A taxpayer under an investigation into his foreign bank accounts cannot rely upon the privilege against self-incrimination of the Fifth Amendment to the U.S. Constitution as a basis for refusing to produce the bank account records to a grand jury. The U.S. Court of Appeals for the Ninth Circuit reached this conclusion in In re: Grand Jury Investigation M.H., No. 11-55712 (9th Cir. Aug. 19, 2011).
The Ninth Circuit’s ruling relates to a grand jury inquiry into whether a U.S. taxpayer—referred to in the opinion by the initials “M.H.”—used secret Swiss bank accounts to avoid federal taxation. The U.S. District Court for the Southern District of California granted a motion to compel M.H.’s compliance with a grand jury subpoena duces tecum demanding that he produce certain records related to his foreign bank accounts. The foreign bank account information sought by the government was information that M.H. was required to keep and maintain for inspection pursuant to the Bank Secrecy Act of 1970 (BSA), 31 U.S.C. § 5311, et seq., and its related regulations. However, M.H. argued that if he provided the sought-after information, he risked incriminating himself in violation of his privilege against self-incrimination under the Fifth Amendment to the U.S. Constitution. M.H. refused to provide the requested information and also declined to deny possessing it. The district court held M.H. in contempt of court, and M.H. appealed to the Ninth Circuit.
The Ninth Circuit held that the Fifth Amendment did not provide a basis for M.H. to refuse to produce his foreign bank account records because the subpoena came within the “Required Records Doctrine” exception to the privilege against self-incrimination. The Ninth Circuit explained that under the Required Records Doctrine, “the Fifth Amendment privilege does not apply if: (1) the purpose of the government’s inquiry is regulatory, not criminal; (2) the information requested is contained in documents of a kind the regulated party customarily keeps; and (3) the records have public aspects.” See In re Grand Jury Proceedings (Doe M.D.), 801 F.2d 1164, 1168 (9th Cir. 1986).
Reviewing the first Required Records Doctrine factor, the court found that the requirement under the BSA to maintain and make available for inspection foreign banking records was regulatory, not criminal. The court noted that “[t]here is nothing inherently illegal about having or being a beneficiary of an offshore foreign,” and the fact “[t]hat the information contained in the required record may ultimately lead to criminal charges banking account.” With regard to the second factor, the court determined that the information the Act requires to be kept “is basic account information that bank customers would customarily keep, in part because they must report it to the IRS every year as part of the IRS’s regulation of offshore banking, and in part because they need the information to access their foreign bank accounts.” With regard to the third and final factor, the court reasoned that the fact “that the information sought is traditionally private and personal as opposed to business-related does not automatically implicate the Fifth Amendment. Where personal information is compelled in furtherance of a valid regulatory scheme, as is the case here, that information assumes a public aspect.” The Ninth Circuit concluded that “[b]ecause the records sought through the subpoena fall under the Required Records Doctrine, the Fifth Amendment privilege against self-incrimination is inapplicable, and M.H. may not invoke it to resist compliance with the subpoena’s command.”
