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Senator PROXMIRE. Our first witness, we are honored to say, is the distinguished Senator from California, Senator Tunney. STATEMENT OF JOHN V. TUNNEY, U.S. SENATOR FROM THE
STATE OF CALIFORNIA
Senator TUNNEY. Thank you very much, Mr. Chairman; it is a great pleasure for me to appear before this distinguished subcommittee, and its chairman, who has done so much to protect the rights of individuals in our society.
I am very grateful for this opportunity to testify in these very important and timely proceedings which have been called by you, Mr. Chairman.
The subject of the subcommittee's inquiry is a matter of fundamental importance to the psychological well-being of America. What we are here to discuss today is the right of government, the right to be free from the intruding eye of government, the right to be let alone. As long ago as 1887 Justice Field, who later became a Supreme Court Justice, said on this subject :
Of all the rights of the citizen, few are of greater importance or more essential to his peace and happiness than the right of personal security, and that involves not merely protection of his person from assault, but exemption of his private affairs, books, and papers from the inspection and scrutiny of others. In Re Pacific Railway Comm'n, 32 Fed. 241, 250 (N.D. Cal. 1887).
When the Bank Secrecy Act (Public Law 91-508) was enacted, the Congress put a good deal of faith in the Treasury Department to prescribe reasonable, yet effective and useful, regulations to implement the law. During the Senate hearings on the legislation, the Treasury Department spokesman told this subcommittee the Department was vitally concerned about the fourth amendment prohibition against unreasonable searches and seizures as well as unwarranted invasions of privacy.
Assistant Treasury Secretary Rossides, came before this subcommittee on June 9, 1970, and testified as follows:
We have kept firmly in view our traditional freedoms, such as the constitutional prohibition against unreasonable searches and seizures and the right of our citizens to privacy."
The events which followed indicate that the Government's concern about the people's banking privacy ended when the legislation was passed.
First of all, the regulations prescribed a year and a half later show little sensitivity on the part of the Treasury Department to the fourth amendment or the privacy rights of the bank customer by failing to provide almost any safeguards.
And when the American Civil Liberties Union and the California Bankers Association brought litigation in California and the District of Columbia challenging the act and the regulations, the Government lawyers denied that bank customers are entitled to any right of privacy at all.
With regard to the regulations, they mandate the reporting and retention of an enormous number of transactions, only a tiny handful
1 Hearings titled “Foreign Bank Secrecy,” dated June 8–11, 1970, page 149.
of which may be useful to law enforcement authorities or of any legitimate interest to the Government.
Under the reporting requirements, neither the bank nor the customer has a procedural opportunity under the regulations to challenge the reports filed by banks with the Treasury, nor do courts have any opportunity to oversee and control the dissemination of that information.
Similarly, there are no safeguards assuring the confidentiality of information which is made available to the Government under the regulations.
With respect to the recordkeeping requirements, no opportunity exists for the customer to challenge the enforcement of subpenas or summons nor is there any protection against disclosures of such records in the absence of consent, subpena, or court order.
What has apparently happened here is instructive to this committee as well as to other committees of Congress.
The Treasury Department appears to take a radically different view toward privacy at the present time than it did at the time Assistant Secretary Rossides testified before this committee.
In a brief filed within the last 2 months, in the California case, the Government hedged on the issue of privacy by referring to the “alleged premise that bank customers have a right to privacy.” Later in oral argument, the Government attorney was quoted in the press as saying that bank customers "have no right to privacy of bank records.”
The Government position on privacy was amplified and made frighteningly explicit in a legal memorandum filed in the District of Columbia case. I quote from two passages:
It has long been settled that bank records and files dealing with transactions with third parties (meaning bank customers) are the property of the bank and the third parties have no legal interest therein.
Quoting again, The various records that the regulations require to be retained are bank records, belonging to and controlled by the financial institutions—not their depositors or other customers.
It thus appears that, although the Treasury Department assured the Congress that it was concerned with the protection of privacy, assurances which the Congress relied upon when it delegated the sweeping powers under the Bank Secrecy Act, the Treasury Department and its lawyers have no present intention of putting some substance into their empty assurances.
For these reasons, I introduced S. 3814 which will provide an insurance policy against unwarranted and improper intrusions into a person's banking life.
The bill is designed to cover all varieties of financial institutions including banks, savings and loan associations, credit card companies and the like. It prohibits unwarranted disclosure of financial records showing individual transactions in or with respect to a particular account. This includes checks, invoices, or similar instruments drawn on, issued, payable, or billable by a financial institution.
The bill permits disclosure of the protected information only upon certain very well-defined conditions: First, when the account holder has consented to it; second, when a subpena has been served requiring those records; third, when a "probable cause” hearing has been held resulting in a court order requiring disclosure of those records.
In the event a subpena is the means by which the records are to be obtained, the bill requires service to be made upon the account holder himself in order that he will have notice of its issuance thereby affording him an opportunity to demand a court hearing in the event he believes the subpena to be improperly issued.
The bill also provides, however, that when a probable cause hearing has been undergone which results in the issuance of a court order for any particular bank records, no such notice to the account holder will be required on the part of law enforcement agencies.
The bill will allow the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and similar agencies to perform periodic examination or audit of financial records pursuant to their statutory authority.
But the bill prohibits for the most part any such agency or, indeed, any other governmental department or agency obtaining records pursuant to the procedures outlined in the bill, to use or retain the disclosed information for any purpose other than the specific statutory purpose for which the information was originally sought.
This protection is subject to one exception: Such information may be used and retained where it provides evidence giving rise to complaint or indictment within 6 months of obtaining such information.
The bill provides for civil remedies against the financial institution, the United States, or any other person or agency violating the act as well as criminal penalties. It also allows injunctive relief to be available to persons who are affected by violations of this act.
I respectfully urge this distinguished subcommittee to examine the bank privacy questions very carefully and to report out a bill which will irrefragably put to rest any lingering doubt on the question whether the people are entitled to privacy in their banking transactions.
Another important matter which should be raised during these hearings is the responsiveness of the Treasury Department to inquiries by Members of the Senate concerning laws as to which there has been a delegation of authority to the Department from the Congress. In this regard, the Treasury has shown a callous disregard of the urgent concerns expressed by at least two Senators in connection with the Bank Secrecy Act.
Senator Mathias wrote to the Treasury on March 10 prior to the enactment of the regulations. He questioned the procedures and controls developed to insure against improper disclosures or use of reports and financial records made available to the Government.
The first response by Treasury was to mail him a copy of the proposed regulations. After another letter from Senator Mathias, the Treasury on April 16 wrote that "no procedures for or controls on making such reports available have yet been developed," pointing out as the reason that the regulations would not go into effect until July 1, 1972.
I am advised, at least as of yesterday, that Senator Mathias has received no further word from Treasury on that point.
On June 7 I wrote a letter to Treasury. One of the questions I raised dealt with the same subject matter raised by Senator Mathias. Despite repeated oral and written assurances that a response to my letter would be forthcoming, not a scintilla has been transmitted in spite of my
public protests, until 25 minutes before this hearing was scheduled to commence.
As a result I have not had the opportunity to review fully the Treasury response because I was on my way to this hearing at the time the letter arrived in my office.
The only public Government statements on this matter to date have been the regulations themselves, as well as the pleadings filed in the lawsuits.
I think it is shocking that the people must resort to litigation and the Congress must hold hearings in order to elicit from the Treasury explanations of the most fundamental nature on important matters affecting every American who has a bank account.
Again, I wish to express my thanks for allowing me the opportunity to participate in these hearings.
Senator PROXMIRE. Thank you, Senator Tunney, for an excellent statement. I have great sympathy for much of what you say. What concerns me frankly, when I talked with the author of this bill though, was the inequity and injustice that we so often have in the country, if we are going to crack down on law violators, it seems to me, that we have to go after white-collar criminals with far more zeal and effectiveness than we have in the past.
If a person has money, and affluence, and influence, he can often escape from prosecution in all kinds of ways as we know. I am reminded of that old English saying Paul Douglas was fond of quoting, “The law locks up both man and woman, who steals the goose from off the common; but lets the greater felon loose, who steals the common from the goose."
There is quite a bit of that involved here. So I would hope whatever action we take on this legislation, I would agree, we should do whatever we can to protect the privacy of the people to the greatest extent possible, but we must not weaken the enforcement capacity of our law enforcement agencies to go after that person; whether it is the tax law or what have
you. They have been handicapped and handcuffed before and we do not want to weaken the law if we can possibly avoid it. Now there is one part of your bill that troubles me somewhat, that I would like to ask you about.
Under what circumstances, Senator Tunney, could the information on bank records received by one agency be used by another agency, under your bill?
Suppose, for example, the SEC obtains the bank records of an individual pursuant to a suspected, securities law violation. And then in examining the records, it becomes evident that the individual might also be guilty of violating the Internal Revenue Code, could the SEC pass the information to the IRS?
Senator TUNNEY. Yes, certainly. What the bill provides, Mr. Chairman, is that if such information is passed on to IRS or to the Justice Department, a criminal complaint should be filed within 6 months from the time the information is obtained ; if it is not—if no complaint is filed—then the records would have to be destroyed.
It would not mean there could not be at some future time, another subpena and the records could be obtained again. But the act intends to eliminate the possibility of information, once obtained, being put into a dossier, or onto a computer and then becoming a part of some permanent record which at some indeterminate time in the future, could be pulled out and used for some unforeseen or improper purpose.
It is assumed in this legislation, that if there is evidence of criminal liability, on the part of an account holder, the agency to which the information is passed, such as the Justice Department, or the Internal Revenue Service ought to bring the appropriate action within 6 months.
Senator PROXMIRE. Well, what if the tax violation was so complicated, the IRS did not believe it could bring an indictment within 6 months? Would IRS be permanently barred from gaining access to the information?
Senator TUNNEY. Certainly not.
"No supervisory agency, or any State or Federal governmental department or agency, or any officer, employee, or agent of a State or the United States obtaining copies of or the information contained in any financial records may; (1) use or retain in any form the information disclosed by any financial institution for any purpose other than the specific statutory purpose for which the information was originally obtained, unless such information provides the basis for, or gives rise to a civil or criminal complaint or indictment within 6 months of obtaining such information.
Now, it is assumed that if it is a complicated case that the agency to which the information has been passed from one agency to another, IRS, or Justice, or whatever, could subsequently issue a subpena and get the information on its own, for its own investigatory purpose.
Senator PROXMIRE. That was the clarification we wanted. That is helpful.
Senator TUNNEY. But then the 6-month time period would begin to run, there, too.
Senator PROXMIRE. For that, yes. Or would it? That becomes a new original purpose; does it not?
Senator TUNNEY. Well, if there is a proper statutory purpose for which the information is subsequently obtained by subpena then I think I would stand corrected, yes, that they could retain that information until such time as they develop the case.
Senator PROXMIRE. In what sense do the regulations invade a person's right of privacy over and above procedures existing prior to the regulations?
Senator TUNNEY. Well, in my mind, the regulations are a potential invasion of privacy by requiring all banks to keep photostatic or photocopy records of all personal checks and other records thereby making it possible for any Federal agency to get access without legal process to those bank records. There are simply no statutory or regulatory safeguards prohibiting or protecting against improper disclosures of bank records.
What, in essence, has been done, is to give a Federal agency the opportunity to obtain a complete profile on the habits, and the actions of every citizen in this country. Most citizens today use checking ac