The social significance of the Consolidated Audit Trail

Personal privacy is important. The ability of citizens to communicate and do business with one another – and to do so with some degree of exclusivity or confidentiality – is becoming increasingly rare. Such privacy and anonymity concerns face erosion because of the expanding reach of the administrative state. Those who want to shield our lives from surveillance once asked whether such protection was feasible; now, they more often ask whether the government will allow such protections.

The Securities and Exchange Commission’s (SEC) “Consolidated Audit Trail” (CAT) program is a notable example. As described on a Financial Industry Regulatory Authority (FINRA) landing page, the CAT is designed to monitor securities orders throughout their life cycle and identify the broker-dealers managing them, thereby enabling regulators to track activity in eligible securities across US markets efficiently. This initiative has been under construction since 2012.

This comprehensive database will monitor investors’ transactions in real time. Of course, the category of “investors” includes every person who buys or sells investment products. It is one instance of a larger pattern – an expanding net of government data collection – and the social implications of that expanding net should not be ignored. This larger pattern of government data collection also includes recent actions by the Internal Revenue Service that expand its tracking of relatively small transactions as well as the provision for remote vehicle disabling in the Infrastructure Investment and Jobs Act. These measures, like the CAT, raise genuine and serious privacy concerns – whether they are viewed as a large, collective trend or simply as one disturbing anti-privacy measure after another.

The concern over the collection of data on citizens like that embodied in CAT is not new. Such concerns attained new prominence in the 21st century with the implementation of the Patriot Act and the establishment of the Department of Homeland Security. They continue through the current discourse surrounding social media. All of these trends appear to dilute the kind of privacy and anonymity that we view as necessary to civilized society.

The Pentagon’s discontinued Total Information Awareness project exemplified a shift in focus: from surveilling suspects to surveilling everyone. This approach is elemental to the CAT as well. It can also be seen in other regulatory trends:  federal regulations in transportation, autonomous vehicles, and biometrics are steering away us from privacy in a coercive manner. When private data-sharing becomes mandatory, particularly in matters financial, sometimes it is to the advantage of government but to the detriment of the governed.

The issue at hand is not the feasibility of attaining maximum legitimate privacy, or resolving tensions between authentication and anonymity for the public in their communications and financial activities. The real obstacle here is that the government is unwilling to permit such privacy. Consequently, many conventional calls for privacy regulation are misdirected, as they target the private sector rather than government. Today, the central danger to privacy is government, because only government possesses the coercive powers and the systemic capacity to violate constitutional rights.

Various privacy incursions such as those described above may seem unconnected to government at first glance, but nonetheless facilitate the government’s internal sharing of individuals’ private information across insecure channels. Less than a month ago, hackers claimed to have accessed the Social Security numbers of the entire population. Recent discussions about eliminating “disinformation” and “misinformation,” while seemingly unrelated to CAT on the surface, nonetheless underscore fears of “de-banking” that parallels the reality of de-platforming or online cancelation. It is highly unclear how well-founded similar fears are that the CAT might be used for such top-down regulatory ends once it has taken root.

In that sense, the CAT is far from an isolated project or incident. Rather, it is one among many other similar intrusions. It embodies a certain perspective with which the federal government regards ordinary citizens. Even casual observers might deduce that constitutionally protected anonymity and privacy are diminishing, and that the SEC’s CAT database could be used (for example) to threaten anonymous online dissent deemed “harmful” by prevailing standards. Similarly, the SEC seeks climate action plans from regulated firms, potentially influencing their portfolio content and decision-making. The CAT database, despite official denials, could readily extend such scrutiny to private citizens’ trades and affect their ability to transact. These are foreseeable consequences that could lead to invasive oversight.

In his white paper “The Rule of Law in the Regulatory State,” Prof. John Cochran emphasizes the importance of political dissent rights, free and private speech, and the right to earn a living irrespective of political opposition. These rights are all under tension, and the CAT increases that tension.

Appropriate information collection is always necessary; no one denies that. But while private platforms may choose to eliminate anonymity and monitor transactions strictly, government pressure to adopt coercive schemes through measures like the CAT database should be curtailed. Freedom includes allowing individuals to present different personas publicly, implying varied authentication and anonymity levels across contexts, but particularly so, not less so, in the political and public sphere. The authors of “The Federalist Papers” collectively signed as “Publius.” Something like the CAT database might have directly or indirectly muzzled them. Such intrusions should be blocked.

There are large trends today toward increased government compulsion and access to private information and communications, manifesting in unfortunate initiatives like the CAT’s database of securities transactions that sweep ordinary Americans into its net. These federal forays disrupt privacy and hobble speech and political participatory rights. They are part of a broader pattern within the administrative state. In the context of the CAT, the erosion of financial privacy has a deep relation to the erosion of the freedom to hold and express dissenting political views. A collapse in privacy will have terrible social consequences.