The Importance of Banks to “Know Your Customer”

Posted by Cindy on July 24, 2009

In 1970, the Bank Secrecy Act was made into a statute, originally for the assistance to the anti-money laundering government agencies.  And currently, after the attacks on New York on September 11, is for the assistance in the fight against terrorism.  In the beginning banks were encouraged to participate however now they are required to establish procedures and guidelines with will allow them to identify those who may be, or who are intending to commit a crime.  They are bound by law to fill out reports, Suspicious Activity Reports.  These reports are turned into the U.S. government.  One of the tools used by banks, and other companies as well, is the “Know Your Customer” policies.  Each firm or institution can create their own procedures for this, to find those that best suit their business or operation.

Now, small banks in small towns across the country are usually more personally involved with their customers.  The policies and procedures regarding Know Your Customer, are different than those required in the larger financial institutions in more metropolitan cities.  The guidelines will vary depending on the steps that are necessary for the safety and the integrity of each different bank.  The government encourages banks to fill out the Suspicious Acts Reports freely.  As in if someone appears suspicious, but is not actually committing a crime there will be no repercussions.

It is better to be safe, than sorry.  And the banks will not be held liable should a customer sue them, however if a financial institution maliciously files a report, they will be prosecuted.  One of the provisions is the the account holder that is being reported is not informed by the bank.  It is illegal, in fact for the bank to inform them that a report has been filed or to likewise inform them what is contained in the report.  This is just one of the ways banks are protecting themselves, as well as the people in the entire country.