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From Banking and Finance Law Daily, December 17, 2013

Demand for foreign bank records does not violate privilege against self-incrimination

By Richard A. Roth, J.D.

The Bank Secrecy Act’s requirement that individuals maintain records of foreign bank accounts and produce those records on demand did not violate the individuals’ constitutional privilege against compelled self-incrimination, the U.S. Court of Appeals for the Fourth Circuit has decided. The court agreed with the other U.S. appellate courts that have considered the issue that the required records doctrine permits the government to subpoena the records (U.S. v. Under Seal, Dec. 13, 2013, Agee, Circuit Judge).

According to the court, the facts of the case are undisputed. One of the individuals, who was the beneficial owner of funds in an account at a Swiss bank, closed the account and transferred approximately two-thirds of the funds into an account at a different Swiss bank. About three years later, the individual and his wife were served with grand jury subpoenas demanding that they produce their foreign bank account records. The appellate court noted that the two were designated as targets of the grand jury investigation.

The two individuals asked the district court to quash the subpoenas, claiming that requiring them to produce the records would amount to compelling them to incriminate themselves. Their effort failed, and they were held to be in civil contempt of court when they refused to produce the records.

Laws and regulations. The Bank Secrecy Act (BSA) instructs the Treasury Department to adopt regulations requiring U.S. citizens and residents to maintain records of transactions with foreign banks, the court began, citing 31 U.S.C. §5314(a). The resulting regulations require that persons report their foreign bank account relationships annually (see 31 C.F.R. §1010.350), and that they maintain specified records for at least five years and produce them on demand (see 31 C.F.R. §1010.420). According to the individuals, requiring them to maintain and then produce records that could show violations of the law amounted to requiring them to incriminate themselves.

Required records doctrine. The required records doctrine affords the government a way around the privilege against self-incrimination, the court noted. The doctrine allows the government to impose recordkeeping and inspection requirements as part of a legitimate regulatory regime.

As described by the court, the required records doctrine has three elements:

  1.  The recordkeeping and inspection requirement must have a regulatory purpose, as opposed to assisting in criminal investigation and prosecution.
  2.  The information in the records must be of a type that persons customarily would keep.
  3.  The records must have public aspects that make them analogous to a public document.

The court determined that all three criteria had been met.

Regulatory purpose. A recordkeeping and production requirement is regulatory if it essentially relates to a noncriminal area of inquiry and is not aimed at a group of persons who are inherently suspect for engaging in criminal activity, the court said. The individuals argued this test was not met because the BSA’s purpose was to give law enforcement agencies access to evidence on foreign financial transactions that would otherwise be unavailable to them. The law’s statement of purposes explicitly included criminal investigation, they pointed out.

However, the presence of a criminal enforcement purpose does not mean that the BSA’s main concern was not regulatory, the court said. The law had purposes other than criminal enforcement, including tax and regulatory investigations. The Treasury Department shared information collected under the BSA with a number of federal agencies that had no authority to engage in criminal prosecutions.

The recordkeeping requirements applied to everyone who engaged in foreign financial transactions, the court added, not just to a suspect subgroup. There is nothing inherently suspicious about having an account in a foreign bank, it was observed.

The inclusion of an annual reporting requirement also showed the purpose was regulatory, the court said.

Records customarily kept. The records demanded by the grand jury were the same type the individuals were required to report to the Internal Revenue Service annually, the court noted. Also, they were of a type that any reasonable bank account owner would maintain in order to have access to the account. Thus, they were records of a type persons such as these individuals customarily would keep.

The court rejected the argument that the five-year retention requirement was relevant. According to the court, it was not the contents of the foreign account records that indicated criminal activity; it was the failure to keep the records. For that reason, a person customarily would keep the records as long as the regulation required.

Public aspects. If the purpose of the regulatory scheme is essentially regulatory, it follows that the records to be kept have public aspects that make them at least analogous to public records, the court said. It was not relevant that the records generally would be considered to be private, as “public aspects” is different from “public access.”

The Treasury Department shared the information in the records with other regulatory agencies for public purposes, the court pointed out. That meant the records had public aspects.

Other appellate courts. The same issue has been addressed by several other U.S. appellate courts recently, and all have reached the same conclusion. The conclusion that the demand for foreign bank records was permitted under the required records doctrine was reached in:

Notably, on Oct. 7, 2013, the U.S. Supreme Court denied a request that it review the Eleventh Circuit’s decision, in In re: Grand Jury Proceedings No. 4-10 v. U.S., Dkt. No. 12-1409.

The case is No. 13-4267.

Attorneys: Caroline Rule (Kostelanetz & Fink, LLP) for the appellants. Elissa Hart-Mahan, U.S. Department of Justice.

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