United States v. Eli Chabot

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 14-4465
________________
UNITED STATES OF AMERICA
v.
ELI CHABOT;
RENEE CHABOT,
Appellants
________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3-14-cv-03055)
District Judge: Honorable Freda L. Wolfson
________________
Argued June 8, 2015
Before: AMBRO and COWEN, Circuit Judges,
and RESTANI,* Judge.
(Opinion filed: July 17, 2015)
*
Honorable Jane A. Restani, Judge for the United States
Court of International Trade, sitting by designation.
Vivek Chandrasekhar, Esq.
Richard A. Levine, Esq. (Argued)
Roberts & Holland LLP
825 8th Avenue, 37th Floor
New York, NY 10019
Counsel for Appellants
Robert J. Branman, I, Esq. (Argued)
Robert W. Metzler, Esq.
United States Department of Justice, Tax Division
950 Pennsylvania Avenue, N.W.
Room 4635
P.O. Box 502
Washington, DC 20044
Counsel for Appellee
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OPINION OF THE COURT
________________
RESTANI, Judge
Eli and Renee Chabot (“the Chabots”) appeal the
District Court’s grant of the Internal Revenue Service’s
(“IRS”) petition to enforce summonses for foreign bank
account records that 31 C.F.R. § 1010.420 requires the
Chabots to keep. Today we join six other circuits in holding
that these records fall within the required records exception to
the Fifth Amendment privilege. Accordingly, we will affirm
the District Court’s grant of the IRS’s petition.
2
I. Background
In April 2010, the IRS received information from
French authorities concerning United States persons1 with
undisclosed bank accounts at HSBC Bank. The IRS alleges
that it has information regarding accounts held by Pelsa
Business Inc. (“Pelsa”) for the years 2005 through 2007.
According to the information provided to the IRS, Eli Chabot
is the beneficial owner of Pelsa.
On June 20, 2012, the IRS issued summonses to Eli
and Renee Chabot requesting that they appear on July 13,
2012, to give testimony and produce documents about their
foreign bank accounts for the period from January 1, 2006, to
December 31, 2009.2 The Chabots’ attorney notified the IRS
that the Chabots would not appear, were asserting their Fifth
Amendment privilege against self-incrimination, and would
not produce the requested documents. The IRS amended the
two summonses on November 16, 2012, limiting their scope
to only those documents required to be maintained under 31
C.F.R. § 1010.420. The Chabots continued to claim the Fifth
Amendment privilege, and the IRS filed a petition to enforce
the amended summonses on May 14, 2014.
1
“United States person” is defined in 31 C.F.R.
§ 1010.350(b). The parties do not dispute that the Chabots or
their business are United States persons.
2
The IRS had issued an earlier summons on March 12, 2012,
requesting that the Chabots appear to testify. The Chabots
appeared on May 12, 2012, but asserted their Fifth
Amendment privilege and refused to answer any of the IRS’s
questions about their foreign bank accounts.
3
Before the District Court, the Chabots claimed that,
although the contents of the records sought might not be
protected by the Fifth Amendment, their act of producing the
documents was protected. The Chabots specifically claimed
that responding to the summonses might subject them to
prosecution for their failure to file the same information in an
annual Report of Foreign Bank and Financial Accounts. The
Chabots also claimed that any exception to the Fifth
Amendment privilege based on the required records exception
should not apply in this case. The District Court held that the
required records exception applied and thus the Fifth
Amendment did not prohibit production of the documents
sought. The District Court therefore granted the petition to
enforce the summonses.
II. Jurisdiction and Standard of Review
The District Court had jurisdiction pursuant to 26
U.S.C. § 7402(b) and 26 U.S.C. § 7604(a) (2012). We
exercise jurisdiction pursuant to 28 U.S.C. § 1291. Whether
enforcement of a summons violates the Fifth Amendment
privilege is a mixed question of law and fact. United States v.
Ins. Consultants of Knox, Inc., 187 F.3d 755, 759 (7th Cir.
1999). Here, the question before us is purely one of law, and
we review de novo the District Court’s application of the
Fifth Amendment privilege and the required records
exception to the present facts. In re Grand Jury Proceedings,
707 F.3d 1262, 1266 n.4 (11th Cir. 2013).
III. Discussion
On appeal, the Chabots’ arguments can be summarized
as follows: (1) allowing the government to rely on the
required records exception to enforce the summonses in this
case will lead to general governmental abrogation of the Fifth
Amendment privilege for any “failure to report” crime;
4
(2) the information that would be gleaned from compliance
with the summonses is almost identical to what the
government needs to charge the Chabots with the felony of
willful failure to report an overseas account in the Report of
Foreign Bank and Financial Accounts, thus requiring the
Chabots to incriminate themselves; and (3) the records that 31
C.F.R. § 1010.420 requires accountholders to keep do not
satisfy the three-pronged test for applying the required
records exception to the Fifth Amendment privilege. The
government’s response to these arguments is simple. It
argues that the Chabots’ records fall within the required
records exception to the Fifth Amendment privilege.
Therefore, the questions before the panel are whether the
Chabots’ account records fall within the required records
exception to the Fifth Amendment privilege and, if so,
whether the Chabots’ policy concerns are insurmountable
barriers to our application of this exception. Unpersuaded by
the overriding effect of the stated concerns, we conclude that
the Chabots’ account records fall squarely within the required
records exception to the Fifth Amendment privilege.
Therefore, we will affirm the District Court’s grant of the
IRS’s petition.
A. The Development of the Required Records
Exception to the Fifth Amendment Privilege
The Fifth Amendment states that “[n]o person . . . shall
be compelled in any criminal case to be a witness against
himself.” U.S. Const. amend. V. An individual may claim
this privilege if compelled to produce self-incriminating,
“testimonial communication[s].” Fisher v. United States, 425
U.S. 391, 408 (1976). The act of producing documents may
trigger the Fifth Amendment privilege. See id. at 410. This
is because, by producing documents, one acknowledges that
the documents exist, admits that the documents are in one’s
custody, and concedes that the documents are those that the
5
subpoena requests. Id. When these “testimonial” aspects of
compelled production are self-incriminating, the Fifth
Amendment privilege applies. See id. at 410–12.
In Shapiro v. United States, the Supreme Court first
articulated the required records exception to the Fifth
Amendment privilege. 335 U.S. 1, 32–33 (1948); In re Grand
Jury Subpoena Dated Feb. 2, 2012, 741 F.3d 339, 344 (2d
Cir. 2013) (hereinafter “Doe”). When Shapiro was decided,
private papers were entitled to Fifth Amendment protection
based on their private status. See 335 U.S. at 33–34. Public
papers, however, did not have Fifth Amendment protection.
See id. at 5. In Shapiro, the Supreme Court qualified this
distinction when it held that the Fifth Amendment privilege
did not apply to certain private papers that the law required a
person to keep. Id. at 33. The Supreme Court subsequently
fleshed out Shapiro’s holding in Grosso v. United States,
wherein it explained that the following three prongs must be
met in order for records to fall within the “required records”
exception: (1) the reporting or recordkeeping scheme must
have an essentially regulatory purpose; (2) a person must
customarily keep the records that the scheme requires him to
keep; and (3) the records must have “public aspects.” 390
U.S. 62, 67–68 (1968).
Fisher, which found no Fifth Amendment privilege
because the involved taxpayers were not the persons
compelled to produce, appeared to shift the focus away from
the private/public distinction in determining whether
compelled production of records violates the Fifth
Amendment privilege.3 See 425 U.S. at 397, 400–01.
3
The degree to which Fisher represents a complete
repudiation of the private/public distinction remains unsettled.
It has been stated that the general consensus is that Fisher was
6
Despite this somewhat altered view of how the Fifth
Amendment relates to the production of documents, courts
have continued to rely on the required records exception.
See, e.g., Balt. City Dep’t of Soc. Servs. v. Bouknight, 493
U.S. 549, 555–56 (1990) (recognizing the principle behind
the required records exception abrogated respondent’s act-of-
production privilege even though her compliance with a court
order to produce her child would have aided in her
prosecution); Doe, 741 F.3d at 342–43, 346 (applying the
required records exception to the respondent’s act-of-
production privilege where his compliance with a grand
jury’s subpoena for account records would have aided in
criminal proceedings against him).
Courts have offered several reasons for continuing to
apply the required records exception to the Fifth Amendment
privilege, even though the threshold framework for applying
the privilege to documents appears to have changed to a
degree. The first is, engaging in an activity for which
Congress conditions participation upon recordkeeping
effectively waives the right to invoke the Fifth Amendment
privilege to prevent compelled disclosure of such records. In
re Two Grand Jury Subpoenae Duces Tecum Dated Aug. 21,
1985, 793 F.2d 69, 73 (2d Cir. 1986). The next, and perhaps
weaker, is, because “the records must be kept by law, the
record-holder ‘admits’ little in the way of control or
authentication by producing them.” Id. And the last is,
continued application of the required records exception is
vital in order to protect the government’s legitimate interest in
using the records that it requires individuals to keep. See,
e.g., Bouknight, 493 U.S. at 556 (“The Court has on several
an attempt to find Fifth Amendment protections applicable to
compelled production of documents without relying on the
private/public distinction. Doe, 741 F.3d at 343 n.2.
7
occasions recognized that the Fifth Amendment privilege may
not be invoked to resist compliance with a regulatory regime
constructed to effect the State’s public purposes unrelated to
the enforcement of its criminal laws.”); In re Grand Jury
Proceedings, 707 F.3d at 1274 (citing In re Special Feb. 2011-
1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903,
908–09 (7th Cir. 2012)). These reasons support application
of the exception under either the private/public framework or
the act-of-production framework. Thus, the required records
exception has retained its vitality as an exception to the Fifth
Amendment privilege against self-incrimination. See
Bouknight, 493 U.S. at 554–62.
B. The Government’s Ability to Use the
Required Records Exception to Abrogate the
Fifth Amendment Privilege
The Chabots predict that inclusion of their account
records in the required records exception will encourage the
government to make excessive use of the exception in order
to abrogate the Fifth Amendment privilege for any “failure to
report” crime. The Chabots also suggest that this would
allow the government to abrogate the Fifth Amendment more
generally by creating a host of record-retention or reporting
requirements. Because there is significant overlap between
this argument and the first prong of the required records
exception, we address only briefly the Chabots’ argument
here.
In Shapiro, the Supreme Court explained that there
was little danger of Congress completely abrogating the Fifth
Amendment privilege as long as the records that Congress
required individuals to keep closely served the purpose of a
valid, civil regulation. Shapiro, 335 U.S. at 32–33. In that
case, the Emergency Price Control Act was a valid exercise of
Congress’s power to set commodity prices during wartime
8
that required vendors to keep records of their sales. Id. at 5
n.3, 32–33. Because these sale records closely served the
Act’s legitimate regulatory purpose, the Court concluded that
inclusion of the petitioner’s sales records in the required
records exception was a far cry from Congress’s total
abrogation of the Fifth Amendment privilege for any and all
crimes. See id. at 4–5, 32–33. In short, because of the
required records exception’s exclusive application to valid,
regulatory recordkeeping schemes, the government cannot
simply create a recordkeeping requirement in order to
prosecute crimes, such as a willful failure to report offense.
See In re Grand Jury Investigation M.H., 648 F.3d 1067,
1075, 1078 (9th Cir. 2011) (hereinafter “M.H.”).
In the present case, the government conditions
voluntary participation in foreign banking on maintaining
records and reporting information regarding foreign bank
accounts. See id. at 1078. As explained in greater detail
regarding the first prong of the Grosso test, the recordkeeping
requirement is part of a valid, essentially regulatory scheme.
These records serve legitimate noncriminal purposes, because
government agencies use this data for tax collection,
development of monetary policy, and conducting intelligence
activities. See United States v. Under Seal, 737 F.3d 330,
335, 337 (4th Cir. 2013) (listing the noncriminal purposes for
which government agencies, including the Treasury
Department, use account record data); In re Grand Jury
Subpoena, 696 F.3d 428, 436 (5th Cir. 2012) (employing
similar reasoning). Therefore, it is unlikely that the
government will be able to use the required records exception
to abrogate the Fifth Amendment privilege for any and all
“failure to report” crimes.
9
C. Compliance with the Summonses Will Result
in Criminal Liability
The Chabots contend that compliance with the IRS’s
summonses for their account records will provide a
“significant link in the chain of evidence” that the
government needs to prosecute them for willful failure to
report overseas account(s) to the IRS. Appellant’s Br. 12.
Unfortunately for the Chabots, this argument echoes the
familiar yet unsuccessful arguments of other holders of
foreign bank accounts who have invoked the Fifth
Amendment privilege to prevent compliance with summonses
for required records. See, e.g., Doe, 741 F.3d at 342–43, 353
(rejecting same argument).
Courts use prong one of the required records exception
to evaluate whether compliance with a recordkeeping scheme
is likely to lead to criminal charges as a general matter. Doe,
741 F.3d at 349; M.H., 648 F.3d at 1074–75. If the scheme’s
main purpose is to force individuals to turn over potentially
incriminating evidence to be used in criminal prosecutions,
the scheme is not essentially regulatory. See M.H., 648 F.3d
at 1075 (concluding that § 1010.420 is essentially regulatory,
in part, because the records that it requires accountholders to
keep are not inherently incriminating and therefore not
significant links in the chain of evidence necessary to bring
criminal charges against accountholders). As discussed in
further detail infra, production of the records that the IRS
seeks is unlikely to lead to criminal proceedings as a general
matter, because owning a bank account overseas is not an
inherently criminal activity. Id. at 1074.
To the extent that the Chabots argue that production of
the requested account records will establish a significant link
in the chain of evidence in their particular case, we are not
persuaded that this precludes application of the required
10
records exception. The Fifth Amendment applies only if the
compelled production is potentially self-incriminating. If
producing the documents were not potentially incriminating,
the Chabots would have no Fifth Amendment concerns. It is
the potentially incriminating nature of production that allows
the Chabots to invoke an otherwise valid Fifth Amendment
privilege. It is this same potentially incriminating nature that
makes the required records exception relevant to the Chabots’
account records. See Doe, 741 F.3d at 344. The Chabots’
argument appears to boil down to this: the exception to the
Fifth Amendment is inapplicable if the Fifth Amendment
otherwise would apply. Such an argument is nothing more
than a request that the exception be abolished altogether—a
request we must reject.
D. Applying the Required Records Exception to
Section 1010.420
As indicated, in Grosso, the Supreme Court set forth
the following three-part test for when the required records
exception should be applied to the Fifth Amendment
privilege:
[F]irst, the purposes of the United States’
inquiry must be essentially regulatory; second,
information is to be obtained by requiring the
preservation of records of a kind which the
regulated party has customarily kept; and third,
the records themselves must have assumed
‘public aspects’ which render them at least
analogous to public documents.
390 U.S. at 67–68. Although this is an issue of first
impression for this Circuit, the Second, Fourth, Fifth,
Seventh, Ninth, and Eleventh Circuits previously have
applied the required records exception to enforce summonses
11
for the records that 31 C.F.R. § 1010.420 requires
accountholders to keep.4 Today we join these circuits in
applying the required records exception to this “subset of . . .
documents that must be maintained by law.” Doe, 741 F.3d
at 344.
1. Essentially Regulatory Purpose
The Chabots contend that § 1010.420 is a
recordkeeping scheme with an essentially criminal purpose.
The first prong of the required records exception asks whether
a recordkeeping scheme targets an inherently criminal activity
and/or an inherently suspicious class of persons. See Doe,
741 F.3d at 347–48; M.H., 648 F.3d at 1075–76. Therefore,
we begin our inquiry by determining what and whom
§ 1010.420 targets. Section 1010.420 regulates foreign bank
account ownership, an activity in which people participate for
a myriad of legitimate and legal reasons. As the Chabots’
counsel recognized at oral argument, someone might own an
overseas account to ensure convenient access to money when
living, working, or even vacationing abroad. Oral Argument
at 13:19, 13:48, United States v. Chabot, (No. 14-4465),
available at http://www2.ca3.uscourts.gov/oralargument/
audio/14-4465USAv.Chabot,etal.mp3.
4
See In re Grand Jury Subpoena Dated Feb. 2, 2012, 741
F.3d 339 (2d Cir. 2013); United States v. Under Seal, 737
F.3d 330 (4th Cir. 2013); In re Grand Jury Proceedings, 707
F.3d 1262 (11th Cir. 2013); In re Grand Jury Subpoena, 696
F.3d 428 (5th Cir. 2012); In re Special Feb. 2011-1 Grand
Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903 (7th Cir.
2012); In re Grand Jury Investigation M.H., 648 F.3d 1067
(9th Cir. 2011).
12
In a similar vein, the class of persons who own foreign
bank accounts is comprised of law-abiding citizens as well as
miscreants. Doe, 741 F.3d at 350–51. On this point, we
agree with the Fifth Circuit’s conclusion that “the [Bank
Secrecy Act]’s record-keeping requirements do not apply
exclusively to those engaged in criminal activity.” In re
Grand Jury Subpoena, 696 F.3d at 435.
Where a recordkeeping scheme exclusively targets
those who engage in illegal activities, its purpose is
essentially criminal. For example, the Supreme Court held
that the statutes at issue in Grosso and Marchetti v. United
States were essentially criminal because the regulations at
issue exclusively targeted individuals who were engaged in
an inherently illegal activity, namely gambling. Grosso, 390
U.S. at 68; Marchetti, 390 U.S. 39, 46–48 (1968). See also
Leary v. United States, 395 U.S. 6, 18 (1969) (holding that
petitioner’s Fifth Amendment privilege was violated when
“compliance with the transfer tax provisions [of the
Marihuana Tax Act] would have required petitioner
unmistakably to identify himself as a member of this
‘selective’ and ‘suspect’ group [of individuals who failed to
comply with the Act’s order form requirement]”); Haynes v.
United States, 390 U.S. 85, 96, 100 (1968) (concluding that
the registration requirement of the National Firearms Act
violated petitioner’s Fifth Amendment privilege where the
requirement mainly targeted individuals who possessed a
firearm but had failed to comply with the Act’s other
requirements, therefore targeting an inherently suspicious
class of persons). Conversely, because § 1010.420 does not
apply exclusively, or even largely, to criminals, it does not
operate simply as a dragnet for criminals by forcing them to
maintain self-incriminating records. Instead, § 1010.420 is an
essentially regulatory scheme. See also In re Grand Jury
Proceedings, 707 F.3d at 1272 (concluding that § 1010.420
has an essentially regulatory purpose because it targets
13
neither “inherently illegal activity” nor an “inherently
suspect” group of individuals).
The Chabots contend that the Financial Crimes
Enforcement Network’s administration of § 1010.420
evidences the regulation’s essentially criminal purpose. The
Chabots attempt to bolster their argument by highlighting the
fact that the records that § 1010.420 requires accountholders
to keep are also useful for potential criminal proceedings
against these individuals. As the government asserted at oral
argument, “bank records can be very important for . . . a lot of
things [that] you might want to investigate about a person.”
Oral Argument at 27:29. Just because some of these things
have criminal aspects does not mean that § 1010.420’s
purpose is essentially criminal. See, e.g., Under Seal, 737
F.3d at 334–36 (explaining that, despite how useful records
maintained under § 1010.420 are to criminal prosecutions,
this utility does not negate § 1010.420’s other noncriminal
purposes).
As the government acknowledged at oral argument,
one of Congress’s goals in passing the Bank Secrecy Act of
1970 was to reach accountholders who were avoiding U.S.
criminal laws. Oral Argument at 27:19. Section 1010.420
was promulgated pursuant to this Act and therefore shares
this goal. An equally important objective of both the Act and
§ 1010.420, however, is to monitor and facilitate compliance
with currency regulation and tax laws. Id. at 27:20; see also
Under Seal, 737 F.3d at 335 (noting that the Bank Secrecy
Act was enacted for “concomitant tax, regulatory, and
counterterrorism purposes in addition to its [the Act’s] law
enforcement goals”). Accordingly, like our sister circuits that
have addressed these arguments, we find the Chabots’
14
arguments that § 1010.420 is an essentially criminal scheme
to be unpersuasive.5
2. Customarily Kept
The Chabots argue that holders of overseas accounts
customarily would not keep the records that § 1010.420
requires them to maintain. Though the courts have not settled
on a formal definition of “customarily kept,” we find
instructive the guideline from the Second Circuit that asks
whether holders of foreign bank accounts as a general group
are likely to keep the records that § 1010.420 requires them to
keep, rather than only examining the practices of those
individuals who engage in foreign banking solely to avoid
U.S. laws. Doe, 741 F.3d at 350–51. As stated succinctly by
the Ninth Circuit: “[R]ecords appear to be customarily kept if
they would typically be kept in connection with the regulated
activity.” M.H., 648 F.3d at 1076. Therefore, we begin our
inquiry by examining what records those who lawfully
engage in foreign banking ordinarily would retain.
Section 1010.420 mandates that owners and
beneficiaries of foreign accounts keep the following
information accessible for five years: (1) the name on the
account, (2) the account number, (3) the name and address of
the bank or person with whom the account is maintained,
(4) the account type, and (5) the maximum annual account
value. 31 C.F.R. § 1010.420. Common sense tells us that
this is all information that an accountholder needs in order to
access funds located abroad or at home. See M.H., 648 F.3d
at 1076 (concluding that the records that § 1010.420 requires
individuals to keep contain essential information for
accountholders and beneficiaries). Because reasonable
5
See supra note 4.
15
accountholders would retain this information in order to
readily access their foreign accounts, we conclude that these
are records that accountholders customarily would keep.6
Doe, 741 F.3d at 350; In re Grand Jury Subpoena, 696 F.3d at
435.
The Chabots’ additional contention that no
accountholder keeps records of the maximum annual values
of his overseas accounts is unpersuasive. Maximum annual
account values are simply account balances, and account
owners typically keep these numbers on record. See Doe,
741 F.3d at 350; M.H., 648 F.3d at 1076.
The Chabots further argue that even if there are some
accountholders who maintain the records that § 1010.420
requires them to keep, they do not retain these records for the
five-year period that § 1010.420 mandates. The Chabots,
however, misunderstand the inquiry that this prong of the
required records exception entails. The “customarily kept”
analysis simply asks whether individuals typically would
maintain the information that the law requires them to keep,
not the length of time for which they normally would do so
6
Though some courts have found the similarity between the
type of information contained in the records that § 1010.420
requires accountholders to keep and the information that these
individuals must report to the IRS pursuant to § 1010.350 to
be additional proof that accountholders customarily keep this
information, we find this reasoning to be circular. See, e.g.,
In re Grand Jury Proceedings, 707 F.3d at 1273; In re Grand
Jury Subpoena, 696 F.3d at 435; M.H., 648 F.3d at 1076. On
this point, the Chabots aptly note: “The government and the
courts seem to say, well, if the government has a regulation
that requires this information . . . it’s regularly kept because
we require you to keep it.” Oral Argument at 28:59.
16
absent the requirement. The Chabots fail to cite any case in
which the length of time for which someone usually kept a
document affected the court’s holding on whether or not the
document was customarily kept, and we have been unable to
identify any such case. See, e.g., M.H., 648 F.3d at 1076
(explaining that “records appear to be customarily kept if they
would typically be kept in connection with the regulated
activity”). Furthermore, here, we do not deal with an
extraordinarily long time period, but rather one that seems
appropriate for taxation and similar purposes.
We therefore conclude that prong two is met.
3. Public Aspects
The Chabots contend that their account records do not
have public aspects because owning a foreign bank account is
not a public activity. It is undeniable that an individual who
holds an overseas account normally does not think of his
account records as being equivalent to public records.
Nevertheless, “[t]he fact that documents have privacy
protections elsewhere does not transform those documents
into private documents” for all purposes. M.H., 648 F.3d at
1078. We note that several circuits have reasoned that
records required to be kept under a valid, civil regulatory
scheme (i.e., meet prong one of the Grosso test) automatically
have “public aspects” sufficient to meet the third prong. See,
e.g., Doe, 741 F.3d at 352; M.H., 648 F.3d at 1076–77. We
need not adopt such a broad holding to conclude that the
documents requested here have sufficient “public aspects” to
meet the third prong of the Grosso test.
As discussed earlier under the first prong of the Grosso
test, § 1010.420 is a valid, civil regulatory scheme, and the
Chabots voluntarily participated in the regulated activity,
namely foreign banking. When accountholders such as the
17
Chabots voluntarily engage in foreign banking, they
effectively waive their Fifth Amendment privilege to prevent
the government’s compelled disclosure of their account
records.7 See M.H., 648 F.3d at 1078 (relying on this consent
theory in concluding that the appellant’s account records
satisfied the public aspects prong of the Grosso test); In re
Special Feb. 2011-1 Grand Jury Subpoena, 691 F.3d at 909
(“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 demand, notwithstanding any Fifth
Amendment privilege.”); cf. Smith v. Richert, 35 F.3d 300,
7
Following oral argument, the Chabots submitted a letter
pursuant to Fed. R. App. P. 28(j), citing the Supreme Court’s
recent decision in Horne v. Department of Agriculture, No.
14-275 (June 22, 2015). The Chabots cite Horne for the
proposition that “while the government may regulate an
activity, it may not structure its regulation in a way that
abrogates a Constitutional protection, and then point to
engagement in such activity as voluntary waiver.”
Appellants’ Rule 28(j) Letter 2 (July 14, 2015). The
proposition put forward by the Chabots and the language
cited for it, which is taken out of context, is far too broad.
The Supreme Court clearly indicated that the specific issue
addressed related to takings, not the privilege against self-
incrimination (or any other constitutional right for that
matter), and that the conclusion it was reaching was specific
to the facts presented in that case. See Horne, Slip Op. at 12
(“The third question presented asks ‘Whether a governmental
mandate to relinquish specific, identifiable property as a
“condition” on permission to engage in commerce effects a
per se taking.’ The answer, at least in this case, is yes.”).
18
303 (7th Cir. 1994) (holding that production of certain
documents necessary to determine personal income tax
liability were not within required records exception, because
“[t]he decision to become a taxpayer cannot be thought
voluntary . . . [as] [a]lmost anyone who works is a taxpayer,
along with many who do not”). The government circulates
the data from these records to several government agencies,
which use this information for a number of important non-
criminal purposes. See Under Seal, 737 F.3d at 335, 337
(concluding that the records kept pursuant to § 1010.420
possess public aspects given the Treasury Department’s
circulation of this data to other government agencies for the
purpose of implementing economic, monetary, and regulatory
public policies); In re Grand Jury Subpoena, 696 F.3d at 436
(employing similar reasoning). Through these processes, the
Chabots’ account records acquire public aspects.
The Chabots contend that the absence of a licensing
requirement for foreign banking necessarily means that their
account records do not have public aspects. This argument,
however, does nothing to advance the Chabots’ case, because
private activities that do not require licenses still may be
subject to the required records exception. See Under Seal,
737 F.3d at 337 (refusing to accept appellant’s argument that
his foreign bank account records were not subject to the
required records exception because banking is a private
activity which does not require participants to obtain
licenses); In re Grand Jury Proceedings, 707 F.3d at 1274 n.8
(same); In re Grand Jury Subpoena, 696 F.3d at 435–36
(same). We conclude that the records sought in this case are
sufficiently imbued with “public aspects” to satisfy the third
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prong of the required records exception.8 Thus all three
prongs are met.
IV.Conclusion
The Chabots have failed to raise valid policy or other
reasons as to why their account records should not be
included in the required records exception to the Fifth
Amendment privilege. Because § 1010.420 is essentially
regulatory, requires account owners to retain records that they
customarily keep, and requires retention of records that have
public aspects, we will affirm the District Court’s grant of the
IRS’s petition.
8
As the interstate commerce power gives Congress the
authority to prohibit foreign banking, Congress could impose
the lesser restriction of a licensing requirement on foreign
banking. See Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 46–
47 (1974) (noting that “[t]he plenary authority of Congress
over both interstate and foreign commerce is not open to
dispute, and that body was not limited to any one particular
approach to effectuate its concern”); Doe, 741 F.3d at 351–
52. Obviously, this kind of scheme would be considerably
more burdensome than § 1010.420’s current recordkeeping
requirements.
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