A Republican member of the House Banking Committee is preparing to introduce legislation that would block the proposed know-your- customer rule and repeal the Bank Secrecy Act.

Rep. Ron Paul, a civil liberties advocate and former Libertarian Party presidential candidate, has recruited four other Republicans to co-sponsor the Know Your Customer Sunset Act, one of three related bills he plans to introduce early next month.

The Texas lawmaker also wants to repeal the Bank Secrecy Act and to let customers obtain copies of reports their bank has filed with the government alleging suspicious account activity.

The bills' chances for passage are unclear. But the House Banking Committee staff is meeting with representatives of the four banking agencies today to discuss the public's harsh reaction to the know-your- customer proposal.

Committee Chairman Jim Leach has not taken a position. However, he did conclude a Jan. 8 letter to a constituent by saying: "The intrusive implications of requiring reports on the American public could amount to a privacy umbrage under the Constitution."

The House Banking Committee's financial institutions subcommittee is expected to hold a hearing on the issue this spring.

Know-your-customer rules were proposed in December, after years of work, to thwart money laundering. The idea is to require bankers to know how their customers typically bank and to report any unusual activity to law enforcement officials. The plan was not expected to be controversial.

But Rep. Paul teamed up with the Free Congress Foundation to start the Ad Hoc Coalition for Financial Privacy, a coalition of groups that is partly responsible for the landslide of negative e-mails and letters that have bombarded bank regulators.

"Apologists for the proposed 'know your customer' financial regulation arrogantly chastise that it merely 'formalizes existing policies,'" Rep. Paul wrote in a letter to House colleagues Thursday. "They are wrong."

The phrase "formalizes existing policies" is from a Jan. 25 summary of the know-your-customer proposal that was written by Banking Committee staff members. An aide to Rep. Paul recently characterized that memo as "a deliberate misinformation propaganda campaign to mischaracterize a bad rule."

Over the past week, Rep. Paul has been lobbying lawmakers to sign onto his bills.

Rep. Paul's political skills should not be underestimated. In December he persuaded 11 Banking Committee members to sign a letter criticizing the know-your-customer proposal, saying it could hurt small banks, turn tellers into private investigators, and discriminate against minorities and the poor.

The message is clearly being heard at the banking agencies. This week, Federal Deposit Insurance Corp. Chairman Donna A. Tanoue said she thinks the proposal should be significantly rewritten. The American Bankers Association said the agencies ought to abandon the plan.

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