9th Circuit Holds that Documents Delivered to Government Attorneys in Response to Grand Jury Subpoena Grand Jury Matters Subject to FRCrP Rule 6(e)'s Secrecy Requirement (2/3/26; 2/4/26)

I write today on facets of Rule 6(e)(2), Federal Rules of Criminal Procedure, relating to grand jury secrecy. Rule 6 may be viewed here. Rule 6(e)(2) in part relevant to this blog entry requires that Government personnel participating in a grand jury investigation “must not disclose a matter occurring before the grand jury." Rule 6(e)(2)(B).

In Kalbers v. Volkswagen AG, ___ F.4th ___ (9th Cir. 1/30/26), CA9 here and GS here [to come], the Court held in a FOIA proceeding that Rule 6(e)(2) applies to documents delivered in response to a grand jury subpoena. Professor Kalbers sought Volkswagen’s Counsel’s responsive “file” containing millions of documents that Volkswagen, a target or subject, delivered in response to the grand jury subpoena. I think the case assumes that at least some portion of the documents were never presented to, summarized, or otherwise considered by the grand jury. The Court held that subpoena-responsive documents are grand jury matters subject to Rule 6(e)’s secrecy requirement and therefore are not disclosable under FOIA. The reasoning appears solid to me. I won’t track the reasoning here because it is not necessary for the focus of this blog entry.

 An issue I have spent time on is whether documents delivered by a subject or target of a grand jury investigation to attorneys for the Government conducting a grand jury investigation without a grand jury subpoena can be subject to Rule 6(e). Would it matter whether the attorneys for the Government asked nicely (pretty please) or threatened a grand jury subpoena (or some shade of gray between those extremes)? Would it matter if the Government sent the request in a letter (like the Branerton letter that must precede formal discovery in Tax Court proceedings)? What if in such a letter (or other communication), the Government mentioned that the person from whom the documents were sought was a target or subject of a grand jury proceeding? What if the person from whom the documents were sought had earlier received a letter notifying of grand jury target or subject status and the Government attorneys' participation in that investigation (i.e., no notice that the DOJ attorneys were also conducting an independent investigation)?

A tangentially related issue to this is whether, in a tax crimes case, DOJ Attorneys have authority to conduct at the same time (i) a grand jury investigation of potential tax crimes; and (ii) an independent DOJ investigation of the same tax crimes? Such a parallel investigation would necessarily involve grand jury matters bleeding into the so-called independent DOJ tax crimes investigation. Is that an improper use of grand jury matters in violation of Rule 6(e)?

Search Warrant Executed Against Caterpillar HQ, Apparently Related to Tax (3/6/17; 3/20/24)

I have not written on the alleged Caterpillar tax manipulations that were prominently the subject of an investigation by the Senate Permanent Subcommittee on Investigations. The hearings page is here. There is a link to the report titled Caterpillar's Offshore Tax Strategy (which has the hearing date of 4/1/14 but was finalized 8/28/14 per page 2). In very broad overview, the Senate investigation focused on Caterpillar's alleged shifting of profit attributable to U.S. operations from the U.S. tax base to a Swiss tax base where Caterpillar conducted essentially no meaningful operations related to the profits in issue and had negotiated a very low tax rate (essentially free-money for the Swiss government). Tax geeks often refer to this as a transfer pricing issue; the relevant code section for the substantive tax issues is § 482, here.  I am told, however, that, according to the SEC filings, the IRS used a substance over form/assignment of income type argument rather than a transfer pricing argument (presumably because, to have a legitimate transfer pricing argument, the entity to which income is shifted must have some reality -- meaning real costs associated with the creation of the income). Too aggressive positions in this area can have significant civil and criminal penalties. I refer readers to the Senate report that outlines what the Senate thought was objectionable.

It has been known for some time that there has been a grand jury investigation in the Central District of Illinois, which encompasses Caterpillar's home offices. The precise nature and scope of the grand jury investigation is not known, although the assumption was that it was related to Caterpillar's tax issues discussed in the Senate report. On Thursday, March 2, federal agents executed a search warrant on certain Caterpillar premises. According to the news sources, the search warrant execution was led by the US Attorney and carried out by three agencies -- IRS Criminal Investigation ("CI"), the FDIC Office of Inspector General, and the Department of Commerce Office of Export Enforcement. (I list some news sources at the bottom of this blog.)

Rule 6(e), FRCrP, requires secrecy about grand jury activity, including search warrants, so the Government is extremely limited as to what it can say publicly. Caterpillar, a public company, had to say more. Caterpillar issued a cryptic press release, here:

Caterpillar Continues to Cooperate with Law Enforcement 

PEORIA, Ill. – On March 2, 2017, law enforcement authorities entered three Peoria-area Caterpillar Inc. (NYSE: CAT) facilities, including the corporate headquarters, to execute a search and seizure warrant. The warrant is focused on the collection of documents and electronic information. Caterpillar is cooperating with law enforcement. 

While the warrant is broadly drafted, we believe the execution of this search warrant is regarding, among other things, export filings that relate to the CSARL matter first disclosed in Caterpillar’s Form 10-K filed on February 17, 2015, and updated in Caterpillar’s most recent Form 10-K filed with the SEC on February 15, 2017. 

The two 10-Ks referenced are the 2015, here, and the 2017, here. Excerpts from the 10-Ks are:

2017

On January 8, 2015, the Company received a grand jury subpoena from the U.S. District Court for the Central District of Illinois. The subpoena requests documents and information from the Company relating to, among other things, financial information concerning U.S. and non-U.S. Caterpillar subsidiaries (including undistributed profits of non-U.S. subsidiaries and the movement of cash among U.S. and non-U.S. subsidiaries). The Company has received additional subpoenas relating to this investigation requesting additional documents and information relating to, among other things, the purchase and resale of replacement parts by Caterpillar Inc. and non-U.S. Caterpillar subsidiaries, dividend distributions of certain non-U.S. Caterpillar subsidiaries, and Caterpillar SARL and related structures. The Company is cooperating with this investigation. The Company is unable to predict the outcome or reasonably estimate any potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity.

2015

On January 8, 2015, the Company received a grand jury subpoena from the U.S. District Court for the Central District of Illinois. The subpoena requests documents and information from the Company relating to, among other things, financial information concerning U.S. and non-U.S. Caterpillar subsidiaries (including undistributed profits of non-U.S. subsidiaries and the movement of cash among U.S. and non-U.S. subsidiaries). The Company is cooperating with this investigation. The Company is unable to predict the outcome or reasonably estimate any potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity.

Notice that the company claims in each of these reports is cooperating with the investigation. If that is true, I wonder why the need for a search warrant. A simple request or a grand jury subpoena should have been sufficient. Background on this issue may be gleaned from the 1991 edition of the DOJ Antitrust Division Grand Jury Practice Manual, here, says (III-174 - II-177, footnotes omitted):

Further on Contempt Sanctions for Failure to Produce Foreign Documents (2/20/17)

I previously blogged on a case In re Various Grand Jury Subpoenas, 2017 U.S. Dist. LEXIS 9697 (SD NY 2017), involving contempt sanctions for failing to produce foreign bank and entity documents allegedly in the control of the person subject to the grand jury subpoena.  See Contempt Sanctions Continued in GJ Subpoena for Required Records (Federal Tax Crimes Blog 1/25/17), here.  On February 13, 2017, Judge Pauley issued a further order staying the effective date for the contempt sanction of $1,000 per day to comment from February 14, 2017 to March 20, 2017 to permit the subpoenaed party additional time to arrange with the foreign entities and coordinate with the Government to produce the documents.  The key documents for this new opinion are:=

• The order, here.
• The motion was filed but apparently the memo in support was filed under seal; the motion was just the bare motion, so I don't link it.
• The United States response, here.

The subpoenaed person sought to purge the contempt order previously issued by showing that she had complied with the compulsion in the subpoena by requesting that the Swiss banks produce the records directly to the Government.  One of the banks notified the person that, under Swiss law, it could not produce the documents to the Government.  But, the Government urged, whether or not that was true, with the right form of request (requesting production to her rather than the Government), the banks could produce the documents to the person and she could then provide them to the Government.  Judge Pauley gave the additional time to make sure that she had the time necessary to get the documents, but he makes clear that the Government will not wait forever -- hence the March 20, 2017 date.

Contempt Sanctions Continued in GJ Subpoena for Required Records (1/25/17)

In In re Various Grand Jury Subpoenas, 2017 U.S. Dist. LEXIS 9697 (SD NY 2017), here, the Court continues a prior sanction order against a person, identified as Subject E.  In 2014, Subject E previously responded with two document totaling 3 pages.  The Government subsequently obtained a number of documents from the Principality of Liechtenstein that indicated the production was seriously deficient.

The Court, Judge Pauley of SDNY, recounts the relevant facts as follows:

More specifically, after reviewing translations of the Liechtenstein Documents, the Government discovered that Subject E was identified as a beneficiary of the Subject E Foundation (the "Foundation"), n1 an allegedly sham foundation organized in Liechtenstein that maintained several foreign bank accounts and had, on several occasions, transferred tens of thousands of dollars directly to Subject E. (Mot. at 13.) The Government also unearthed documents signed by Subject E indicating that she was the "beneficial owner" of the Foundation (Lenow Decl. Ex. DD at 15), possessed all of its assets (Lenow Decl. Ex. DD at 10), and had authorized changes to the listed beneficiaries (Lenow Decl. Ex. DD at 7). Finally, the Liechtenstein Documents provided information regarding several of the Foundation's foreign accounts, each of which held in excess of several million. (Lenow Decl. Ex. DD at 94, 165, 178.)
   n1 The Foundation was organized as a "stiftung," a legal entity akin to a trust under the laws of Liechtenstein. Stiftungs have been used regularly by U.S. taxpayers to conceal bank accounts overseas. Financial advisors and/or legal advisors are appointed and directed to act on behalf of the stiftungs for the benefit of the taxpayers. (Mot. at 6.) In essence, by holding bank accounts in its own name, the stiftung conceals any connection between taxpayers and their foreign assets.

While many of the Liechtenstein Documents were responsive to the 2010 Subpoena, Subject E had produced none of them. Based on the discrepancy between Subject E's bare production of three pages and the mass of materials comprising the Liechtenstein Documents, the Government concluded that she failed to comply with the 2010 Subpoena. Additionally, the Government contends that Subject E failed to produce records relating to other foreign accounts—records from a supposed joint account at Credit Suisse that Subject E shared with her former husband, and additional records from the previously referenced HSBC France account. (See Mot. at 23-24.)

The Government moved for additional contempt sanctions.

The Court's opinion addresses the following defenses asserted by Subject E:

1.  What does it mean to be in "care, custody or control" for the compulsion of the subpoena?

District Court Rejects Suppression for Interview of Target of Grand Jury Investigation Without Notifying His Counsel (10/4/16)

In United States v. Sabean, 2016 U.S. Dist. LEXIS 136658 (D ME 2016), here, the district court declined to suppress made by the target of a grand jury investigation to IRS agents when the agents knew that he was represented by an attorney on tax matters without going through the the attorney.  The facts are unusual, so I will just summarize the key facts.

First, the indictment, here, that was ultimately handed down in October 2015 charged tax evasion (Counts 1-5) and Unlawful Distribution of Controlled Substances (Counts 6-57).  I don't know what inferences might be drawn from the tax charged appearing first in the indictment.

Now, turning to the key facts.

The grand jury investigation in which Dr. Sabean was targeted had commenced prior to January 15, 2014.  The scope of the grand jury investigation as of that date is not stated.  IRS agents had been assigned to assist the grand jury.  From the tax charges in the ultimate indictment and the presence of IRS agents, it might be inferred that tax crimes were among those being considered by the grand jury.  But, that is an inference and not a compelled inference because IRS agents are used in some nontax grand jury investigations.  At any rate, whether the scope of the grand jury investigation included tax crimes at the key times here relevant does not appear to be important.

The interview in question was conducted on January 29, 2014 by IRS agents assigned to assist the grand jury.  This is the key interview in issue.

Before that interview, on January 15, 2014, the agents had appeared at the residence of owners of a bookkeeping company used by Dr. Sabean,  to serve a grand jury subpoena.  They advised the owners of the company that "they were conducting an investigation of Dr. Sabean and had questions for the Kuhls [the owners of the bookkeeping service] in this regard." They then interviewed the Kuhls for about 2 hours.  No indication came up in the interview that Dr. Sabean was represented on his tax matters.  They left with some boxes of documents and requested that the Kuhls not advise Dr. Sabean of the visit and grand jury subpoena.

The IRS agents determined on preliminary review of the documents that some of the documents might be subject to privilege as to Dr. Sabean with an attorney named Sheehan, a tax attorney, who had engaged a private investigator on Dr. Sabean's tax matters.  As typical, an AUSA taint team was created to review the documents potentially subject to privilege.

On January 21, 2014, the IRS agents conducted another interview of the Kuhls and obtained additional documents  responsive to the subpoena.  They discussed the attorney and the hiring of the investigator.  In obtaining the additional documents, the IRS agents asked the Kuhls to segregate out items potentially privileged so that they could then be submitted to the taint team.

On January 29, 2014, the IRS agents went to Dr. Sabean's offices to interview him.  The opinion suggests, but does not state, that Dr. Sabean was not aware of the investigation until the agents showed up.  The agents did not advise Dr. Sabean of any rights he might have.  Readers of this blog know that IRS agents conducting CI administrative investigations are required by the IRM to give the noncustodial statement of rights.  See the IRM provisions quoted and linked at the bottom of this blog entry.  The reason was that they were not conducting a CI administrative investigation.  The AUSA had advised them that they were not subject to that requirement because they were conducting the interview pursuant to a grand jury investigation.  (See IRM provision cited and quoted at the end of this blog entry.)

The attorney then advised the agents that further communications should be through him rather than through Dr. Sabean.

In ensuing criminal case then brought by indictment in October 2015, Dr. Sabean moved to suppress any statements he had made in the January 29 interview.  The issue was whether the agents' interview of Dr. Sabean on January 29, 2014 had violated the Maine Rules of Professional Conduct, made potentially applicable by the Citizens Protection Act, 28 U.S.C. § 530B(a) (referred to as the “McDade Amendment”).  The applicable Maine Rule 4.2 was:

Judge Criticizes Prosecutor's Use of Language Directing Secrecy for Receipt of Grand Jury Subpoena (1/4/16)

I hope that all readers of this blog know that grand jury proceedings are generally secret and the grand jurors and government actors in the process must keep them secret.  FRCrP 6(e)(2), here.  But the obligation of secrecy is not imposed on witnesses before the grand jury.  They may discuss their testimony before the grand jury and the documents they produced under grand jury subpoena.

In United States v. Gigliotti, 2015 U.S. Dist. LEXIS _____ (ED NY 12/23/15), here, Judge Dearie denied a motion to suppress evidence obtained pursuant to grand jury subpoena that unlawfully contained the following:

YOU ARE HEREBY DIRECTED NOT TO DISCLOSE THE EXISTENCE OF THIS SUBPOENA, AS IT MAY IMPEDE AN ONGOING INVESTIGATION.

When the Gigliottis first raised the issue, the prosecutors conced that the language was unlawful.  That alone was not satisfying, so the the Court ordered

Given the defenses’ persistent and understandable objections to language added to grand jury subpoenas, the Court orders the government to file a report detailing: (1) how extensively this or similar language has been used in grand jury subpoenas by the United States Attorney’s Office, (2) what training or procedures the Office has initiated to review grand jury subpoenas, and (3) what steps the Office has taken to ensure that similar language is not used in the future, absent specific judicial authorization.

The Court described the prosecutors' submission in response:

First and foremost, the government acknowledged (as it had before1) that its use of the Non-Disclosure Language was improper. ECF No. 107. The government asserted that it is not the practice and policy of the United States Attorney’s Office for the Eastern District of New York (the “Office”) to include such language in grand jury subpoenas to witnesses. Id. at 2. Rather, “Office and Departmental training instructs that non-disclosure may not be imposed on a grand jury witness absent statutory authority or judicial order.” Id. at 4. The government stated that absent such legal authority, the Office’s policy has been to include a request, not a command, for non-disclosure. Id. at 3.

Nevertheless, the government informed the Court that three of the thirty-eight grand jury subpoenas issued in connection with this case included the Non-Disclosure Language “in violation of [the Office’s] practice and policy.” Id. at 3-4. The government offered the curious representation to the Court that “[t]he inclusion of such language was inadvertent and unintentional,” having been “missed by undersigned counsel when the subpoenas were finalized by support staff.” Id. at 3. 

The government stated that “in light of the error revealed by the present motion, the government has issued letters to the three recipients of the grand jury subpoenas in question notifying them of the error and advising them that they are under no legal obligation not to disclose their receipt or responses to the subpoenas.” Id. at 3. The government also stated that following this Court’s order dated October 7, 2015, the Office directed all Assistant United States Attorneys (“AUSAs”) not to include requests for non-disclosure on the face of subpoenas. Id. Instead, such requests will now be made in a separate cover letter “[t]o avoid any appearance that such language carries with it judicial authority.” Id.

The Court then started its discussion:

The government’s improper directions to subpoena recipients are cause for serious concern. As the government acknowledges, Fed. R. Crim. P. 6(e)(2) imposes no obligation of secrecy on grand jury witnesses. See Fed. R. Crim. P. 6(e)(2)(A) (“No obligation of secrecy may be imposed on any person except in accordance with Rule 6(e)(2)(B).”); Fed. R. Crim. P. 6(e)(2)(B) (not including witnesses among the list of persons bound by an obligation of secrecy).  As the United States Supreme Court summarized in United States v. Sells Engineering, Inc., 463 U.S. 418 (1983), 

Rule 6(e) of the Federal Rules of Criminal Procedure codifies the traditional rule of grand jury secrecy. Paragraph 6(e)(2) provides that grand jurors, government attorneys and their assistants, and other personnel attached to the grand jury are forbidden to disclose matters occurring before the grand jury. Witnesses are not under the prohibition unless they also happen to fit into one of the enumerated classes. 

Id. at 425. As these authorities make clear, it was improper for the government to include the Non-Disclosure Language in grand jury subpoenas issued to witnesses.

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.

Rumors of Additional Grand Jury Subpoenas and John Doe Summonses Against Foreign Banks (9/10/11)

Jeff Neiman has a new blog entry, Reuters: Enforcement Action Against Ten Swiss Banks in the Works (9/10/11), here, reporting on a Lynnley Browning Reuters report of subpoena / John Doe summons action that are being prepared to blast information out perhaps 10 foreign banks. (Ms. Browning's report is here; as I get additional links for information I deem useful on this subject, I will post them below.) The reported rumor is that the request will be for accounts of "as low as $50,000." Jeff's discussion is excellent, so I encourage readers to go to that discussion. My comments are:

1. While assisting clients having a significant, sometimes, large number of foreign financial accounts scattered in relatively low amounts among a number of foreign financial institutions, the sheer number of accounts created logistical difficulties in making a proper assessment of the risks of not getting into the voluntary disclosure programs and, if the client entered the programs, then the processing of the information and documents for the final package. But when that significant or large number of accounts involved relatively small amounts and relatively small aggregate amounts, even beyond the logistics issues, the upfront decision was tilted in favor of joining the programs and will affect the decision whether to opt out. Specifically, the nonwillful penalty (up to $10,000) is per account per year. For example, in the worst cases (the criminal cases to date), the Government has demanded only a single FBAR willful penalty of 50% of the highest amount in the foreign financial account(s) in the highest year(which does not include foreign assets, such as real estate). This 50% willful penalty asserted in the criminal cases could be significant, but still represents a Government decision not to press for larger penalties by including more years otherwise permitted by the FBAR statute. (There could be some constitutional issues of Excessive Fines and perhaps due process in asserting higher FBAR penalties; see the tag below.) But, with a large number of accounts, the IRS could go for the nonwillful penalty, designed to punish less culpability, and easily extract the same or a larger penalty than the willful penalty depending upon a combination of the aggregate numbers and the number of accounts. The problem with trying to assess what the risks are with respect to the nonwillful penalty (assuming that the lawyer and client properly reach a conclusion of unlikelihood of criminal risk, civil fraud risk, and willfulness risks, which are all variations of the same them) is that we don't have enough of a populated data base to anticipate what the IRS will do in nonwillful cases. The nonwillful penalties are up to $10,000 per account per year and the IRS agent has a lot of discretion, even in cases where there is no reasonable cause, as to what to do -- including merely issuing a slap on the hand letter saying, in effect, go forth and sin no more. We just don't know based on real information data points (including the discussion in the IRM), so many clients in this profile were not willing to take the risk of going forth and sinning no more, but taking the audit risk for past years. They were pushed into the program, thus capping the civil penalties with the notion of perhaps opting out for audit after better information is available as to what might happen on audit.