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F.D.I.C.''s "Know Your Customer" Rule Opposed

Secretary Kennedy Says Federal Banking Rule Would Violate Taxpayers'' Privacy Rights

February 21, 1999

BATON ROUGE - Citing concerns that the privacy rights of taxpayers could be compromised, Department of Revenue Secretary John Kennedy today announced his opposition to the proposed Federal Deposit Insurance Corporation (FDIC) banking regulation known as the "Know Your Customer" rule.

"As secretary of one of the government agencies that would be a recipient of this personal information, I am concerned about the privacy implications surrounding this ''Know Your Customer'' regulation," says Secretary Kennedy. "Although it is being promoted as a means of stopping money laundering, it will have the effect, whether intended or otherwise, of putting the IRS and state tax authorities further into the private lives of citizens when they don''t need to be."

The proposed regulation, which is currently under a 90-day public comment period, would force banks to question customers about "unusual" or "suspicious" banking transactions, including checking and savings account deposits, that "deviate" from the "normal and expected" amount of such transactions. The banks would then be required to report those transactions to federal agencies for investigation, including the Internal Revenue Service (IRS), which shares information with the Louisiana Department of Revenue.

"We already have strong laws to identify and prevent money laundering," says Secretary Kennedy. "This proposed rule goes too far. It requires banks to spy on people''s bank accounts and treats taxpayers as guilty until they can prove themselves innocent. Who''s to say what is an ''unusual'' or ''suspicious'' banking transaction?

"Why do the FDIC, the IRS, and state revenue departments need to know immediately if a taxpayer sells his home, gets a Christmas bonus, inherits money from a relative, or dips into a savings account to pay his child''s tuition?" says Secretary Kennedy. "We already have laws that require appropriate tax forms to be filed at the end of each year if a transaction is taxable event. Not all banking transactions are taxable."

If adopted by the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift Supervision, all banks and savings institutions will be required to have "Know Your Customer" programs by April 1, 2000. For more information about how this new regulation could affect you, visit the FDIC website at www.fdic.gov on the Internet.

The FDIC is currently seeking specific comment on the customer privacy aspect of this proposal until March 8, 1998. Since the "Know Your Customer" regulation has not been adopted, it may be substantially revised to reflect public comment before it is adopted, or it could be withdrawn altogether.

Comments regarding the "Know Your Customer" rule can be sent to the FDIC by mail at 550 17th Street, NW, Washington, D.C. 20429. Comments may also be sent by fax at (202) 898-3838 or by e-mail to Comments@fdic.gov. United States Congressmen Bob Livingston, William Jefferson, Billy Tauzin, John Cooksey, Jim McCrery, Richard Baker and Chris John can be contacted at www.house.gov and Senators John Breaux and Mary Landrieu at www.senate.gov on the Internet. They also may be contacted by calling the U.S. Capitol switchboard at (202) 224-3121.

"The FDIC has just announced that it may ''revise'' its proposed rule in light of recent criticism. We don''t need to revise it.... we need to kill it," says Secretary Kennedy. "This proposal, in my view, is an unfair and unnecessary intrusion into the private financial affairs of the vast majority of people who already pay their taxes in the right amount and on time. We ought to be trying to figure out ways to reward these people, not scare them."