Account Searches: Are They Legal?
We frequently get asked this question: Are bank account searches legal?
It’s a great question. And, honestly, it makes us happy to hear it.
People who ask us this question often turn out to be our best clients. It shows they are concerned with legal compliance, professional liability and reputational risk. These kinds of considerations are characteristic of successful executives and skillful attorneys.
This question also suggests the client is already thinking strategically about the endgame: whether the information obtained through an investigation will be admissible in court.
For our firm, the answer is simple: Yes.
The licensed private investigators of Hudson Intelligence strictly abide by all applicable federal and state laws when obtaining information on financial accounts.
Our investigators have been in this business for more than 20 years. We don’t commit crimes. We don’t skirt the line. We have spent decades developing ethical methods and trusted sources to obtain reliable information on assets and accounts.
It is not illegal to conduct a search for bank account information. However, certain methods and techniques are prohibited under federal statute. When it comes to tracing bank accounts, there are lots of ways to do it wrong – and lots of laws that could be broken along the way by an inexperienced or disreputable investigator.
(There is also a lot of really bad information about this subject on the internet.)
For an informed perspective, it is important to understand what regulations apply to obtaining bank account information. Here are four federal laws of relevance:
The Gramm-Leach Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, prohibits “pretexting” of individuals or financial institutions to obtain account information. This law makes it a federal crime to contact a bank under false pretenses and impersonate an accountholder.
The Fair Credit Reporting Act (FCRA), enacted in 1970, establishes strict guidelines for accessing and utilizing consumer credit information from credit bureaus such as Transunion, Equifax and Experian without the consumer’s authorization.
The Fair Debt Collection Practices Act (FDCPA) targets abusive practices by collection agencies and prohibits harassment, misrepresentation and deceit by debt collectors.
The Right to Financial Privacy Act (RFPA) of 1978 requires federal government agencies to notify individuals before obtaining their personal financial information from banks and other financial institutions. It also generally prohibits financial institutions from disclosing account information to governmental agencies without the customer’s consent, or a court order, subpoena, search warrant, or other formal demand, such as a national security letter (NSL). The law has been amended to permit law enforcement and intelligence agencies to postpone notification when pursuing suspects of drug trafficking, espionage and terrorism. Significantly, however, the ‘right to financial privacy’ established under this statute solely applies to demands by government agencies.
In many ways, these federal laws are similar to privacy protections that apply to non-financial matters. In 2006 – seven years after GLBA outlawed ‘pretexting’ of banks – the term reemerged in the mainstream media when private investigators working for Hewlett-Packard were discovered to have used similar techniques to obtain private call logs of HP board members and journalists from phone companies. Soon after, Congress enacted the Telephone Records and Privacy Protection Act that made it illegal to obtain private phone records through pretexting, deception or misrepresentation.
Although federal laws restrict methods that can be used to legally obtain banking information, they are largely silent on how banking information can be used after it is obtained. These statutes do not create any limitations on litigants and judgment creditors, for example, from possessing and using bank account information of defendants or debtors in a responsible manner.
In this regard, the treatment of bank account information is arguably different from other privacy regulations, such as those pertaining to medical records. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) includes criminal penalties of up to 10 years imprisonment and fines up to $250,000 for unauthorized disclosure or possession of protected health information without patient consent.
It is worth observing that banks do not necessarily require permission of their customers, or a court order, to legally disclose account-related information. In fact, today’s banking industry relies on a global infrastructure of interbank networks and clearinghouses that share data between institutions and third parties.
Banks in the United States operate within a regulatory regime that includes “Know Your Customer” (KYC) protocols intended to prevent money laundering, tax evasion and terrorist financing. These requirements were instituted in the USA Patriot Act of 2001, and the earlier anti-money laundering (AML) framework of the Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act. Banks have increased their due diligence on accountholders through customer identification programs and transactional monitoring. They have also improved processes for gathering and disseminating information between institutions. For example, there are check-verification systems used by major banks and credit unions that share information on high-risk accounts, fraudulent activity, and non-sufficient funds (NSF) history. Risk-monitoring and transactional reporting systems are also accessible under certain conditions by third parties.
Other sources investigators can pursue to legally obtain information on financial accounts and banking relationships include divorce settlements, garnishment orders, mortgage filings, auto loans, financing statements, merchant payments, utility records, landlord records, civil litigation and physical surveillance.
After an asset investigation is completed and bank accounts have been identified, further details on transactional history can be obtained through legal discovery and collection efforts. If the information is intended to be presented as evidence in court, then account statements should be obtained directly from the financial institution through subpoena.
About the Author: John Powers is president of Hudson Intelligence, an investigative firm specializing in asset searches and financial investigations.