II

106TH CONGRESS

1ST SESSION S. 466

To provide that ‘‘Know Your Customer’’ regulations proposed by the Federal

banking agencies may not take effect unless such regulations are specifically authorized by a subsequent Act of Congress, to require a comprehensive study and report to the Congress on various economic and

privacy issues raised by the proposed regulations, and for other purposes.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 25, 1999

Mr. JEFFORDS introduced the following bill; which was read twice and

referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To provide that ‘‘Know Your Customer’’ regulations proposed

by the Federal banking agencies may not take effect

unless such regulations are specifically authorized by a

subsequent Act of Congress, to require a comprehensive

study and report to the Congress on various economic

and privacy issues raised by the proposed regulations,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘American Financial

5 Institutions Privacy Act of 1999’’.
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1 SEC. 2. DEFINITIONS.

2 For purposes of this Act, the following definitions

3 shall apply:

4 (1) DEPOSITORY INSTITUTION; FEDERAL BANK5 ING AGENCIES.—The terms ‘‘depository institution’’

6 and ‘‘Federal banking agencies’’ have the same

7 meanings as in section 3 of the Federal Deposit In8 surance Act.

9 (2) ‘‘KNOW YOUR CUSTOMER’’ REGULATION.—

10 (A) IN GENERAL.—The term ‘‘ ‘Know Your

11 Customer’ regulation’’ means any regulation

12 prescribed by the Secretary or any Federal

13 banking agency which requires any depository

14 institution to establish a program to—

15 (i) determine the identity of the cus16 tomers or prospective customers of the de17 pository institution;

18 (ii) determine the sources of funds of

19 the customers of the institution;

20 (iii) determine the normal and ex21 pected transactions of the customers of the

22 institution; and

23 (iv) monitor the account activity of

24 each customer for transactions that are in25 consistent with the normal and expected

26 transaction of such customer.
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1 (B) INCLUSIVE OF FLEXIBLE PRO2 GRAMS.—A regulation meets the definition de3 scribed in subparagraph (A) if the purposes of

4 the requirements of the regulation are described

5 in such subparagraph, whether or not the regu6 lation provides depository institutions some

7 flexibility in designing a program to meet such

8 requirements on the basis of the type, size, and

9 complexity of the institution, the types of cus10 tomers served by the institution, the nature and

11 extent of the financial activities of the cus12 tomers of the institution, and the risk of illegal

13 activities involving such institution or customer.

14 (3) SECRETARY.—The term ‘‘Secretary’’—

15 (A) means the Secretary of the Treasury;

16 and

17 (B) includes any entity established by the

18 Secretary, such as the Financial Crimes En19 forcement Network, to exercise the rights, pow20 ers, and duties delegated to such entity by the

21 Secretary.
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1 SEC. 3. PROHIBITION ON ‘‘KNOW YOUR CUSTOMER’’ REGU2 LATIONS UNLESS SPECIFICALLY AUTHOR3 IZED BY A SUBSEQUENT ACT OF CONGRESS.

4 Any ‘‘Know Your Customer’’ regulation prescribed by

5 the Secretary or any Federal banking agency shall not

6 have any force or effect after the date of enactment of

7 this Act, unless the Secretary or such agency is authorized

8 to prescribe such regulation by a specific provision in an

9 Act of Congress enacted after the date of enactment of

10 this Act.

11 SEC. 4. COMPREHENSIVE STUDY REQUIRED.

12 (a) IN GENERAL.—The Secretary and the Federal

13 banking agencies shall jointly conduct a comprehensive

14 study of—

15 (1) the extent to which any ‘‘Know Your Cus16 tomer’’ regulation prescribed by the Secretary or any

17 such agency would—

18 (A) invade the privacy of individual law

19 abiding Americans and their families; and

20 (B) impinge on the freedom of association

21 and other rights protected under the first 10

22 Amendments to the Constitution of the United

23 States;

24 (2) the effect that any such ‘‘Know Your Cus25 tomer’’ regulation would likely have on traditional
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1 banking relationships of individuals and their fami2 lies;

3 (3) the extent of the economic burden of any

4 ‘‘Know Your Customer’’ regulation on small deposi5 tory institutions; and

6 (4) practical alternatives to ‘‘Know Your Cus7 tomer’’ regulations.

8 (b) REPORT TO CONGRESS.—Not later than 180 days

9 after the date of enactment of this Act, the Secretary and

10 the Federal banking agencies shall submit to the Congress

11 a detailed report of the findings and conclusions of the

12 Secretary and such agencies in connection with the study

13 conducted pursuant to subsection (a), together with such

14 recommendations for legislative or administrative action

15 as the Secretary and such agencies may determine to be

16 appropriate.

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