Saturday, July 18, 2015

Third Circuit Applies Required Records Doctrine to Require Taxpayers to Respond to Compulsory Process About Foreign Bank Account (7/18/15)

The Third Circuit yesterday issued an opinion affirming that the Government has the right under the required records doctrine to compel via summons or grand jury subpoena production of foreign bank account records.  United States v. Chabot, 793 F.3d 338 (3d Cir 2015)., here.  The opinion is almost garden-variety by now, so I will just make a few points:

1.  The opinion follows the consistent holdings of all other courts of appeals.  See In re Grand Jury Subpoena Dated Feb. 2, 2012, 741 F.3d 339 (2d Cir. 2013); United States v. Under Seal, 737 F.3d 330 (4th Cir. 2013); In re Grand Jury Proceedings, 707 F.3d 1262 (11th Cir. 2013); In re Grand Jury Subpoena, 696 F.3d 428 (5th Cir. 2012); In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903 (7th Cir. 2012); In re Grand Jury Investigation M.H., 648 F.3d 1067 (9th Cir. 2011).

2.  Chabot involved an IRS summons whereas the early cases involved grand jury subpoenas.  The analysis is the same.

3.  The court, somewhat cryptically, rejected the argument that the shift in Fifth Amendment analysis by such cases as Fisher v. United States, 425 U.S. 391 (1976) and its progeny, all decided after the key required records cases, had affected the analysis.  However, I think that issue is more significant than this court or other courts acknowledge.  Under the Fisher analysis, there is no question that U.S. persons such as the Chabots have a Fifth Amendment privilege via the act of production doctrine.  The question is whether the required records doctrine can overcome the privilege that a fair reading of the Constitution would mean cannot be overcome.  Here, as in other areas (such as doctrine permitting compulsory process if the existence and possession of the documents is a foregone conclusion), the courts seem to be making ad hoc exceptions to the Fifth Amendment, perhaps under the notion that small encroachments of the Fifth Amendment are acceptable.  (In this regard, in a heading, the Third Circuit opinion says:  "The Government's Ability to Use the Required Records Exception to Abrogate the Fifth Amendment Privilege;"  I am not sure how the Fifth Amendment can be abrogated when it is stated that starkly, but that is the practical effect; readers might want to review Justice Thomas' concurring opinion in United States v. Hubbell, 530 U.S. 27 (2000), here, taking a literal approach to the Fifth Amendment.)  Here is the Third Circuit's short analysis:
Fisher, which found no Fifth Amendment privilege because the involved taxpayers were not the persons compelled to produce, appeared to shift the focus away from the private/public distinction in determining whether compelled production of records violates the Fifth Amendment privilege. n3 See 425 U.S. at 397, 400-01. Despite this somewhat altered view of how the Fifth Amendment relates to the production of documents, courts have continued to rely on the required records exception. See, e.g., Balt. City Dep't of Soc. Servs. v. Bouknight, 493 U.S. 549, 555-56 (1990) (recognizing the principle behind the required records exception abrogated respondent's act-of-production privilege even though her compliance with a court order to produce her child would have aided in her prosecution); Doe, 741 F.3d at 342-43, 346 (applying the required records exception to the respondent's act-of-production privilege where his compliance with a grand jury's subpoena for account records would have aided in criminal proceedings against him).
   n3 The degree to which Fisher represents a complete repudiation of the private/public distinction remains unsettled. It has been stated that the general consensus is that Fisher was an attempt to find Fifth Amendment protections applicable to compelled production of documents without relying on the private/public distinction. Doe, 741 F.3d at 343 n.2.
Courts have offered several reasons for continuing to apply the required records exception to the Fifth Amendment privilege, even though the threshold framework for applying the privilege to documents appears to have changed to a degree. The first is, engaging in an activity for which Congress conditions participation upon recordkeeping effectively waives the right to invoke the Fifth Amendment privilege to prevent compelled disclosure of such records. In re Two Grand Jury Subpoenae Duces Tecum Dated Aug. 21, 1985, 793 F.2d 69, 73 (2d Cir. 1986). The next, and perhaps weaker, is, because "the records must be kept by law, the record-holder 'admits' little in the way of control or authentication by producing them." Id. And the last is, continued application of the required records exception is vital in order to protect the government's legitimate interest in using the records that it requires individuals to keep. See, e.g., Bouknight, 493 U.S. at 556 ("The Court has on several occasions recognized that the Fifth Amendment privilege may not be invoked to resist compliance with a regulatory regime constructed to effect the State's public purposes unrelated to the enforcement of its criminal laws."); In re Grand Jury Proceedings, 707 F.3d at 1274 (citing In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903, 908-09 (7th Cir. 2012)). These reasons support application of the exception under either the private/public framework or the act-of-production framework. Thus, the required records exception has retained its vitality as an exception to the Fifth Amendment privilege against self-incrimination. See Bouknight, 493 U.S. at 554-62
4.  The Court offers this cryptic statement of the genesis of the investigation leading to the summons:  "In April 2010, the IRS received information from French authorities concerning United States persons with undisclosed bank accounts at HSBC Bank." (Emphasis supplied.)

5.  The Court has this interesting footnote regarding an argument presented to the court by letter after oral argument:
Following oral argument, the Chabots submitted a letter pursuant to Fed. R. App. P. 28(j), citing the Supreme Court's recent decision in Horne v. Department of Agriculture, No. 14-275 (June 22, 2015). The Chabots cite Horne for the proposition that "while the government may regulate an activity, it may not structure its regulation in a way that abrogates a Constitutional protection, and then point to engagement in such activity as voluntary waiver." Appellants' Rule 28(j) Letter 2 (July 14, 2015). The proposition put forward by the Chabots and the language cited for it, which is taken out of context, is far too broad. The Supreme Court clearly indicated that the specific issue addressed related to takings, not the privilege against self-incrimination (or any other constitutional right for that matter), and that the conclusion it was reaching was specific to the facts presented in that case. See Horne, Slip Op. at 12 ("The third question presented asks 'Whether a governmental mandate to relinquish specific, identifiable property as a "condition" on permission to engage in commerce effects a per se taking.' The answer, at least in this case, is yes.").

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