WASHINGTON - L. Richard Fischer and James Johnson may be the perfect one-two punch to help banks steer through conflicting privacy and anti-money-laundering laws.
Banks hire Mr. Fischer, a partner in the Washington office of Morrison & Foerster, to make sure they keep customer records private, and Mr. Johnson, a partner in the law firm's New York office, to prevent them from running afoul of law enforcement authorities trying to catch money launderers.
Controversies in recent years over know-your-customer rules and transactions by foreign accountholders at Citibank and Bank of New York have shown that when an industry whose stock-in-trade is customer privacy collides with officials in need of sensitive information, something has to give.
"A constant tension between law enforcement and privacy has existed now for nearly 30 years," Mr. Fischer said in a joint interview Thursday. "One way to look at it is that banks are in the reputation business. In order to prosper, they need a positive reputation.
"On one hand, their customers are going to expect them to be sensitive to their private affairs. On the other hand, they can't afford a report in The Wall Street Journal that they have enabled people from foreign countries to loot treasuries and move money through their banks. So they are really stuck in the middle, and the feeling they frequently have is that they really can't win."
Mr. Johnson, until recently the under secretary for enforcement at the Treasury Department, agreed that the correct mix of policing powers and privacy protection has been elusive.
"The trick has been, on both sides, to approach the awesome power the government has to acquire information and that financial institutions have to aggregate information in a responsible way," he said.
The trouble is, the public's idea of responsible information protection is not always in sync with the government's.
So what can bankers do? From the law enforcement perspective, it's all about process, Mr. Johnson said.
"When banks put in place strong compliance programs that are not just effective on paper but that resonate throughout the culture of the bank, they are in a better position to respond to questions about their practices," he said.
Mr. Fischer said that, along with strong compliance programs, bankers can do themselves a big favor by managing their customers' expectations.
"Bankers are now learning something that they should have learned a long time ago: That the fundamental principle of privacy is reasonable expectations," he said. "They need to educate their customers as to why it is appropriate to do certain things. The fundamental tenet is that banks are there to protect customer information, but that there are certain circumstances under which they are obligated to report."
It is particularly important to communicate with private banking customers about the institution's privacy policies, in large part to assure them that legitimate concerns about the safety of financial information are respected by both banks and law enforcement officials, he said.
But bankers are not the only ones whose behavior could use some modification, Mr. Fischer said. Sen. Carl Levin's recent hearings on the susceptibility of correspondent banking arrangements to misuse by launderers may have done more harm than good, he said.
Because information-sharing between the government and the banking industry is based on a fragile understanding between the two parties, a congressional hearing in which bankers are publicly chastised may not be the best way to correct problems, Mr. Fischer argued.
"This is a balance, and to the extent that you recognize the needs of law enforcement for information, and realize that some of the most important information they can have access to is bank-related data, you have to recognize that the process of getting access to that info in a privacy-responsible way is a very carefully choreographed minuet," he said.
"To have someone throwing hand grenades in, or putting polka music on, really doesn't help."
Mr. Johnson, who as a Treasury official was a frequent witness at laundering hearings, said that reports such as those generated by Sen. Levin's staff do provide "useful information that banks could use as a guide to protect themselves from the type of things described in the report."
However, in many Capitol Hill hearing rooms where Mr. Johnson has appeared, "there have been moments where there was much more heat than light shed during the course of discussions," he said.