COMPELLED TO SELF-INCRIMINATE: EROSION OF THE FIFTH AMENDMENT’S PROTECTION FOR PERSONAL FOREIGN BANKING RECORDS REQUIRED TO BE KEPT UNDER BANK SECRECY ACT REGULATIONS

Many legal scholars on both sides of the Obamacare debate have voiced concern about Chief Justice Roberts’ opinion in the Supreme Court’s decision on the Patient Protection and Affordable Care Act, specifically upholding the Act based on Congress’ power to tax rather than on grounds of its power to regulate interstate commerce. The concern: what then prevents congress from labeling a tax, any and every legislative action, however encroaching on personal liberty or reserved sate powers, to dress the action in constitutionally clothes? Many consider the health insurance mandate under the health care act to be repugnant despite the Supreme Court’s tortured legal grounds for finding it constitutional. 

Yet, a case decided by the Court in 1948 was even more worrisome to dissenters at the time, concerned the most revered Fifth Amendment protection against self incrimination, and has been misinterpreted by subsequent courts in a manner that severely narrows Fifth Amendment protection for private papers. The worries of the dissenters in Shapiro have been fully realized in three recent Circuit Court of Appeals decisions denying Fifth Amendment protection for the act of producing private bank records possessed by U.S. persons who are subpoenaed to produce them. (In Re: Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011 (7th Cir. August 27, 2012); In Re. Grand Jury Subpoena (5th Cir. September 22, 2012); and, In Re M.H. 648, F. 3d 1067 (August 24, 2011).

Shapiro v. United States, 335 U.S. 1 (1948) created what has come to be known as the “required records exception” to the Fifth Amendment’s protection against self-incrimination.  The court held that “the privilege which exists as to private papers cannot be maintained in relation 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’” (quoting Davis v. Unites States, 328 U.S. 582, 328(1946) (involving wage and hour laws). In Shapiro the records in question were required under the Price Control Act enacted the day after Pearl Harbor as an emergency measure to prevent rampant price inflation from war time price gouging created by shortages.  The Act applied to both corporations and unincorporated businesses.  Shapiro was a wholesaler of fruit and producer, a federally licensed and regulated industry.  He received a subpoena duces tecum to produce the records required under the act which were of a type customarily maintained by those in his business.  He claimed immunity from prosecution under a provision of the act intended to encourage compliance.      The court could have decided the case on the immunity provision of the act alone; but, instead went further holding that the act conveyed no broader privilege than was available under the Fifth Amendment.  The court then concluded that the records required under the Price Control Act regulations took on public aspects that removed the private papers aura and denuded them of Fifth Amendment protection.  The court did express reservation that not every legislative regulation would make private papers public domain but did not define the boundary or recite a test for determining how far congress could go.  The decision was 5-4 and Justices Frankfurter and Jackson dissented. Frankfurter:

“The Court hardly finds a problem in disposing of an issue far-reaching in its implications, involving as they do a drastic change in the relations between the individual and the Government as hitherto conceived…If records merely because required to be kept by law ipso facto become public records, we are indeed living in glass houses….”   

Footnote 2/4 But Cf Carroll, Through the Looking Glass, “The question is said Alice, ‘Whether you can make words mean so many different things.’”

“The notion that, whenever Congress requires an individual to keep in a particular form his own books dealing with his own affairs, his records cease to be his when he is accused of a crime is indeed startling…. The phrase “required to be kept by law,” then, is not a magic phrase by which the legislature opens the door to inroads upon the Fifth Amendment…. The Privilege …is, after all, as “broad as the mischief against which it seeks to guard.” (Quoting, Counselman v. Hitchcock, 142 U.S. 547, 563).

Twenty years later two companion cases not directly involving “required records” but rather dealing with registration and reporting by gamblers for gambling excise taxes, nonetheless, somewhat clarified the criteria for determining when the “required records” exception would apply (Marchetti v. United States, 390 U.S. 39 (1968), and, Grasso V. United States, 390 U.S. 62(1968)), but did not define the constitutional limits on congress’ power to require the keeping of records. 

The three conditions for the “required records exception” to apply to override the Fifth Amendment were stated in Grasso:

  • The purposes the legislation must be essentially regulatory.
  • The required records must be of kind “customarily kept” by the party subpoenaed.
  • The records themselves must have assumed “public aspects” which render them at least analogous to public documents.

The three Circuit Court of Appeal cases cited above considered the three factors, the later decisions citing the earlier decisions.  In each case the court held that the personal banking records, sought in subpoenas mirroring the record keeping requirements of the Bank Secrecy Act regulation, were “required required records” under Shapiro, Grosso and Marchetti, not protected by the Fifth Amendment and that the “act of production” although testimonial and incriminating was likewise not available to prevent compliance with the subpoenas.

The subpoena in In re M.H.  (Substantially the same in the other two cases) requested:

Andy and all records required to be maintained pursuant to 31 C.F.R. Sec. 103.32 (subsequently relocated to 31 C.F.R. Sec. 1010.420) relating to foreign financial acco0unts that you had/have a finance interest in or signature authority over, including records reflecting 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 each specified year.

The courts’ conclusions that the Shapiro conditions are met regarding these records are flawed and remarkable for the following reasons:

  1.  The courts held that regulations are essentially regulatory and not investigative; that, the fact that the regulation “was not exclusively regulatory” did not “make it essentially criminal” and that the area covered by the regulations “is not permeated with criminal statutes.” Further, “That Congress aimed to use the BSA as a tool to combat certain criminal activity is insufficient to render the BSA essentially criminal as opposed to essentially regulatory.” These conclusions ignore the clear legislative history of the Bank Secrecy Act which is aimed at offshore tax cheats, money launders and terrorists. What is the premise otherwise for regulating non-bank corporation individuals who open foreign accounts and need no permission to undertake that activity? Moreover, in weighing the scales of Congressional intent it would seem far wiser to tip the scales toward the criminal side when so fundamental a right as that against self incrimination is at stake.
  2.  The holding that the records sought are customarily kept may be true of domestic personal banking records but ignores the practices in many international banking jurisdictions where bank statements are not routinely delivered to clients.
  3. The holding that the records have public aspects seems to flow from the first two conclusions because there is nothing but presumption and the “looking glass” to make it so. Congress legislates for constitutional purposes, the executive branch issues regulations found to be essentially regulatory, therefore, the records are public.  Yet, Individual owners of foreign accounts require no license as did Shapiro in his heavily regulated produce business.  To say that an individual subjects himself voluntarily to the regulatory scheme by opening a foreign account and thereby makes his private paper files a public library (as Justice Frankfurter feared in his Shapiro dissent)when nothing prohibits the activity is frightening in its implications.  What will become of our Fourth Amendment protection in the face of such judicial thought?

The Grosso and Marchetti cases upheld the Fifth Amendment privilege assertion with regard to a constitutionally offensive registration and reporting regime that would have identified and incriminated unknown criminal gamblers.  In Re MH and the Seventh and Fifth Circuits’ following cases compel production of private papers magically transformed into public papers.  These cases impose a dilemma on bank account owners already identified and under investigation whose own papers and act of producing them are sought to obtain the evidence that will convict them.  Comply and allow the act and records to incriminate or refuse and face jail for contempt.  Is not that what the Fifth Amendment was inserted into the Bill of Rights to prevent?  The Supreme Court should take up the “required records exception” in sore need of clarification but likely will not in the absence of a conflict among the Circuits.  Thus, we must hope that one of the remaining Circuits will address this issue and have the clarity to reject the view of the Ninth, Fifth and Seventh Circuits. 

© 2012 by Robert S. Steinberg, Esquire
All rights reserved

 

This entry was posted in FBARS, TAX, TAX CRIMES, Uncategorized, UNFILED RETURNS, VOLUNTARY DISCLOSURE and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

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