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DEPARTMENT OF JUSTICE,
CRIMINAL DIVISION,
September 5, 1972.

Hon. JOHN V. TUNNEY,
U.S. Senate,
Washington, D.C.

DEAR SENATOR: This is with reference to your correspondence of August 24, 1972, submitting additional questions in connection with the hearings conducted by the Senate Subcommittee on Financial Institutions on August 11 and 14, 1972. I will address myself to each of your five questions by reference to the number assigned in your letter.

1. The first question indicates a misinterpretation of my statement before the Subcommittee. No reference was made to Supreme Court decisions affirming the constitutional validity of monitoring bank accounts without any form of legal process. My statement reads on page 15 as follows:

"The Supreme Court and all the Circuits which have considered this issue have established that the customer of a financial institution has no proprietary interest in the records kept by that institution and that there are no constitutional inhibitions which prohibit reasonable inspections of financial records by the Government. Such records are the property of the financial institutions maintaining them, and account holders have no interest in or to them."

The Supreme Court case which I then cited is Donaldson v. United States, 400 U.S. 517 (1971), which involves process by the Internal Revenue Service to require a certain taxpayer's former employer to produce its records of the taxpayer's employment and compensation during the years under investigation. Actions by the taxpayer caused the Internal Revenue Service to seek judicial enforcement of the administrative summons which had been directed to the former employer. The taxpayer then sought to intervene in the enforcement proceeding. Intervention was denied by the District Court, and that decision was affirmed on appeal to the Fifth Circuit. The Supreme Court noted that the taxpayer's sole interest in his former employer's records was that they presumably contained details of payments to him and that the taxpayer desired to overcome the willingness of the former employer to comply with the summons. The Court emphasized that the records sought were not those of the taxpayer and were not protected by an established legal privilege such as attorney-client confidentiality. It held that the taxpayer had no proprietary interest in the records of his former employer; and, since he had no other protectable interest through privilege or otherwise, he had no absolute right to intervene in the enforcement proceeding. The Supreme Court also held that there was no constitutional issue in the Donaldson case, the question having been settled in First National Bank v. United States, 267 U.S. 576 (1925), affirming 295 F. 142 (S. D. Ala. 1924). In opposing the enforcement of an Internal Revenue Service summons for the bank records containing the accounts of two taxpayers under investigation, the bank claimed protection of its records under the Fourth Amendment. The District Court held that the Fourth Amendment does not authorize a third party, who has books or papers which may be relevant to an inquiry, to refuse to produce them. The issue was not the search and seizure of a taxpayer's books and papers, but whether a witness who has information as to that party's dealings may be compelled to testify to those facts and produce financial records relating to and supporting such testimony. The District Court, affirmed per curiam by the Supreme Court, held that:

[T]he government has the right to require any of the employees or agents of a bank who know facts as to deposits or investments, or any dealings of parties who owe income taxes, to testify to the entries made on the books of the bank as to such transactions, so the government may be correctly informed as far as possible of the income which has been received by its citizens 295 F. at 144.

2. The administrative and regulatory agencies of the Federal Government are the best sources of information concerning their individual internal policies for the handling of various kinds of reports. I am not able to provide this information and suggest that you contact those agencies directly.

3. Procedures followed for the processing and review of reports of unusual domestic currency transactions are matters appropriately within the domain of

the Department of the Treasury which promulgates and enforce regulations concerning domestic currency transactions. The Department of Justice defers to their expertise in this area. It should be noted, however, that the Department of Justice acquires such information from the Treasury Department by written request from an agency or Division head, setting out the need for the information and the nature of the investigation to which it relates.

4. A safe deposit box is leased from a bank by a customer pursuant to a contractual relationship comparable to that between a landlord and tenant. The cases most applicable to the safe deposit box situation are those dealing with the leasing of locker space in public facilities such as airports. See, for example, United States v. Durkin, 335 F. Supp. (S. D. N. Y. 1971) and United States v. Small, 297 F. Supp. 582 (D. Mass. 1969) These cases, relying on the comparison to the landlord-tenant relationship, indicate that access to a safe deposit box can be obtained normally only through a search warrant based upon a showing of probable cause. It should be understood that with safe deposit boxes, as in all other areas protected by Fourth Amendment requirements, exceptions to the warrant procedure could occur under exigent circumstances, such as where delay sufficient to obtain a warrant will allow destruction or removal of evidence from the box or where delay will endanger lives or property. Furthermore, the Fourth Amendment protection of the contents of a safe deposit box does not extend to the disclosure of facts within the business knowledge of the bank, such as whether an individual has a safe deposit box or the identity of the holder of a certain box number. Disclosure of such information is no different than a landlord's disclosure of the apartment number of a tenant. It is conceivable, of course, that the lessee of a safe deposit box could contract for use of the box in such a manner that he could no longer have a reasonable expection of privacy for its contents.

Unlike the lessee of a safe deposit box, an account holder with a bank is a creditor of that bank. He is not the purchaser of a space over which he exercises private dominion but is a user of the business services of the bank. Thus, funds he deposits with the bank are co-mingled with other moneys held by it while the bank acts as a third party in facilitating financial transactions between its account holder and other persons. Those records of account activity which the bank may keep, either in the ordinary course of business or as required by law, are bank property and may be disclosed by the bank pursuant to law.

The account holder does not have a proprietary interest in these business records.

5. Richard L. Stark was the subject of an investigation conducted by the Federal Bureau of Investigation to determine whether he had committed certain Federal criminal offenses. So far as I am aware, Stark has not been charged or convicted of any crime as a result of the investigation.

If I can be of further assistance to you in this matter, I shall be happy to do so.

Sincerely,

WILLIAM S. LYNCH,

Chief, Organized Crime and Racketeering Section, Criminal Division.

DEPARTMENT OF JUSTICE,

CRIMINAL DIVISION,
September 8, 1972.

Hon. WALLACE F. BENNETT,
U.S. Senate,

Washington, D.C.

DEAR SENATOR: You requested in your letter of August 18, 1972, that I comment on the statements and recommendations made by witnesses before your Financial Institution's Subcommittee on August 14. I have read those statements and would like to make the following observations.

Mr. Miller, in his statement, drew an analogy between the inspection of the bank's records concerning a depositor and the interception of a telephone communication, in urging that the same substantive and procedural safeguards be applied. Mr. Shepherd and Ms. Eastman made the same equation. This is a totally inappropriate and erroneous analogy. The hypothetical telephone communication is protected by the Fourth Amendment. The elaborate substantive

and procedural safeguards were enacted by Congress to permit interception of such communications as a method of evidence gathering in certain criminal investigations.

The bank's records concerning an account holder's transactions with the bank are in a quite different category from such telephonic communications. The Fourth Amendment protects the bank's proprietary interest in the records. The account holder has no interest of the nature protected by the Fourth Amendment in such records. This was made clear most recently in a Supreme Court decision, Donaldson v. United States, which I mentioned in my testimony. Mr. Eastman has stated (p. 7 of her statement) that Donaldson does not support the longstanding, if only occasionally used, practice in certain criminal investigations of reviewing bank records with the cooperation of the bank. She asserts (p. 7, footnote 4, of her statement) "that the question of bank records was not directly before the Court in Donaldson which involved Government efforts to obtain records from a former employer where no 'confidential relationship of any kind exists, . . . "." While that is quite true, it is also true that the Court at the outset of its opinion, stated that the constitutional question had long been settled by a Supreme Court case of 1924 (Donaldson v. United States, 400 U.S. 517, at 522). The 1924 case, First National Bank v. United States, 267 U.S. 576 (1925), affirmed, without an opinion, a District Court case which held that the Fourth Amendment does not authorize a third party bank, which has book or papers which may be relevant to an inquiry, to refuse to produce them.

The District Court, in its opinion, drew a far more apposite analogy. It characterized the bank as a "witness who has information as to a party's dealings" (United States v. First National Bank, 295 F. 142, 143 (S.D. Ala. 1924). Mr. Eastman distinguishes Donaldson on the ground that the employment records in Donaldson were sought by subpoena.

That distinction is meaningless because, at the present time, investigators have no access to the bank's records without summons, subpoena, or the consent of the bank. The Supreme Court, in Donaldson, made it quite clear that a third party holder of records can voluntarily aid a legitimate law enforcement inquiry, in saying that "the material in question . . . would not be subject to suppression if the Government obtained it by other routine means, such as by (the employer's) independent and voluntary disclosure prior to summons . . ." (400 U.S. at 531). It is thus apparent that the review of bank records by law enforcement officers in the couse of a criminal investigation, with the consent of the bank, poses no constitutional problems. The bills should be considered in light of the practical desiderata they advance or hinder.

Mr. Miller (at p. 8 of his statement), Ms. Eastman (p. 6 of her statement), Mr. Shepard (p. 2 of his statement), and Mr. Morthland, all assert that the "confidentiality" of the banker-depositor relationship would be advanced by the two bills under consideration.

This is only true insofar as if you legislatively create a confidential relationship not hitherto recognized in law you advance such a relationship. Whether such legislation, impeding as it would the ability of law enforcement to discharge its responsibility, would be legislatively sound would seem to be very questionable.

A reading of the legislative history of Public Law 91-508 makes it clear that bank records are of significant value in certain types of criminal investigations. In addition, while the evidentiary laws of various jurisdictions do recognize certain privileges arising from confidential relationships, the relationships are strictly limited to such intimate personal relationships as "priest-penitent," "husband-wife," "attorney-client," and "doctor-patient." The committee preparing the Proposed Federal Rules of Evidence considered and rejected a privilege for a somewhat analogous and far more personal relationship, that of "accountant-client." The banker-client relationship which, in most cases, is a relatively impersonal one, similarly deserves no legislatively conferred privilege. It is apparent from Mr. Shepard's statement that even bankers themselves do not regard the banker-client as an absolutely confidential relationship. Mr. Shepard states (p. 8 of his statement), "There are probably hundreds of situations in which everyone could agree that information disclosure to a non-Governmental representative is not prima facie objectionable." Both Mr. Shepard and Mr. Morthland would limit application of the proposed legislation to inquiries of law enforcement authorities and would eliminate its applicability to disclosures of bank records to persons other than law enforcement.

Though not clearly explicit in the notification aspect of the proposed legislation, it would appear that the statutes seeks to give standing to the account holder to raise the Fourth and Fifth Amendment objections against the acquisition of bank records by subpoena-a standing rejected by the courts and one which would promote delay, dilatory tactics, and additional litigation at the investigative stage of the criminal process.

Mr. Miller (p. 2 of his statement) and Ms. Eastman (pp. 2 and 6 of her statement) both suggest that the present state of the law concerning inspection of bank records results in "a preferential treatment to those who deal in cash" (p. 2 of Mr. Miller's statement).

A consideration of this novel suggestion reveals, with great force, the pernicious effect which the bills would have on the Government's efforts to curb organized crime. While it is true that a person who deals in cash and keeps his own records is protected by the Fourth Amendment from seizure of those records unless such seizure is pursuant to a warrant issued upon probable cause, it is also true that such a cash-basis individual cannot avail himself of the United States mails, the banks and clearinghouses, to transfer such cash to another individual. Rather, he must deal face-to-face with transferee. This makes him vulnerable to other investigative techniques. Such a person cannot impose on another a requirement of non-disclosure to legitimate inquiries of law enforcement under sanctions of criminal penalties such as the proposed statutes would give to one who uses banking channels to facilitate his criminal activities.

The imposition of such sanctions on the disclosure of bank records would appear to be as legislatively unsound as it would be to legislate that one who is a payee or endorser of a check could not voluntarily disclose the transaction to legitimate law enforcement inquiry without subpoena, notification, etc., to the drawer of the check.

Throughout their testimony and statements, Messrs. Anderson, Miller, and Raible make reference to the allegedly unwarranted monitoring of the financial records of persons and organizations expressing unpopular or radical ideas. These charges comprise their principal evidence of the Federal Government's abuse of its access to bank records.

While I am not at liberty to discuss the activities of any particular individual or organization, I am compelled to point out that the exercise of First Amendment rights does not immunize individuals from responsibility for any criminal acts which they may have committed. Most certainly, public dissent should not subject one to Government persecution, but at the same time it should not shield him from legitimate investigation for suspected offenses.

Ms. Eastman (at p. 1 of her statement) voices the fear that the required maintenance of bank records will become the tool of "political surveillance" of any bank customer. If one assumes the bad faith of the Executive Branch (Legislative, too, since she refers to "congressional files") of this Government, an absurdly large increase in the investigative capabilities of the Executive Branch and the total passivity of both the citizenry and the other branches of Government, Ms. Eastman's fears may be plausible. None of these assumptions are realistic. Moreover, Mr. Morthland (p. 2 of his statement) indicates the Promethean dimensions of such surveillance when he estimates the volume of checks "in California alone to be one-quarter billion copies of checks a month" (his emphasis). During a colloquy on August 14, Senator Tunney refers to a "pocket subpoena which the Internal Revenue Service uses, and I understand the FBI uses, too (Transcript, p. 156). This undoubtedly is a reference to an Internal Revenue Service administrative summons. 26 U.S.C. Section 7602. The Federal Bureau of Investigation does not issue administrative summonses, since it has no statutory power authorizing issuance of such a summons.

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In summary, it is clear that the present method of inspecting a bank's records poses no violation of rights guaranteed by the Fourth Amendment and that the minimal good the bills would do is far outweighed by the deleterious effect that the bills would have on legitimate law enforcement activities.

With regard to your question during my testimony at the hearing concerning the liability of a bank to an account holder for disclosure of financial information to a law enforcement officer, our review of the case law has not uncovered a case directly on point and we are not able to give you a definitive answer.

Sincerely,

WILLIAM S. LYNCH,
Chief, Organized Crime and
Racketeering Section, Criminal Division.

THE AMERICAN BANKERS ASSOCIATION,
Washington, D.C., September 18, 1972.

Hon. WILLIAM PROXMIRE,
U.S. Senate,

Washington, D.C.

DEAR SENATOR PROXMIRE: This is in response to your letter of September 11 inviting additional comments on a letter received from the Justice Department in reference to our testimony before the Senate Subcommittee on Financial Institutions of the Senate Committee on Banking, Housing and Urban Affairs concerning legislation to amend the Bank Secrecy Act.

The American Bankers Association does not agree with the Justice Department's contention that the banker-depositor relationship does not create a confidential relationship. We recognize that the courts have uniformly held the communications between banks and their customers are not "privileged communications" in the technical sense of that term as applied to such intimate personal relationships as priest-penitent, husband-wife, attorney-client, and doctor-patient. At the same time, the courts have long recognized the existence of a "right of privacy" (The Right to Privacy, S. Warren and L. D. Brandeis, 4 Harvard Law Review 193, (1890)).

Bank customers expect their banks to grant them privacy concerning details of their personal financial affairs, and society has recognized this expectation as reasonable and proper.

The courts have recognized this right of privacy of bank records for many years, as shown in the materials we previously submitted to the Subcommittee supplementing our testimony (Paton's Digest and a case noted from the University of Florida Law Review). Congressional recognition of this right of privacy with respect to credit and other financial matters was most recently manifested last year during the deliberations surrounding passage of the Fair Credit Reporting Act (P.L. 91-508, Title VI of the Consumer Credit Protection Act).

Accordingly, while it is clear that the degree of confidentiality surrounding the relationship between a bank and its customers is not a true "privileged" relationship in the evidentiary sense, nevertheless, the bank-customer relationship is one that is subject to a "right of privacy". It is this right of the individual bank customer that we are anxious to preserve. In order to assure members of the public that their bank records will not be available to Government agencies, except under proper safeguards, we believe that additional positive legislation is needed and that our recommendation which extends the language of present section 241(b) to all provisions of Public Law 91-508 would accomplish this. Sincerely,

CHARLES R. MCNEILL,
Executive Director.

AMERICAN CIVIL LIBERTIES UNION,
New York, N.Y., September 21, 1972.

Senator WILLIAM PROXMIRE,
U.S. Senate,

Washington, D.C.

DEAR SENATOR PROX MIRE: In your letter of September 11, 1972 to Hope Eastman, Associate Director of the ACLU Washington office, you extended her an opportunity to comment on a letter from the Justice Department concerning her testimony before the Financial Institutions Subcommittee. I am responding on her behalf.

The Justice Department letter asserts that contrary to Ms. Eastman's testimony, bank depositors have no Fourth Amendment interest in securing their checks and other account information from unreasonable governmental searches, and accordingly have no standing to challenge government inspection of their bank records with the consent of the bank. It follows, contends the Justice Department, that a depositor should not be given notice of the service of summons or subpoena of his records on his bank, or the bank's informal "cooperation" with government agents, since he has no Fourth Amendment interest in the records. Contrary to the assertions of the Justice Department, decisions of the Federal courts do not support this position.

In Reisman v. Caplin, 375 U.S. 400 (1964), a taxpayer's attorney sought injunctive and declaratory relief against the enforcement by the Internal Revenue

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