TESTIMONY OF JERRY J. BERMAN ON BEHALF OF THE AMERICAN CIVIL LIBERTIES UNION ON MONEY LAUNDERING PROPOSALS H. R. 2786, H. R. 1474, AND H.R. 1367 BEFORE THE SUB COMMITTEE ON CRIME OF THE HOUSE JUDICIARY COMMITTEE SEPTEMBER 12, 1985 Mr. Chairman and members of the Subcommittee: Introduction: On behalf of the American Civil Liberties Union, I want to thank you for requesting our testimony on proposed money laundering legislation. As you know, the American Civil. Liberties Union is a nonpartisan organization of over 250,000 members dedicated to the defense of civil liberties guaranteed by the Bill of Rights. We recognize that money laundering is a serious and growing problem in the United States and that legislation may be necessary to deal with it. However, we believe that any legislation in this area must be carefully crafted to balance the legitimate and demonstrated needs of law enforcement with the privacy rights and other civil liberties of bank customers and citizens. For this reason, we strongly oppose the Administration's proposal, H. R. 2786, "The Money Laundering and Related Crimes Act of 1985." approach to the problem. H.R. 2786 is not a narrowly focused Instead it is a prosecutor's "wish list" and a serious threat to civil liberties. Our foremost objection is that H.R. 2786 would eviscerate the modest protections for customer bank records established by the Congress in the Right to Financial Privacy Act of 1978 and would preempt state privacy laws which protect bank records. We also object to the breadth of conduct made criminal under the bill because it will increase the volume of bank records which may be turned over to the government in violation of established privacy protections and could lead to the investigation and prosecution of conduct which should be considered legal. The bill would also establish new crimes which, if broadly applied by prosecutors, could adversely affect First and Sixth Amendment rights. We believe the Administration has not established on the public record a credible justification for gutting the Right to Financial Privacy Act or creating sweeping new criminal statutes in order to reach money laundering schemes. The Administration approach should be rejected. In our testimony today, we will focus on the Administration bill because of its serious threat to civil liberties. However, we want to make it clear at the outset that we believe a balanced approach to the money laundering problem is possible. In this regard, we have no fundamental objection to the approach embodied in Chairman Hughes' bill, H.R. 1475 or Senator Dennis DeConcini's bill, S. 1385, legislation that would make money laundering narrowly defined a crime without weakening the Right to Financial Privacy Act. If the intent of Congressman Bill McCollum's amendments to the Right to Financial Privacy Act in his original bill, H.R. 1367, are meant only to clarify authority which banks already have under the Act, then we would have no fundamental objection to H.R. 1367. Our principal concern with these bills is with the requisite intent or scienter necessary for someone to commit the crime of money laundering. II. Privacy Concerns Regarding H.R. 2786 As the price of living today's society, citizens must turn over extensive personal information about themselves to government and private agencies to receive benefits, obtain credit, or conduct business. Information once kept in the home and protected from intrusion by the Fourth Amendment is now held by third party record holders. Bank records are a case in point. Checking accounts, loan applications, and bank credit card transactions contain considerable personal information about our finances, tastes, opinions, and travels. Today, with computerization, these records are readily accessible for investigatory purposes. Unfortunately, the Supreme Court has not interpreted the Fourth Amendment in a way which affords citizens privacy protection for their bank records. In 1976 the Court held in United States v. Miller that citizens had no property or privacy interest in bank records. In response the Congress passed the Right to Financial Privacy Act in 1978 to give citizens some expectation of privacy in bank records. In effect, the Congress overturned the Miller decision. In all candor the Act is not a "model" privacy Act. When passed, it represented a compromise between privacy advocates who wanted notice and formal process each time the government sought individual bank records and law enforcement agencies who wanted flexibility in some circumstances. Under the Act, citizens, in most circumstances, must be notified that a a demand for his or her records has been made by the government and afforded an opportunity to contest access in a court of law. However, there are important exceptions to the notice and challenge requirements which must be understood in the context of evaluating the merits of the Administration's proposed amendments to the Act. Notice is not required if the government obtains a search warrant and the government may obtain a delay of notice pursuant to a grand jury subpoena or from a judge if it can demonstrate that there is a possibility of physical injury to a person, flight from prosecution, destruction of or tampering with evidence, or that notice would otherwise seriously jeopardize an investigation or official proceeding. Moreover, in court the government does not have to meet a probable cause or even a reasonable suspicion standard (as required for government access to cable subscriber information in the Telecommunications Act passed by Congress in the last session) to obtain customer bank records but only that the records are relevant to an investigation. The amendments to the Right to Financial Privacy Act contained in Section 3 of H.R. 2786 would seriously weaken the limited privacy protections in the Act without any demonstration on the public record that the Act presents a serious impediment to law enforcement investigations in general or of money laundering schemes in particular. At this point, we should look at the proposed changes in RFPA and whether there is any demonstrated justification for them. 1. Disclosure of Bank Records Without Any Process Subsection 3 (a) would add a new exception to the privacy protections of the Right to Financial Privacy Act. It would permit a bank to disclose individual customer records to the government without notice or legal process when the bank "has reason to believe" that the information may be relevant to the violation of one of a group of specific laws (i.e. when there is |