FATCA) of 2010, which I wrote about in this space in October 2012 ("The Insatiable Taxman"), is certainly annoying in its own right. The law inconveniences the estimated 7.6 million Americans living abroad (who can no longer get bank accounts in their host countries) and anyone else who holds more than $10,000 in foreign financial institutions by imposing on non-American banks a host of invasive, privacy-violating reporting requirements.

But the dwindling defenders of global financial privacy have come to realize that Washington's eye may have been on a bigger prize all along. Forget FATCA. This is all about GATCA. (The G is for "global.")

"This has been in the works since 2009," Deloitte partner Jim Calvin told the industry news site Compliance Complete in January 2014. "The U.S. was the only jurisdiction with a single capital market that could force FATCA to work. Once the U.S. effort was underway, it became apparent in 2012 with the release of the proposed regulations and the simultaneous announcement by the U.K., France, Germany, Spain, and Italy to enter into intergovernmental agreements (IGAs) that this was not just the U.S. acting alone."

The fruit of that labor arrived in July, with the publication of the OECD's new proposed financial rules for the developed world. "In creating the standards," noted JD Supra Business Advisor, "the OECD drew upon the experience gained through" implementing FATCA. "The OECD hopes that a commonality in approach will limit arbitrage opportunities for tax evaders."

So what started with drugs and evolved to terrorism has at long last settled on a more primal fear that's been around much longer than the Constitution: that someone, somewhere, may be saving or spending money without the blessing or even knowledge of the state. Money, in this view, does not strictly belong to the individual who "owns" it. It is tolerated only after full disclosure--and tribute--to the government.

Want to know why reason, after a long interregnum, has once again put together an issue focused on financial topics? Because your money is inextricably linked to your freedom. And government everywhere is punitively jealous of both.

Editor in Chief Matt Welch (matt.welch@ reason.com) is the co-host of The Independents on Fox Business Network and co-author, with Nick Gillespie, of The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong with America (PublicAffairs).
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Title Annotation:From the Top
Author:Welch, Matt
Publication:Reason Magazine
Date:Nov 23, 2014
Words:1303
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