Seventh Circuit: FBAR Forms Governed by Required Records Doctrine, Not Protected by Fifth Amendment

On August 27, 2012, the United States Court of Appeals for the Seventh Circuit decided In Re: Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, available here, holding that the “Required Records Doctrine” requires a taxpayer asserting a Fifth Amendment privilege over documents which the taxpayer is required to maintain pursuant to the Bank Secrecy Act to produce the documents.

In its decision, the Seventh Circuit’s wrote as follows: “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 the Required Records Doctrine applicable to this case, we hold that T.W. must produce the subpoenaed records.” The Seventh Circuit’s holding is consistent 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), available here.

As discussed by the Seventh Circuit, the Required Records Doctrine can be traced to Shapiro v. United States, 335 U.S. 1 (1948), available here. In Shapiro, a fruit wholesaler invoked his Fifth Amendment privilege in response to an administrative subpoena that sought business records which were required to be maintained under the Emergency Price Control Act (EPCA), which was passed immediately following the outbreak of World War II to prevent inflation and price gouging.  The Court revisited its decision in Shapiro twenty years later in Marchetti and Grosso v. United States, 390 U.S. 62 (1968), available here.

In holding that the Required Records Doctrine was inapplicable to the circumstances before it in both Shapiro and Grosso, the Court articulated the following three requirements for determining the applicability of the Required Records Doctrine: (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. Grosso, 390 U.S. at 67-68. 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. See, e.g., Fisher v. United States, 425 U.S. 391 (1976); United States v. Doe (Doe I), 465 U.S. 605 (1984); Braswell v. United States, 487 U.S. 99 (1988); Doe v. United States (Doe II), 487 U.S. 201 (1988). In other words, producing incriminating documents under government compulsion may have testimonial aspects”aside from the contents of the documents”that are protected under the Fifth Amendment.

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 Seventh Circuit remarked that:
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, (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.

The takeaway from this case is that the IRS and the Department of Justice will continue to assert that there are no viable 5th Amendment protections to taxpayers producing evidence of their foreign bank accounts.  However, as only the Ninth and the Seventh Circuits have ruled on this issue it remains to be seen whether the other Circuits will follow.

The attorneys at Fuerst Ittleman David & Joseph have extensive experience in both the civil tax and the criminal tax litigation before the U.S. District Courts and the U.S. Circuit Courts of Appeal.  You may contact us by calling 305.3560.5690 or by emailing us at contact@fuerstlaw.com

This entry was posted on Tuesday, September 4th, 2012 at 10:05 am and is filed under White Collar Defense.

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