The so-called "Know Your Customer" rules, being developed by four federal agencies, would have closely tracked banking customers' transaction patterns.
The Federal Deposit Insurance Corp., had received some 225,000 e-mail messages and letters, nearly all opposing the proposed rules. Donna Tanoue, FDIC chairwoman, said: "The public has spoken very loudly and clearly" against the proposed regulations.
The regulations would have required banks to verify their customers' identities, know where their money comes from and determine their normal pattern of transactions. The current requirements for banks to report any "suspicious" transactions to law enforcement authorities would have been expanded.
Privacy advocates, conservative groups, ordinary people and the nation's bankers have complained since December that the rules would transform every bank teller into a spy for Big Brother. They maintained the rules are unconstitutional and would violate prohibitions against unreasonable search and seizure.
Early this month, the Senate voted 88-0 to express support for a measure directing the regulators to drop the proposed rules.
In addition to the FDIC, the other agencies involved in the rules were the Federal Reserve; the Comptroller of the Currency, which oversees nationally chartered banks; and the Office of Thrift Supervision.
The rules were designed to combat money laundering techniques used by drug traffickers and other criminals to hide illegal profits. Money laundering is a major concern of law enforcement officials; it reached an estimated $30 billion in this country last year.
Laundering includes the use of wire transfers and bank drafts as well as "smurfing," the practice of breaking down transactions into smaller amounts that do not have to be reported under the Bank Secrecy Act.
Written By Marcy Gordon, Associated Press Writer