v. ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3799
IN RE:
S PECIAL F EBRUARY 2011-1 G RAND JURY
S UBPOENA D ATED SEPTEMBER 12, 2011
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:11-gj-00792-1—James F. Holderman, Chief Judge.
A RGUED A PRIL 17, 2012—D ECIDED A UGUST 27, 2012
Before B AUER, K ANNE and SYKES, Circuit Judges.
B AUER, Circuit Judge. In this appeal, we are asked to
decide whether compulsory production of foreign bank
account records required to be maintained under the
Bank Secrecy Act would violate appellee T.W.’s Fifth
Amendment privilege against self-incrimination. Be-
cause we find that the Required Records Doctrine ap-
plicable to this case, we hold that T.W. must produce
the subpoenaed records.
2 No. 11-3799
I. BACKGROUND
Appellee T.W. (T.W. stands for target witness)
learned in October 2009 that the IRS had opened a “file”
on him, and that two investigators—an IRS special agent
and DOJ tax division prosecutor—were assigned to
investigate whether he used secrete offshore bank
accounts to evade his federal income taxes. About two
years into the investigation, a grand jury issued T.W.
a subpoena requiring that he produce, for the time
period of October, 2006 until present,
Any and all records required to be maintained pursu-
ant to 31 C.F.R. § 103.32 [subsequently relocated to
31 C.F.R. § 1010.420] relating to foreign financial
accounts that you had/have a financial interest in,
or signature authority over, including records re-
flecting the name in which each such account is main-
tained, the number or other designation of such ac-
count, the name and address of the foreign bank
or other person with whom such account is main-
tained, the type of such account, and the maximum
value of each such account during each specified year.
(brackets in original).
The records that the Government demands T.W. to
produce are records that he is required to keep under
the Bank Secrecy Act of 1970. T.W. filed a motion to quash
the subpoena on the grounds that producing the de-
manded records would violate his Fifth Amendment
privilege against self-incrimination; complying with the
subpoena may, for instance, reveal that T.W. has not
reported bank accounts that should have been reported
No. 11-3799 3
or that he has reported inaccurate information. On the
other hand, if T.W. denies having the requested records,
he still risks incriminating himself because failure to
keep those records is a felony under the Act.
The Government argued that the Required Records
Doctrine overrides T.W.’s Fifth Amendment privilege.
Under that doctrine, records required to be kept pur-
suant to a valid regulatory program fall outside the
scope of the Fifth Amendment privilege if certain condi-
tions are met. The district court quashed the Grand Jury’s
subpoena, concluding that the required records doc-
trine did not apply because the act of producing the
required records was testimonial and would compel
T.W. to incriminate himself. The Government appeals
that order.
II. DISCUSSION
The district court found that, beyond dispute, T.W.’s
compliance with the subpoena, that is, the act of
producing the requested records, is incriminating. The
dispute in this case, instead, concerns whether, under
those circumstances, the Required Records Doctrine is
still applicable—T.W. contends that it is not, and the
district court agreed. He also argues, alternatively, that
even if it were applicable, the contents of the requested
records do not satisfy the criteria of the Required
Records Doctrine.
Because this case concerns the combined effect of the
Required Records Doctrine and the act of production
privilege, a discussion of both is warranted.
4 No. 11-3799
The Required Records Doctrine’s origin can be traced
to Shapiro v. United States, 335 U.S. 1 (1948). In Shapiro, a
fruit wholesaler invoked his Fifth Amendment privilege
in response to an administrative subpoena that sought
various business records. Id. at 4-11. The records in ques-
tion were required to be maintained under the Emer-
gency Price Control Act (EPCA), which was passed
immediately following the outbreak of World War II
to prevent inflation and price gouging. See id.
The Supreme Court determined that the EPCA repre-
sented a valid exercise of Congress’ regulatory authority
and that the record-keeping provisions of the EPCA
were essential to the administration of the statute’s ob-
jectives. Id. at 32. The Court reasoned 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 restric-
tions validly established.” Id. at 33 (internal citation
omitted).
Critical to its holding, the Court observed that the
required records had attained “public aspects,” such that
they could be considered quasi-public records; it was
the quasi-public nature of the records in Shapiro that
allowed their compulsory production. See id.
The Court revisited its decision in Shapiro twenty
years later in Marchetti and Grosso v. United States, 390
U.S. 62 (1968). In holding that the Required Records
Doctrine was inapplicable to the circumstances before it
No. 11-3799 5
in both those cases, the Court articulated three require-
ments—derived from Shapiro’s holding—for determining
the applicability of the Required Records Doctrine.
As summarized in Grosso, those three requirements are:
(1) the purposes of the government inquiry must be
essentially regulatory; (2) information is to be obtained by
requiring the preservation of records of a kind which
the regulated party has customarily kept; and (3) the
records themselves must have assumed public aspects
which render them at least analogous to a public docu-
ment. Grosso, 390 U.S. at 67-68 (emphasis added). When
the requirements of the Required Records Doctrine are
met, a witness cannot resist a subpoena by invoking
the Fifth Amendment privilege against compelled, testi-
monial self-incrimination.
The criteria for the Required Records Doctrine aside,
T.W. argues that the doctrine is not applicable to a case
such as his where the act of producing the requested
documents is compelled, testimonial, and self-incrim-
inating. That the act of producing documents may be
testimonial and incriminating is not a phenomenon
unique to this case. The act of production privilege recog-
nizes that, while the contents of the documents may not
be privileged, the act of producing them may be. See,
e.g., Fisher v. United States, 425 U.S. 391 (1976); United
States v. Doe (Doe I), 465 U.S. 605 (1984); Braswell v.
United States, 487 U.S. 99 (1988); Doe v. United States
(Doe II), 487 U.S. 201 (1988). In other words, producing
incriminating documents under government com-
pulsion may have testimonial aspects—aside from the
contents of the documents—that are protected under
6 No. 11-3799
the Fifth Amendment. For example, compliance with
the subpoena tacitly concedes the existence (or non-
existence) of the records demanded and their possession
or control by the witness. See Fischer, 425 U.S. at 410.
The Government does not dispute this, but argues the
Required Records Doctrine applies nonetheless, and
overrides any act of production privilege that T.W. has.
The Government’s position finds support in several
cases where the Required Records Doctrine—or its ratio-
nale—was applied to negate a witness’s act of production
privilege. See, e.g., Baltimore City Dep’t of Soc. Servs. v.
Bouknight, 493 U.S. 549 (1990); Smith v. Richert,
35 F.3d 300 (7th Cir. 1994); United States v. Lehman, 887
F.2d 1328 (7th Cir. 1989); United States v. Porter, 711 F.2d
1397 (7th Cir. 1983); In re Grand Jury Subpoena,
21 F.3d 226 (8th Cir. 1994); In re Grand Jury Subpoena
Duces Tecum Served Upon Underhill, 781 F.2d 64 (6th Cir.
1986).
T.W. makes several arguments to get out from under-
neath these cases. He first argues that, under Shapiro,
the Required Records Doctrine is not a stand-alone ex-
ception to the privilege against self-incrimination;
rather, he argues, it is a threshold inquiry to deter-
mine whether there is a privilege in the first place—i.e.,
whether the witness is being compelled to incriminate
himself through some form of testimony. We disagree
with that characterization of the Required Records Doc-
trine.
We note that it makes little difference, practically
speaking, whether the Require Records Doctrine is an
outright exception to the Fifth Amendment privilege—and
No. 11-3799 7
by exception we mean that it overrides or supersedes
the privilege—or whether it is a threshold inquiry to
determine whether the privilege attaches in the first
place; under the former, the privilege exists but is super-
seded and, under the latter, the privilege cannot attach
because one or more of its requirements (usually the
testimonial aspect) are missing by virtue of the records
satisfying the three requirements laid out in Grosso;
either way, the outcome is the same: the witness is
denied the use of the privilege and must produce the
potentially incriminating documents. Still, we think
the Required Records Doctrine is better regarded as
an exception rather than a threshold test to determine
whether there is a privilege.
Building on his argument above, T.W. twists Shapiro
even further by asserting that the Required Rec-
ords Doctrine, as a mechanism to determine if there
is a privilege, is only relevant when challenging the con-
stitutionality of a record-keeping requirement on its
face. It is true that Shapiro started out primarily as a
statutory interpretation case and that it did decide
whether a record-keeping and reporting requirement
was facially unconstitutional. To that effect, the Shapiro
Court stated, “It may be assumed at the outset that
there are limits which the Government cannot constitu-
tionally exceed in requiring the keeping of records
which may be inspected by an administrative agency
and may be used in prosecuting statutory violations
committed by the record-keeper himself.” Shapiro, 335
U.S. at 32. But Shapiro did more than set the constitu-
tional parameters for record-keeping requirements;
8 No. 11-3799
it determined that the Fifth Amendment is not a barrier
to the enforcement of a valid civil regulatory scheme.
Since Shapiro, several courts, including this one, have
applied the Required Records Doctrine broadly and in
situations where the act of production privilege has
been invoked. See, e.g., Baltimore City Dep’t of Soc. Servs. v.
Bouknight, 493 U.S. 549 (1990); Smith v. Richert, 35
F.3d 300 (7th Cir. 1994); United States v. Lehman, 887
F.2d 1328 (7th Cir. 1989); United States v. Porter, 711 F.2d
1397 (7th Cir. 1983); In re Grand Jury Subpoena,
21 F.3d 226 (8th Cir, 1994); In re Grand Jury Subpoena
Duces Tecum Served Upon Underhill, 781 F.2d 64 (6th
Cir. 1986).
To get around these cases, T.W. argues that in each
of them one or more of the requirements of the Fifth
Amendment privilege (testimonial, incriminating, and
compelled) were missing. See Hiibel v. Sixth Judicial
Dist. Court, 542 U.S. 177, 189, (2004) (“To qualify
for the Fifth Amendment privilege, a communication
must be testimonial, incriminating, and compelled.”).
Again, T.W. is wrong. In each of those cases, a valid Fifth
Amendment privilege existed, or was assumed, and
any such assumption naturally presupposes that all
the requirement of the privilege have been met.
That is perhaps best illustrated in Bouknight, which
was not a required records case, but nonetheless,
applied its underlying principles. In Bouknight, the
Court held that the Fifth Amendment did not shield
a mother from complying with a juvenile court order
directing her to produce her infant son. 493 U.S. at 555.
No. 11-3799 9
In coming to that conclusion, the Court assumed that an
act of production privilege existed: “Even assuming
that this limited testimonial assertion is sufficiently
incriminating and sufficiently testimonial for purposes
of the privilege . . . Bouknight may not invoke the priv-
ilege to resist the production order because . . . produc-
tion is required as part of a noncriminal regulatory re-
gime.” Id. at 555. (internal quotation omitted).
In United States v. Lehman, the petitioner—like
T.W.—argued that by “producing the records he would
be testifying as to their existence and to his control
over them in a way that is protected by his Fifth Amend-
ment privilege against self-incrimination.” 887 F.2d
1328, 1332 (7th Cir. 1989). We rejected that argument
and accepted the Sixth Circuit’s reasoning that the
required records exception must apply to the act of pro-
duction. Id. at 1332 (citing In re Grand Jury Subpoena
Duces Tecum (Underhill), 781 F.2d 64 (6th Cir. 1986)). To
get around our holding in Lehman, T.W. argues that, in
that case, the witness’s act of production was neither
testimonial nor incriminating. But even assuming that
were true, it proves nothing; in Lehman, we said that
Fischer and its progeny “might be applicable . . . were it
not for the required records exception.” Id. (emphasis
added). Thus in Lehman we held that, to whatever
extent the petitioner might have had an act of produc-
tion privilege under Doe and Fischer, the Required
Records Doctrine superseded it. See id.
In Smith v. Richert, 35 F.3d 300 (7th Cir. 1994), we pro-
vided a thumbnail sketch of the evolution of the
10 No. 11-3799
Required Records Doctrine, and in doing so, recapitulated
Lehman’s holding. There, we said that if the documents
being sought were required records, “the person could
not resist the subpoena” on the ground that producing the
records was testimonial and incriminating, “for the only
acknowledgment conveyed by compliance would be
of the existence and applicability of the regulatory
program that required him to maintain the records.” Id.
at 302. (citation omitted). The district court incorrectly
interpreted this to mean that the Required Records Doc-
trine is not applicable when the “compelled production
of the subpoenaed records causes [an individual] to
admit any incriminating fact beyond the mere existence
and applicability of the regulatory program.” But we
never held that a witness’s acknowledgment of the ex-
istence and application of a regulatory scheme could
not be incriminating. In fact, we said that is precisely
the context in which the Required Records Doctrine
is particularly useful:
The only time the government needed the required
records doctrine anymore was when the act of pro-
duction was itself testimonial, that is, when it commu-
nicated knowledge possessed by the person making
the production and was, therefore—but for the doc-
trine—protected by the Fifth Amendment from
being compelled by the government.
Id.; see also Commodity Futures Trading Com’m v. Collins,
997 F.2d 1230, 1232 (7th Cir. 1993) (noting that the “doc-
trine only comes into play if, were it not for the doctrine,
the government would be forcing a person to incrim-
inate himself”).
No. 11-3799 11
One of the rationales, if not the main rationale, behind
the Required Records Doctrine is that the government
or a regulatory agency should have the means, over an
assertion of the Fifth Amendment Privilege, to inspect
the records it requires an individual to keep as a con-
dition of voluntarily participating in that regulated ac-
tivity. Smith, 35 F.3d at 303; Commodity Futures, 997 F.2d
at 1232. That goal would be easily frustrated if the Re-
quired Records Doctrine were inapplicable whenever
the act of production privilege was invoked.
The voluntary choice to engage in an activity that
imposes record-keeping requirements under a valid
civil regulatory scheme carries consequences, perhaps
the most significant of which, is the possibility that
those records might have to be turned over upon de-
mand, notwithstanding any Fifth Amendment privilege.
That is true whether the privilege arises by virtue of the
contents of the documents or the by act of producing
them. The district court erred to the extent that it held
that the Required Records Doctrine was not applicable
because T.W.’s compelled production was incriminating
and thus protected under the Fifth Amendment.
Having determined that T.W.’s act of production privi-
lege is not an obstacle to the Required Records Doctrine,
we must decide whether the records sought under the
subpoena fall within the Required Records Doctrine. In
order for the Required Records Doctrine to apply, three
requirements must be met: (1) the purposes of the
United States inquiry must be essentially regulatory;
(2) information is to be obtained by requiring the preserva-
12 No. 11-3799
tion of records of a kind which the regulated party has
customarily kept; and (3) the records themselves must
have assumed public aspects which render them at least
analogous to public document. Grosso, 390 U.S. at 67-68
(emphasis added).
Recently, in a case nearly identical to this one, the
Ninth Circuit held that records required under the Bank
Secrecy Act fell within the Required Record Doctrine. In
re M.H., 648 F.3d 1067 (9th Cir. 2011) cert. denied, No. 11-
1026, 2012 WL 553924 (U.S. June 25, 2012). In the Ninth
Circuit’s case, the court held that the witness could not
resist a subpoena—identical to the one in this case—on
Fifth Amendment grounds because the records de-
manded met the three requirements of the Required
Records Doctrine. Id. We need not repeat the Ninth Cir-
cuit’s thorough analysis, determining that records
under the Bank Secrecy Act fall within the exception. It
is enough that we find—and we do— that all three re-
quirements of the Required Records Doctrine are met
in this case.
Because the Required Records Doctrine is applicable,
and the records sought in the subpoena fall within the
doctrine, T.W. must comply with the subpoena.
III. CONCLUSION
For the reasons stated above, we R EVERSE the district
court’s order granting appellee T.W.’s motion to quash
the grand jury subpoena.
8-27-12