U.S. First Circuit - The FindLaw 1st Circuit Court of Appeals News and Information Blog

Can the IRS Force Disclosure of Foreign Bank Account Info? Yes, 1st Cir. Rules

The First Circuit partly affirmed a lower district ruling ordering Zhong H. Chen and his wife Chu H. Ng to hand over business and financial records pursuant to the Bank Secrecy Act, the federal act intended to pry open records relating to possible overseas financial criminal activity.

The case highlights the tensions between the right against self incrimination and the government's need to review documents under the Required Records Doctrine.

Fifth Amendment

The defendants in this case were Mr. Zhong H. Chen and his wife, Mrs. Ng. In 2011, the IRS served Mr. Chen a summons to appear for an interview with an IRS agent to produce decus tecum various documents pertaining to his finances and bank accounts held overseas.

While he attended the interview, Mr. Chen refused to answer any questions and asserted his Fifth Amendment against self-incrimination. He also refused to produce the requested documents. The government later petitioned the Massachusetts federal district court to enforce the production of those documents. In response, Chen asserted a Fifth Amendment claim against his act of production, not the documents themselves.

Bank Secrecy Act

The government attempted to gain access to the documents by citing the Bank Secrecy Act, first enacted in 1970. The principle thrust of the act was to ferret out white collar crime and other individuals using foreign bank accounts for illicit means, both criminal and civil. Hidden within the text of the act is the rule that account holders must maintain records of all foreign bank accounts and maintain such records for government eyes for a period of up to five years.

Required Records Doctrine

The issue of whether or not Mr. Chen actually kept or maintained such required records hardly seemed to be the primary issue. Most critically at issue was whether or not he his asserted Fifth Amendment objections to producing any extant records was trumped by the Required Records Doctrine. The Doctrine deals with the following question: can the government force an individual to hand over documents and records whose maintenance is required as a condition of engaging in a highly regulated activity? The answer is a resounding "yes."

The First Circuit did not create a split and agreed with all the other circuits. Chen had tried to justify the non-production of his records on the idea that their revelation would have "criminal implications."

So what? the court said. In fact, courts have routinely relied on the doctrine to obtain forced records where disclosure carried very real chances of "criminal implications." Mr. Chen could not have his cake and eat it too. Since his maintaining of a foreign bank account clearly implicated the BSA, he was required to keep thorough records of his activities. The Fifth Amendment would not trump the requirement that he hand those papers over.

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