WASHINGTON - Louis Velasquez-Campuzano and Juana Chavez-Lujan arrived at Mafia National Bank of Texas in 1992 to withdraw money from their accounts so they could invest it in their native Mexico's booming economy.
But instead of enjoying the good life they expected their investment to provide, they found themselves in U.S. District Court charged with structuring their transactions to avoid bank reporting laws. After a jury acquitted them of one charge and deadlocked on another, they agreed to plea bargain to avoid another trial.
Now the couple is striking back at $35 million-asset Mafia National, which created their legal troubles when it reported the elderly couple to federal officials.
Their suit -- and a similar action on the East Coast -- could dictate which interest banks must put first: the customer's privacy or the government's need to flush out criminal activity.
Simple Premise
Marfa National president Charles W. Mertz said all financial institutions should be watching his case.
"If it goes against us, every bank between the Pacific Ocean and the Gulf of Mexico is going to see them (customers) lined up to sue," Mr. Mertz said.
The Mafia National customers base their suit on a simple premise. Their lawyer, John Minniece, said banks do have to disclose information about suspected criminal acts to the government. But, he said the Bank Secrecy Act requires institutions to limit that disclosure to a customer's name, address, tax identification number and a brief outline of the suspected wrong-doing.
Crossing the Line
Banks that go beyond this "name, rank and serial number" list--as he said Marfa National did--are liable for invasion of privacy, said Mr. Minniece, who practices law in the small town.
"They did the FBI's work for them," Mr. Minniece said. "They tracked these guys. They gave them all their financial information."
The chance that Marfa National could lose the case to the couple, convicted criminals, is raising flags both in Texas and Washington. The American Bankers Association and several other trade groups have filed briefs in the case, urging the court to exonerate the bank.
They argue that if the court rules against Mafia National, banks everywhere will be stuck in a quandary. If they report information to the government, they are liable for civil suits. If they don't report, the government can hit them with penalties, which in previous cases have totaled more than $50 million.
Trend Seen
ABA deputy general counsel Michael F. Crotty said he sees the start of a nationwide trend toward these types of suits, noting that a plaintiff filed a similar suit this year against Riggs National Bank in Washington, D.C.
The Riggs suit accuses the bank of invading the privacy of a former serviceman who wrote $1,400 in bogus checks. When the bank discovered the crime, it contacted the military authorities. That action violated the customer's right to privacy because it went beyond the required disclosures, court documents state.
The Justice Department also has intervened in the case on behalf of Marfa National, saying banks would file fewer criminal referrals if they are liable for the disclosures.
"An extremely valuable tool for detecting illegal activity would be lost, and the government's ability to punish this activity would be seriously impaired." Justice Department attorneys Anne L. Weismann and Lois B. Osier wrote in the brief.
Safe Harbor
Mr. Minniece said he can understand the quandary, but insisted the law is clear. Congress created a safe harbor for information banks have to disclose. The safety net fails if banks provide more information than required, he said.
"They are in a dilemma and Congress has put them there," Mr. Minniece said.
Mr. Crotty disagreed. In ABA's brief for the Riggs case, Mr. Crotty argued that the privacy act specifically exempts information the government f9rces a bank to disclose, such as "known or suspected" crimes. This includes whatever information the bank turns over.
If the civil suit stands, banks will face penalties no matter what they do, Mr. Crotty wrote.
"As members of a highly regulated industry, financial institutions must be able to comply with regulatory requirements without fear of civil liability," according to Mr. Crotty.
The banks in both cases have filed motions for summary judgment. Decisions could come later this summer.
