CLcom run of site - run of site

Expert Advice

Gag Orders on Grand Jury Subpoenas to Banks: The Next First Amendment Frontier?

It is not uncommon for federal prosecutors to use grand jury subpoenas to force banks to produce their customers’ financial records—while barring the banks from telling their customers. Is that constitutional?

By Joshua M. Robbins & Adam M. Sechooler  |  December 12, 2017

Lightspring/Shutterstock

Bank records are a staple of federal financial crime investigations. Often, one of the first steps the government will take in such a case is to serve on a bank a grand jury subpoena for a suspect’s account statements and related records. And almost as often, it does so in secret, seeking to avoid tipping off the suspect that he or she is in law enforcement’s sights. This clandestine approach has been aided by federal laws restricting banks’ ability to notify their customers of the subpoenas. But recent litigation involving a different sort of “gag” law—applied to internet service providers, rather than banks—points to a possible constitutional challenge to the practice.

Covert Demands for Bank Records

Although the Right to Financial Privacy Act (12 U.S.C. §§ 3401, et seq.) generally restricts the government’s ability to access an individual’s bank records, and requires notice to the customer even when access is allowed, there is an exception for grand jury subpoenas. Federal prosecutors may, and often do, issue subpoenas on behalf of a grand jury for targets’ bank records, without informing the target.

Further, there are ways for the government to prevent the bank from telling the customer about the subpoena or disclosure. For example, the government can obtain a gag order on a bank barring it from notifying the customer. See 12 U.S.C. § 3409, et seq.  Moreover, under 18 U.S.C. § 1510(b)(2), when the subpoena is part of an investigation of certain common financial crimes, such as bank fraud, mail/wire fraud affecting a financial institution, or money laundering, it is a crime for a bank employee to notify a customer of a grand jury subpoena for his or her records. Thus, in effect, section 1510(b)(2) creates not just a gag order, but a standing gag rule for banks regarding grand jury subpoenas for their customers’ accounts. Prosecutors often point this out in a letter to the bank accompanying the subpoena. And banks usually comply.

Microsoft’s Constitutional Challenge

Although arising in a different context, the recently-settled Microsoft v. United States litigation in the Western District of Washington shows the way to banks’ possible constitutional challenges to 12 U.S.C. § 3409, 18 U.S.C. § 1510(b)(2), and their restrictions on banks’ communications with their customers.

In Microsoft, the government had obtained warrants under the Stored Communications Act (SCA) (18 U.S.C. §§ 2701, et seq.), compelling Microsoft to produce emails belonging to customers of its cloud computing service. In addition, under a provision of that Act (18 U.S.C. § 2705(b)), the government had procured separate orders that barred Microsoft from informing its customers about the warrants. This, as Microsoft explained, is a rather common occurrence for internet service providers.

Microsoft challenged the gag order practice, and the law—section 2705(b)—that authorized it. According to Microsoft, the law violated both the First and the Fourth Amendments. As to the First Amendment, Microsoft said, the law interfered with Microsoft’s ability to communicate with its customer. Moreover, it argued, the law was a content-based restriction on speech—indeed, one that banned speech about a subject (coercive government actions) that are central to the purpose of the First Amendment—and thus should be subject to strict scrutiny. The district court denied the government’s motion to dismiss that claim, and found that it could be viable.

As to the Fourth Amendment, Microsoft argued, per Supreme Court precedent, that the government is required to notify search warrant subjects that their homes or businesses have been searched and their records taken, typically by serving on them a copy of the search warrant. An SCA warrant for emails, Microsoft said, was akin to a regular search warrant, in that it allowed invasion of a person’s secured, private space in order to seize records that historically would have been kept in one’s home or business. And a section 2705(b) gag order, Microsoft asserted, allowed the government to prevent any notice to the customer whose privacy was violated and whose things were seized. The court dismissed that claim on standing grounds, finding that the Fourth Amendment interest, if any, belonged to the customer, and Microsoft could not assert it on the customer’s behalf. But the court did not address the merits of the claim.

Ultimately, Microsoft agreed to dismiss its claims after the Department of Justice agreed to revise its policy on seeking section 2705(b) gag orders, requiring that prosecutors articulate specific reasons before requesting them, and making it more difficult to pursue a gag order lasting longer than one year.

Microsoft is not the only technology company to litigate this issue. Yahoo!, Adobe, and most recently Facebook have challenged the practice of indefinite section 2705(b) gag orders; the former two cases resulted in magistrate judge orders finding First Amendment violations.

First or Fourth Amendment Challenges?

Microsoft’s challenges to SCA section 2705(b) map fairly clearly onto the gag rules for bank subpoenas set forth in 12 U.S.C. § 3409 and 18 U.S.C. § 1510(b)(2). A bank, it would seem, could well argue that its communications and relationship with its customer are infringed by a statute barring it from disclosing a subpoena or the bank’s compliance with it. And just as with email warrants, the nature of the ban—which specifically covers communications regarding government activity aimed at curtailing an individual’s liberty—is deliberately content-based. Strict scrutiny could thus well apply, and might prove fatal to the bank disclosure statutes, although the government would likely counter that the need to protect the integrity of investigations is a strong enough government interest to save the law. While the government undoubtedly has a significant interest in this regard, whether the bank gag rules are narrowly tailored (which is required under strict scrutiny) would still be an open question.

The standing gag rule under 18 U.S.C. § 1510(b)(2) may be particularly vulnerable to an attack on the ground that it is not adequately tailored. Although the Supreme Court has never addressed the issue, it has previously struck down, on First Amendment grounds, a state law restricting grand jury witnesses’ right to disclose information about their testimony and the grand jury process, finding that the need for grand jury secrecy had to be reconciled with free speech principles.  See Butterworth v. Smith, 494 U.S. 624 (1990).

An important part of the analysis would also likely involve evaluating the procedural safeguards that are in place for bank subpoena disclosure rules. In a recent case involving administrative subpoenas called national security letters, the Ninth Circuit explained that prior restraints on speech may require the following procedural safeguards: (1) the restraint of speech before judicial review must be only for a definite and brief period, (2) judicial review must be available and prompt, and (3) the government must bear the burden of seeking a court order suppressing the speech. See In re National Security Letter, 863 F.3d 1110 (9th Cir. 2017). Although the Ninth Circuit left open the question of whether these procedural requirements apply in the subpoena gag order context, the court did hold that adequate procedural safeguards were in place with respect to national security letters. A different conclusion might well be reached with respect to the blanket prohibition on disclosure under 18 U.S.C. § 1510(b)(2).

Likewise, the Fourth Amendment argument could also apply in the context of bank subpoenas. Like Microsoft, however, a bank would have to establish its standing to raise a claim based on invasion of the customer’s privacy, which could prove a tall order. And a subpoena for bank records, which are less frequently stored in individuals’ homes, could be seen as more distinguishable from a traditional search warrant than is an SCA warrant. Transactional information obtained from banks could also be viewed differently than information that may be obtained from an ISP, which may include a greater depth and breadth of personal information.  Indeed, the Supreme Court has specifically held that a bank customer has no reasonable expectation of privacy in his or her bank records held at a bank. See United States v. Miller, 425 U.S. 435 (1976). Many observers, however—including Justice Sonia Sotomayor in United States v. Jones, 565 U.S. 400 (2012)—have called for reconsideration of that rule. If that were to occur, bank customers that are the subject of a subpoena issued to their bank could have a strong argument under the Fourth Amendment that they are entitled to know that their bank records have been searched and taken by the government.

Destined for Litigation?

Even if a constitutional challenge to the bank gag rule or gag orders could succeed in theory, it is quite uncertain that any bank will soon mount one. It has only been in recent years that large technology companies like Microsoft have begun to actively challenge government invasion of customers’ privacy, possibly in response to the revelation of those companies’ cooperation with the NSA and other intelligence agencies in surveillance activity, and the resulting public backlash. Banks have not faced that sort of scandal, and will likely be loathe to pick a fight with the Department of Justice absent a similar source of pressure. Account holders, meanwhile, will have difficulty raising the challenge for the simple reason that by the time they learn of a subpoena, the issue may be moot. Nonetheless, now that Microsoft has shown the way, it is open for other litigants—and courts—to follow. And if they do so, it could send shockwaves through the world of financial law enforcement.


Joshua M. Robbins is a partner at Greenberg Gross in Los Angeles and Costa Mesa, the Chair of the firm’s White Collar and Government Investigations department, and a former Assistant United States Attorney for the Central District of California. Adam M. Sechooler is an associate at the firm.

Reader Comments

We welcome your comments!

Your name and email address are required (your email address will not be published)

Back to Top   ↑
© 2018 Daily Journal Corporation