In the Courts

The Bank Secrecy Act (BSA), and related regulations, require individuals to retain certain foreign bank account information. Id. (citing 31 U.S.C. ' 5311). In June 2010, a grand jury issued a subpoena to M.H. seeking specific records and information he was required to keep pursuant to these regulations. In response, M.H. refused to either produce the records or deny having such records, claiming that through either avenue he risked self-incrimination under the Fifth Amendment. Id. at *2. The district court ordered M.H. to comply with the subpoena. Following a show-cause hearing, the court held him in contempt, but stayed that order pending his appeal.

On appeal, M.H. argued that, as an initial matter, the regulations in question did not apply to him. Id. at *3. The court of appeals dismissed these arguments, claiming that the government need not show that the regulations are applicable, only that there is probable cause for the subpoena. Further, the court noted that M.H.'s obligation to comply with the subpoena did not rely on the government's ability to prove the applicability of the regulations. Id.

M.H. also argued that the district court improperly applied the Required Records exception to the privilege against self-incrimination. Id. at *3. Under the Required Records doctrine, although records that are required to be kept are arguably compelled, records kept as a result of “voluntary participation in a regulated activity” are not, and thus the privilege will not apply. Id. (citing Shapiro v. United States, 335 U.S. 1, 17 (1948)). The court reviewed case law on the Required Records doctrine to find that three principles governed whether a person voluntarily participated in a regulated activity: 1) the government's inquiry must be “essentially regulatory”; 2) the records must be of a kind “customarily kept”; and 3) the records must have “public aspects” making them at least analogous to public records. Id. at *4 (quoting Grosso v. United States, 390 U.S. 62, 88 (1968)).

The court found that all three prongs were met in this case. The key determination associated with the first prong was whether the requirement in question was regulatory or criminal in nature. Id. The court initially looked to Supreme Court precedent finding that the overall BSA, although concerned with criminal activity, was equally concerned with civil liability. Id. at *6. In addition, the court found that this particular regulation was not essentially criminal in nature. That the regulation was not solely regulatory in nature did not matter ' the court found “nothing inherently illegal” about offshore accounts or their regulation. Id. Rather, the only illegal aspect was failing to report the holdings within the accounts as required. Id. at *7.

The court also found that the second prong was met. It determined that that the basic information sought by the regulation was “customarily kept” by most individuals, in part because they would need to report it to the IRS every year. Id. at *9. The court noted that it did not matter that the information might be kept by the bank on M.H.'s behalf.

Finally, the court found that the information also contained “public aspects.” It found that even personal information, when subject to a valid regulatory scheme, obtains some public aspects even when there is no required reporting. Id. at *9. Here, the court determined that the records were required by a valid regulatory scheme and that there was a requirement of reporting upon request. Id. at *10. It also dismissed M.H.'s claims that the data was not easily accessible. Id. at *10.

As a result, the Fifth Amendment privilege against self-incrimination was inapplicable and M.H. was required to produce the records.

Ninth Circuit Upholds Ruling That Production of Bank Records Falls Outside Fifth Amendment Protection

In In re Grand Jury Investigation M.H., No. 11-55712, 2011 WL 3629909, *1 (9th Cir. Aug. 19, 2011), the United States Court of Appeals for the Ninth Circuit upheld the district court's contempt order based on the target of a grand jury subpoena's failure to produce bank records.

As part of a long-standing investigation by the government into U.S. individuals who may have used Swiss bank accounts to avoid U.S. tax liability, Swiss bank UBS in 2009 provided the U.S. government with account information for 250 individuals. The review of these materials led the Internal Revenue Service to investigate M.H.

The Bank Secrecy Act (BSA), and related regulations, require individuals to retain certain foreign bank account information. Id. (citing 31 U.S.C. ' 5311). In June 2010, a grand jury issued a subpoena to M.H. seeking specific records and information he was required to keep pursuant to these regulations. In response, M.H. refused to either produce the records or deny having such records, claiming that through either avenue he risked self-incrimination under the Fifth Amendment. Id. at *2. The district court ordered M.H. to comply with the subpoena. Following a show-cause hearing, the court held him in contempt, but stayed that order pending his appeal.

On appeal, M.H. argued that, as an initial matter, the regulations in question did not apply to him. Id. at *3. The court of appeals dismissed these arguments, claiming that the government need not show that the regulations are applicable, only that there is probable cause for the subpoena. Further, the court noted that M.H.'s obligation to comply with the subpoena did not rely on the government's ability to prove the applicability of the regulations. Id.

M.H. also argued that the district court improperly applied the Required Records exception to the privilege against self-incrimination. Id. at *3. Under the Required Records doctrine, although records that are required to be kept are arguably compelled, records kept as a result of “voluntary participation in a regulated activity” are not, and thus the privilege will not apply. Id . (citing Shapiro v. United States , 335 U.S. 1, 17 (1948)). The court reviewed case law on the Required Records doctrine to find that three principles governed whether a person voluntarily participated in a regulated activity: 1) the government's inquiry must be “essentially regulatory”; 2) the records must be of a kind “customarily kept”; and 3) the records must have “public aspects” making them at least analogous to public records. Id . at *4 (quoting Grosso v. United States , 390 U.S. 62, 88 (1968)).

The court found that all three prongs were met in this case. The key determination associated with the first prong was whether the requirement in question was regulatory or criminal in nature. Id. The court initially looked to Supreme Court precedent finding that the overall BSA, although concerned with criminal activity, was equally concerned with civil liability. Id. at *6. In addition, the court found that this particular regulation was not essentially criminal in nature. That the regulation was not solely regulatory in nature did not matter ' the court found “nothing inherently illegal” about offshore accounts or their regulation. Id. Rather, the only illegal aspect was failing to report the holdings within the accounts as required. Id. at *7.

The court also found that the second prong was met. It determined that that the basic information sought by the regulation was “customarily kept” by most individuals, in part because they would need to report it to the IRS every year. Id. at *9. The court noted that it did not matter that the information might be kept by the bank on M.H.'s behalf.

Finally, the court found that the information also contained “public aspects.” It found that even personal information, when subject to a valid regulatory scheme, obtains some public aspects even when there is no required reporting. Id. at *9. Here, the court determined that the records were required by a valid regulatory scheme and that there was a requirement of reporting upon request. Id. at *10. It also dismissed M.H.'s claims that the data was not easily accessible. Id. at *10.

As a result, the Fifth Amendment privilege against self-incrimination was inapplicable and M.H. was required to produce the records.