United States v. Eli Chabot

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

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No. 14-4465

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UNITED STATES OF AMERICA

v.

ELI CHABOT;

RENEE CHABOT,

Appellants

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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

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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

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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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