UNITED STATES OF AMERICA v. CHABOT et al
OPINION filed. Signed by Judge Freda L. Wolfson on 10/3/2014. (mmh)
**NOT FOR PUBLICATION**
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA,
ELI CHABOT and
Civ. No. 14-3055 (FLW)
WOLFSON, U.S. DISTRICT JUDGE:
Before the Court is United States of America’s (“Government”) petition to enforce an Internal
Revenue Service (“IRS”) summons compelling Eli and Renee Chabot (“the Chabots” or
“Respondent”) to produce all documents concerning any foreign bank accounts that were required
to be maintained by the Bank Secrecy Act of 1970 (“BSA”) and regulations under that Act. For
the following reasons, the Government’s petition is GRANTED.
On or around April 6, 2010, the IRS received information from the French competent authority
pursuant to the United States-France income tax treaty that provided “information concerning U.S.
Persons maintaining undisclosed bank accounts at HSBC bank.” Danilack Declaration, at ¶¶ 3, 56. The IRS claims it has information regarding Pelsa Business Inc. (“Pelsa”) accounts at HSBC
for the years 2005 – 2007 and that according to the information provided, Eli Chabot is the
beneficial owner of Pelsa. Id. at ¶¶ 7-8. On March 12, 2012, the IRS issued an administrative
summons requesting that the Chabots appear to testify. On May 12, 2012, the Chabots appeared
and, on the advice of counsel, asserted their Fifth Amendment privilege and refused to answer any
IRS questions about foreign bank accounts. Gratsy Declaration, at ¶ 5.
On June 20, 2012, the IRS issued another summons to Eli Chabot and one to Renee Chabot.
The summons requested both parties to appear on July 13, 2012 to give testimony and produce
extensive documents about foreign bank accounts for the period January 1, 2006 to December 31,
2009. Id. at ¶¶ 7, 10; see also Eli Chabot Summons, Renee Chabot Summons. On July 13, 2012,
the Chabots’ counsel advised the IRS that the Chabots would not appear, were asserting their Fifth
Amendment privilege, and declined to produce the requested documents. Id. at ¶ 12, Ex. 3. On
November 16, 2012, the IRS amended its summons, narrowing the scope of the information sought
to request only those documents required to be maintained by 31 C.F.R. § 1010.420 (“Section
1010.420”). Id. at ¶ 13; Pet. To Enforce Summons, at ¶ 8. The Chabots continued to assert their
On May 14, 2014, the IRS filed a petition to enforce the November 16th summons. See Pet.
To Enforce Summons. On May 19, 2014, this Court entered an Order to Show Cause, which was
adjourned by consent until September 22, 2014. The Order to Show Cause directed Respondents
to present any defense or opposition to the petition to enforce the summons.
In their written response, Respondents assert the Fifth Amendment Act of Production Privilege
and claim that the Required Records Doctrine, which precludes assertion of the Fifth Amendment
privilege, does not apply. The Government replied and urges this Court to adopt the reasoning of
six federal courts of appeal in finding that foreign bank account information requested under the
Bank Secrecy Act, including under 31 C.F.R. § 1010.420, falls within the Required Records
Doctrine. The Third Circuit has not yet ruled on this issue.
On September 22, 2014, this Court held a hearing on its Order to Show Cause and reserved its
decision. This Opinion follows.
Standard of Review
The Fifth Amendment of the United States Constitution states that “[n]o person . . . shall be
compelled in any criminal case to be a witness against himself. U.S. Const. Amend. 5. The
Supreme Court has clarified that the privilege extends to the act of producing potentially
incriminating documents. Fisher v. United States, 425 U.S. 391 (1976) (“The act of producing
evidence in response to a subpoena . . . has communicative aspects of its own, wholly aside from
the contents of the papers produced.”); see also United States v. Hubbell, 530 U.S. 27 (2000).
The Required Records Doctrine was first articulated in Shapiro v. United States, 335 U.S. 1
(1948). Viewed by some courts as an exception to the Fifth Amendment privilege and by others
as a “threshold inquiry to determine whether the privilege attaches in the first place,” see In re
Special February 11-1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903 (7th Cir. 2012)
(“Special February Grand Jury Subpoena”),1 the doctrine prevents individuals, who possess
records the Government requires them to maintain as a result of voluntary participation in certain
regulated activities, from asserting their Fifth Amendment privilege. Shapiro, 335 U.S. at 33.2 In
a subsequent decision, the Court specified three “premises,” or factors, in determining whether the
Required Records Doctrine applies: “first, the purposes of the United States’ inquiry must be
The Third Circuit has not explicitly ruled on whether the Required Records Doctrine is an exception to the Fifth
Amendment privilege. Nonetheless, the circuit has recognized that the doctrine places certain records and filings
“outside the prohibition against compulsory self-incrimination.” U.S. v. Buck, 730 F.2d 129, 132 (3d Cir. 1984).
Shapiro cautions “that there are limits which the government cannot constitutionally exceed in requiring the
keeping of records which may be . . . used in prosecuting statutory violations committed by the record-keeper himself.”
335 U.S. at 32. However, Respondents do not argue that the Bank Secrecy Act exceeds those limits. Further, the
Constitution explicitly allows Congress to “regulate Commerce with Foreign Nations, a category into which offshore
banking falls.” U.S. Const. art. I, § 8, cl. 3.
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.”
Grosso v. United States, 390 U.S. 62, 67-68 (1968).3
The Bank Secrecy Act of 1970 (“BSA”) regulates offshore banking, and identifies as its
purpose “to require certain reports or records where they have a high degree of usefulness in
criminal, tax, or regulatory investigations or proceedings.” 31 U.S.C. § 5311. Under Section 241(a)
of the Act, which requires U.S. citizens to “keep records and file reports” of their foreign financial
transactions and relationships, the Treasury Department promulgated regulations requiring U.S.
citizens with foreign bank accounts to disclose their foreign bank accounts in the form of what is
called a foreign bank account report (“FBAR”). 31 C.F.R. § 1010.350. If the citizen possesses,
otherwise has a financial interest in, or has signatory authority over such accounts, she must retain
the records of such accounts for at least five years, to be kept “available for inspection as authorized
by law.” Id. 1010.420. Failure to file an FBAR is a felony under 31 U.S.C. § 5322.
Respondents argue that, under the three-pronged test articulated in Grosso, (1) Section
1010.420 does not literally require that records be kept, only that information be “retained” and,
to the extent it does require records, it is essentially criminal, not regulatory; (2) the information
sought is not “customarily kept” by foreign account holders and beneficiaries, especially those in
“secrecy” jurisdictions; and (3) the bank records in question, to the extent they exist, are private,
Some circuit courts view the three “premises” as requirements. See Special February Grand Jury Subpoena,
691 F.3d at 906. Other courts view the test articulated in Grosso as more flexible. See In Re Grand Jury Subpoena,
696 F.3d 428, 433 (5th Cir. 2012) (“Although the Fifth Circuit has applied the first and third prongs of the Required
Records Doctrine, it has not applied the second prong . . . .”). The Third Circuit has not yet taken a position on this
informally recorded, and cannot reasonably be said to have a “public aspect.” Further, Respondents
contend that the required records doctrine should not be extended to a situation such as the present
one, in which “the nexus between the recordkeeping requirement and the potential crime is so
connected.” 4 Resp. Brief at 26.
The Third Circuit has not yet decided whether the documents sought in a summons for foreign
bank account information under Section 1010.420 fall within the Required Records Doctrine.
However, the Second, Fourth, Fifth, Seventh, Ninth, and Eleventh Circuits have all reached the
issue and found that the Required Records Doctrine applies. See In re Grand Jury Subpoena Dated
February 2, 2012, 741 F.3d 339 (2d Cir. 2013); U.S. 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); Special February Grand Jury Subpoena, 691 F.3d 903 (7th Cir. 2012);
In re M.H., 648 F.3d 1067 (9th Cir. 2011), cert denied sub. nom. M.H. v. U.S., 133 S.Ct. 26 (2012).
The Government contends that the arguments found persuasive by these other circuit courts should
convince this Court, as well. In contrast, Respondents assert that these decisions (1) do not control
this Court, (1) are incorrectly decided, and (3) are distinguishable on the facts.
A. Three-pronged Test
The Supreme Court has noted that in those cases where the Fifth Amendment privilege was
found to protect against statutory disclosures, “the disclosures condemned were only those
extracted from a highly selective group inherently suspect of criminal activities and the privilege
For purposes of these proceedings, Respondents do not contest that the Government has met its burden of proof
under U.S. v. Powell, 379 U.S. 48 (1964) to establish a prima facie case for issuing a summons in good faith—by
showing that (1) “the investigation will be conducted pursuant to a legitimate purpose,” (2) “the inquiry may be
relevant to the purpose,” (3) “the information sought is not already within the IRS’s possession,” and (4) “the
administrative steps required by the Internal Revenue Code have been followed.” U.S. v. Clarke, 134 S.Ct. 2361
(2014) (quoting Powell, 379 U.S. at 57-58); see also Gratsky Decl. at ¶¶ 9-12.
was applied only in an area permeated with criminal statutes—not in an essentially noncriminal
and regulatory area of inquiry.” California v. Byers, 402 U.S. 424, 430 (1971).
Respondents argue that Section 1010.420 only requires that five items of information “shall be
retained” and “be kept at all times available for inspection,” which, when read literally, does not
necessarily require the keeping of records. However, Respondents cite no textual support for this
proposition. The Government points to Section 1010.420’s text to belie Respondent’s argument.
Section 1010.420 states:
Records of accounts required by § 1010.350 to be reported to the Commissioner of
Internal Revenue shall be retained by each person having a financial interest in or
signature or other authority over any such account. Such records shall contain the name
in which each such account is maintained, the number or other designation of such
account, the name and address of the foreign bank or other person with whom such
account is maintained, the type of such account, and the maximum value of each such
account during the reporting period. Such records shall be retained for a period of 5
years and shall be kept at all times available for inspection as authorized by law.
31 C.F.R. § 1010.420 (emphasis added).5
Respondents further argue that Section 1010.420’s requirements, when read in isolation from
the rest of the BSA, are essentially criminal because Section 1010.420 (1) requires records to be
retained for five years, which parallels the five-year statute of limitations for federal non-capital
crimes, and (2) is administered by a self-proclaimed criminal enforcement agency, the Financial
Crimes Enforcement Network (“FinCEN”).6 Respondents cite to Marchetti, Grosso, Leary, and
Additional arguments regarding whether the information sought constitutes “records” are analyzed in the second
prong of the Grosso test. See infra at 11.
Additionally, Respondents cursorily argue that “[a]ny averment by the IRS that the information collected from
FBARs and/or collected pursuant to 1010.420 is used for essentially regulatory purposes should be the subject of a
hearing pursuant to the teaching of United States v. Clarke.” 134 S.Ct. 2361 (2014). Basically, Respondents attach a
bad faith motive to the IRS for taking the position that Section 1010.420 is “essentially regulatory” to support the IRS
summons here. However, Respondents offer no specific facts that would support an inference of bad faith on the part
of the IRS. Clarke, 134 S.Ct. at 2365 (The taxpayer only “has a right to question IRS officials about their reasons for
issuing a summons . . . . when he points to specific facts or circumstances plausibly raising an inference of bad faith.”).
Further, Respondents conceded at the hearing that it did not intend to pursue an evidentiary hearing.
Haynes, all cases in which the Supreme Court found the Fifth Amendment privilege to apply
because the statutes in question targeted inherently illegal activity.7
However, all six circuit courts have found that the BSA is essentially regulatory, not criminal,
in nature, and does not exceed constitutional limits it its regulation. For one, the statute targets a
group of individuals not necessarily engaging in illegal activity, distinguishing these facts from
those in Marchetti, Grosso, Leary, and Haynes. In re M.H., 648 F.3d at 1074 (“There is nothing
inherently illegal about having or being a beneficiary of an offshore foreign bank account.”); see
also Grand Jury Subpoena Dated February 2, 2012, 741 F.3d at 348. Second, the information
sought under the statute is used for a variety of purposes, not just for criminal prosecution. Id.
(“[T]his multifaceted statute clearly contributes to civil and intelligence efforts wholly unrelated
to any criminal purpose.”); California Bankers Ass'n v. Shultz, 416 U.S. 21, 76–77 (1974) (In the
BSA, “Congress seems to have been equally concerned with civil liability which might go
undetected by reason of transactions of the type required to be recorded or reported.”); Grand Jury
Proceedings, 707 F.3d at 1271 (“[T]he Treasury Department shares the information it collects
pursuant to the Act’s requirements with other agencies . . . none of which are empowered to bring
criminal prosecutions.”); see also 31 U.S.C. § 5311.
Further, the Government argues—and this Court agrees—that Section 1010.420 in particular
has both criminal and civil purposes.8 First, the disclosure requirements assist the IRS in gathering
The statutes at issue in these four cases imposed the following requirements: (1) in Marchetti and Grosso, a tax
on wagering, which was virtually banned at the time; (2) in Haynes, the registration of illegal firearms; and (3) in
Leary, registering marijuana traffickers. Marchetti v. United States, 390 U.S. 39, 47 (1968); Grosso, 390 U.S. at 64;
Haynes v. United States, 390 U.S. 85, 96 (1968); and Leary v. United States, 395 U.S. 6, 16, 18 (1969).
It is not even clearly necessary to read Section 1010.420 apart from the BSA to determine whether the law at
issue is essentially criminal or regulatory. Other circuits have only generally analyzed the underlying statute. See,
e.g., In re Grand Jury Subpoena To Custodian of Records, 497 F.2d 218, 220 (6th Cir. 1974), cert. denied, 419 U.S.
1009 (statute should be read “as a whole” to determine whether regulatory in nature); see also In re Grand Jury
Subpoena Duces Tecum Served Upon Underhill, 781 F.2d 64, 67 (6th Cir. 1986) (“Although the specific provisions
evidence of undetected civil liability. Second, the regulation at its core seeks basic information
about the plausibly innocuous activity of maintaining a foreign bank account. Other district courts
have held similarly. See, e.g., In re Grand Jury Subpoena Dated February 2, 2012, 908 F. Supp.
2d 348, 355 (E.D.N.Y. 2012) aff'd, 741 F.3d 339 (2d Cir. 2013) (“Because the record-keeping
requirements of 31 C.F.R. § 1010.420 do not target inherently illegal activity, the provision is
essentially regulatory in nature.”). Third, as the Second Circuit aptly notes, the fact that FinCEN
uses Section 1010.420, a “multi-purposed statute” for criminal enforcement purposes “is neither
surprising nor persuasive,” and does not change the conclusion that the regulation is essentially
Respondents next argue that the other circuits that have considered this issue have ruled
incorrectly because they failed to focus on the close connection between the disclosure under
Section 1010.420 and the potential crime at issue (i.e., willful failure to file an FBAR under Section
1010.350 of the same statute). Respondents argue that because responding to the IRS’s summons
may essentially result in admitting to a FBAR violation, they would be potentially forced to admit
an element of the crime. Respondents cite to extra-circuit cases involving the attorney-client
privilege. See Baird v. Koerner, 279 F.2d 623, 633 (9th Cir. 1960) (finding that privilege applied
when the disclosure of the client’s name would implicate the client in a crime); Tillotson v.
Boughner, 350 F.2d 663 (7th Cir. 1965) (finding that privilege applies when “disclosure of the
identity of the client . . . would lead ultimately to disclosure of the taxpayer’s motive for seeking
of the Act and the regulations . . . may have criminal application, these provisions serve the overall purpose of
enforcement of an essentially regulatory program.”). The Third Circuit has not yet addressed this issue.
Respondents’ arguments do not hold sway here. First, in order to establish that Respondents
have violated the BSA, the Government would have to prove that Respondents acted willfully.
“That fact distinguishes this case from Marchetti and Grosso, where the activity being regulated—
gambling—was almost universally illegal, so that paying a tax on gambling wagers necessarily
implicated a person in criminal activity. Admitting to having a foreign bank account carries no
such risk. “That the information contained in the required record may ultimately lead to criminal
charges does not convert an essentially regulatory regulation into a criminal one.” In re M.H., 648
F.3d at 1074-75; see also Grand Jury Subpoena dated February 2, 2012, 741 F.3d at 352 (“[A]n
account owner who was truly unaware of the recordkeeping requirement would not incur related
criminal sanctions by acknowledging in response to a production order his negligent failure to
maintain the required record.”).
At the September 22nd hearing, Respondents also attempted to distinguish the facts of this case
from the six appellate courts which have considered the applicability of the Required Records
Doctrine to records requested under Section 1010.420. Respondents argue that here, while they
are subjects of a civil investigation, they have nonetheless been brought in for formal interrogation
by the IRS, which can also open a parallel criminal investigation—whereas the appellate courts
that have ruled on this issue dealt with individuals who were the targets of grand jury
investigations. See, e.g., M.H., 648 F.3d at 1070. Respondents also request the Court to take
judicial notice of (1) deferred prosecution agreements between the government and UBS and
HSBC that resulted in UBS turning over the account information for “certain United States
customers of UBS’s cross-border business”9 as well as (2) transcripts from the May 2, 2012
On September 30, 2014, Respondents filed a post-hearing submission elaborating on the significance of the
deferred prosecution agreements. Respondents argue that the “certain customers” whose accounts UBS turned over
“were inherently those who were suspected of criminal conduct—failure to file an FBAR as required by 31 CFR
1010.350, and made criminal by 31 U.S.C. § 5322.” See Sept. 30 letter, at 2. Respondents also cite to a DOJ press
meeting between Respondents and the IRS submitted on the eve of the September 22nd hearing. At
the hearing, Respondents argued that the interrogations evidenced from the transcripts, taken
together with the deferred prosecution agreements and the totality of the circumstances, created an
essentially criminal atmosphere for Respondents that meaningfully differed from the atmosphere
encountered by the individuals targeted by grand jury investigations in the six appellate cases.
However, Respondents’ attempts to distinguish their case from the six appellate cases that have
reached this issue are unconvincing. First, at least one district court has addressed the validity of
an IRS administrative summons requesting information under Section 1010.420, and found no
reason to distinguish the Fifth Amendment jurisprudence examined by the appellate courts. See
U.S. v. Chen, 952 F.Supp.2d 321, 330-31 (D. Mass. 2013). Second, even if the IRS began civilly
investigating Respondents due to information the IRS received from the deferred prosecution
agreements, it does not follow that such a fact transforms Section 1010.420, or even the IRS’s use
of the regulation in this case, into an “essentially criminal” regulation. As has been represented by
the IRS here, there is currently no ongoing criminal investigation or one currently contemplated,10
which, if anything, makes the application of the Required Records Doctrine here more compelling
than in the six appellate cases, where the prospect of criminal charges loomed larger because the
relevant individuals had been issued grand jury subpoenas and were identified as targets of grand
jury investigations.11 Respondents also fail to cite any case law that requires, or even sanctions,
release publicizing the deferred prosecution agreement in which the DOJ noted it had “successfully prosecuted six
U.S. customers of UBS whose information was provided pursuant to the Deferred Prosecution Agreement, and is
conducting investigations of dozens of other UBS customers.” Id.
However, to be clear, the IRS has not represented that a criminal investigation could never develop from the
current civil investigation.
To reiterate, “[t]hat the information contained in the required record may ultimately lead to criminal charges
does not convert an essentially regulatory regulation into a criminal one.” In re M.H., 648 F.3d at 1074-75.
case-by-case speculation under the Required Records Doctrine about the subjective, long term
intention behind each records request issued pursuant to a valid regulatory scheme.12
Finally, at the September 22nd hearing, Respondents contended that expanding the Required
Records Doctrine to Section 1010.420 and depriving them of the Fifth Amendment protection has
the effect of allowing the IRS to administratively summon individuals, question them about
whether they have foreign bank accounts, and, if they refuse to answer, make an end run around
the Fifth Amendment by asking for records under Section 1010.420. Once the individuals respond
with the requested information, the IRS can commence criminal proceedings. Respondents
apparently argue against viewing offshore bankers as having “waived” their Fifth Amendment
rights by quoting the following dicta in Marchetti:
The constitutional privilege was intended to shield the guilty and imprudent as well
as the innocent and foresighted; if such an inference of antecedent choice were alone
enough to abrogate the privilege's protection, it would be excluded from the situations
in which it has historically been guaranteed, and withheld from those who most require
it. Such inferences, bottomed on what must ordinarily be a fiction, have precisely the
infirmities which the Court has found in other circumstances in which implied or
uninformed waivers of the privilege have been said to have occurred. To give credence
to such ‘waivers' without the most deliberate examination of the circumstances
surrounding them would ultimately license widespread erosion of the privilege through
ingeniously drawn legislation.
390 U.S. at 51-52. I find Respondents’ reliance on Marchetti in this case unpersuasive because
this Court has examined the surrounding circumstances and determined that the BSA, including
Section 1010.420, does not target a group engaged in inherently criminal activity as was present
in Marchetti; in Marchetti, the underlying statute targeted “wagerers,” or gamblers, whose
activities were “very widely prohibited under both federal and state law.” Marchetti, 390 U.S. at
44. Compare In re Special February 11-1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d
at 309 (“The voluntary choice to engage in an activity that imposes record-keeping requirements
See, e.g., In re Grand Jury Subpoena Duces Tecum Served Upon Underhill, 781 F.2d at 67.
under a valid civil regulatory scheme carries consequences, perhaps the most significant of which,
is the possibility that those records might have be turned over upon demand, notwithstanding any
Fifth Amendment privilege.”). And, again, construing the Required Records Doctrine in this
manner does not amount to criminalizing offshore banking. Moreover, it bears emphasizing that
compliance with the record keeping requirements of the Act is not incriminating on its face.
Compare Grosso, 390 U.S. at 66-67, 88, with Byers, 402 U.S. at 430-31. “This is not a situation,
as petitioners insist, where Congress can completely avoid the Fifth Amendment self-incrimination
privilege by simply passing a law that requires a person to keep documents of illegal activities and
if such records of illegal activities are not kept that the same be designated as a crime.” Keeping
an offshore bank account, like “buying and selling automobiles, is not, in and of itself, an illegal
activity.” In re Grand Jury Subpoena Duces Tecum Served Upon Underhill, 781 F.2d at 69.
Therefore, under the Grosso test, the BSA—including Section 1010.420—is essentially
Next, I consider whether the disclosures sought are of information customarily kept. Grosso,
390 U.S. 62, 67-68. Here, Respondents contend that (1) the information sought under Section
1010.420 do not constitute “records”;13 (2) Section 1010.420 applies to individuals who may not
even know of the existence of the bank account(s) in question, and therefore would not keep any
records to such account(s); and (3) the inherent nature of foreign banking is so secretive that
individuals regulated by Section 1010.420 may not ever possess, much less maintain, records
required under the regulation.
The Government does not respond to the first part of Respondents’ argument on this issue, presumably because
it already addressed whether information requested under Section 1010.420 constitutes a record.
However, the appellate courts that have already considered this issue have all rejected
Respondents’ second and third arguments and found that records requested under Section
1010.420 are customarily kept. “The information that § 1010.420 requires to be kept is basic
account information that bank customers would customarily keep, in part because they must report
it to the IRS every year as part of the IRS’s regulation of offshore banking, and in part because
they need the information to access their foreign bank accounts.” In re M.H., 648 F.3d at 1076.
Regarding the argument that foreign banking can be inherently secretive, “even if those who
possess foreign bank accounts for the purposes of avoiding some specific U.S. tax or criminal laws
may be less likely to maintain these records, the BSA covers the entire group of foreign bank
account holders. We decline to look at the custom of only the miscreants among the larger group
of foreign bank account holders.” Grand Jury Subpoena Dated February 2, 2012, 741 F.3d at 35051. The Court agrees with the existing case law on this issue and finds such basic and easilyaccessible account information to be “customarily kept” under Grosso and its progeny.
3. “Publicly Kept”
The third prong of analysis invites this Court to examine whether the records sought possess a
public aspect. Grosso, 390 U.S. 62, 67-68. Here, Respondents argue again that the requested
information (1) does not constitute a record,14 because such information can be comprised of
hastily scrawled numbers on a napkin and (2) is private, analogous to general taxpayer records.
See Smith v. Reichert, 35 F.3d 300 (7th Cir. 1994).
First, Respondents’ argument that records do not include information such as bank account
numbers or amounts held in a bank account is not well-taken. Section 1010.420 states that “records
of reports required [to be reported] under Section 1010.350 shall be retained for a period of five
Again, the Government does not explicitly address Respondents’ arguments that that information under Section
1010.420 are not records.
years and shall be kept at all times available for inspection as required by law.” In re M.H., 648
F.3d at 1077; see also 31 C.F.R. § 1010.420. Further, Merriam-Webster defines the verb “record”
as “to write (something) down so that it can be used or seen again in the future.”15 Information that
is required by law to be annually reported, retained, and kept available for inspection indeed
constitutes records—regardless of whether the information can fit on a napkin.
Second, the information sought under Section 1010.420 cannot be considered private under
the Required Records Doctrine. Smith, which concerned taxpayer records such as W-2s and 1099s,
is distinguishable. In fact, Smith states, “[t]he hypothetical case in which every individual is
required to maintain a record of everything he does that interests the government is remote from
the case of the individual who enters upon a regulated activity knowing that the maintenance of
extensive records available for inspection by the regulatory agencies is one of the conditions of
engaging in that activity.”). See also In re Special February 11-1 Grand Jury Subpoena Dated
Sept. 12, 2011, 691 F.3d 300, 309 (7th Cir. 2012) (“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 be turned over upon demand, notwithstanding any Fifth Amendment privilege.”).
The Court agrees with the six appellate courts in concluding that because “the personal
information is compelled in furtherance of a valid regulatory scheme, as is the case here, that
information assumes a public aspect.” This is especially true because the Treasury Department
typically shares the information it collects under BSA regulations such as Section 1010.420 with
other agencies, serving “important public purposes sufficient to imbue otherwise private foreign
Record, MERRIAM-WEBSTER, http://www.merriam-webster.com/dictionary/record (last visited Oct. 2, 2014).
bank account records with public aspects.” In re Grand Jury Proceedings, No. 4-10, 707 F.3d at
Because the Grosso test’s premises are met, the Required Records Doctrine applies and
Respondents may not claim the Fifth Amendment privilege to refuse responding to the IRS’s
For the reasons stated above, the Court grants the Government’s petition to enforce the IRS
summons served on Respondents. An appropriate order shall follow.
October 3, 2014
/s/ Freda L. Wolfson
FREDA L. WOLFSON, U.S.D.J.
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