Monday, August 27, 2012

Seventh Circuit Compels Production of Offshore Bank Under the Required Records Doctrine (8/27/12)

The Seventh Circuit today decided In re Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, 691 F.3d 903 (7th Cir. 2012), here, holding that the required records doctrine requires a taxpayer asserting a Fifth Amendment privilege to produce the documents required to be maintained under the FBAR statute.

The opening paragraph:
In this appeal, we are asked to decide whether compulsory production of foreign bank account records required to be maintained under the Bank Secrecy Act would violate appellee T.W.’s Fifth Amendment privilege against self-incrimination. Because we find that the Required Records Doctrine applicable to this case, we hold that T.W. must produce the subpoenaed records.
The holding agrees with the Ninth Circuit's holding in  M.H. v. United States (In re Grand Jury Investigation M.H.), 648 F.3d 1067 (9th Cir. 2011), here.  See my prior blog on the Ninth Circuit case:  9th Circuit Applies Required Records Doctrine to Defeat 5th Amendment Claim for FBAR Recordkeeping (8/19/11), here.

I have now read the case and offer the following analysis consisting mostly of a cut and paste of the Seventh Circuit's analysis in getting to its holding.  I think I have captured the key trajectory of his reasoning in the Court's own words; in order to avoid distraction from the reasoning, I  omit all case references except for the Supreme Court case and the Ninth Circuit's M.H. case with which the Seventh Circuit delivers its knockout blow:
Because this case concerns the combined effect of the Required Records Doctrine and the act of production privilege, a discussion of both is warranted.

* * * * 
As summarized [the Supreme Court summarized its Required Records authority] in Grosso, [the] three requirements are: (1) the purposes of the government inquiry must be essentially regulatory; (2) information is to be obtained by requiring the preservation of records of a kind which the regulated party has customarily kept; and (3) the records themselves must have assumed public aspects which render them at least analogous to a public document. When the requirements of the Required Records Doctrine are met, a witness cannot resist a subpoena by invoking the Fifth Amendment privilege against compelled, testimonial self-incrimination. 
* * * * 
That the act of producing documents may be testimonial and incriminating is not a phenomenon unique to this case.  The act of production privilege recognizes that, while the contents of the documents may not be privileged, the act of producing them may be. 
* * * * 
The Government’s position finds support in several cases where the Required Records Doctrine — or its rationale — was applied to negate a witness’s act of production privilege. [Case citations omitted]
[I]t makes little difference, practically speaking, whether the Require Records Doctrine is an outright exception to the Fifth Amendment privilege — and by exception we mean that it overrides or supersedes the privilege — or whether it is a threshold inquiry to determine whether the privilege attaches in the first place; under the former, the privilege exists but is superseded and, under the latter, the privilege cannot attach because one or more of its requirements (usually the testimonial aspect) are missing by virtue of the records satisfying the three requirements laid out in Grosso; either way, the outcome is the same: the witness is denied the use of the privilege and must produce the potentially incriminating documents. Still, we think the Required Records Doctrine is better regarded as an exception rather than a threshold test to determine whether there is a privilege.
The Seventh Circuit rejected T.W.'s argument that the case authority involved situations applying the Required Records Doctrine where some necessary element of the Fifth Amendment privilege was absent, so as we used to say in conflicts of law, the cases only present a false or apparent conflict that is not real.  The Seventh Circuit said the conflict was real or presumed in the opinions to be real and the Fifth Amendment privilege yielded to the Required Records Doctrine.
One of the rationales, if not the main rationale, behind the Required Records Doctrine is that the government or a regulatory agency should have the means, over an assertion of the Fifth Amendment Privilege, to inspect the records it requires an individual to keep as a condition of voluntarily participating in that regulated activity. That goal would be easily frustrated if the Required Records Doctrine were inapplicable whenever the act of production privilege was invoked. 
The voluntary choice to engage in an activity that imposes record-keeping requirements under a valid civil regulatory scheme carries consequences, perhaps the most significant of which, is the possibility that those records might have to be turned over upon demand, notwithstanding any Fifth Amendment privilege. That is true whether the privilege arises by virtue of the contents of the documents or the by act of producing them. The district court erred to the extent that it held that the Required Records Doctrine was not applicable because T.W.’s compelled production was incriminating and thus protected under the Fifth Amendment.
With this holding, the only issue was whether the documents sought were Required Records.  The Court concluded:
Recently, in a case nearly identical to this one, the Ninth Circuit held that records required under the Bank Secrecy Act fell within the Required Record Doctrine. In re M.H., 648 F.3d 1067 (9th Cir. 2011) cert. denied, No. 11- 1026, 2012 WL 553924 (U.S. June 25, 2012). In the Ninth Circuit’s case, the court held that the witness could not resist a subpoena—identical to the one in this case—on Fifth Amendment grounds because the records demanded met the three requirements of the Required Records Doctrine. Id. We need not repeat the Ninth Circuit’s thorough analysis, determining that records under the Bank Secrecy Act fall within the exception. It is enough that we find—and we do— that all three requirements of the Required Records Doctrine are met in this case. 
Because the Required Records Doctrine is applicable, and the records sought in the subpoena fall within the doctrine, T.W. must comply with the subpoena.


  1. As an expat, I find the horrible state of law in the United States quite appalling. The ignorance of judges regarding the Constitution is appalling. The Constitution meant to protect citizens from the encroachment of their privacy from the too interested grasp of the federal government, has been trampled upon by Congress, the President and the courts. The Fourth Amendment is supposed to protect us from laws like FBAR and FATCA (8938) in which the government requires private citizens to hand over their private and personal information without reasonable cause or the name of the person. Thus, the FBAR and 8938 circumvent the 4th amendment and are the equivalent of general warrants which were abhorrent to free people in the English legal tradition.

    Now the only protection that is left is to claim 5th amendment privilege. But the Federal circus courts have now made it clear that you cannot use the 5th amendment to protect yourself from the criminal charges inherent in the FBAR law. This is an abomination. I don't see where in the Constitution that it says that the Required Records Doctrine can trump constitutional rights. These judges have no idea how to prioritize law. The People instituted the Constitution. The rights in the Constitution should remain a greater good than the judge-made laws like the Required Records.

    I renounced my US citizenship because of the travesty of justice called citizenship based taxation. I did this to protect my family here in Canada. I think that most sane thinking expats will have to do the same, since nothing protects us now, not the Constitution and certainly not the courts, from the capricious and arbitrary treatment of Congress and the Executive branches of government.
    Peter W. Dunn, Isaac Brock Society

  2. Based on preliminary review the constitutional issue seems ripe for higher review. If not the the status of these two decisions remain in full force, and perhaps will be expanded to apply in all sorts of other situations.


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