"Know-your-customer" may have been a public relations nightmare for bank regulators, but for privacy advocates it has been a godsend.

Groups such as the Libertarian Party and the American Civil Liberties Union have made careers of fighting government intrusion into citizens' lives, but the government has rarely thrown them so fat a pitch as the ill- fated proposal to combat money laundering.

"The beauty of know-your-customer is it was very simple," said Libertarian Party spokesman George Getz.

It also was good for business.

Shortly after bank regulators issued the proposal for public reaction in December, the party set up a Web site, www.defendyourprivacy.com, to funnel citizen comments into the Federal Deposit Insurance Corp.'s e-mailbox. Mr. Getz claims the site was responsible for 71% of the 254,000 letters the agency received.

That's 180,000 letters-and 180,000 potential donors and members, many providing their name, address, and e-mail.

"It is a valuable list, and we expect to significantly increase the size of the party as a result of that," Mr. Getz said.

The letter-writing strategy was so successful that it began to spawn imitators.

In fact, some privacy groups got so much mileage out of the know-your- customer debacle that they are not quite ready to give it up, even though regulators withdrew their proposal March 8.

The ACLU offers two letter-writing options on its Web site. One lets visitors send a free fax to their Capitol Hill representatives to urge support for legislation that would repeal the Bank Secrecy Act. The cost? Their name and address. Over 16,000 have done so already.

Another option, part of a campaign ironically dubbed "Know Your Banker," provides visitors with a sample letter to send their local branch manager. The letter asks whether the bank has "adopted a know-your-customer policy or practice," and how many suspicious activity reports the branch filed in 1998.

"We believe that privacy is a benefit that banks offer their customers," said Gregory T. Nojeim, legislative counsel at the ACLU. "In the same way banks compete for customers based on the interest rates they offer, they ought to compete on the privacy they offer their customers."

Mr. Nojeim also defended the ACLU's motives. "It would be incorrect to suggest that our involvement in know-your-customer is motivated by anything but a sincere, long-standing devotion to the principles of financial privacy," he said.

John J. Byrne, senior counsel at the American Bankers Association, had harsh words for the ACLU's Web site rhetoric, calling it "overly simplistic" and riddled with factual errors.

"I think they've intentionally inflamed this issue and tried to drum up further concern," he said. "You have to make intelligent credit decisions ... and you do that by getting to 'know your customer.' That's not a pejorative term."

So what should a bank do if it gets one of the ACLU's inquiries from a customer?

Betty Santangelo, a partner at Schulte, Roth & Zabell LLP, suggested telling customers that the bank complies with all regulatory requirements. "And if customers have a concern about the regulatory requirements, they should address them to the regulators," she said.

James F. Sloan, director of the Treasury Department's Financial Crimes Enforcement Network, said a bank's response could tip off money launderers. "I wouldn't want criminals to be able to shop around for easy targets," he said.

But there are no penalties awaiting a bank that says it does not have a know-your-customer policy. "The rule is dead," said Christie A. Sciacca, privacy chief at the FDIC.

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