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. 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 inquiries. 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 Shapiro, Marchetti, Grosso, and Bouknight provide substantial authority for attorneys to advise their clients to both ignore these faulty circuit decisions and assert their Fifth Amendment right.