But the government DIDN'T impose it. Whatever the bank's procedures may be, the regulator can say with a straight face, "We didn't tell them to implement those procedures, and we didn't tell them to take those actions. That was their decision."
And, unbelievable as it may seem, the government won't be exactly wrong either.
I don't think anyone can say with a straight face that the KYC laws as written don't impose the requirement to search
papers to verify proof of identity, address, etc.
Sure cute games can be made about the semantics of it, but that's why we have human beings as judges. It's blatantly obvious that when you threaten to toss someone in a cage for not doing something that you are imposing that on them, it's not voluntary and you are doing it on behalf of the imposer. If a human being judge truly can't recognize that then the whole system is broken and we need to start over.
Actually the laws as written DON'T impose any such requirement. Banks generally choose to implement policies that do that, but it is not required. And during COVID, many banks changed those policies.
https://www.bitsaboutmoney.com/archive/kyc-and-aml-beyond-th... goes into this. The primary concern for regulators is that you must have made statements to the bank that you can later be put in jail for lying about. And the bank must have approved procedures in place for identifying when transactions are high enough risk to decide to take verification steps.
On your comments about judges, you apparently have substantially more confidence in the common sense applied by the legal system than I do. Don't forget we now have a Supreme Court judge (Amy Barrett) who is on record, in a legal paper no less, saying that fiat money and the Fed are obviously unconstitutional, and judges should handle that by simply avoiding ever considering the question. (Read https://scholarship.law.nd.edu/law_faculty_scholarship/1304/ if you think I'm making that up.)
The letter of the law not explicitly saying "search their ID paperwork" does not mean it's not an imposition created by government. The "written" text seldom is a good indication of what is actually imposed. For instance, for a period of time a shoe lace was considered a machine gun [0]. You would never realize it unless you looked at the documented directives/interpretation of regulators.
If the practical imposition placed on you by regulators is that you in practice are needing to search paperwork to satisfy KYC, that's a government imposed requirement no matter what the actual law says.
In copyright law and free speech analysis something even stronger happens where the rules are sometimes extremely unclear with no real way to get clarity but some random punishment has been imposed that causes everyone to read tea leaves constantly and self-censor themselves; this is called a "chilling effect" and is absolutely taken into consideration when analyzing a challenge to the constitutionality of a law or regulatory structure.
And, unbelievable as it may seem, the government won't be exactly wrong either.