Archaic Reporting Metrics Slow Down Government Work & Hurt Privacy
This issue is of particular concern in the United States due to legislation like the Bank Secrecy Act (BSA), which mandates that financial entities report to the government when customer activity hits certain thresholds.
Passed in 1970 as a strategy to fight money laundering, the BSA mandates reporting to the IRS “if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.”
The BSA also requires some citizens with foreign financial accounts to report account activity each year.
The IRS writes how reporting documents filed by entities are “heavily used by law enforcement agencies, both domestic and international, to identify, detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.”
How Do The BSA and Inflation Link to Financial Privacy?
First, the $10,000 daily threshold has not been adjusted since the law came into force. The Cato institute notes how adjusted for inflation; the reporting threshold should be about $75,000 in 2022.
As a result, government officials have eyes on a vast, ever-growing amount of financial activity by American citizens, especially if inflation keeps rising.
Some lawmakers have expressed concern that the lack of an inflation-adjusted reporting standard gives tax officials and investigators more of a workload where they are ineffective in catching criminals.
In a Congressional hearing about the BSA and reporting requirements that occurred in April 2022, Rep. Bryan Steil explained that if we “can find a way to get the haystack down,” entities like the Financial Crimes Enforcement Network (FinCEN) could make better use of a very limited budget to effectively work without prying into the bank accounts of everyday Americans who are not committing financial crimes.
A Slimmed-Down Workload Empowers Agencies To Catch Financial Criminals
Statistics suggest raising the reporting threshold and giving financial entities a smaller caseload would be beneficial.
A 2018 Bank Policy Institute report revealed how in 2017, those involved in a research survey reviewed about 16 million alerts and filed nearly 640,000 suspicious financial activity reports – but that just 4% of these reports warranted a follow-up from law enforcement.
Interestingly, FinCEN seems to have some self-awareness about the impact of inflation on thresholds for reporting and other requirements.
JP Koning writes how penalties for law-breakers had a “catch-up” in 2016, where monetary fines for issues like improper record keeping rose.
Since then, FinCEN has updated its list of monetary penalties each year in line with inflation due to legislation passed in 2015 that mandates yearly monetary penalty adjustments to all federal agencies.
Statistics show financial and data privacy is a massive issue for Americans.
Research from Pew reveals that 66% of citizens do not agree with government data collection, while as many as 79% express concern about companies infringing on online privacy.
It’s unclear how to solve rising inflation in America. Still, it’s important to note that stipulations like BSA reporting requirements are long overdue to be updated to reflect current-day inflation percentages, average incomes, consumer spending, and other critical economic metrics.
Doing so frees up government resources to focus on those most likely committing financial crimes while helping uphold privacy standards for the average American consumer.