Court: District Court, E.D. New York; December 9, 2012; Federal District Court
The Court orders John Doe to comply with a grand jury subpoena issued by the government on February 2, 2012, which requests foreign bank account records required to be maintained under 31 C.F.R. 1010.420 for the past five years. Respondent opposes compliance on two grounds: (1) the government already has the records and is misusing the subpoena for trial preparation, and (2) compliance would violate the Fifth Amendment right against self-incrimination. The Court finds no merit in these arguments, stating there is no evidence that the government already possesses the records or is abusing the grand jury process. The subpoena is deemed valid as the requested records fall under the required records exception, which is not protected by the Fifth Amendment. The government served the subpoena on February 8, 2012, with a compliance deadline of February 23, 2012, but the respondent failed to respond, prompting the government’s motion to compel on August 17, 2012. Following oral arguments on November 20, 2012, the Court granted the government’s motion to compel compliance.
Respondent's assertion that the government already has the documents requested by the Subpoena is unfounded and speculative, as denied by the government. The respondent incorrectly claims the government possesses the documents, despite the government only providing a limited selection of records from a single foreign bank account dating from 1992 to August 2008, which does not encompass the five-year period prior to February 2012 specified in the Subpoena. Additionally, there may be other foreign bank accounts held by the respondent that the government is unaware of, making it impossible for the government to ensure all relevant records are available without compliance from the respondent. The government’s possession of some foreign bank records does not negate its right to request all pertinent records. The respondent's reference to a prior case, Application of Linen Supply Cos., is distinguishable, as that situation involved the government already having copies of requested documents, unlike the current case where the grand jury lacks any documents from the respondent. Furthermore, the respondent's argument that the grand jury is being misused for trial preparation lacks merit since no indictment has been returned, and the concern for abuse arises only after an indictment. Therefore, the respondent's claims do not justify withholding the requested documents from the government and the grand jury.
Respondent contends that complying with the Subpoena would violate their Fifth Amendment rights, arguing that the required records exception does not apply. The Court rejects this argument, stating that the required records exception prevails over Fifth Amendment protections. The Fifth Amendment safeguards against self-incrimination, preventing compelled testimonial communications that are incriminating. The act of producing documents in response to a subpoena can have intrinsic communicative aspects, potentially revealing the existence and control of those documents. An individual can assert an act of production privilege to avoid producing non-privileged documents if the act is compelled, testimonial, and incriminating. However, this privilege is not absolute; the government can enforce record-keeping requirements as part of valid regulatory schemes. The required records exception allows for the mandate of retaining and inspecting records related to legally regulated activities, based on two rationales: (1) participation in regulated activities may waive the act of production privilege if there is a link to the record-keeping requirement, and (2) such record-keeping is legally mandated, minimizing the individual's assertion of control over the documents produced.
Compelling the disclosure of voluntarily created documents does not violate the privilege against self-incrimination, whereas documents that are required to be kept may be considered compelled. The privilege does not extend to records mandated by an individual's voluntary participation in a regulated activity. To qualify as "required records," documents must meet the Grosso test, which includes: (1) a regulatory requirement for record-keeping, (2) the type of records that the regulated party typically maintains, and (3) records that have public aspects akin to public documents. The Currency and Foreign Transactions Reporting Act of 1970, known as the Bank Secrecy Act (BSA), mandates U.S. citizens and residents to maintain and report records of foreign bank accounts, with a five-year retention requirement for inspection. Courts have upheld that foreign bank records required under the BSA fall within the "required records" exception to the Fifth Amendment's act of production privilege. This conclusion has been supported by various courts, including the Ninth Circuit, and has gained further endorsement from the Fifth and Seventh Circuits. The Court finds the reasoning in these cases persuasive, despite them not being binding authority.
The Court determines that the government has successfully demonstrated that the foreign financial account documents required under the Bank Secrecy Act (BSA) meet the Grosso requirements, thus falling outside the Fifth Amendment's protection against self-incrimination. The first prong of the Grosso test requires that the record-keeping requirement be "essentially regulatory" rather than criminal. The Second Circuit's ruling in United States v. Dichne established that similar BSA requirements do not violate the Fifth Amendment, as they do not target an inherently suspect group nor create a substantial risk of incrimination. The reporting obligations apply to all individuals making foreign deposits, predominantly involving legally obtained funds, and do not disclose the source of those funds, minimizing the risk of self-incrimination.
The BSA’s provisions, including 31 C.F.R. 1010.420, are applicable to a wide range of lawful offshore banking accounts and are not inherently illegal. The record-keeping requirements serve regulatory purposes unrelated to criminal law enforcement and do not specifically target criminal activity. Thus, the Court concludes that the requirements are "essentially regulatory," satisfying the first prong of the Grosso test and confirming that the BSA does not infringe upon individual rights under the Fifth Amendment.
The Court analyzed the applicability of the required records exception under the Grosso test concerning foreign financial records requested via a subpoena.
1. **Regulatory Nature**: The Court confirmed that the record-keeping and reporting requirements of the Bank Secrecy Act (BSA) are regulatory rather than criminal, satisfying the first prong of the Grosso test.
2. **Customarily Kept**: The second prong was satisfied as the records in question align with information that bank customers are required to keep for IRS reporting purposes. This includes basic account details such as account names, numbers, types, bank addresses, and maximum values, which are typically maintained by customers.
3. **Public Aspects**: The third prong requires that the records exhibit public characteristics. Despite the respondent's argument that personal financial records lack public aspects, the Court noted that information compelled under a valid regulatory scheme does assume public aspects. The requirement to maintain records without needing to file them does not negate their public nature. The Supreme Court has established that there is no significant difference between records kept for inspection and those filed with the government.
Conclusively, since all three prongs of the Grosso test were met, the Court determined that the required records exception applies, thereby denying the respondent protection under the Fifth Amendment for the subpoenaed records.
The Court addresses the respondent's claim that the government could have obtained foreign bank documents through international treaties and agreements. The government highlighted the impracticalities of such processes, particularly the lengthy duration and lack of communication with foreign authorities during requests. The Court agrees with the government, noting that Congress enacted the Bank Secrecy Act (BSA) to simplify these challenges. It concludes that there is no legal requirement for the government to exhaust all foreign request options before issuing a subpoena for foreign bank records, as this could unnecessarily delay criminal investigations.
The Court finds the respondent's arguments unpersuasive, rejecting the assertion that the government already has the requested documents and that the subpoena was issued solely for trial preparation. It determines that the BSA's record-keeping provision meets the necessary criteria for the required records exception, thereby exempting the records from Fifth Amendment protections against self-incrimination. The Court mandates that the respondent comply with the subpoena.
Additionally, the Court dismisses the respondent's argument that the required records exception applies only under heightened regulation or licensure. It aligns with the government's view that Congress decides the level of regulation associated with required records. The Court references a Fifth Circuit decision, asserting that creating a rule requiring prior substantive restrictions would be illogical. The government presented examples illustrating obstacles in obtaining records via foreign requests, including issues with transmission, translation, and the lack of updates on the status of the requests, all of which can prolong the process the BSA aims to streamline.
