In re Grand Jury Investigation M.H.

• Citation: 648 F.3d 1067,2011 Daily Journal D.A.R. 12661,108 A.F.T.R.2d 2011,11 Cal. Daily Op. Serv. 10616
• Decision Date: 19 August 2011
• Docket Number: No. 11–55712.,11–55712.
• Parties: In re Grand Jury Investigation M.H.,M.H., Witness–Appellant,v.United States of America, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

648 F.3d 1067

108 A.F.T.R.2d 2011-5880

11 Cal. Daily Op. Serv. 10,616

2011 Daily Journal D.A.R. 12,661

In re Grand Jury Investigation M.H.,M.H., Witness–Appellant,

v.United States of America, Appellee.

No. 11–55712.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 24, 2011.Filed Aug. 19, 2011.

Pamela J. Naughton and Rebecca S. Roberts, Sheppard Mullin Richter & Hampton LLP, San Diego, CA, for appellant M.H.Frank P. Cihlar, Gregory Victor Davis, Alexander P. Robbins, Tax Division, Department of Justice, Washington, D.C., for appellee United States of America.Appeal from the United States District Court for the Southern District of California, Irma E. Gonzalez, Chief District Judge, Presiding. D.C. No. 10–GJ–0200.Before: WILLIAM C. CANBY, JR., RONALD M. GOULD, and RICHARD C. TALLMAN, Circuit Judges.

OPINION

TALLMAN, Circuit Judge:

Appellant M.H. is the target of a grand jury investigation seeking to determine whether he used secret Swiss bank accounts to evade paying federal taxes. The district court granted a motion to compel M.H.'s compliance with a grand jury subpoena duces tecum demanding that he produce certain records related to his foreign bank accounts. The court declined to condition its order compelling production upon a grant of limited immunity and, pursuant to the recalcitrant witness statute, 28 U.S.C. § 1826, held M.H. in contempt for refusing to comply. M.H. appealed.

The foreign bank account information the Government seeks is information M.H. is required to keep and maintain for inspection under the Bank Secrecy Act of 1970 (BSA), 31 U.S.C. § 5311, and its related regulations. M.H. argues that if he provides the sought-after information, he risks incriminating himself in violation of his Fifth Amendment privilege. He asserts that the information he is being asked to produce might conflict with other information M.H. has previously reported to the Internal Revenue Service (IRS). Production might reveal, for instance, that he has accounts he has not reported or that the information he has previously reported is inaccurate. On the other hand, if M.H. denies having the records, he risks incriminating himself because failing to keep the information when required to do so is a felony.

The district court concluded that under the Required Records Doctrine, the Fifth Amendment did not apply. That doctrine recognizes that when certain conditions are met, records required to be maintained by law fall outside the scope of the privilege. We agree that, under the Required Records Doctrine, the Fifth Amendment does not apply. We therefore affirm the district court's order of contempt for failing to produce the information the grand jury sought.

I

In 2009, as part of a deferred-prosecution agreement with the United States Department of Justice, the Swiss bank UBS AG (UBS) provided the federal government with bank account records identifying approximately 250 U.S. taxpayers UBS might have aided in committing tax evasion. The UBS records showed that in 2002, M.H. transferred securities from his UBS account to a different Swiss bank, UEB Geneva. IRS agents began investigating him.

In June 2010, a San Diego federal grand jury issued a subpoena duces tecum to M.H. for records he was required to keep pursuant to Treasury Department regulations governing offshore banking. The subpoena demanded production of:

[a]ny and all records required to be maintained pursuant to 31 C.F.R. § 103.32 [subsequently relocated to 31 C.F.R. § 1010.420] relating to foreign financial accounts that you had/have a financial interest in, or signature authority over, including records reflecting 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 each specified year.

(Emphasis added).¹ M.H. declined to provide the requested information and also declined to deny having it, reasoning that either response posed a risk of self-incrimination under the Fifth Amendment to the United States Constitution. The district court ordered him to comply anyway. When he again refused to produce the requested documents, the court conducted a show-cause hearing for failing to comply with its order and found him in contempt. However, because the district court considered M.H.'s arguments “substantial and worthy of appellate review,” the court stayed the contempt order pending appeal, contingent on M.H.'s posting of a $250,000 cash bond. M.H. is not currently incarcerated and may travel without restriction.

The information identified in the subpoena mirrors the banking information that 31 C.F.R. § 1010.420 ² requires taxpayers using offshore bank accounts to keep and maintain for government inspection. The information the subpoena seeks is also identical to information that anyone subject to § 1010.420 already reports to the IRS annually through Form TD F 90–22.1, known as a “Report of Foreign Bank and Financial Accounts,” or “FBAR.” Therefore, the information at issue in this contempt proceeding is information that M.H.—if he has a foreign bank account and meets other qualifications specified in the BSA—must keep, report to the Treasury Department, and maintain for IRS inspection.

II

We review de novo mixed questions of law and fact contained within the analysis of a civil contempt proceeding. Shoen v. Shoen, 48 F.3d 412, 414 (9th Cir.1995). We review for clear error any factual findings underlying the contumacious behavior. United States v. Bright, 596 F.3d 683, 694 (9th Cir.2010). Where incarceration has been stayed pending appeal and no party is harmed by the delay, we may exceed the thirty-day time limit for deciding appeals that § 1826 would otherwise impose. In re Grand Jury Witness, 695 F.2d 359, 361 n. 4 (9th Cir.1982).

III

A

As a preliminary matter, M.H. argues that—for a number of reasons—§ 1010.420 does not apply to him, so he is not required to comply with the grand jury's subpoena and we need not reach the Fifth Amendment question. But at this point in its investigation, the Government need not prove the regulation or the BSA apply. It need only show a “reasonable possibility” that the subpoena will serve the grand jury's legitimate investigative purpose. United States v. R. Enters., Inc., 498 U.S. 292, 300–01, 111 S.Ct. 722, 112 L.Ed.2d 795 (1991).

The Government is not required to justify the issuance of a grand jury subpoena by presenting evidence sufficient to establish probable cause because the very purpose of its inquiry is to establish whether probable cause exists to accuse the taxpayer of violating our tax laws. See id. at 297, 111 S.Ct. 722 (“The grand jury occupies a unique role in our criminal justice system. It is an investigatory body charged with the responsibility of determining whether or not a crime has been committed. Unlike this Court, whose jurisdiction is predicated on a specific case or controversy, the grand jury ‘can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.’ ” (citation omitted)).

There are, of course, limits to the grand jury's authority. See, e.g., id. at 299, 111 S.Ct. 722 (stating that a grand jury may not “engage in arbitrary fishing expeditions” or base its investigation on “malice or an intent to harass”). But there is no evidence of excess here. We have examined the evidence in the sealed record along with the evidence the district court reviewed in camera. That evidence confirms that the grand jury's inquiry is a legitimate exercise of its investigatory authority. If it is later established that, for whatever legal reason, the regulation at issue does not apply to M.H., then the Government will be unable to successfully prosecute him and there is no risk of a Fifth Amendment violation. Until then, however, M.H.'s obligation to comply with the grand jury subpoena is not contingent upon whether the Government has proven the BSA and its regulations apply to him as a U.S. taxpayer who has previously filed FBARs with the Department of the Treasury.

B

M.H. argues that the Required Records Doctrine—which, if it applies, renders the Fifth Amendment privilege inapplicable—does not apply to this case and that the district court erred in finding otherwise. The Fifth Amendment to the United States Constitution states that “[n]o person ... shall be compelled in any criminal case to be a witness against himself.” The Supreme Court has held that where documents are voluntarily created and kept, compelling their disclosure does not implicate the privilege against self-incrimination. See United States v. Doe, 465 U.S. 605, 611–12, 104 S.Ct. 1237, 79 L.Ed.2d 552 (1984) (citing Fisher v. United States, 425 U.S. 391, 409–10, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976)). Where documents are required to be kept and then produced, they are arguably compelled. However, the Supreme Court has recognized that in such circumstances, the privilege does not extend to records required to be kept as a result of an individual's voluntary participation in a regulated activity. See Shapiro v. United States, 335 U.S. 1, 17, 68 S.Ct. 1375, 92 L.Ed. 1787 (1948) (noting that the nature of documents and the capacity in which they are held may indicate that “the custodian has voluntarily assumed a duty which overrides his claim of privilege” (quoting Wilson v. United States, 221 U.S. 361, 380, 31 S.Ct. 538, 55 L.Ed. 771 (1911))). Our task is to determine whether the records sought in this case fall into the former or latter category. If they fall into the latter, the Required Records Doctrine applies and the privilege is unavailable to M.H., who has voluntarily participated in a regulated activity.

In Shapiro—credited for establishing the principles of what has come to be known as the Required Records Doctrine—the Supreme Court...