Filed: Dec. 13, 2013
Latest Update: Mar. 02, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 13-4267 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. UNDER SEAL, Defendant - Appellant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Leonie M. Brinkema, District Judge. (1:12-dm-00020-LMB-1) Argued: October 29, 2013 Decided: December 13, 2013 Before KING, GREGORY, and AGEE, Circuit Judges. Affirmed by published opinion. Judge Agee wrote the opinion, in which Judge King a
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 13-4267 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. UNDER SEAL, Defendant - Appellant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Leonie M. Brinkema, District Judge. (1:12-dm-00020-LMB-1) Argued: October 29, 2013 Decided: December 13, 2013 Before KING, GREGORY, and AGEE, Circuit Judges. Affirmed by published opinion. Judge Agee wrote the opinion, in which Judge King an..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-4267
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
UNDER SEAL,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Leonie M. Brinkema,
District Judge. (1:12-dm-00020-LMB-1)
Argued: October 29, 2013 Decided: December 13, 2013
Before KING, GREGORY, and AGEE, Circuit Judges.
Affirmed by published opinion. Judge Agee wrote the opinion, in
which Judge King and Judge Gregory joined.
ARGUED: Caroline Rule, KOSTELANETZ & FINK, LLP, New York, New
York, for Appellant. Elissa Hart-Mahan, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Robert Steven Fink, Juliet Leah Fink, KOSTELANETZ & FINK,
LLP, New York, New York; David G. Barger, GREENBERG TRAURIG,
LLP, McLean, Virginia, for Appellant. Neil H. MacBride, United
States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,
Alexandria, Virginia; Kathryn Keneally, Assistant Attorney
General, Frank P. Cihlar, Chief, Criminal Appeals & Tax
Enforcement Policy Section, Gregory Victor Davis, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee.
2
AGEE, Circuit Judge:
John and Jane Doe (the “Does”) appeal the district court’s
order holding them in civil contempt for refusing to comply with
grand jury subpoenas. The Does contend that the district court
erred in finding that the required records doctrine overrode
their Fifth Amendment privilege against self-incrimination and
required production of certain foreign bank records. For the
reasons that follow, we affirm the judgment of the district
court.
I.
The underlying facts in this case are undisputed. The Does
are the targets of a grand jury investigation in the United
States District Court for the Eastern District of Virginia
seeking to determine whether they used secret Swiss bank
accounts to conceal assets and income from the Internal Revenue
Service (“IRS”) and the Treasury Department. The grand jury
received evidence that on June 2, 2008, John Doe opened an
account at the Swiss investment bank Clariden Leu (now Credit
Suisse AG) in the name of [Redacted Corporation]. He was the
beneficial owner of the account, which was valued in excess of
$2.3 million at the close of 2008. The account was managed by
the Swiss firm Beck Verwaltungen AG. When John Doe closed this
account in January 2009, he transferred $1.5 million to Beck
3
Verwaltungen AG’s account at a different Swiss private bank,
Bank Sarasin.
On May 18, 2012, the Does were served grand jury subpoenas
requesting that they produce certain foreign bank account
records that they were required to keep pursuant to Treasury
Department regulations governing offshore banking. The
subpoenas demanded production of
[a]ny and all records required to be
maintained pursuant to 31 C.F.R. § 1010.420
(formerly 31 C.F.R. § 103.32) for the past
five (5) years relating to foreign financial
bank, securities, or other financial
accounts in a foreign country for which you
had/have a financial interest in, or
signature or other authority over and are
required by law to file a Report of Foreign
Bank and Financial Account (FBAR). The
records required to be maintained pursuant
to 31 C.F.R. § 1010.420 (formerly 31 C.F.R.
§ 103.32) include records that contain the
name in which each such account is
maintained, the number or other designation
of such account, the name and address of the
foreign bank or other person with whom such
account is maintained, the type of such
account, and the maximum value of each such
account during the reporting period.
(J.A. 10.) The Does timely moved to quash the subpoenas, citing
their Fifth Amendment privilege against self-incrimination. The
Government opposed the motion, arguing that under the required
records doctrine, the privilege does not apply to financial
records that the Does were required by law to retain.
4
After hearing argument, the district court denied the Does’
motion to quash, finding that the required records doctrine
overrode their Fifth Amendment privilege against self-
incrimination, and ordered them to comply with the subpoenas.
The Does refused to comply, and pursuant to a stipulation by the
parties, the district court held the Does in civil contempt. 1
The Does now appeal, and we have jurisdiction pursuant to
28 U.S.C. § 1291.
II.
A.
We review the district court’s denial of a motion to quash
a subpoena for an abuse of discretion. 2 In re Grand Jury
Subpoena: John Doe, No. 05GJ1318, 584 F.3d 175, 182 (4th Cir.
2009). But “[i]nsofar as the district court’s determination was
based upon interpretations of law, . . . we review those
conclusions de novo.” In re Grand Jury Subpoena (T-112),
597
F.3d 189, 195 (4th Cir. 2010).
1
The district court stayed the execution of the contempt
order until this Court adjudicates the Does’ appeal.
2
Although the Does formally appeal the district court’s
order holding them in civil contempt, the underlying basis of
the contempt order is the court’s denial of their motion to
quash the grand jury subpoenas.
5
B.
The Bank Secrecy Act (the “BSA” or the “Act”), 31 U.S.C.
§§ 5311-25, regulates offshore banking and contains a number of
recordkeeping and inspection provisions. Among the purposes of
the BSA is “to require certain reports or records where they
have a high degree of usefulness in criminal, tax, or regulatory
investigations or proceedings.” 31 U.S.C. § 5311. Section
241(a) of the Act instructs the Treasury Secretary to “require a
resident or citizen of the United States . . . to keep records,
file reports, or keep records and file reports, when the
resident, citizen, or person makes a transaction . . . with a
foreign financial agency.” Id. § 5314(a). In furtherance of
that statutory directive, the Treasury Secretary implemented
regulations that require (1) U.S. citizens and residents to
disclose their foreign bank accounts, see 31 C.F.R. § 1010.350,
and (2) that the records for such accounts “be retained by each
person having a financial interest in or signature or other
authority over any such account” for at least five years and be
kept “at all times available for inspection as authorized by
law,”
id. § 1010.420. These recordkeeping regulations were in
effect at all times relevant to this case.
6
III.
The Fifth Amendment to the United States Constitution
provides that “[n]o person . . . shall be compelled in any
criminal case to be a witness against himself.” U.S. Const.
amend. V. The Supreme Court has held that the privilege against
self-incrimination bars the government from “compelling a person
to give ‘testimony’ that incriminates him.” Fisher v. United
States, 425 U.S. 391, 409 (1976). Because “the privilege
protects a person only against being incriminated by his own
compelled testimonial communications,” the Court has determined
that it does not shield production of private papers voluntarily
prepared or prepared by a third party.
Id. at 409.
The Does contend that the required records doctrine—which,
if it applies, renders the Fifth Amendment privilege
inapplicable—does not apply here and that the district court
erred in finding otherwise. Essentially, the Does argue that
“[w]here documents are required to be kept and then produced,
they are arguably compelled.” In re M.H., 648 F.3d 1067, 1071
(9th Cir. 2011) (emphasis in original). The Supreme Court,
however, has held that the privilege against self-incrimination
does not bar the government from imposing recordkeeping and
inspection requirements as part of a valid regulatory scheme.
See Shapiro v. United States,
335 U.S. 1, 17 (1948) (noting that
the nature of documents and the capacity in which they are held
7
may indicate that “the custodian has voluntarily assumed a duty
which overrides his claim of privilege”).
In Shapiro, the Court required a wholesaler of fruit and
produce to turn over certain records he was obliged to keep and
maintain for examination pursuant to the Emergency Price Control
Act (“EPCA”), which was enacted during World War II to prevent
inflation and price gouging. Id. at 4–11. The Court determined
that the EPCA represented a valid exercise of Congress’
regulatory authority and that the recordkeeping provisions of
the EPCA were essential to the administration of the statute’s
objectives.
Id. at 31–32. Further, the Court reasoned that
this “required records doctrine” applies “not only to public
documents in public offices, but also to records required by law
to be kept in order that there may be suitable information of
transactions which are the appropriate subjects of governmental
regulation, and the enforcement of restrictions validly
established.”
Id. at 17 (emphasis omitted).
The Court revisited its decision in Shapiro twenty years
later in Marchetti v. United States, 390 U.S. 39 (1968) and
Grosso v. United States,
390 U.S. 62 (1968). In holding that
the required records doctrine was inapplicable to the
circumstances before it in both cases, the Court articulated
three requirements—derived from Shapiro’s holding—for
determining the applicability of the required records doctrine.
8
As summarized in Grosso, those requirements are: (1) the
purposes of the United States’ 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. 390 U.S. at 67–68.
This Court has recognized that the foregoing three
principles announced in Grosso define the required records
doctrine, see, e.g., United States v. Webb, 398 F.2d 553, 556
(4th Cir. 1968) (recognizing required records doctrine in
context of regulation of interstate trucking), but has yet to
address the applicability of the doctrine in the context of
foreign bank records. We do so now and join the consensus of
the courts of appeals to have considered the issue that the
required records doctrine applies in concluding that records
required to be maintained under the BSA fall within the required
records doctrine. 3 We further conclude that all three
requirements of the doctrine are met in this case.
3
See, e.g., In re Grand Jury Subpoena, 696 F.3d 428, 433–34
(5th Cir. 2012); In re Special Feb. 2011-1 Grand Jury Subpoena
Dated Sept. 12, 2011,
691 F.3d 903, 909 (7th Cir. 2012); In re
M.H., 648 F.3d at 1073; In re Doe,
711 F.2d 1187, 1191 (2d Cir.
1983).
9
A.
In order to fall under the required records doctrine, the
purpose of the recordkeeping must be “essentially regulatory.”
Grosso, 390 U.S. at 68. We have held that a recordkeeping
requirement is “essentially regulatory” if it is “imposed in an
essentially noncriminal and regulatory area of inquiry and [is]
not directed to a selective group inherently suspect of criminal
activity.”
Webb, 398 F.2d at 556 (internal quotation marks
omitted).
The Does argue that, for several reasons, the BSA’s
recordkeeping provision is criminal in nature, rather than
regulatory. They contend that unlike truly regulatory schemes,
such as those that condition employment or licensure on the
retention of certain records, the BSA’s purpose is
prosecutorial—i.e., to grant law enforcement access to otherwise
unavailable evidence of foreign financial transactions. The
Does cite language referring to criminal investigation as one of
the BSA’s aims in the statute’s declaration of purpose,
legislative history, and descriptions on the IRS website, to
support their position that the BSA’s recordkeeping requirements
prohibitively operate in a criminal area of inquiry against
those suspected of tax fraud. Implicit in the Does’ argument is
that because the BSA lists first among its purposes the
gathering of information that has “a high degree of usefulness
10
in criminal . . . investigations,” 31 U.S.C. § 5311, the Act’s
chief purpose is to fight crime.
These same arguments failed to persuade the other appellate
courts which have considered the issue, and do not persuade us
either. See, e.g., In re M.H., 648 F.3d at 1073–74 (noting and
rejecting party’s citations to language in the BSA and the IRS
website); In re Grand Jury
Subpoena, 696 F.3d at 434–35 (same).
The Supreme Court has observed that a statute which
includes a criminal law purpose in addition to civil regulatory
matters does not strip the statute of its status as “essentially
regulatory.” See Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 77
(1974) (“[T]hat a legislative enactment manifests a concern for
the enforcement of the criminal law does not cast any
generalized pall of constitutional suspicion over it.”).
Notwithstanding their own argument, the Does acknowledge that
the BSA has purposes unrelated to criminal investigation. The
plain language of the BSA verifies its concomitant tax,
regulatory, and counterterrorism purposes in addition to its law
enforcement goals. See 31 U.S.C. § 5311 (requiring records to
be kept “where they have a high degree of usefulness in
criminal, tax, or regulatory investigations or proceedings, or
in the conduct of intelligence or counterintelligence
activities, including analysis, to protect against international
terrorism” (emphasis added)). Elaborating on the non-criminal
11
purposes of the BSA, the relevant House Report acknowledges that
the Act’s recordkeeping and reporting requirements “aid duly
constituted authorities in lawful investigations” but also
underscores that the requirements “facilitate the supervision of
financial institutions properly subject to federal supervision”
and “provide for the collection of statistics necessary for the
formulation of monetary and economic policy.” H.R. Rep. No. 91-
975 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4405.
Consequently, the Treasury Department shares the information it
collects pursuant to the requirements of the BSA with other
agencies—including the Office of the Comptroller of the
Currency, the Consumer Financial Protection Bureau, the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the
National Credit Union Administration, and the Office of Thrift
Supervision—none of which are empowered to bring criminal
prosecutions. See 31 U.S.C. § 5319; 31 C.F.R. § 1010.950(a)-
(b).
Further, the Supreme Court has noted, in discussing “the
recordkeeping and reporting requirements of the [BSA],” that
“Congress seems to have been equally concerned with civil
liability which might go undetected by reason of transactions of
the type required to be recorded or reported.” Schultz, 416
U.S. at 76. Indeed, the BSA’s comprehensive statutory scheme
contains recordkeeping requirements that carry both civil and
12
criminal penalties. See 31 U.S.C. §§ 5321, 5322 (individual’s
failure to report or retain required records of foreign bank
accounts does not give rise to criminal liability unless that
failure is proven “willful”). 4
Additionally, the BSA’s recordkeeping requirements broadly
cover all those who maintain foreign bank accounts, rather then
a particular subgroup. The Ninth Circuit has explained:
There is nothing inherently illegal about
having or being a beneficiary of an offshore
foreign banking account. According to the
Government, § 1010.420 applies to “hundreds
of thousands of foreign bank accounts—over
half a million in 2009.” Nothing about
having a foreign bank account on its own
suggests a person is engaged in illegal
activity. The fact distinguishes this case
from Marchetti and Grosso, where the
activity being regulated—gambling—was almost
universally illegal, so that paying a tax on
gambling wagers necessarily implicated a
person in criminal activity. Admitting to
having a foreign bank account carries no
such risk. That the information contained
in the required record may ultimately lead
to criminal charges does not convert an
essentially regulatory regulation into a
criminal one.
In re M.H., 648 F.3d at 1074–75.
Moreover, § 1010.420 has a reporting requirement. The
regulation mandates that the required records “shall be kept at
all times available for inspection as authorized by law.” 31
4
31 U.S.C. § 5321 permits the Secretary of Treasury to
commence civil actions to recover monetary penalties for various
violations of the BSA.
13
C.F.R. § 1010.420. The Supreme Court has indicated that “no
meaningful difference” exists “between an obligation to maintain
records for inspection, and such an obligation supplemented by a
requirement that those records be filed periodically with
officers of the United States.” Marchetti, 390 U.S. at 56 n.14.
Because the BSA’s recordkeeping requirements serve purposes
unrelated to criminal law enforcement and the provisions do not
apply exclusively to those engaged in criminal activity, we find
that those requirements are “essentially regulatory.”
Accordingly, we conclude that the first prong of the required
records doctrine is satisfied.
B.
The records must also be “of a kind which the regulated
party has customarily kept.” Grosso, 390 U.S. at 68. We find
this prong of the required records doctrine to be easily
satisfied here. The records sought are of the same type that
the Does must report annually to the IRS pursuant to the
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 31 C.F.R. §§ 1010.350, 1010.420.
Furthermore, the records sought are also of the same type
that a reasonable account holder, foreign or domestic, would
14
keep in order to access his or her account. See In re M.H., 638
F.3d at 1076 (reasoning that foreign account holders routinely
retain basic foreign bank records if only to access their own
accounts). The Does argue that individuals are unlikely to keep
account records for the five years required under 31 C.F.R.
§ 1010.420, given the three-year statute of limitations for
civil tax adjustments, and because foreign banks are notorious
for failing to provide customers with records. This argument
fails, however, given the clear language in § 1010.420 that
requires the retention of the account information that has been
subpoenaed. 5 Because it is the failure to maintain such records
that can be probative of criminal activity, rather than the
contents of the records, foreign account holders can reasonably
be expected to follow the law governing their choice to engage
in offshore banking.
Accordingly, we conclude that the records sought are of a
kind “customarily kept” and the second prong of the required
records doctrine is satisfied.
5
We also find the Does’ five-year argument dubious in view
of 26 U.S.C. § 6501(e), which contains a six-year statute of
limitations for many taxpayers and fosters a generally accepted
accounting practice to advise taxpayers to keep their pertinent
records until the § 6501(e) period has expired.
15
C.
Finally, “the records [sought] must have assumed ‘public
aspects’ which render them at least analogous to public
documents.” Grosso, 390 U.S. at 68. Two courts of appeals have
held that “if the government’s purpose in imposing the
regulatory scheme is essentially regulatory, then it necessarily
has some ‘public aspects’” sufficient to satisfy the third prong
of the required records doctrine. In re
M.H., 638 F.3d at 1076
(citing
Shapiro, 335 U.S. at 33); accord Donovan v.
Mehlenbacher,
652 F.2d 228, 231 (2d Cir. 1981). For purposes of
this case, we agree.
Drawing a distinction between entities and individuals who
publicly engage in business with the public and those who
privately open a foreign bank account, the Does contend that
there is “nothing public about the unlicensed private activity
of owning a foreign bank account.” (Appellant’s Br. 49.) The
Does argue that the subpoenaed records are private, personal
financial records which are unrelated to legitimate regulatory
goals.
This argument by the Does misapprehends this prong of the
required records doctrine by conflating “public aspects” and
“public access.” Although the Does argue that substantive
regulations designed to protect the public from harm and open to
public access may imbue otherwise private documents with public
16
aspects, it does not follow that public aspects exist only under
these circumstances. 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 51, 52–
54 (2d Cir. 1983) (reasoning that subpoenaed medical records
possessed sufficient “public aspects” to satisfy the third prong
of the required records doctrine). As discussed above, the
Treasury Department shares the information it collects pursuant
to the Act’s recordkeeping and reporting requirements with a
number of other agencies. See 31 U.S.C. § 5319; 31 C.F.R.
§ 1010.950(a)-(b). This data sharing is designed to serve
important public purposes, including the formation of economic,
monetary, and regulatory policy, any of which are more than
sufficient to imbue otherwise private foreign bank account
records with “public aspects.” See In re Grand Jury
Subpoena,
696 F.3d at 436.
Finally, the Does contend that a requirement to retain
records begets a more attenuated relationship with the
government than a requirement to report their contents, such
that documents maintained under a mere recordkeeping requirement
have insufficient “public aspects.” The Supreme Court, however,
17
has squarely rejected this proposition. See Marchetti, 390 U.S.
at 56 n.14 (“We perceive no meaningful difference between an
obligation to maintain records for inspection, and such an
obligation supplemented by a requirement that those records be
filed periodically with officers of the United States.”). We
therefore conclude that the records in question have “public
aspects” sufficient to satisfy the third prong of the required
records doctrine.
IV.
Because we find that the records sought in the grand jury
subpoenas meet all the requirements of the required records
doctrine, the Fifth Amendment privilege is inapplicable, and the
Does may not invoke it to shield themselves from the subpoenas’
commands. As the Does’ Fifth Amendment privilege is not
implicated, we need not address their request for immunity.
Accordingly, the judgment of the district court is
AFFIRMED.
18
