Hands off our bank data, Europe tells US

Exclusive The European Commission is set to call for an immediate halt on the illegal transfer of financial information to the United States Treasury.

A draft final opinion obtained by The Register concludes that central banks and local financial institutions that used the SWIFT (Society for Worldwide Interbank Financial Telecommunication) financial network had acted illegally in allowing data about their clients' financial transacions to be transfered to the Treasury. The US started issuing subpoenas in the course of anti-terrorist investigations within weeks of the September 11 attacks of 2001 - the financial institutions and their messaging network hid the disclosures from citizens.

"The hidden, systematic, massive and long-term transfer of personal data by SWIFT to the UST in a confidential, non-transparent and systematic manner for years without effective legal grounds and without the possibility of independent control by public data protection supervisory authorities constitutes a violation of the fundamental European principles as regards data protection and is not in accordance with Belgian and European law," says the EC opinion.

The EC found that Europe's central banks, which oversee SWIFT's activities, may lose the trust of the markets after failing to inform them that the subpoenas were being made.

"The lack of compliance with data protection legislation may actually hamper consumers' trust in their banks and thus might also effect the financial stability of the payment system."

The draft opinion states that SWIFT, along with its shareholders - the private financial institutions that use its services - are all in breach of data protection law.

Private financial institutions should tell their clients they do anything unusual with their data, it says, especially if they knew the data was being processed without adequate provisions to protect the privacy of clients' financial matters.

There was a "lack of transparency and adequate controls" protecting the financial data SWIFT passed to the US Treasury," it states. It bluntly says the transfers were neither proportional nor necessary.

SWIFT is expected to make a stand against the opinion, which will be issued later today by the Article 29 Working Party, an arm of the EC's Justice Directorate that co-ordinates the activities of Data Protection Supervisors across Europe.

SWIFT has already been found to be in breach of data protection law by Belgian authorities, but no action has been taken. However, complaints filed by campaign group Privacy international in 33 European countries were put on ice while the A29 group formed a consensus opinion.

National data protection supervisors - including Britain's information commissioner - will now press financial institutions to comply with the opinion. They are prepared to take legal action if they are not satisfied.

European Central Banks can likewise expect to be told that they should put the protection of their client's personal data before their own professional desire for confidentiality regarding legal matters. The central banks that sit on SWIFT's oversight board should tell data protection authorities about such matters, something they had failed to do, the EC concludes.

About 8,000 financial institutions use SWIFT's transaction messaging service. These include 420 banks, brokers, investment managers and such like in the UK, 295 in Germany, 254 in Switzerland and 254 in France.

The Commission also says that existing law allows for "exceptions to combat crime" that still provides privacy protections.

It also outlines the European stance of a measured response to terrorism against the zealous response of the US: "Any measures taken in the fight against crime and terrorism should not and need not reduce standards of protection of fundamental rights which characterise democratic societies."

"A key element of the fight against terrorism involves ensuring the preservation of the fundamental rights which are the basis of democratic societies and the very values that those advocating the use of violence seek to destroy," it concludes.®