A bank that reports a customer's suspicious activity to the government is not violating financial privacy laws, a court ruled last week.

In a major victory for the industry, the U.S. District Court for the Western Division of Texas ruled that Marfa National Bank, Marfa, Tex., was simply complying with federal laws when it reported two depositors' suspected crime to the government.

After Marfa filed a criminal referral form, Luis Velasquez-Campuzano and Juana Chavez-Lujan were charged with structuring deposits or manipulating the size of their deposits to avoid being covered by the bank's currency transaction reports.

Law enforcement officials use the criminal referral forms and the currency reports to track money launderers and other financial criminals. While the charges against Ms. Chavez were dismissed, Mr. Velasquez pleaded guilty on three counts.

After the indictments, the couple sued the bank for violating their privacy.

Experts have viewed this case, pending since June 1994, as a battle between a customer's right to financial privacy and the government's efforts to catch money launderers.

Both groups were worried that a decision in favor of the plaintiff customers would discourage banks from filing criminal referral forms and spawn a flood of consumer lawsuits against banks.

"This is a very important decision," said Dan Stipano, director of enforcement in the Comptroller of the Currency's compliance division. "It reinforces the idea that banks can feel comfortable filing criminal referral forms and not be held liable."

The court's June 12 opinion said that the Right to Financial Privacy Act does not apply when another federal law mandates a disclosure. Under the Bank Secrecy Act, banks must report known or suspected crimes.

"There can be no question that, on these facts, the disclosure made by the bank was required by law," the court decision said.

The banking industry was delighted.

"This is excellent news," said John Byrne, senior legislative counsel at the American Bankers Association. "It shows that banks are not liable to their customers for doing their job."

In a brief filed by the ABA, the trade group explained how confusing it would be to tell banks to do something and then punish them for doing it.

"As a regulated industry, financial institutions must be able to comply with regulatory requirements without fear of civil liability," the brief said.

The Justice Department also filed a brief supporting Marfa. Banks would file fewer criminal referral forms if they were afraid of getting sued, the department argued.

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