In the Courts

In response, the government argued that the records sought in this case fell under an exception to the act of production doctrine for “required records,” which nullifies Fifth Amendment protection where the records sought are required to be maintained by law. Id. at 3 (citing Shapiro v. United States, 335 U.S. 1, 68 S.Ct. 1375, 92 L.Ed. 1787 (1948).) This exception is subject to a three-factor test known as the Grosso test, requiring that the records sought must: 1) be essentially regulatory; 2) be customarily kept; and 3) “have assumed 'public aspects' which render them at least analogous to public documents.'” Id. (citing Grosso v. United States, 390 U.S. 62, 67'68, 88 S.Ct. 709, 19 L.Ed.2d 906 (1968).)

At the outset, the Second Circuit noted that several other circuit courts have previously held that similar records required to be maintained under the BSA met the required records exception. Id. at *5. Agreeing with its sister circuits, the Second Circuit held that record-keeping requirements under the BSA are “essentially regulatory,” explaining that this prong of the Grosso test may be satisfied where, as in the instant case, there is nothing inherently illegal about the activity required to be recorded. Id. at *7-8. The court also found that records are “customarily kept” where, as here, the “information is so basic that the 'argument that the[e] records are not 'customarily kept' is a non-starter.'” Id. (internal citations omitted). Notably, Doe argued that, while this basic information may generally be kept by foreign account holders, “some individuals engaged in wrongdoing are advised not to keep even this basic information.” Id. at *9.

Rejecting this argument, the court “decline[d] to look at the custom of only the miscreants among the larger group of foreign bank account holders.” Id. Finally, the court held that “the records sought are analogous to public documents, as required under Grosso, because all records required to be created under an otherwise valid regulatory regime necessarily have 'public aspects' for purposes of the required records exception,” noting that “[t]he BSA is an otherwise-valid regulatory scheme that lawfully requires beneficiaries of foreign bank accounts to retain records containing the basic information about their accounts.” Id. at 9-10. Thus, the Second Circuit held that records required to be maintained under the BSA fall under the required records exception to the Fifth Amendment privilege against self-incrimination and that the respondent was properly compelled to produce the foreign banking records sought.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie A. Schafer and Matthew J. Alexander, respectively. Both are Associates at Kirkland & Ellis LLP.

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Foreign Banking Records

On Dec.19, 2013, the U.S. Court of Appeals for the Second Circuit upheld an order to compel foreign banking records under a grand jury subpoena and subsequent contempt order by the district court, rejecting the respondent's argument that the Fifth Amendment privilege against self-incrimination applied to the act of producing the records sought. In Re Grand Jury Subpoena Dated February 2, 2012, No. 12-cv-00553 (JFB), 2013 WL 6670733 (2d Cir. Dec. 19, 2013). The respondent, known as John Doe, received a grand jury subpoena for “records that the Bank Secrecy Act ('BSA') requires Doe to maintain” with respect to “any foreign bank accounts in which Doe has a financial interest.” Id. at *1. Doe challenged the subpoena, arguing that the Fifth Amendment privilege against self-incrimination applied to protect him from being being compelled by the government to produce the records requested. Id. The district court held that an exception to the Fifth Amendment privilege known as the “required records exception” applied in this case and compelled production. Id. Doe persisted in his refusal to produce the records and the district court subsequently held him in contempt. Id.

On appeal, Doe argued that the Fifth Amendment applied because compliance with the subpoena would require him to either produce documents that might incriminate him or confirm that he had violated the BSA's record-keeping requirements. Id. The argument is founded on a concept known as the “act of production doctrine,” under which “the Fifth Amendment privilege might protect an individual from being required to produce documents ' when the witness's simple act of producing the documents could be used against the witness.” Id . at *2 (citing Fisher v. United States , 425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976)).

In response, the government argued that the records sought in this case fell under an exception to the act of production doctrine for “required records,” which nullifies Fifth Amendment protection where the records sought are required to be maintained by law. Id . at 3 (citing Shapiro v. United States , 335 U.S. 1, 68 S.Ct. 1375, 92 L.Ed. 1787 (1948).) This exception is subject to a three-factor test known as the Grosso test, requiring that the records sought must: 1) be essentially regulatory; 2) be customarily kept; and 3) “have assumed 'public aspects' which render them at least analogous to public documents.'” Id . (citing Grosso v. United States , 390 U.S. 62, 67'68, 88 S.Ct. 709, 19 L.Ed.2d 906 (1968).)

At the outset, the Second Circuit noted that several other circuit courts have previously held that similar records required to be maintained under the BSA met the required records exception. Id. at *5. Agreeing with its sister circuits, the Second Circuit held that record-keeping requirements under the BSA are “essentially regulatory,” explaining that this prong of the Grosso test may be satisfied where, as in the instant case, there is nothing inherently illegal about the activity required to be recorded. Id. at *7-8. The court also found that records are “customarily kept” where, as here, the “information is so basic that the 'argument that the[e] records are not 'customarily kept' is a non-starter.'” Id. (internal citations omitted). Notably, Doe argued that, while this basic information may generally be kept by foreign account holders, “some individuals engaged in wrongdoing are advised not to keep even this basic information.” Id. at *9.

Rejecting this argument, the court “decline[d] to look at the custom of only the miscreants among the larger group of foreign bank account holders.” Id. Finally, the court held that “the records sought are analogous to public documents, as required under Grosso, because all records required to be created under an otherwise valid regulatory regime necessarily have 'public aspects' for purposes of the required records exception,” noting that “[t]he BSA is an otherwise-valid regulatory scheme that lawfully requires beneficiaries of foreign bank accounts to retain records containing the basic information about their accounts.” Id. at 9-10. Thus, the Second Circuit held that records required to be maintained under the BSA fall under the required records exception to the Fifth Amendment privilege against self-incrimination and that the respondent was properly compelled to produce the foreign banking records sought.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie A. Schafer and Matthew J. Alexander, respectively. Both are Associates at Kirkland & Ellis LLP.

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