Florida and International Private Investigators   ::   Financial Fraud Investigations  ::   Corporate Intelligence

S.900; Personal & Financial Privacy
By Bill E. Branscum
© Copyright 1999

The President has signed into law S.900, the Financial Services Modernization Act of 1999, an enactment intended to, "enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers, and for other purposes." There has been much speculation and concern within the legal community regarding the impact that this Act will have upon the practice of pretexting financial institutions in order to develop financial information.

The provisions applicable to pretexts are set forth in pages 122-123 of the Act. If you take time to read the other 160 pages, you will find that this Act serves to overturn legislation passed in the wake of the Great Depression, the Banking Act of 1933. It would be beyond disingenuous for anyone to tout this legislation as protecting and promoting personal and financial privacy; nothing could be farther from the truth.

In 1933, Congress attempted to protect against the risk that our financial system might someday suffer another massive cataclysmic collapse by enacting legislation making it impossible for banks, insurance companies and securities firms to conglomerate. It was not that Congress feared "putting too many eggs in one basket;" Congress' express concern was that those involved in securities and/or investment related industries might unduly influence the investment policies of banks, or the advice that banks might provide their customers regarding investments.

With the signing of S.900, otherwise known as the Gramm-Leach-Bliley Act, this philosophy was abandoned. The Act provides that Title 12 U.S.C. 377 and Title 12 U.S.C. 78 are repealed, and numerous others are amended. Financial holding companies may now engage in any activity, and may acquire and retain the shares of any company engaged in any activity, that the Board determines to be financial in nature, incidental to such financial activity or complementary to a financial activity which does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.

In addition to allowing the formation of financial mega-conglomerates, this Act establishes guidelines for the commingling of information. In other words, when your life insurance company, bank, credit card company, mortgage lender and HMO merge into an integrated financial "super-store," they will be able to share whatever information they may have about you within their group and elsewhere to promote "marketing."

The perceptive constituent may get a glimmer of what this could mean, but many consumer advocates fear that the potential realities may be well beyond anything envisioned by George Orwell in his most perverse imaginings. They maintain that, by allowing your bank to conglomerate with your health insurance provider, credit card company and stockbroker, Congress laid the groundwork for your home mortgage application to be denied because the prospective lender is concerned that your wife's recent diagnosis of breast cancer will eventually upset your financial stability.

In response, industry lobbyists who backed this legislation assert that bigger is better and consumers will benefit because prices will drop accordingly. Consumer advocate groups continue to protest this legislation as a Capitol Hill sellout to special interest groups.

Our Congressional representatives defend these allegations by pointing to various "privacy protecting provisions" of the Act. For example, the Act specifies that the financial institutions you deal with must tell you, in the form of an annual statement of some sort, what it does with your personal information. In this "clear and conspicuous" disclosure form, they are required to tell you whether they sell your personal information to third parties and they will be required to allow you to "opt out" of having your personal information included in any database that is shared with, or sold to, outsiders such as timeshare salesmen, TV evangelists and telemarketers.

Consumer advocacy groups are not buying it. They maintain that if Congress had genuinely held the public's interests to heart, this "opt-out" provision would have been replaced by an "opt-in" requirement but selling information is big business and the lobbyists did not want to be required to seek your permission. They claim that Congress structured this language this way fully aware that, although none of us would knowingly allow it, most of us won't take the necessary action to prevent it. "Sellout" may not be too harsh a term.

Note that there is no "opt-out" provision at all related to information shared within affiliated companies. In other words, there are no restrictions whatsoever with regard to the information your financial institutions can share with stock brokers, credit card companies, insurance agencies or anyone else within the same conglomerate or any nonaffiliated third-party with whom they contract to perform marketing functions.

In furtherance of their efforts to sell this legislation to the general public, proponents point to the section within the Act criminalizing the practice of pretexting financial institutions in an effort to develop information about the customer's accounts.

Section 521 of this Act, entitled, PRIVACY PROTECTION FOR CUSTOMER INFORMATION OF FINANCIAL INSTITUTIONS, establishes a prohibition on obtaining customer information by false pretenses. Section 521(a) states:

It shall be a violation of this subtitle for any person to obtain or attempt to obtain, or cause to be disclosed or attempt to cause to be disclosed to any person, customer information of a financial institution relating to another person--

(1) by making a false, fictitious, or fraudulent statement or representation to an officer, employee, or agent of a financial institution;
(2) by making a false, fictitious, or fraudulent statement or representation to a customer of a financial institution; or
(3) by providing any document to an officer, employee, or agent of a financial institution, knowing that the document is forged, counterfeit, lost, or stolen, was fraudulently obtained, or contains a false, fictitious, or fraudulent statement or representation.

It also establishes a prohibition on solicitation of a person to obtain customer information from financial institution under false pretenses. Section 521(b) states:

It shall be a violation of this subtitle to request a person to obtain customer information of a financial institution, knowing that the person will obtain, or attempt to obtain, the information from the institution in any manner described in subsection (a).

There are three exemptions that might prove relevant to private investigators and or info-brokers who engage in this sort of activity. This section contains a statement of nonapplicability to law enforcement agencies or their agents. Section 521(c) states:

No provision of this section shall be construed so as to prevent any action by a law enforcement agency, or any officer, employee, or agent of such agency, to obtain customer information of a financial institution in connection with the performance of the official duties of the agency.

This section contains a statement of nonapplicability to insurance institutions for investigation of insurance fraud. Section 521(e) states:

No provision of this section shall be construed so as to prevent any insurance institution, or any officer, employee, or agency of an insurance institution, from obtaining information as part of an insurance investigation into criminal activity, fraud, material misrepresentation, or material nondisclosure that is authorized for such institution under State law, regulation, interpretation, or order.

This section contains a statement of nonapplicability to collection of child support judgments. Section 521(g) states:

No provision of this section shall be construed to prevent any State-licensed private investigator, or any officer, employee, or agent of such private investigator, from obtaining customer information of a financial institution, to the extent reasonably necessary to collect child support from a person adjudged to have been delinquent in his or her obligations by a Federal or State court, and to the extent that such action by a State-licensed private investigator is not unlawful under any other Federal or State law or regulation, and has been authorized by an order or judgment of a court of competent jurisdiction.

Section 522 of the Act, entitled, ADMINISTRATIVE ENFORCEMENT provides that compliance with this subtitle shall be enforced by the Federal Trade Commission in the same manner and with the same power and authority as the Commission has under the Fair Debt Collection Practices Act to enforce compliance with such Act.

Section 523 of the Act, entitled, CRIMINAL PENALTY establishes criminal penalties for violations of the Act. Section 523(a) states:

Whoever knowingly and intentionally violates, or knowingly and intentionally attempts to violate, section 521 shall be fined in accordance with Title 18, United States Code, or imprisoned for not more than 5 years, or both.

It also provides for an enhanced penalty for aggravated cases - info brokers who are heavily involved in this sort of activity should take heed. Section 523 (b) states:

Whoever violates, or attempts to violate, section 521 while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period shall be fined twice the amount provided in subsection (b)(3) or (c)(3) (as the case may be) of section 3571 of Title 18, United States Code, imprisoned for not more than 10 years, or both.

Section 524 of the Act, entitled, RELATION TO STATE LAWS states that the Act does not supersede, alter, or affect the statutes, regulations, orders, or interpretations in any State if the protection such statute, regulation, order, or interpretation affords any person is greater than the protection provided under this subtitle. In other words, the fact that the Act exempts pretext calls in furtherance of the collection of child support does not authorize that activity if it is otherwise sanctionable under the applicable state law.

Personally, I believe that this legislation may ultimately prove beneficial to the investigative community in the long run. This legislation, albeit more explicit, does not actually do anything new - other than to expressly allow for the pretexting of financial information in certain circumstances.

Prior to the enactment of this legislation, the Fair Debt Collection Practices Act established civil liability for "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including the use of such representations "to obtain information concerning a consumer."

Further, a federal prosecutor inclined to pursue criminal prosecution had other statutes upon which to rely. Title 18 USC 1028(a)(1)-(4), (a)(6) recently was amended to prohibit the "knowing transfer or use, without lawful authority, of a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable state or local law." This could apply to pretext callers who knowingly use their target's social security number and other means of identification by arguing that the theft of proprietary information, such as bank or phone records, constitutes a felony under the law of the state in question.

Pretexters have also fallen prey to the occasional prosecution brought forward under various other theories of liability the government has sought to apply. For example, in FTC v. Rapp, Civil Action No. 99-WM-783 (D. Col.), 1999 FTC Lexis 112, the Federal Trade Commission argues that pretexting financial information is an unfair and deceptive trade practice.

It should also be noted that some states have existing statutes that criminalize the practice of pretexting. For example, Arizona and Colorado have laws against impersonation (Ariz. Rev. Stat. 13-2006, Col. Rev. Stat. 18-5-113(1)(d)). Connecticut deals with this issue directly - they have a statute related to the disclosure of banking records that makes it unlawful to "knowingly induce another to disclose account information." Many other states have laws protecting proprietary information, such as bank or phone records, that would allow pretexters to be prosecuted for theft.

Finally, insofar as the Act provides for the criminal prosecution of the pretexter's clients, this really adds nothing new either. Title 18 USC 2a provides that anyone who "aids, abets, commands, induces or procures" the commission of an offense is punishable as a principal and Title 18 USC 371 provides the basis for a conspiracy charge.

In other words, pretexters and their clients have always operated within an area that is gray at best, conducting business at their own peril. This Act serves to remove the matter to the world of black and white, substantially improving the pretexter's position in my view. This Act specifically addresses the issue and expressly condones the practice of pretexting financial institutions in limited, specifically defined, situations. It appears to me that "the camel has his nose under the tent."

Rather than fight this legislation, the investigative industry would be better served by lobbying to amend and improve it. We have an uncommonly compelling argument in that regard.

The judicial system provides that once a judgment has been rendered, the judgment debtor may be required to reveal otherwise private financial information during the deposition in aid of execution. Congress must recognize that thieves are often liars who have no reservations with regard to perjury. It is unconscionable to allow villains to evade their victims who, with judgment in hand, seek nothing more than to enforce the dictates of society as rendered through the Courts by discovering that which the judgment debtor has an affirmative obligation to reveal.

Furthermore, it is absurdly untenable to argue that any given course of conduct is justifiable in order to collect child support, or investigate insurance fraud, while maintaining that the same activity is criminal if the object is to collect a judgment intended to restore a "little old lady's" embezzled funds. This Act could, and should, be amended to state that:

No provision of this section shall be construed to prevent any State-licensed private investigator, or any officer, employee, or agent of such private investigator, from obtaining customer information of a financial institution, to the extent reasonably necessary to execute a final judgment awarded by an order or judgment of a court of competent jurisdiction.

Personally, I would prefer that Congress decline to condone deceit and misrepresentation altogether and mandate the availability of this information to licensed investigators, law firms, credit collection agencies and so forth where circumstances such as bankruptcies, judgments and child support justify it. It would seem to be a simple matter to enact legislation requiring that financial institutions cooperate with investigators who request information and provide a copy of a Bankruptcy Petition, Judgment or Order of Support justifying their interest.

Whichever approach they choose to adopt, it is my sincerest hope that Congress can be expected to serve the interests of their constituents and do the rational thing.

Bill Branscum is a licensed Private Investigator and owner of Oracle International, an investigative agency he established in Naples, Florida following his career as a federal agent. His experience includes investigations related to narcotics smuggling, money laundering, securities fraud, the unlawful exportation of critical technology, the sexual exploitation of children and contract murder.

Oracle International maintains a web site at http://www.OracleInternational.com.

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