Nicholas Anthony
Although Americans often think that financial privacy is protected by the Fourth Amendment to the U.S. Constitution, financial institutions like banks and credit unions are required by the Bank Secrecy Act to regularly report financial activity to the federal government. Were this violation of privacy not enough to cause upset, the government has long been unable to prove that these reports are even effective in combatting crime.
For those that might be unfamiliar with the issue at hand, financial institutions file tens of millions of reports each year on customers for either “suspicious” activity or activity crossing reporting thresholds (e.g., $10,000). One major issue with this regime is that it doesn’t even appear to be effective for fighting crime. Despite all these reports being filed year after year, it’s unclear just how many criminals are being caught because of these reports. Therefore, the Financial Crimes Enforcement Network (FinCEN) has been repeatedly asked to explain how many reports directly result in investigations, convictions, and the like.
FinCEN’s Suspicious Statistics
On April 25, 2023, FinCEN finally responded to years of requests—well, it partially responded.
The report opens with what should be a sobering statistic for supporters of the Bank Secrecy Act: despite financial institutions spending an estimated $46 billion a year in compliance and filing over 26 million reports, only 15.8 percent of all IRS investigations result from Bank Secrecy Act reports (see Figure 1). Yet, FinCEN does not say how many of these reports lead to a conviction.
While not the direct result of Bank Secrecy Act reports, FinCEN stated that 84.2 percent of all IRS investigations in general and 83.2 percent of IRS investigations recommended for prosecution had used information gained from Bank Secrecy Act reports. This finding may sound like a win for supporters of the regime, but it’s important to recognize the qualifier here: these investigations were not the result of Bank Secrecy Act reports. Rather, the investigations just benefited in some form from the existence of the reports. Without additional detail, one could make the same argument about a library card.
FinCEN also supplied select statistics from the U.S. Department of Justice (DOJ). Here, however, all the numbers are largely meaningless because they too come with a significant qualifier: the reports “supported a significant portion” of select investigations. To be fair, both here and with the IRS, these numbers would be somewhat useful for establishing context in a larger report, but, at best, they overinflate the usefulness of Bank Secrecy Act reports when viewed on their own.
Turning elsewhere, FinCEN’s public database regarding the number of suspicious activity reports (SARs) filed each year reveals more troubling insights. When it comes to reports from depository institutions, the top four reasons for filing a SAR were: (1) concerns regarding the source of funds; (2) transactions near reporting thresholds; (3) transactions with no clear purpose; and, (4) transactions out of pattern (see Figure 2).
Things like money laundering, human trafficking, and terrorist financing only rank as the 18th, 63rd, and 72nd reasons for filing a report. Yet, maybe the most concerning insight is that nearly 2.5 million transactions were reported for being below the reporting thresholds. It calls into question why these thresholds exist at all. As Representative Andy Ogles (R‑TN) pointed out when Acting Director Das appeared before Congress this year: financial surveillance under FinCEN, and the Bank Secrecy Act writ large, has effectively targeted millions of innocent Americans over actual threats.
Conclusion
Later at the oversight hearing, Representative Warren Davidson (R‑OH) said,
Give us some metrics.…Give us the evidence.…How do you measure the effectiveness? …Show me a case where what you collected resulted in a solved crime.…I’m looking for cause and effect. If you want to keep spying on American citizens, you’re going to have to show why.
Between the requests from the public and congressional inquiries, FinCEN is certainly aware of the pressing need to supply statistics on the effectiveness of the financial surveillance it oversees. At this point, however, it’s clear that Congress needs to double down on the government reports required in Title LXII of the National Defense Authorization Act for Fiscal Year 2021 and require FinCEN to publish a public report on the effectiveness of the Bank Secrecy Act.