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attention in the course of preparing its interim report on money laundering.
The Commission has never advocated the total or partial
repeal of the RFPA, and fully appreciates that the RFPA "seeks to strike a balance between customers' right of privacy and the need of law enforcement agencies to obtain financial records pursuant to legitimate investigations." H.R. Rep. No. 1383, 95th Cong., 2d Sess. 33, reprinted in 1978 U.S. Code Cong. & Ad. News 9273, 9305. However, the Commission's continuing examination of money laundering has revealed considerable evidence that certain provisions of the RFPA have unintentionally created difficulties for both financial institutions and law enforcement agencies. Both the Commission's legislative proposal and bills before this Subcommittee seek to resolve these difficulties by means of
limited amendments to the RFPA that are entirely consistent with
the Act's underlying intent.
In general, the Act prohibits a Federal Government entity from obtaining access to, copies of, or information contained in the financial records of any customer from a financial institution, unless the customer grants his or her consent or the Government authority obtains an administrative subpoena or summons, a search warrant, a judicial subpoena, or a formal written request for disclosure of such financial records. 12 U.S.C. Sec. 3402. (Grand jury subpoenas and court orders
issued in connection with grand jurty proceedings have a
special exemption from most provisions of the Act. Id. Sec. 3413(i).) A number of provisions in the Act appear to be based on the assumption that a Government authority is likely to seek financial records from a financial institution only after that authority has already opened a formal investigation or initiated formal proceedings of some type. See U.S.C. Sec. 3401(7), 3405(1), 3406(a), 3407(1), 3408(3), 3409(a), 3412 (a), 3420.
One issue which the Act does not clearly address, however,
is the extent to which a financial institution that suspects one
of its customers of money laundering or other illegal activities involving that institution may notify Federal law enforcement authorities of that suspicion, and thereby prompt the opening of a formal investigation. Section 1103(c) of the Act states only that nothing the Act "shall preclude any financial institution, or any officer, employee, or agent of a financial institution, from notifying a Government authority that such institution, or officer, employee, or agent has information which may be relevant to a possible violation of any statute or regulation." 12 U.S.C. Sec. 3403(c) (emphasis supplied). A strict reading
of this provision would permit the financial institution to
notify the Government authority only that it "has information which may be relevant," but not to disclose any of the
information or the reasons that the financial institution considers
such information to be relevant.
In practice, the Commission found that financial institutions regularly asserted the RFPA as a bar to the production of specific information sought in furtherance of the Commission's investigation of money laundering. This response by financial institutions was no different than that which I had experienced in more than
ten years as a local and Federal prosecutor.
Because sections 1117 and 1118 of the Act authorize
customers to seek damages and injunctive relief against a financial institution or Government authority that obtains or discloses financial information in violation of the Act, a number of financial institutions apparently have adopted the strict reading of section 1103(c). Although there do not appear to be any reported Federal decisions that would support this reading of the statute, at least one state decision has held that a bank which had provided local police with information concerning one of its customers had wrongfully disclosed information concerning the customer's account without obtaining the express or implied consent of the customer to that disclosure. See Suburban Trust Co. v. Waller, 44 Md. App. 335, 408 A.2d 758 (Md.
Ct. Spec. App. 1979).
To clarify the issue in a manner that would permit financial institutions to notify law enforcement authorities of ongoing money laundering activities, the Commission proposed that section 1103(c) of the Act be amended to authorize
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
civil action brought by a customer.
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,
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(8) 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
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.