-21 financial institutions to disclose sufficient information concerning a possible violation of law, so that a law enforcement agency could determine whether to open a formal investigation on the basis of that information. In addition, to allay financial institutions' concerns about possible civil liability for such disclosures, the Commission proposed that section 1117 (c) of the Act be amended to create a good-faith exception as an absolute defense to a civil action brought by a customer. Both of these proposals are substantially reflected in section 401 of H.R. 1367 and section 3(a)-(d) of H.R. 2785. The object of these proposals, as I have explained, is not to compel financial institutions to disclose financial records indiscriminately, but simply to enable not to compel financial institutions to notify law enforcement authorities of possible illegal activity without incurring civil liability under the Right to Financial Privacy Act. The Preemption Provision To date, there has been no definitive judicial resolution of whether the Supremacy Clause of the United States Constitution would require provisions of state law to give way to any provisions of the Right to Financial Privacy Act with which the state law is in conflict. Compare United States v. First Bank, 737 F.2d 269 (2d Cir. 1984) (holding that under Supremacy Clause, -22 notice provisions of Connecticut Financial Privacy Act preempted by provisions of Internal Revenue Code governing IRS summons), and In re Grand Jury Subpoena (Connecticut Savings Bank), 481 F. Supp. 833 (D. Conn. 1979) (holding that under Supremacy Clause, Connecticut statute imposing notice and challenge procedure must give way to Federal grand jury subpoena), with In re The Grand Jury Subpoena East National Bank of Denver, 517 F. Supp. 1061 (D. Colo. 1981) (rejecting Supremacy Clause argument challenging judicially-created state expectation of privacy in bank records). To reconcile the concerns of Federal law enforcement authorities and financial institutions, the Commission proposed that the Right to Financial Privacy Act be amended to include an express provision preempting any state law or decision that is more restrictive than the Act in regulating disclosures of financial records under the Act. That proposal is substantially reflected in section 401(a) of H.R. 1367 and section 3(g) of H.R. 2785. The preemption provision in H.R. 1367 and H.R. 2785 does not preempt all state laws or judicial decisions dealing with financial privacy. Its object is simply to ensure that state financial privacy laws that are more restrictive than the Right to Financial Privacy Act do not create an impediment to the effective investigation of Federal crimes. -23 Although there are additional provisions concerning the Right to Financial Privacy Act that I can discuss, I think that it might be appropriate to conclude my remarks at this point. I will be happy to answer any questions that the Subcommittee members may have. APPENDIX A ARIZONA MONEY LAUNDERING STATUTE 13-2317. Money laundering; classifications; definitions A. A person who acquires or maintains an interest in, transfers, transports, receives or conceals the existence or nature of racketeering proceeds knowing or having reason to know that they are the proceeds of an offense is guilty of money laundering in the second degree. B. A person who knowingly initiates, organizes, plans, finances, directs, manages, supervises or is in the business of money laundering is guilty of money laundering in the first degree. C. Money laundering in the second degree is a Class 3 felony. Money laundering in the first degree is a Class 2 felony. D. In this section, "acquire" and "proceeds" have the same meaning as pre scribed in section 13-2314. |