First Nat. City Bank of NY v. INTERNAL REV. SERV., ETC.

• Citation: 271 F.2d 616
• Decision Date: 10 November 1959
• Docket Number: No. 315,Docket 25528.,315
• Parties: FIRST NATIONAL CITY BANK OF NEW YORK, Petitioner-Appellee, v. INTERNAL REVENUE SERVICE OF UNITED STATES TREASURY DEPARTMENT, Respondent-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

271 F.2d 616 (1959)

FIRST NATIONAL CITY BANK OF NEW YORK, Petitioner-Appellee, v. INTERNAL REVENUE SERVICE OF UNITED STATES TREASURY DEPARTMENT, Respondent-Appellant.

No. 315, Docket 25528.

United States Court of Appeals Second Circuit.

Argued June 8, 1959.

Decided November 10, 1959.

Robert J. Ward, Asst. U. S. Atty., for Southern Dist. of New York, New York City (Arthur H. Christy, U. S. Atty., S. D.N.Y., New York City, on the brief), for respondent-appellant.

John A. Wilson, New York City (Shearman & Sterling & Wright, Michael J. DeSantis, and MacIlburne Van Voorhies, New York City, on the brief), for petitioner-appellee.

Before HINCKS and LUMBARD, Circuit Judges, and SMITH, District Judge.

HINCKS, Circuit Judge.

In this proceeding the First National City Bank of New York (hereinafter called the "Bank") applied to the District Court to vacate or modify a summons to appear, testify, and produce books served on it by the Internal Revenue Service (hereinafter referred to as the "Service") under 26 U.S.C. § 7602. The summons called for the production before the Service in New York City of certain bank records relating to the account of Atlanta Corp. Ltd. (hereinafter called "Atlanta"), a Panamanian corporation with offices in New York City and Panama, Republic of Panama, whose tax liability was under investigation. Certain records in the Bank's New York City files were produced, but the Bank declined to produce other records, contending that they were physically located at its branch bank in the Republic of Panama, and hence beyond the reach of the subpoena. Nonproduction was justified, said the Bank, first, because the records were not in its possession, custody, or control; second, because the production of such records without Atlanta's consent or an order of a Panama court would violate sound national banking practice; and third, because such production would also violate the constitution and laws of the Republic of Panama and established principles of international comity.

The District Court, relying on In re Harris, D.C.S.D.N.Y., 27 F.Supp. 480, modified the summons so as to require the production of local records only. D. C., 166 F.Supp. 21. On this appeal the Service argues that the Harris case was erroneously decided; that the Bank's control over the subject records has been sufficiently shown; that no showing has been made that either the constitution or the laws of Panama or international comity prevent production; and that compliance with the summons should be ordered upon reversal of the decision below. These contentions we sustain.

It has long been held that there is a presumption that a corporation is in the possession and control of its own books and records. In re Ironclad Mfg. Co., 2 Cir., 201 F. 66. Clear proof of lack of possession and control is necessary to rebut the presumption. A national bank, incorporated under the laws of the United States, would seem to be just as subject to the stated rule as any other corporation, unless there is something in the federal law regulating the conduct of such banks which either negatives the existence of any such presumption or rebuts it. The Bank insists that the presumption of control is negatived by 12 U.S.C.A. § 604, which we set forth in the margin.¹

The "control" over its records upon which is founded the obligation of a corporation to produce them upon summons or subpoena duces tecum is not an esoteric concept. Any officer or agent of the corporation who has power to cause the branch records to be sent from a branch to the home office for any corporate purpose, surely has sufficient control to cause them to be sent on when desired for a governmental purpose properly implemented by a subpoena under 26 U.S.C. § 7602. In this case, the District Court recognized the existence of actual, practical control by the Bank over its Panamanian branch records and we think that finding was right. In re Rivera, D.C.S.D.N.Y., 79 F.Supp. 510; Hopson v. United States, 2 Cir., 79 F.2d 302. See also S. E. C. v. Minas De Artemisa, S.A., 9 Cir., 150 F.2d 215.

The Bank's contention that the effect of 12 U.S.C.A. § 604, especially as interpreted in In re Harris, supra, was to deprive it of sufficient control over records in Panama to be subject to the subpoena, was accepted by the court below. This ruling, however, we think was erroneous. Section 604, in terms and in intent, does not support the Bank's conclusion. As argued by the Service, § 604 is nothing more than a "bookkeeping" statute, designed to make examination into the financial condition of national banks, particularly the foreign operations of such banks, as simple as possible. Reduced to its simplest terms, it is an instruction to the national banks operating foreign branches to keep separate accounts for each such branch, and not to lump the accounts together or to include them in the accounts of the home office.

Moreover, § 604 with the companion Sections 601 to 603, of Title 12, all stem from Section 25 of the Federal Reserve Act of 1913, 38 Stat. 271, which under the caption of "Foreign Branches" shows not an intent to insulate the records of foreign branches from official scrutiny but, on the contrary, unmistakable intent that the branches shall report to the Comptroller of the Currency and shall at all times be subject to examination by the Federal Reserve Board. Indeed, Report 69, House of Representatives, 63rd Congress, 1st Session, accompanying H. R. 7837 which became the Federal Reserve Act of 1913, stated as the legislative objective that branch banks "shall be closely controlled by home institutions" even though the branches should conduct "their affairs separate from those of the home office in order that there may be no difficulty in ascertaining at any moment the distribution of the business of...