Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
In a care[...]
US Financial Surveillance Report Shows Privacy in Crisis
Privacy Report | Dec 13, 2024
How U.S. Surveillance Practices Threaten Financial Privacy and Innovation
Financial privacy is at a crossroads. Another 'eye opening' report dropped December 6, 2024 by the U.S. House Judiciary Committee and the Select Subcommittee on the Weaponization of the Federal Government titled, "How the Federal Government Weaponized the Bank Secrecy Act to Spy on Americans" (47 page PDF) reveals alarming financial surveillance systems being used in the United States. Using laws like the Bank Secrecy Act (BSA), federal agencies use financial institutions to monitor millions of Americans without their knowledge or consent. These findings have serious implications for fintech, innovation, and consumer trust. There's a tug of war between security and privacy and it's reaching a breaking point.
The Scale of Financial Surveillance
Last year in 2023, financial institutions filed 4.6 million Suspicious Activity Reports (SARs) and 20.8 million Currency Transaction Reports (CTRs) with the Financial Crimes Enforcement Network (FinCEN). Over 25,000 government officials at various levels accessed this data without legal warrants to conduct over 3.3 million searches using the FinCEN Query system. FinCEN's integrated access program allowed approx. 27,000 users across nine federal agencies to download entire datasets of financial records with minimal oversight.
Financial institutions often outsource compliance tasks to third party vendors which raises questions about data security and privacy breaches under the confidentiality rules under the Bank Secrecy Act. Another layer of exposure risk.
See: Opinion: The Financial Surveillance System May Be Less a Tool for Crime Prevention than a Means of Bureaucratic Ass Covering
The report describes a system that encourages banks to over-report SARs to avoid penalties for non-compliance (even when the reported activity is unlikely to be connected with a crime or wrongdoing).
Jimmy Kirby, FinCEN Deputy Director:
"There’s the mandatory requirement and then there’s the ability to voluntarily file, as the statutory construct laid out by Congress really is to encourage filing. So... there’s the ones you’re required to file, but there’s also very much an encouragement for people to voluntarily file beyond what they’re required to file."
Weaponization of Financial Data
The use of financial data to target specific individuals or groups is critical issue for policymakers, and has been increasing in recent years. Especially after Jan 6, 2021 uprising in the U.S. where institutions were told to flag individuals on politically charged criteria, such as purchasing firearms, travel to Washington, D.C., staying at specific hotels etc.
See: Surveillance Capitalism: Policymakers must put an end to abusive practices
A similar situation happened here in Canada too during the trucker protests of 2022. Canadian federal agencies used the Emergencies Act to direct banks to freeze accounts of individuals and organizations linked to the protest. They also instructed crypto exchanges to cut off crypto user accounts linked to the protests. Donation- based crowdfunding platforms were also caught in the fire as FINTRAC's knee jerk reaction to impose unwarranted AML/ATF requirements on them without any data-driven analysis.
Daryl Hatton, Founder and CEO of FundRazr:
“In summary, the regulations are ineffective, burdensome, anti-competitive, and damaging to both the domestic donation crowdfunding sector and the Canadian nonprofit/charitable sector. The goal of protecting Canadians from money laundering and terrorism is laudable, but these regulations should be scrapped, and new regulations drafted in full consultation with stakeholders.”
Implications for Fintech and Innovation
Fintech firms operating in the U.S. (especially smaller ones) in some capacity can find themselves swamped by compliance costs which eat up valuable resources away from innovation. For example, a Canadian payment processor may find that routine transactions under Canadian regulations could trigger SARs in the U.S., adding to compliance and operational costs.
See: Privacy and Crypto Shaken as Telegram’s CEO Arrested
Or consider, a crypto platform doing business in the U.S. could encounter conflicting demands such as when U.S. regulators request data but Canadian privacy laws protect that data. These different regulatory environments create frictions.
Why It Matters
Excessive surveillance hurts consumer trust and adversely impacts the adoption of fintech solutions. Use your voice and emerging technology to demand accountability and create private, ethical systems that balance security with individual rights, ensuring a future free from weaponizing financial data inappropriately.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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