• Eleventh Circuit Holds that Production of Foreign Bank Account Records May be Compelled in Criminal Investigation Under Required Records Exception to Fifth Amendment Privilege
  • March 27, 2013 | Authors: Nicholas J. Nastasi; Matthew J. Smith
  • Law Firm: Saul Ewing LLP - Philadelphia Office
  • The Eleventh Circuit recently joined the Fifth, Seventh, and Ninth Circuits in holding that subpoenaed foreign financial records properly fall within the Required Records Exception to the Fifth Amendment privilege against self-incrimination, and their production may thus be compelled in a criminal investigation. In re Grand Jury Proceedings, No. 4-10, No. 12-13131, 2013 WL 452768 (11th Cir. Feb. 7, 2013).

    The case arose from a grand jury investigation involving the suspected failure of a husband (the “Target” of the investigation) and wife: (1) to disclose their ownership of or income derived from foreign bank accounts, held both together and individually, on their jointly-filed tax returns; and (2) to file, with the U.S. Department of the Treasury, the required Reports of Foreign Bank and Financial Accounts (“FBAR”) forms for the alleged accounts. The investigation was jointly conducted by the Internal Revenue Service (“IRS”), the U.S. Department of Justice Tax Division, and the U.S. Attorney’s Office.

    During the investigation, the government served subpoenas on both the Target and his wife seeking production of “any foreign financial account records that they were required to keep pursuant to the federal regulations governing offshore banking” for the period 2006 to present. The couple refused to produce the subpoenaed records, and the government filed a motion to compel in the District Court. In its motion, the government argued that, pursuant to the Bank Secrecy Act (“BSA”), 31 U.S.C. § 5311 et seq., and its implementing regulations, the Target and his wife were required to maintain the foreign financial account records. The government contended, therefore, that the Required Records Exception to the Fifth Amendment privilege against self-incrimination applied, and the couple could not withhold the records on Fifth Amendment grounds. The District Court agreed and granted the motion to compel.

    On appeal to the Eleventh Circuit, the couple argued that the Required Records Exception did not apply to the subpoenaed records and that their Fifth Amendment privilege against self-incrimination should preclude compulsion of the records. In its February 7, 2013 ruling, the Circuit Court held that the records properly fell under the Required Records Exception and, accordingly, affirmed the District Court’s order granting the government’s motion to compel production.

    The Fifth Amendment provides that “[n]o person ... shall be compelled in any criminal case to be a witness against himself ... .” This provision applies when an accused is compelled to make an incriminating “testimonial communication,” which may include the act of producing evidence in response to a subpoena as well as to the evidence itself. However, this protection is not absolute. As the Eleventh Circuit observed in this case, “when the government is authorized to regulate an activity, an individual’s Fifth Amendment privilege does not prevent the government from imposing recordkeeping, inspection, and reporting requirements as part of a valid regulatory scheme.” Under the Required Records Exception, the government may mandate the retention or inspection of records created under such a regulatory scheme.

    In assessing whether the Required Records Exception applied to the subpoenaed foreign financial records in this case, the Circuit Court observed that the Supreme Court has developed three “premises” for the application of the exception. In order for the exception to apply: (1) the purpose of the government’s inquiry must be “essentially regulatory;” (2) the records must be of a kind which the regulated party has “customarily kept;” and (3) the records must assume “public aspects” which render them at least analogous to public documents. With this analytical framework in mind, the Court addressed each premise individually.

    First, the Court ruled that the purpose of the record-keeping requirements of the BSA was “essentially regulatory” in nature. The Court rejected the Target’s argument that the purpose of the BSA was not “essentially regulatory” because the Act was intended to aid law enforcement in criminal matters rather than regulatory matters. The Court concluded that “the BSA has multiple purposes,” and the fact that a statute “relates both to criminal law and to civil regulatory matters does not strip the statute of its status as ‘essentially regulatory.’” The Court reasoned that, because there is nothing inherently illegal about having a foreign bank account, the record-keeping requirements of the BSA were “essentially regulatory in nature, as they do not target inherently illegal activity or a group of persons inherently suspect of criminal activity.”

    Next, the Court ruled that the records sought were of the type “customarily kept” in connection with the regulated activity. The Court agreed with the Ninth and Fifth Circuits that the information required to be kept under the regulations was “basic account information” that bank customers would customarily keep, partly because customers must report it to the IRS each year, and partly because they simply need that information to access their accounts.

    Third, the Court ruled that the requested records satisfied the final premise in that they assume a “public aspect” which renders them at least analogous to public documents. Specifically, the Court observed that, where personal information is compelled subject to a valid regulatory scheme, that information assumes a public aspect. The Court concluded that, because the BSA is a valid regulatory regime, the information sought pursuant to the Act therefore “assumes a public aspect.”

    Finally, the Court rejected the Target’s “attempt to draw a distinction, for Fifth Amendment privilege purposes, between his act of producing the records and the records themselves.” Although either the act of producing records or the records themselves could be testimonial and incriminating, the Court agreed with the Seventh Circuit’s rationale 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.” Moreover, the Court reasoned that the “voluntary choice” to engage in an activity with record-keeping requirements under a valid regulatory scheme “carries consequences,” including “the possibility that those records might have to be turned over upon demand.”

    In a growing number of jurisdictions, the Required Records Exception to the Fifth Amendment’s privilege against self-incrimination is being applied to compel individuals to produce foreign financial account records, despite the potentially incriminating and testimonial nature of those communications. Although the regulations requiring the maintenance of such records are allegedly “regulatory,” those regulations, in conjunction with the Required Record Exception, clearly serve a significant role in aiding government enforcement in criminal investigations. Notably, the requirements of the BSA extend beyond foreign accounts, and certain domestic transactions could potentially be subject to production as well.