Seventh Circuit: Financial Institutions Cannot Be Held Civilly Liable by Convicted Fraudster for Disclosing Incriminating Records to Law Enforcement
In a recent decision, the Seventh Circuit determined that the disclosure of customer transactions by the Bank of America and J.P. Morgan Chase to a government agency did not violate the Right to Financial Privacy Act (“RFPA”), 12 U.S.C. § 3403(a), where the records disclosed consisted solely of information about transactions they suspected to be illegal.
The plaintiff in Toader v. J.P. Morgan Chase Bank, Case No. 11-3091, 2012 WL 1977999 (7th Cir. June 4, 2012), had checking and savings accounts with Chase from September 2005 to July 2006, and checking accounts with BoA from October 2004 to July 2007. In May 2006, Chase’s Wire Fraud Department flagged a potential problem with the plaintiff’s accounts and notified its Fraud Prevention & Investigation Department. The subsequent investigation revealed numerous large cash deposits to his accounts and outgoing wire transfers to Cyprus and Romania, the majority of which were between $9,000 and $9,900. In June 2006, Chase interviewed the plaintiff and, unsatisfied with his answers, initiated the account closure process for his accounts and notified law enforcement of transactions that it concluded were sufficiently indicative of ongoing potentially criminal activity so as to require notification. Law enforcement requested additional information related to these transactions, and Chase provided copies of the plaintiff’s deposit and transfer records.
In December 2007, a criminal complaint was filed in the Northern District of Illinois, charging the plaintiff with wire fraud. The complaint alleged that the plaintiff had tricked over 2,000 individuals in the U.S. and abroad into wiring more than $5,000,000 to him via Western Union, believing they were purchasing items listed on websites like eBay. Chase and BoA produced information about the plaintiff’s accounts to the government in 2008, in response to a grand jury subpoena. The plaintiff pled guilty and was sentenced to 96 months imprisonment.
After the close of the criminal case, the plaintiff sued Chase and BoA, alleging that they violated the RFPA by disclosing the numbers and names of his accounts, tax identification numbers, balances, deposits, and transfers to the government between November 2004 and December 2007 without authorization, subpoena, a proper search warrant, or authority under the RFPA disclosure provisions. The district court granted summary judgment to BoA because it had produced the documents solely in response to the grand jury subpoena.
Additionally, the district court granted summary judgment for Chase. The court held that, because all the information produced to the government, both initially and subsequently, had documented the plaintiff’s suspected illegal activity, the disclosure was permitted by RFPA § 3403(c), which provides that the Act shall not preclude financial institution from notifying a Government authority of information that may be relevant to potentially illegal activity. In addition, the court held that the productions were proper under RFPA § 3413(d) which provides for disclosure pursuant to a Federal statute. Finally, the court held that the Annunzio-Wylie Money Laundering Act of 1992, 31 U.S.C. § 5318(g), provided alternate grounds for immunity from liability because Chase was obligated to make the disclosures under 31 U.S.C. § 5318(g) and C.F.R. § 21.11, which require disclosure of suspicious transactions to law enforcement for use in the conduct of intelligence or counter intelligence activities.
On appeal, the Seventh Circuit affirmed the district court’s ruling. The panel held that it was irrelevant that Chase had only produced the second set of records after the government had made an unwritten request for them. According to the panel, the only dispositive issue under RFPA § 3403(c) was whether the second production contained information unconnected with transactions the bank suspected were illegal. The panel also noted that the immunity provided by the 31 U.S.C. § 5318(g) safe harbor applies to both voluntary disclosures and disclosures requested by investigative authorities.