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Media Alerts - United States of America v. Eli Chabot; Renee Chabot - Third Circuit
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August 17, 2015
  United States of America v. Eli Chabot; Renee Chabot - Third Circuit
Headline: Third Circuit Holds Foreign Bank Account Records Fall Within Required Records Exception to Fifth Amendment

Area of Law: Constitutional law; Criminal law

Issues Presented: Does the Fifth Amendment privilege against self-incrimination protect foreign bank account records?

Brief Summary:

Eli and Renee Chabot appealed the District Court's decision to grant the IRS's petition to enforce summonses for foreign bank account records. The Third Circuit applied the Supreme Court's three-prong test for the required records exception and ultimately determined that the foreign bank account records were (1) for a regulatory purpose within the IRS; (2) customarily kept due to other statutes; and (3) related to public aspects. Therefore, the exception applied and the Third Circuit affirmed the District Court's decision to enforce summonses for the records.

Extended Summary:

Eli and Renee Chabot appealed the District Court's grant of the Internal Revenue Service's petition to enforce summonses for their foreign bank account records. The Third Circuit joined six other Circuits in holding that these records fall within the required records exception to the Fifth Amendment privilege and therefore affirmed the District Court's decision.

In April 2010, French authorities gave the IRS information regarding the Chabots' undisclosed bank accounts at HSBC Bank. The IRS alleged it had information for the years 2005 through 2007 from Pelsa Business Inc., of which Eli Chabot was the beneficial owner. The IRS issued summonses requesting that the Chabots appear to give testimony and produce documents about their foreign bank accounts. The Chabots notified the IRS that they were asserting their Fifth Amendment privilege against self-incrimination and would not produce the requested documents. The Chabots claimed that the act of producing the documents was protected under the Fifth Amendment even if the actual records sought were not protected. Additionally, they 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 the Fifth Amendment did not prohibit production of the documents. Thus, the District Court granted the IRS's petition to enforce summonses.

The Chabots argued that (1) allowing the government to rely on the required records exception to enforce the summonses in this case would lead to general governmental abrogation of the Fifth Amendment privilege for any "failure to report" crime; (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 the regulation requires account holders to keep do not satisfy the three-prong test for applying the required records exception to the Fifth Amendment privilege. Therefore, the question before the Third Circuit was whether the Chabots' account records fell within the required records exception to the Fifth Amendment privilege, and, if so, whether the Chabots' policy concerns defeated the application of this exception. The Third Circuit rejected the Chabots' arguments and found that their account records fell squarely within the required records exception to the Fifth Amendment privilege.

By producing documents, a person acknowledges that the documents exist, admits that the documents are in his or her custody, and concedes that the documents are those that the subpoena requests. The Supreme Court determined that three prongs are required 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." As to the first prong, the Third Circuit determined that the government conditions participation in foreign banking on maintaining records and reporting that information. The foreign banking records are, thus, for regulation purposes through the IRS. As to the second prong, the Third Circuit explained that foreign bank account ownership is an activity that many people participate in and is not inherently criminal activity, nor are the regulations designed explicitly to target criminal activity. The Third Circuit also explained that holders of foreign bank accounts as a general group are likely to keep their records, as the regulations mandate, so that the records are considered "customarily kept." Lastly, the Chabots argued that their account records did not have public aspects as owning a foreign bank account is not a public activity. The Third Circuit explained that the Treasury Department circulates the data received by the records for the purpose of implementing economic, monetary, and regulatory public policies, thereby making the records public aspects. Thus, all three prongs of the required records exception to the Fifth Amendment privilege were satisfied.

The Third Circuit also determined that the Chabots failed to raise valid policy or other reasons as to why their bank account records should not be included in the required records exception to the Fifth Amendment privilege. The Third Circuit, thus, affirmed the District Court's grant of the IRS's petition to enforce its summonses.


Find the full opinion at:

http://www2.ca3.uscourts.gov/opinarch/144465p.pdf

Panel: Ambro and Cohen, Circuit Judges, and Restani, Judge for the United States Court of International Trade, sitting by designation.

Argument Date: June 8, 2015

Date of Issued Opinion: July 17, 2015

Docket Number: No. 14-4465

Decided: Affirmed

Case Alert Author: Jessica Wood

Counsel:

Vivek Chandrasekhar, Esq., Richard A. Levine, Esq. Counsel for Appellants

Robert J. Branman, I, Esq., Robert W. Metzler, Esq. for Appellee

Author of Opinion: Restani, Judge

Circuit: Third Circuit

Case Alert Supervisor: Professor Mary E. Levy

    Posted By: Susan DeJarnatt @ 08/17/2015 10:51 AM     3rd Circuit  

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