Accounting For Privacy Lost

David Kopel and Frank Zaveral

March 6, 2003. More by Kopel on privacy.

If you like your privacy, then you probably won't like Colorado House Bill 1197, which would give the government the power to look at your financial records without your permission.

As in other states, Colorado has an "accountant-client privilege" statute, which guarantees the confidentiality of your communications with an accountant. There is an exception if the communication is for the purpose of a crime. The accountant-client privilege communication statute, like other legal privileges such as attorney-client or priest-penitent, was created to guarantee private communications, so that an individual can seek full, frank, and open advice without the fear that what is discussed will become either public or subject to inspection by outsiders.

House Bill 1197 would create a gaping loophole in the accountant-client privilege. It would allow the Colorado State Board of Accountancy to invade the client files of businesses that obtain audit or review services. The bill gives the Board of Accountancy the power to subpoena private records -- without obtaining a search warrant or judicial permission. The Board would not need to obtain an individual's permission before examining his private accounting records. The State Board could give information to other governmental agencies and investigators in the process.

The ostensible purpose of HB 1197 is for Board investigations of bad accountants. Yet, the Board of Accountancy admits that in the past several years, there have been only a few cases of Board investigations where the accountant-client privilege got in the way, maybe three cases, one audit, and a couple of tax cases. Of course any privilege is, necessarily, sometimes going to affect a government investigation. However, a privilege is meaningless if it can be swept away whenever it gets in the government's way.

Dubious accounting practices at Fortune 500 companies such as Enron, WorldCom, and Adelphi have caused a lot of trouble in recent years. But HB 1197 doesn't have anything to do with the regulation of accounting practices of large, publicly-traded companies which have to comply with numerous disclosure rules imposed by the Securities and Exchange Commission. HB 1197 cracks down on the privacy of small businesses and families in Colorado--taking privacy away from people who bear none of the blame for the Fortune 500 mess.

In other states, legislators have used the Catholic Church's sex abuse scandals as a pretext to attempt to eviscerate the priest-penitent privilege -- even though the scandals had almost nothing to do with the sanctity of the confessional. Maryland, Kentucky, and Arizona have rejected such proposals, while an anti-privilege bill is pending in Nevada. HB 1197 has already passed the Colorado House of Representatives, and is pending in the Senate Finance Committee. We will soon see where the Colorado Senators stand on privacy.

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