Saturday, September 22, 2012

Fifth Circuit Falls in Line and Holds Required Records Trumps Fifth Amendment in Offshore Bank Case (9/22/12)

In In Re: Grand Jury Subpoena, ___ F.3d ___, ____ U.S. App. LEXIS ___ (5th Cir. 2012), here, the Fifth Circuit held that the Required Records Doctrine required the witness to produce the subpoenaed foreign account records required by the Bank Secrecy Act and implementing regulations for FBARs.  This is the third case in the Courts of Appeals and all have reached the same conclusion.  See In re M.H., 648 F.3d 1067, 1079 (9th Cir. 2011); In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, No. 11-3799, 2012 WL 3644842, at *5-6 (7th Cir. Aug. 27, 2012).  I have blogged on those prior cases:  Seventh Circuit Compels Production of Offshore Bank Under the Required Records Doctrine (8/27/12), here; and 9th Circuit Applies Required Records Doctrine to Defeat 5th Amendment Claim for FBAR Recordkeeping (8/19/11), here.  Here are the key excerpts in the analysis:
In Grosso, the Supreme Court identified three “premises” of the Required Records Doctrine: “[F]irst, the purposes of the United States’ inquiry must be essentially regulatory; second, information is to be obtained by requiring the preservation of records of a kind which the regulated party has customarily kept;  [*7]  and third, the records themselves must have assumed ‘public aspects’ which render them at least analogous to public documents.” 390 U.S. at 67-68.   [The court later refers to these premises as prongs.] 
* * *
[The First Prong Analysis] 
The district court’s application of the “essentially regulatory” requirement was therefore erroneous. The district court ruled that the BSA’s record-keeping   [*9]  requirements fail under Marchetti and Grosso because the “regulatory justifications” for the requirement “are but smoke and mirrors for [the government’s] real concern: crime.” However, even ignoring the non-criminal purposes of the BSA, the question is not whether Congress was subjectively concerned about crime when enacting the Act’s record-keeping provisions, but rather whether these requirements apply exclusively or almost exclusively to people engaged in criminal activity. See Marchetti, 390 U.S. at 57. 
Here, the BSA’s record-keeping requirements do not apply exclusively to those engaged in criminal activity. “There is nothing inherently illegal about having or being [the] beneficiary of an offshore foreign banking account,” and “[n]othing about having a foreign bank account on its own suggests a person is engaged in illegal activity,” In re M.H., 648 F.3d at 1074, points that the witness does not dispute. Because the BSA’s record-keeping requirements serve purposes unrelated to criminal law enforcement and because the provisions do not exclusively target people engaged in criminal activity, we conclude that the requirements are “essentially regulatory,” satisfying the Require Records Doctrine’s first prong. 
[The Second Prong Analysis] 
That the records sought are of a kind customarily kept is not contested. Even if this were not the case, this prong of the Required Records Doctrine is easily satisfied here. The records sought are of the same type that the witness must report annually to the IRS pursuant to the IRS’s regulation of offshore banking: the name, number, and type of account(s), the name and address of the bank where an account is held, and the maximum value of the account during the reporting period. See In re M.H., 648 F.3d at 1076; 31 C.F.R. §§ 1010.350, 1010.420. Furthermore, the records sought are also of the same type that a reasonable account holder would keep in order to access his account. See In re M.H., 648 F.3d at 1076. Accordingly, we find that the records the subpoena  [*10]  seeks are of a kind “customarily kept” by the witness in satisfaction of the Require Records Doctrine’s second prong. 
[The Third Prong Analysis] 
Finally, we consider the witness’s arguments that the third prong of the Required Records Doctrine is not met. In order to satisfy this prong, “the records [sought] must have assumed ‘public aspects’ which render them at least analogous to public documents.” Grosso, 390 U.S. at 68.   * * * * 
Drawing a distinction between individuals who publicly engage in business and those who privately open a foreign bank account, the witness argues that “[i]ndividuals subject to the BSA’s foreign account record keeping requirements are not licensed, are subject to no substantive restrictions, and generally have not engaged in activities with the public or in the public sphere.” Br. For Appellee 22. Thus, the witness contends that substantive restrictions, like those imposed in Shapiro, were enacted in order to protect the public and that  recordkeeping requirements are meant to aid in the enforcement of these substantive restrictions. Accordingly, the “public aspects” necessary for the third prong do not come from record-keeping requirements, the witness argues, but rather from the underlying substantive restrictions enacted to protect the public. Because the BSA imposes no substantive restrictions on the holding of foreign bank accounts, the witness maintains that records of these accounts lack the “public aspects” required for the third prong of the Required Records Doctrine.
The witness misapprehends this prong of the Required Records Doctrine. Although the witness argues that substantive regulations designed to protect the  [*11]  public from harm may imbue otherwise private documents with public aspects, it does not follow that public aspects exist only under these circumstances. Furthermore, adopting a rule that the legitimacy of a record-keeping requirement depends on Congress first enacting substantive restrictions would lead to absurd results. “If the witness’s argument were correct, then Congress would be prohibited from imposing the least regulatory burden necessary; it would instead be required to supplement a reporting or recordkeeping scheme with additional and unnecessary ‘substantive restrictions’ for the sole purpose of upholding its record keeping and reporting requirements.” Reply Br. For Appellant 25. Additionally, that the records sought are typically considered private does not bar them from possessing the requisite public aspects. See In re M.H., 648 F.3d at 1077 (“[T]hat the information sought is traditionally private and personal as opposed to business-related does not automatically implicate the Fifth Amendment.”); In re Kenny, 715 F.2d at 52-54 (reasoning that subpoenaed medical records possessed sufficient “public aspects” to satisfy the Required Records Doctrine’s third prong). 
Here, the Treasury Department shares the information it collects pursuant to the Act’s record-keeping and reporting requirements with a number of other agencies. That this data sharing is designed to serve an important public purpose sufficient to imbue otherwise private foreign bank account records with “public aspects” is not difficult to imagine. The witness “has not made a compelling argument that the information he is being asked to provide lacks ‘public aspects’ despite its essentially regulatory nature.” In re M.H., 648 F.3d at 1079. Accordingly, we find that the records sought have “public aspects” sufficient to satisfy the Required Records Doctrine’s third prong. 
Bottom line, it appears that, unless another circuit is prepared to break ranks on this issue (unlikely but possible), this issue may be viewed as fairly settled.  I doubt that the Supreme Court would step up to the issue in the absence of a conflict, but it would be interesting -- albeit idle -- to speculate about what how the Justices would come out on the issue.


  1. Thanks for the Bottomline analysis, as that was the first question that came to mind when I read your title. Humm... "
    issue may be viewed as fairly settled."

  2. A U.S. judge ordered five unidentified taxpayers to turn over information about their foreign bank accounts to a federal grand jury, rejecting arguments that they are shielded by the U.S. Bank Secrecy Act or a constitutional right against self-incrimination.

  3. I have just posted something on this. Thanks, Jack Townsend


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