Financial Privacy Act; Financial Institutions as Victims of Crime

Subject:

Financial Privacy Act; Financial Institutions As Victims Of Crime

Requested By:

Mary Claire McNaught Public Safety Attorney City of Winston-Salem

Questions:

(1)

Is a person who has opened an account at a financial institution in a fictitious name or the name of another person a "customer" within the meaning of the Financial Privacy Act?

(2)

Must the notice procedures of the Act be followed when there is strong reason to believe that the account in question has been opened in a false or fictitious name?

(3)

Do the provisions of the Act apply when worthless checks are issued on an account opened in a false or fictitious name and result in a loss to the financial institution in which the account was opened?

Conclusions:

(1)

Yes. The customer is the person who opened the account.

(2)

Yes.

(3)

Yes.

Financial institutions have incurred losses when worthless checks were written on accounts opened in a fictitious name or in the name of someone other than the person who actually opened the account. Institutions desiring expeditious law enforcement action in such situations have sometimes seen the Financial Privacy Act (the Act) as an obstruction to such action. Questions have arisen between the financial institutions and a law enforcement agency as to the status under the Act of the person who opened the account and whether his account transactions waived the provisions of the Act as to him.

The Act is codified as General Statutes Chapter 53B. The public policy statement appearing in

G.S.

§ 53B-3 declares "that financial records should be treated as confidential and that no financial institution may provide to any government authority and no government authority may have access to any financial records except in accordance with provisions of this Chapter." There are no exceptions to this policy. Any agency or institution which gains or provides access to records except in conformity with the Act is subject to the substantial penalties provided for in

G.S.

§ 53B-10.

The term "customer" is defined in G.S. § 53B-2(1) as "a person who has transacted business with a financial institution or has used the services offered by a financial institution." It is our opinion that a person whose name has been used without his knowledge or consent in opening an account for unlawful purposes, who has transacted no business through the account, and who has not used the services of the financial institution in connection with the account is not a customer of the institution within the meaning of the Act. On the other hand, a person who has opened an account at a financial institution, albeit in a fictitious name or the name of another person, and has written checks on the account which have been processed by the institution is a customer within the meaning of the Act because he has transacted business with the institution and has used its services. This interpretation is consistent with the definitions appearing in the Uniform Commercial Code at G.S. § 25-4-104(a) and (e).

The notice specified in G.S. § 53B-5(3) must be served pursuant to the provisions of that statute or of G.S. § 53B-6 on every customer to whose financial records access is sought by an agency or department of the State or any of its political subdivisions through a court order or administrative or judicial subpoena authorized under G.S. § 53B-4(11). The Act creates no exception for a customer who has opened an account in a false or fictitious name. We conclude, therefore, that such a customer must be given notice in the form and manner and under the circumstances required by the Act before a government authority can obtain access to his financial records.

The fact that a financial institution is the victim of a crime or sustains a loss through an account held in a false or fictitious name by one of its customers does not waive the provisions of the Act. As has been noted previously, the Act provides the exclusive means by which a financial institution may give a government authority access to a customer’s financial records or by which a government authority may obtain access to such records. G.S. § 53B-3. The means provided in

G.S. § 53B-4 include time-honored methods, such as the search warrant and subpoena, for obtaining evidence in an investigation. There is no express exception in the Act permitting use of other methods when the victim of an illegal act is a financial institution, and we have found nothing in the Act from which such an exception can be inferred. An institution, of course, may give the notice and make the disclosures permitted by G.S. § 53B-8.

Government authorities and financial institutions are subject to substantial penalties under G.S. § 53B-10 for obtaining or disclosing records or information in violation of the Act. Since we have found no exception, express or implied, in the Act and no appellate court decisions sanctioning such an exception, we strongly recommend that a government authority seeking financial records or information in an investigation involving a financial institution as a victim of the illegal acts of one of its customers follow the same procedures under the Act as it would in any other investigation.

LACY H. THORNBURG Attorney General

Henry T. Rosser Special Deputy Attorney General