Financial privacy is under fire — the issue should draw the attention of both parties

The 2024 Republican Party platform has gotten a lot of attention from cryptocurrency enthusiasts for promising to end the Biden administration’s crackdown on crypto, opposing the creation of a central bank digital currency, and defending the right to mine bitcoin. What’s gotten less attention is the party’s promise to “ensure that every American has the right to…transact free from Government Surveillance and Control.”

That promise may be nestled within the platform’s crypto section, but the issue of financial privacy relates to much more than digital assets. And that issue should draw the attention of both parties.

From the Bank Secrecy Act to the Consolidated Audit Trail to the possibility of central bank digital currencies, the ability of Americans to transact without government surveillance has been in steady decline for more than 50 years.

The Bank Secrecy Act of 1970 — which has been significantly expanded over time — requires financial institutions to assist federal agencies in detecting and preventing money laundering and other crimes. It does this in a number of ways, including by enlisting financial institutions to report certain customer activities to the government. In 2023, financial institutions — which include banks, money transmission businesses, broker-dealers, casinos, pawnbrokers and car dealerships — filed more than 25 million reports under the Bank Secrecy Act.

The Securities and Exchange Commission’s Consolidated Audit Trail system collects data on every stock and options trade made in the U.S., including personally identifying information about the individual who made the trade. This system is a blueprint for pervasive government surveillance, requiring broker-dealers to collect data and report sensitive information about their customers to the Consolidated Audit Trail system and offering no opportunity for investors to opt out.

And a central bank digital currency, if implemented, could involve the government even more intimately in Americans’ use of money. Such currencies not only allow for government surveillance of financial transactions that use the payment instrument, but also give the government the ability to control how a person uses (or doesn’t use) his or her money.

Those who want to flee the surveillance in the traditional financial system may look for privacy in the decentralized nature of crypto. Pseudonymous blockchains provide only a weak measure of privacy, but crypto can provide other, more-robust, privacy-protecting tools. Policymakers shouldn’t stamp out such innovations.

These and other compromises of Americans’ financial privacy have generally been justified as protecting Americans’ safety and security. Certainly, the government’s interest in stopping crime or preventing terrorism is an important one, but the Constitution already balances that interest. The individual privacy interest in the Fourth Amendment generally requires governments to obtain warrants to access personal documents and information.

Financial information has often been exempted from this warrant requirement by a series of Supreme Court cases from the 1970s that established what is known as the “third-party doctrine,” which treats information that is provided to a third party — such as a bank — from Fourth Amendment protections. That doctrine has always been controversial — see, for example, Justice Thurgood Marshall’s dissent in a case upholding IRS subpoenas seeking information collected under the Bank Secrecy Act. But the increasing use of technological intermediaries in everyday life has led jurists as far apart ideologically as Justices Neil Gorsuch and Sonia Sotomayor to call on the Supreme Court to revisit the doctrine. 

Regardless of whether the Supreme Court takes up the issue, policymakers — including those in Congress — shouldn’t stand idly by while financial privacy withers. There has been a flurry of congressional activity in the past few years around financial privacy, including efforts to reform the Bank Secrecy Act, prohibit the collection of investor personal information in the Consolidated Audit Trail, and prohibit central bank digital currencies.

But an interest in protecting financial privacy shouldn’t be the province of one political party. Easy government access to financial data poses risks to everyone — not just those with something to hide. It can be especially harmful to those with unpopular political views or anyone otherwise in the minority.

What we spend our money on says a lot about what we think and value, as well as a lot about our day-to-day existence. As SEC Commissioner Hester Peirce so eloquently put it, “[a] fundamental expectation of a free people is to not be subject to unwarranted monitoring.” It’s long past time to allow Americans to enjoy such freedom over their finances.  

Jennifer J. Schulp is the director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives. Schulp and her colleagues are hosting a conference — “Financial Privacy under Fire: Protecting and Restoring Americans’ Rights” — on Sept. 12, 2024, focused on examining financial privacy in the United States.