Conflicts Between Public Accountability and Individual Privacy in SEC Enforcement Actions
| Date | 01 February 2001 |
| DOI | https://doi.org/10.1108/eb025996 |
| Published date | 01 February 2001 |
| Pages | 319-324 |
| Author | Thomas C. Newkirk,Richard C. Sauer,Robert J. Keyes |
| Subject Matter | Accounting & finance |
Conflicts Between Public Accountability and
Individual Privacy in SEC Enforcement Actions
Thomas C. Newkirk, Richard C. Sauer and Robert J. Keyes
Journal of Financial Crime — Vol. 8 No. 4
In the USA, as elsewhere in the world, the public
interest in effective law enforcement is often in
conflict with the public's concern for the privacy of
personal financial and other sensitive information.
During recent decades, the federal government has
compiled increasing quantities of data on its citizens.
This has proven necessary to determine who qualifies
for various benefit programmes, to monitor com-
pliance with anti-discrimination statutes and to
pursue various other social goals. In addition,
improved technology has greatly increased the
capability of the government to compile and retrieve
information about individuals. This burgeoning
governmental information gathering, however, has
brought with it an increasing concern over its poten-
tial to intrude into the private lives of the citizenry.
The concern over the possible erosion of personal
privacy through government action appears in
many current controversies that do not directly
implicate the enforcement mission of the Securities
and Exchange Commission (SEC). It deeply
informs, for example, the debate over when law
enforcement agencies should be able to defeat elec-
tronic message encryption technology.1 It also
appears in the heated resistance to attempts by US
banking regulators to codify certain know-your-
customer regulations intended to prevent money
laundering.2
This policy conflict has also been reflected, how-
ever, in various limitations placed by Congress on
the powers of the SEC to investigate instances of
securities fraud. Certain of these limitations are not
found in specific statutory prohibitions, but are
matters of congressional omission. For example,
Congress has never deigned to provide the SEC, a
civil agency, with certain powers it has granted
federal criminal authorities (such as the power to
use wiretaps or mail covers or to obtain search
warrants or grand jury subpoenas).
Other limitations on the SEC's investigative reach
are matters of affirmative statutory provision. For
example, the SEC is barred from obtaining federal
income tax returns from the Internal Revenue
Service, although it may obtain returns directly
from taxpayers or their accountants.3 In addition,
the Fair Credit Reporting Act4 restricts the SEC's
access to information held by credit bureaux by
prohibiting them from releasing information for
other than business purposes (to determine credit-
worthiness, for example), except pursuant to a
court order, which the SEC can obtain only in the
context of district court litigation, or a federal
grand jury subpoena, which, as a civil agency, the
SEC cannot obtain at all.5
The three federal statutes that most significantly
affect the SEC's access to information about indivi-
duals,6 however, are the Privacy Act of 1974,7
which mandates that the SEC staff make certain dis-
closures to individuals from whom information can
be solicited; the Right To Financial Privacy Act,8
which concerns access to certain financial records;
and the Electronic Communications Privacy Act,
which protects the contents of certain electronic
communications. This paper describes the operation
of these three statutes and their consequences for the
SEC's enforcement programme. The emphasis
throughout will be on the practical question of how
the SEC staff adhere to the requirements of these
statutes without sacrificing its effectiveness as a law
enforcement agency. The authors conclude with a
case study illustrating the effect of these three statutes
on one recent enforcement action.
THE PRIVACY ACT
The Privacy Act of 1974 does not place substantive
limitations on the types of information that may be
obtained by the SEC
staff.
It does, however, require
that they make certain disclosures whenever they
seek personal information from members of the
public. Specifically, they must notify every
individual from whom they request information:
(a) the authority for the request;
(b) whether providing the information is mandatory
or voluntary;
(c) the purpose for which the information is being
gathered;
Journal of Financial Crime
Vol.
8.
No.
4,2001.
pp.
319-324
© Henry Stewart Publications
ISSN 0965-6458
Page 319
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