Minutes after bank regulators withdrew the controversial know-your-customer proposal Tuesday, Clinton administration officials rushed to defend the broader set of rules used to combat money laundering.
The decision by bank and thrift agencies to dump the customer- identification plan was expected. The Federal Deposit Insurance Corp. alone received over 250,000 comments, most from individuals and all but 105 negative.
Lawmakers, including the chairmen of the House and Senate Banking committees, applauded the move. But several urged the additional step of scaling back the suspicious activity reporting system. That led administration officials to hold a conference call with reporters.
"Money laundering ... is what fuels the activities of terrorist organizations," drug dealers, mobsters, and other lawbreakers, said a senior Treasury Department official who would not allow his name to be used. By helping law enforcement agencies separate criminals from their money, banks can "severely hamstring" criminal activity.
"The thing we would not want to see," the official continued, is "that the pendulum be permitted to swing the other way, so that legitimate law enforcement" tools are destroyed.
The four bank and thrift regulators gave no hint of their next step. Options include proposing a revised rule, issuing guidelines or a policy statement, which are less binding, or doing nothing at all.
"We need to take privacy concerns into account in any regulatory proposal that touches upon the personal finances of bank customers, regardless of our objectives," FDIC Chairman Donna A. Tanoue said at a public board meeting. "We have learned from our experience."
"I think the thing that bothered me most about this was that it was a government mandate," said Comptroller of the Currency John D. Hawke Jr., a member of the FDIC's board of directors. Mr. Hawke defended the law enforcement goals that inspired the proposal.
The interagency approach that culminated in the Dec. 8 know-your- customer proposal could be fraying. For example, whereas Mr. Hawke and Ms. Tanoue have said they prefer to avoid further action on know-your-customer, the Federal Reserve Board has not ruled out the possibility of issuing its own guidelines-with or without fellow regulators.
