Important CA2 Opinion on Foregone Conclusion Required To Overcome Fifth Amendment Act of Production Assertion to Summons Production of Foreign Documents, Including Bank Records (8/1/16)

In United States v. Greenfield, 831 F.3d 106 (2d Cir. 8/1/16), here, the Court rejected the IRS's summons enforcement.  I offer first the Court's opening summary and will then offer more (including some quotes and discussion).

Defendant-Appellant Steven Greenfield was implicated in tax evasion after a leak of documents from a Liechtenstein financial institution revealed connections to previously undisclosed, offshore bank accounts. Years after the leak, the Internal Revenue Service issued a summons for an expansive set of Greenfield’s financial and non-financial records, including those pertaining to the offshore accounts referenced in the leak. Greenfield refused to comply with the summons, and the Government sought enforcement in the Southern District of New York (Hellerstein, J.). Greenfield opposed enforcement and moved to quash the summons, inter alia, on the basis that the compelled production of the documents would violate his Fifth Amendment right against self-incrimination. The District Court granted enforcement for a subset of the requested documents under the foregone-conclusion doctrine set out in Fisher v. United States, 425 U.S. 391 (1976). We conclude that the Government has failed to establish that it is a foregone conclusion that the requisite exercise, control, and authenticity of the documents existed as of time of the issuance of the summons. Accordingly, we VACATE the District Court’s order enforcing the summons and denying Greenfield’s motion to quash and REMAND for further proceedings consistent with this opinion.

The panel in an opinion by Judge Calabresi opens with a sweeping introduction to the problem of offshore wealth and offshore evasion:

A remarkable amount of American wealth is held offshore, often in an effort to evade taxation. One recent study estimated that $1.2 trillion—some four percent of this nation’s wealth—is held offshore and that this results in an annual loss in tax revenue of $35 billion. Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens 53 (Teresa Lavender Fagan trans., 2015). Such lost income diminishes the Treasury and exacerbates problems of inequality since, generally, only the wealthiest of individuals can take advantage of foreign tax havens. Id. Recognizing this, recent measures, such as the Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471-1474, have sought to strengthen the IRS’s efforts to combat tax evasion through the use of foreign shelters. But enforcement presents significant challenges given the sophistication of tax planning and the information asymmetry between taxpayers and tax authorities.

So there is strong need for tax enforcement and collection in the offshore area.  But,

The need to curtail tax evasion, however pressing, nevertheless cannot warrant the erosion of protections that the Constitution gives to all individuals, including those suspected of hiding assets offshore. In the present case, Steven Greenfield was implicated in tax evasion as a result of a document leak from a Liechtenstein financial institution. Years later, the Government issued a summons for a broad swath of Greenfield’s records, including documents relating to all of Greenfield’s financial accounts and documents pertaining to the ownership and management of offshore entities controlled by Greenfield. 

Greenfield opposed production and moved to quash the summons based on his Fifth Amendment right against self-incrimination. But the District Court for the Southern District of New York (Hellerstein, J.) granted enforcement as to subset of the records demanded by the summons. It concluded that the existence, control and authenticity of that subset of documents were a foregone conclusion and, as a result, under Fisher v. United States, 425 U.S. 391 (1976), any Fifth Amendment challenge must fail. 

We disagree with the District Court for two reasons. First, we find that, for all but a small subset of the documents covered by the District Court’s order, the Government has not demonstrated that it is a foregone conclusion that the documents existed, were in Greenfield’s control, and were authentic even in 2001. Second, we find that the Government has failed to present any evidence that it was a foregone conclusion that any of the documents subject to the summons remained in Greenfield’s control through 2013, when the summons was issued.  Accordingly, because the Government has not made the showing that is necessary to render Greenfield’s production of the documents non-testimonial and, hence, exempt from Fifth Amendment challenge, we vacate the District Court’s order and remand.

I urge readers with particular interest in the issue to study the opinion carefully.  I offer the following which steps through the key analysis as I understand it.

1. At the outset, a number of readers might wonder why the required records doctrine would not have pre-empted the Fifth Amendment issue altogether.  The panel says (Slip Op. 13 n. 6):

The documents sought in the instant case do not fall under the so-called “required records exception” to the act-of-production doctrine. That exception applies to a subset of documents that must be maintained by law. See In re Grand Jury Subpoena Dated Feb. 2, 2012, 741 F.3d 399, 344 (2d Cir. 2013). For example, the Government can require an individual to produce documents related to foreign bank accounts maintained pursuant to the Bank Secrecy Act (“BSA”) and its implementing regulations, see 31 C.F.R. § 1010.420, without violating an individual’s right against self-incrimination under the Fifth Amendment, see Feb. 2, 2012, 741 F.3d at 342. The Summons in this case, however, seeks documents that fall outside the five-year period under the BSA during which an individual is required to maintain documents by law.

2. The requirement of compelled production relates to control rather than location.  Slip Op. p. 11, fn. 5 citing Marc Rich & Co. v. United States, 707 F.2d 663, 666-67 (2d Cir. 1983).

3.  Based on the Supreme Court authority the panel discusses (Fisher v. United States, 425 U.S. 391 (1976) and United States v. Hubbell, 530 U.S. 27 (2000)), the panel notes (Slip Op. p. 13):

[w]e must examine whether the LGT Documents [Bank Documents from LGT disclosed to the Government by a whistleblower] independently establish the communicative elements inherent in Greenfield’s production of the sought records or whether Greenfield’s production of the documents is a necessary part of the chain of potentially incriminatory evidence. In doing this we recognize that both our court and our sister circuits have struggled with the extent of Government knowledge necessary for a foregone-conclusion rationale to apply. See, e.g., [case citations omitted].

4.  The foregone conclusion inquiry requires that the Government know and can show the "with reasonable particularity" that "that the sought documents exist, that they are under the control of defendant, and that they are authentic." (Slip Op. 14-15.)

5.  The "critical issue" (Slip Op. pp. 17-18):

is whether the Government can prove that it is a foregone conclusion that the documents existed, were in Greenfield’s control, and could be authenticated by the Government independent of Greenfield’s.

6.  The panel then addresses the preliminary issue of whether the Government's evidence shows with reasonable particularity that the documents ever existed (most prominently in 2001 when they presumably would have been created if created at all).   As to bank documents of the type regularly prepared, the Court held that the Government's showing might be sufficient to show that such documents existed and were in the taxpayer's control in 2001.  I won't get further into that analysis, because the issue is really whether the Government showed with reasonable particularity whether they existed in 2013 when the summons was issued; their existence and control in 2001, however, might permit an inference of their continuing existence and control in 2013, but see the further discussion below.  I will turn to that in a minute, but I do want to address in paragraph 7 immediately below one part of the analysis for 2013.

7.  The panel held that the Government had not shown that it was a foregone conclusion that it could authenticate the documents independent of any implicit testimony in producing the documents.  The panel reasoned:

The Government, however, has not shown that it is a foregone conclusion that it could authenticate the Bank Documents. The Government speculates that authentication could be done through “the testimony of a current or former bank employee, including . . . [Kieber], as well as through Letters of Request issued under the Hague Evidence Convention.” Appellee Br. 45. But the Government has not proffered evidence that LGT would be willing to allow one of its employees to testify for the Government or that Kieber himself would be willing to testify given the uncertainty concerning his whereabouts. Nor has the Government demonstrated that it has successfully used the Hague Evidence Convention to authenticate documents from LGT (or another Liechtenstein financial institution) in the past.11 It may be possible that authentication would be available in this manner. But, in light of the controversy surrounding the source of the documents, a conclusory statement that authentication is available by these means is not sufficient. Cf. Bright, 596 F.3d at 693 n.4 (suggesting that it was a foregone conclusion that Government could authenticate foreign records through “the American card servicing company”). fn12
   fn. 12  The Hague Evidence Convention mandates a complicated process that is not always successful. Indeed, district courts must consider, in part, the “likelihood that resort to [Hague Convention] procedures will prove effective” in determining whether to apply those procedures or the Federal Rules of Civil Procedure to discovery involving a foreign national. Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522, 544 (1987). Moreover, the Government has elsewhere recognized the “impracticalities” of requesting documents from foreign banks through treaties, “emphasizing in particular the length of time generally associated with such requests, as well as the government’s lack of information through the entire request process to the foreign government.” In re Grand Jury Subpoena Dated Feb. 2, 2012, 908 F. Supp. 2d 348, 357 (E.D.N.Y. 2012).

8.  So, the Government may have met the burden of showing existence and control in 2001 but not authenticity.  Then, turning to 2013, the time the summons was issued which is the critical testing point, the question was whether the Government had shown that, if they existed and were in his control in 2001, the Government had shown with reasonable particularity the critical elements -- existence, control and authenticity -- as of 2013.  The Government's position on this issue assumed that it had met these burdens for the year 2001 and then sought to raise an inference that the elements continued to exist in 2013.  Of course, the premise for the argument was false, so the Court rejected it and, in any event, was not a strong enough reasonable inference because of the passage of time from 2001 to 2013.  (See Slip Op. 26-32.)

9.  As to an expired passport and related travel documents, if they still existed, the taxpayer's production of them pursuant to the summons would admit their existence and his control, both inherently testimonial and subject to a Fifth Amendment privilege.  But, there was not foregone conclusion that such old the documents did in fact continue to exist or were in his control.  As to the testimonial nature, the panel offered this analysis in Slip Op. 32-33 fn. 22.

The validity of this observation can be verified by unpacking the subpoena’s communicative and performative components into two steps. If the Government already knew (say, from an informant) that Greenfield had the passport, and had probable cause to believe that it contained valuable evidence of crime, it could obtain a search warrant to seize the passport (or, even without probable cause, it could serve a subpoena for its production), since the evidence in the document itself does not constitute compelled communication. Now suppose that, lacking such knowledge, it subpoenaed Greenfield to a grand jury to ask him directly, “Do you still have your expired 2001 passport?” Greenfield unquestionably could refuse to answer; the fact that there is nothing incriminating about answering that he retains his expired passports would not defeat the privilege, given that an affirmative answer could be a link in the chain leading to the Government’s acquisition of the incriminating document. There is no distinction between incriminating information in the form of an explicit verbal answer to a question and the same information communicated implicitly by the act of productio

10.  The panel concluded:

For all these reasons, we conclude that as to those documents as to which a foregone  conclusion might apply in 2001, no such foregone conclusion can be asserted in 2013, when the Summons issued. In holding this, we do not, however, mean to foreclose the possibility that the Government could develop a better record with respect to each of the relevant requirements in connection with the issuance of another summons in the future. Indeed, it is precisely because of this possibility that we have examined in such detail what is lacking in the present Summons.

11.  The panel recognized the possibility that the Government may fix the problems in a future summons or other compulsory process, which is why perhaps the opinion ranges farther than it needed to.  (See the last sentence in the quote in paragraph 10.) For example, in Slip Op. 27 fn. 18, the panel says that it considered an issue it perhaps might not have "if we did not, the Government would still be able simply to file another summons and raise the argument in the subsequent proceeding."