One of the most frequent questions I get from private clients is whether
they can assert their Fifth Amendment Right to Avoid Self-Incrimination
when the U.S. Treasury Department requests documentation regarding any
offshore banking records. It’s a good question.
The Fifth Amendment was designed to prevent the government from forcing
you to be a witness against yourself. If the government requests documentation
for any offshore banking records, disclosure could result in criminal
penalties. In essence, you’d be a witness against yourself; handing
the Justice Department a conviction on a silver platter. Logically, the
Fifth Amendment should apply, right?
In 2012, the U.S. Court of Appeals for the Seventh Circuit joined the Sixth,
Eighth, and Ninth Circuit Courts of Appeals in holding that the Fifth
Amendment Right to Avoid Self-Incrimination does not apply to an individual’s
offshore banking records. What?! That’s the natural response from
clients. And to make matters worse, in May 2013, the Supreme Court denied
to hear an appeal. Really?! So why doesn’t the Fifth Amendment apply
to offshore banking records?
There’s an exception to the Fifth Amendment Privilege Against Self-Incrimination;
it’s come to be known as the Required Records Doctrine. There are
three requirements for the exception to apply. First, the purpose of the
governmental inquiry must be regulatory. Second, the records sought must
be required to be and customarily kept. Third, the records must have public
aspects that essentially make them public documents.
See Shapiro v. U.S., 335 U.S. 1 (1948);
Marchetti v. U.S., 390 U.S. 39 (1968);
Grosso v. U.S., 390 U.S. 62 (1968).
Let’s first examine the requirement that the inquiry be regulatory
in nature. The Supreme Court has described this requirement as being an
inquiry that is part of a “noncriminal regulatory scheme.”
Baltimore City Dep’t of Soc. Servs. v. Bouknight, 493 U.S. 549 (1990). Nevertheless, the Sixth, Seventh, Eighth, and Ninth
Circuits have all allowed it to apply in the context of grand jury subpoenas.
If a Grand Jury is issuing a subpoena for the production of records, the
inquiry is hardly “regulatory.” It is quite obviously the
direct opposite; it’s a criminal inquiry. The first requirement fails.
Let’s now examine the second requirement that the records sought
must be required to be and customarily kept. Under the Bank Secrecy Act,
all U.S. persons are required to maintain records on their offshore bank
accounts. Offshore banking is essentially viewed as a voluntary, regulated
activity; participation gives rise to document maintenance requirements.
It is customary that people comply with the law. Hence, the government
wins on this one.
Let’s now examine the third and final requirement that the records
must have public aspects that essentially make the records quasi-public
documents. Long story made short; records required to be kept under federal
law are considered quasi-public, so meeting the second requirement essentially
guarantees satisfaction of the third requirement. Thus, there really isn’t
a third requirement.
The Department of Justice does not have the constitutional authority to
ignore a taxpayer’s Fifth Amendment Privilege Against Self-Incrimination
when the inquiry is potentially or patently criminal in nature. Nevertheless,
as shown above, a few federal circuits have taken the position that the
Required Records Exception to the Fifth Amendment applies in criminal
In re Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, 691 F.3d 903 (7th Cir. 2012) cert. denied, 133 S. Ct. 2338 (2013).
It is this author’s firm position that the Sixth, Seventh, Eighth,
and Ninth Circuit Courts of Appeals are wrong. The Supreme Court only
refused to hear the appeal because a conflict amongst the federal circuits
does not yet exist. The Required Records Exception to the Fifth Amendment
Privilege Against Self-Incrimination does not apply in the context of
criminal inquiries; taxpayers absolutely have the constitutional right
to assert their Fifth Amendment privilege. The Supreme Court decisions in
Bouknight provide substantial authority for attorneys to advise their clients to
both ignore these faulty circuit decisions and assert their Fifth Amendment right.
If you know of anyone currently the subject of a grand jury subpoena demanding
the production of offshore bank records, please have them call our attorneys
at (202) 792-6600 as soon as possible.