Court Opinion

ID: 2645902
Source: CourtListenerOpinion
Date Created: 2013-12-14 01:00:45.287827+00
Date Added: 2024-06-11T12:28:56.068395
License: Public Domain

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