Financial Privacy in a Free Society

Abstract

Financial and personal privacy is a key component of life in a free society, where individuals enjoy a private sphere free of government involvement, surveillance, and control. The U.S. financial regulatory framework is largely inconsistent with these ideas, and it is long past the time for fundamentally reforming the information exchange and reporting system that has grown over the past three decades. The current regulatory regime is overly complex and burdensome, and its ad hoc nature has likely impeded efforts to combat terrorism, enforce laws, and collect taxes. To better meet the needs of the citizens these laws are meant to serve, regulators must develop better information about the costs and benefits of the current regime, especially given that the current framework appears grossly cost ineffective. This paper provides a quantitative estimate of the cost of the current AML regime, recommends seven reforms to move the U.S. toward an improved financial privacy regime that protects individuals’ privacy rights while improving law enforcement’s ability to apprehend and prosecute criminals and terrorists.