Although the privilege against self-incrimination under the Fifth Amendment is a hallmark of American law, it is not absolute. Society’s understanding of the Fifth Amendment has changed over the course of American history. Over time, the scope of the privilege against self-incrimination has both broadened and narrowed in different respects. It has expanded to cover witnesses rather than only criminal defendants. Limitations and carve-outs have reduced the ability to invoke the privilege against self-incrimination in business contexts. For example, courts have held that corporate entities and officers of corporations cannot invoke the privilege against production of a corporation’s records. Still, unincorporated sole proprietors of businesses continue to have a general ability to invoke the privilege against self-incrimination. Moreover, the privilege extends beyond oral testimony and includes the ability to withhold production of documents in response to a subpoena duces tecum.
However, the required records doctrine provides that the privilege against self-incrimination does not apply to business records that are customarily kept pursuant to a governmental regulatory scheme. Notably, a philosophical debate exists as to whether governmental regulators should be allowed to force the production of self-incriminating records where these records may not be obtainable through other means. Setting aside the existential debate, the doctrine allows governmental regulators to compel production of business records that may implicate violations of state and federal laws.
The required records doctrine provides a significant tool for governmental regulators to challenge assertions of the privilege against self-incrimination and obtain documents in investigations and in litigation. While the doctrine may seem straightforward, the actual scope raises significant questions for regulators seeking the production of business records. Does the doctrine need an explicit statutory requirement for the retention of documents? What constitutes a required record? What persons are subject to the doctrine for a given regulatory scheme? This article reviews the historical context of the required records doctrine and prior usages to overcome a privilege assertion. The article then discusses the applicability of the required records doctrine to compel the production of documents in different factual scenarios.
Before looking at the required records doctrine, it is helpful to consider the origins of the Fifth Amendment privilege against self-incrimination that the doctrine overcomes. As with many aspects of American jurisprudence, the privilege hails from English origins. Yet, the connection is considerably murkier than one might expect. Thousands of pages and countless hours of research have gone towards trying to establish the origin. The academic discourse is fascinating and worthwhile reading. In a highly simplistic depiction, for the purposes of this article, there are two predominant perspectives: the traditional account by Professor Leonard Levy and a contemporary view challenging many of the decades-old assertions in the traditional account.
The traditional account tells a narrative tracing the privilege against self-incrimination back to seventeenth century Puritanical arguments relying on moral authority found in the Old Testament. In his Pulitzer Prize-winning 1968 book Origins of the Fifth Amendment, Professor Levy refers to seventeenth century cases in England and to a debate on the direction of criminal procedure. The book starts with a treatment of John Lambert’s burning at the stake in 1537, following a refusal to give testimony on charges of heresy before an ecclesiastical court governing religious matters.
Professor Levy then discusses tensions between rival systems of criminal procedure in England: the inquisition system and the common law. The inquisition system is portrayed as a strict approach to finding or declaring of truth, originating from the European continent and governing England’s religious ecclesiastical court. The English common law, on the other hand, was a nationalistic creation, relying on trained common-law judges and lawyers trained in formalistic evidentiary procedure. The two systems were structurally and procedurally distinct.
The inquisition system led to the development of the inquisitorial oath, which became known as the oath ex officio. The oath ex officio was, in essence, a religious oath sworn before God that the defendant would truthfully answer questions before the court. The theory behind the oath ex officio was that an innocent person had nothing to hide and therefore had nothing to fear in taking the oath. Under this theory, only a guilty person would refuse to take the oath and, therefore, could not claim injustice for a conviction.
In practice, defendants were required to take the oath before presentment of any charges and before they knew to what topics any questioning would relate. Objections for relevancy simply did not exist. Defendants were forced to blindly agree to answer any and all questions. As a result, the oath ex officio left defendants caught in a trilemma: they were left to choose between self-incrimination, contempt of court for silence, or breaking a religious oath with their eternal damnation at stake by perjury.
This oath ex officio came to be used in England’s ecclesiastical courts for a variety of charges. Although ecclesiastical courts were supposedly religious in nature, they also claimed jurisdiction over charges involving seemingly secular matters, “including sexual conduct, marriage, wills, the correction of sinners, and church properties.” In particular, the oath ex officio is most well-known for usage in two infamous courts—the Court of High Commission (High Commission), which was the supreme ecclesiastical court, and the Court of the Star Chamber (Star Chamber), which was a court, instituted by the crown for prominent persons, that also heard ecclesiastical matters.
It is meaningful to note the crimes and punishments dealt with by the High Commission and the Star Chamber. The ecclesiastical claims against defendants included charges against a defendant’s personal beliefs. Charges could be brought that a defendant’s religious beliefs were heretical and a danger to society at large. At the same time, the defendant’s punishment by the High Commission and Star Chamber for these charges could include torture and body mutilation.
With those potential charges and punishments in mind, the trilemma faced by defendants in taking the oath was especially vexing. This concern led to opposition to the oath from groups in English society including Puritans. Many Puritans viewed the oath ex officio as contrary to the standard of proof set forth in the Bible.
Theological arguments referencing the Old Testament were made about the need for testimony other than the defendant’s testimony. The book of Deuteronomy, which recounts sermons given by Moses to the Israelites, specifically sets a minimum of two witnesses for adequacy to impose capital punishment: “At the mouth of two witnesses, or three witnesses, shall he that is worthy of death be put to death; but at the mouth of one witness he shall not be put to death.” From here, Professor Levy identifies the trial of John Lilburne as a pivotal moment leading to public backlash against the oath ex officio. In 1638, Lilburne was put on trial before the Star Chamber after being arrested for printing and circulating unlicensed books attacking the Church of England. At the time, printed works needed to be pre-approved or licensed by government-appointed censors.
Brought before the Star Chamber, Lilburne refused to take the oath ex officio and instead defiantly claimed that the oath was illegal and that the court was merely on a fishing expedition. He relied on an appeal to the law of God, arguing that he was justified in refusing to answer interrogatories and in demanding to face his accusers and have his accusers prove the charges. Expectedly, the court did not appreciate his tactics. Lilburne was fined and sentenced to be whipped, pilloried, and imprisoned.
But this did not stop the vocal Lilburne. While he was pilloried—in which he was secured and exposed to public abuse—Lilburne continued his attack on the oath ex officio to the assembled crowd. According to Lilburne’s own writings, he argued:
Now this oath I refused as a sinful and unlawful oath . . . . Again, it is absolutely against the law of God; for that law requires no man to accuse himself; but if any thing be laid to his charge, there must be two or three witnesses at least to prove it. It is also against the practice of Christ himself, who, in all his examinations before the high priest, would not accuse himself, but upon their demands, returned this answer, “Why ask you me? Go to them that heard me.”
Following reaction to Lilburne’s case, the traditional view advanced the understanding that society’s outcry against the oath ex officio led to the abolishment of the High Commission and the Star Chamber by 1641 and the establishment of the right to not incriminate oneself shortly thereafter. The privilege against self-incrimination would then flow from this development in English law into what we understand today.
Certainly, the assertion of centuries of understanding drawn from millennia-old divine authority is a compelling narrative for the privilege against self-incrimination. This was the predominant view in much of the twentieth century for the basis of an expansive interpretation of the privilege against self-incrimination. In fact, twentieth century American jurists reference religious or divine underpinnings of the privilege against self-incrimination.
But more recent research suggests that the accounts of the oath ex officio and John Lilburne are, at best, an incomplete explanation of how the modern understanding of the privilege against self-incrimination came to be. Professor John Langbein paints a different picture, where the privilege against self-incrimination originates from a later ability to have defense counsel rather than the oath ex officio. It was not a philosophical debate following Lilburne but rather a combination of (1) gradual relaxation of the prohibition of defense counsel from 1696 to 1836 and (2) a shift in court procedure to requiring the prosecution prove its case.
Professor Langbein argues that it was the gradual introduction of defense counsel into criminal proceedings that led to a recognition of the privilege against self-incrimination. This slow and gradual inclusion of defense counsel throughout the eighteenth century would ultimately lead to fundamental overhaul of how trials were conducted. In the seventeenth century and prior, there was a fundamental bar on the usage of defense counsel in criminal cases. In his analysis of sources recollecting criminal trials during this period, Professor Langbein found that “the fundamental safeguard for the defendant in common law criminal procedure was not the right to remain silent, but rather the opportunity to speak.” He refers to this type of trial as one where the “accused speaks.”
With an “accused speaks” trial, the burden was effectively on the defendant to disprove the accusations. It was not a system where the defendant was innocent until proven guilty at trial. Instead, the pretrial procedures were designed to coerce incriminating testimony by the defendants through questioning by a magistrate. By the time trial arrived, the defendant was already stuck with his prior self-incriminating statements. The allegations and purported evidence presented by the prosecution established the presumptions of the court. The defendant’s opportunity to speak and rebut the allegations at trial was the only defense left. Silence was effectively consignment to the charges and a tacit admission of guilt. As such, Professor Langbein argues that the privilege against self-incrimination could not have developed solely out of these trials.
Instead, it was the introduction of defense counsel that would slowly shift perceptions on fundamental trial procedure. Allowance of defense counsel was initiated through judicial discretion in the 1730s, following increased usage of prosecution counsel in the preceding two decades. Flowing from the presence of defense counsel, Professor Langbein describes a fundamental change in the approach towards criminal cases, from the sixteenth through the eighteenth centuries, away from the “accused speaks” system.
Initially, defense counsel was brought in to cross-examine prosecution witnesses. However, as their usage developed, defense counsel “began to shift the focus of the defense in a fundamental way by casting doubt on the validity of the factual case being presented against the defendant, so that the prosecution came increasingly under the necessity of proving its assertions.”
The slow shift to casting doubt on the prosecution’s assertions changed perceptions and gradually increased the burden of proof for prosecutors. An adversarial approach between prosecution counsel and defense counsel developed. This change in approach gradually shifted the courts away from the “accused speaks” system.
Over the remainder of the eighteenth century, the introduction of defense counsel would advance concepts of production burdens for the prosecution’s case, a presumption of innocence, and objections to limit the scope of cross-examination. It is from these developments that Professor Langbein argues that the privilege against self-incrimination by a defendant would ultimately arise.
Turning to the United States, the Fifth Amendment itself has been subject to changing interpretations since its ratification in 1791. It has expanded from applying only to defendants in criminal proceedings to all witnesses in general. Professor Katharine Hazlett explains that the right for witnesses to remain silent and the right to exclude answers from a subsequent trial are modern understandings of the Fifth Amendment that did not exist through the beginning of the nineteenth century. In reality, courts did not extend coverage of the Fifth Amendment beyond defendants in a criminal trial for its first ninety years.
For governmental regulators with the ability to issue subpoenas for investigative purposes prior to filing charges, the original understanding of the Fifth Amendment is a historical distinction worth noting. The original application of the Fifth Amendment did not extend to non-party witnesses. While there was a common law maxim to argue that witnesses need not testify, it was not viewed as either a constitutional protection or an unequivocal right. Accordingly, the coverage of the Fifth Amendment as envisioned in the first ninety years of its existence would not have extended to investigative subpoenas, also known as administrative subpoenas. Said another way, respondents would not have had a Fifth Amendment basis to object to an administrative subpoena.
It was not until Boyd v. United States in 1886 that the U.S. Supreme Court would interpret the Fifth Amendment as including a right for witnesses or parties to remain silent in any judicial proceeding. Prior to Boyd, Congress had already circumvented the common law maxim—that a witness need not incriminate oneself—by way of legislation throughout the mid-nineteenth century. It was the decision in Boyd that found that Congress’s abrogation of the common law was unconstitutional and void based on the Fifth Amendment. It is from the decision in Boyd that the modern, expansive view of the privilege against self-incrimination truly started.
Following this expansion to include all witnesses in any proceeding, twentieth-century courts would significantly restrict the application of the Fifth Amendment for businesses. Corporate entities do not have a Fifth Amendment right to withhold business records. Similarly, officers of corporations cannot assert an individual Fifth Amendment right to withhold business records of the corporation. Accordingly, there are restrictions on the ability to invoke the Fifth Amendment in the context of businesses.
None of this is intended to question the current understanding of the Fifth Amendment. Instead, this background is provided to highlight that the current understanding of the privilege against self-incrimination is a modern construct from within the last century and a half. A narrative of absolute, broad coverage is not supported by the historical analysis, even during the times of forced oaths, torture, and mutilation of defendants. With respect to the required records doctrine, this background is relevant to a discussion about balancing an individual’s constitutional rights today and the protection of the common good.
A little over six decades after Boyd, in 1948, the Supreme Court decision in Shapiro v. United States would establish the required records doctrine. The Supreme Court held that documents required to be maintained under the Emergency Price Control Act (EPCA) during World War II could not be withheld based on an assertion of the privilege against self-incrimination.
In Shapiro, a wholesaler of fruit and produce was served with a subpoena duces tecum and ad testificandum issued under authority of the EPCA on September 29, 1944. The EPCA was a federal law designed to stabilize prices and “prevent speculative, unwarranted, and abnormal increases in prices and rents.” It included a licensing scheme for sellers of commodities, and it required licensees to retain records and report.
Licensees were required to make the records available for governmental inspection and could not be excused from compliance because of the privilege against self-incrimination. At the same time, the EPCA included a compulsory testimony-immunity provision incorporating the Compulsory Testimony Act of 1893. The Compulsory Testimony Act of 1893 provided immunity only if (1) the person could actually have been excused from complying because of the privilege against self-incrimination and (2) the person specifically claimed such privilege.
The wholesaler at issue, William Shapiro, was subject to the licensing and associated record retention requirements of the EPCA. The issued subpoena demanded that he produce “all duplicate sales invoices, sales books, ledgers, inventory records, contracts and records relating to the sale of all commodities from September 1st, 1944, to September 28, 1944.”
In complying with the subpoena, Shapiro produced the records but also claimed immunity due to the privilege against self-incrimination. However, the government prosecuted him on charges of making tie-in sales in violation of the EPCA. Shapiro filed a plea in bar, or a peremptory defense plea, on the basis of immunity because the case was premised on the records he produced in response to the subpoena. However, the plea in bar was overruled by the trial court, and Shapiro was subsequently convicted.
Shapiro then appealed, but the appellate court affirmed the trial court. It held that Shapiro did not have a privilege against self-incrimination for the records required to be kept under the Price Control Act. Instead, such mandated records were essentially public documents, and, therefore, the privilege against self-incrimination did not attach. Consequently, the appellate court found that he had no ability to claim immunity.
The Supreme Court likewise affirmed the lower courts. The majority opinion by Chief Justice Vinson found that “the privilege which exists as to private papers cannot be maintained in relation to ‘records required by law to be kept in order that there may be suitable information of transactions which are the appropriate subjects of governmental regulation, and the enforcement of restrictions validly established.’”
In evaluating the documents demanded in the subpoena, the Court determined that the records required to be kept under the EPCA had public aspects and were not exclusively private. It noted a prior decision where business records kept under the requirement of law by an unincorporated enterprise were held to be public documents not subject to the privilege against self-incrimination. Similarly, the Court held that immunity under the privilege against self-incrimination did not apply, as the records were required to be maintained under an appropriate regulation and were relevant to the purpose. Moreover, the Court noted that the records related to business that could only lawfully be engaged in pursuant to a granted license in compliance with the EPCA.
Notably, this case drew a strongly worded dissent from Justice Frankfurter. Justice Frankfurter saw the use of the required records doctrine as an attack without limits on the Fifth Amendment and the privilege against self-incrimination. He argued that the required records doctrine was a shortcut of constitutional safeguards and questioned whether its costs outweighed detection of violators.
Nevertheless, the majority opined that Congress “could [not] have intended private privilege to attach to records whose keeping it authorized the Administrator [of the EPCA] to require.” The Court noted that “there are limits which the government cannot constitutionally exceed in requiring the keeping of records.” However, there was “no serious misgiving that those bounds [of constitutional limits] have been overstepped . . . when there is a sufficient relation between the activity sought to be regulated and the public concern so that the government can constitutionally regulate or forbid the basic activity.”
Following the establishment of the required records doctrine in Shapiro, the modern test for the applicability of the required records doctrine would come in Grosso v. United States. There, the Court established a three-factor test:
[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.
Concurrently in 1968, the Supreme Court issued opinions on three cases involving the required records doctrine—Marchetti v. United States, Grosso, and Haynes v. United States,—and set some boundaries as to the reach into potentially criminal activity. Effectively, all three cases establish that the required records doctrine cannot be applied where the laws are predominantly directed toward persons “inherently suspect of criminal activities.” However, the fact patterns and holdings still leave significant room for interpretation of the required records doctrine, as will be subsequently discussed.
In Marchetti v. United States, the Supreme Court reversed a lower court conviction of the petitioner, James Marchetti, for violations of federal wagering tax statutes. Marchetti was indicted for a willful failure to pay an annual occupational tax and a willful failure to register before engaging in the business of accepting wagers. A primary concern was that Connecticut, where the activity allegedly occurred, had laws prohibiting and punishing gambling and wagering. Moreover, federal laws also imposed criminal penalties on the interstate transmission of wagering information and gambling. Although the unlawfulness of an activity does not prevent taxation, the issue at hand was whether the required records doctrine required the registration and payment of occupational tax for unlawful wagering activities.
In review, the Court felt that Marchetti “was confronted by a comprehensive system of federal and state prohibitions against wagering activities.” As a result, any action by Marchetti in the registration or payment process risked incriminating himself.
Moreover, the Court held that each of the principal elements of the required records doctrine, as mentioned in Shapiro, was absent. First, the laws relevant to Marchetti were directed to a select group “inherently suspect of criminal activities.” Second, Marchetti was not obligated by the laws to keep and preserve records of the same kind as he customarily kept. Instead, he was only required to provide information about his wagering activities that lacked a link to any customarily kept records. Third, the Court did not find a public aspect to the records demanded of Marchetti. The mere desire of the government to obtain information known to Marchetti regarding his alleged wagering operation was not sufficient to establish a public aspect.
In Grosso v. United States, the petitioner, Anthony Grosso, was convicted for willful failure to pay taxes on wagering, similar to the situation in Marchetti. With conduct allegedly undertaken in Pennsylvania, Grosso was convicted for willful failure to pay an excise tax, willful failure to pay a special occupational tax, and conspiracy to defraud the United States by evading payment of both taxes. Grosso unsuccessfully moved to dismiss the charges based on the privilege against self-incrimination, and the appellate court affirmed the conviction.
For the same reasoning as the opinion in the Marchetti case, the Supreme Court held that the principal elements of the required records doctrine, as mentioned in Shapiro, were absent. The Court discussed that, although the principal interest of the government in the case was assumed to be tax revenue, the characteristics of the activities, or the group subject to inquiry, were fundamentally tied to suspected criminal activity in wagering. The Court decided that these collateral circumstances were sufficient to distinguish Marchetti and Grosso from the decision in Shapiro.
In the third opinion, Haynes v. United States, the Supreme Court reversed a conviction for the unlawful possession of an unregistered firearm. The petitioner, Miles Edward Haynes, was convicted of possession of a sawed-off shotgun without registration in violation of the National Firearms Act. Although the government argued that the registration requirement of the National Firearms Act was a valid exercise of the taxing powers, the Court found registration sufficiently linked to the threat of criminal prosecution.
The Court held that the registration requirement of the National Firearms Act is generally directed at persons possessing a firearm in violation of the National Firearms Act requirements. Consequently, these persons are “immediately threatened by criminal prosecution” as “unmistakably persons” inherently suspect of criminal activities. The correlation between registration violations and criminal prosecution was direct, and the Court reversed based on reasoning similar to Marchetti and Grosso.
Accordingly, these three cases established a limitation on the first factor of the Grosso test for the required records doctrine in that the relevant laws tied to the investigation must not have predominantly criminal implications. Subsequent cases discussing the privilege against self-incrimination clarified that the mere possibility of criminal prosecution based on laws focused on implementing a regulatory goal would not imperil a finding that those laws are essentially regulatory for purposes of the required record doctrine’s first factor of applicability. Even so, with the myriad statutory schemes, there is room for debate as to whether any specific statutory scheme is essentially regulatory in nature or not. Also, regarding the third factor, several federal circuit courts have since held that record retention requirements under a regulatory scheme inherently have public aspects sufficient for the third factor of applicability of the required record doctrine.
With all of the historical background in mind, this article will next address four scenarios that governmental regulators may run into when conducting investigations. Due to differing terminology in various phases of investigations and litigations, the persons subject to the required records doctrine may be referred to by a variety of terms, including plaintiff, defendant, or appellant. Regardless, they can generally be understood as respondents, as the required records doctrine most often arises in the context of investigatory subpoenas duces tecum.
In its purest form, the required records doctrine overcomes assertions of privilege against self-incrimination for records that are required to be maintained by statute. This means that the statute expressly identifies the records that must be kept and that these records can be the subject of a subpoena.
Although seemingly straightforward, there is still a fundamental issue as to how certain facts do or do not satisfy the factors of the Grosso test. Likely the most problematic is the first factor and whether a statutory scheme is essentially regulatory in nature or criminal.
Discussed below are two exemplar cases in which the required records doctrine compelled production in light of the Grosso test. The first case involves withholding records related to foreign bank accounts required by federal law. It is a decision from the Ninth Circuit and has been cited by half of the circuit courts in their understandings of the required records doctrine. The second case is a California case involving an employer’s claim of privilege to avoid turning over wage and hour records of employees.
In In re M.H., the Ninth Circuit held that subpoenaed records for secret Swiss bank accounts fell under the required records doctrine and could not be withheld on the basis of the privilege against self-incrimination. Appellant M.H. was the subject of a grand jury investigation into whether he evaded paying federal taxes through use of the secret Swiss bank accounts. The investigation came about because a Swiss bank, UBS AG, identified M.H. as someone who might have committed tax evasion by transferring securities through his UBS AG account.
Under the Bank Secrecy Act of 1970 (BSA) and related regulations, holders of overseas bank accounts are required to maintain certain records for the accounts and make them available for inspection as authorized by law. A grand jury subpoena duces tecum was issued demanding the production of records relating to M.H.’s foreign bank accounts pursuant to the BSA. 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.
The information identified in the subpoena mirrored the banking information required under the BSA.
M.H. refused to produce records and asserted a privilege against self-incrimination. He argued that production might reveal that he did not report accounts or that the information he previously reported was inaccurate. He also argued that production risked incriminating himself because failure to keep records for accounts that he did hold is a felony.
The district court concluded that the required records doctrine applied and that M.H. could not assert the Fifth Amendment. Following non-production, the district court held him in contempt. On review, the Ninth Circuit affirmed the district court’s finding of contempt that the required records doctrine compelled production.
In review of the Grosso factors, the most significant issue was whether the BSA was essentially regulatory. M.H. argued that the BSA’s mention of detection of criminal conduct in its purpose pointed away from this determination. However, the court held that the BSA was essentially regulatory with only a risk of criminal prosecution. Nothing was inherently illegal in having an overseas bank account. The records requirement by itself did not carry an implication of involvement in illegal conduct. Admitting and maintaining the records on their own did not create a risk of criminal prosecution, unlike the wagering reporting cases in Marchetti and Grosso. Therefore, the court found that the BSA was distinct from the taxation schemes of the wagering cases and was essentially regulatory in nature.
Regarding the second factor, the court noted that there was not a specific definition to “customarily kept” but that the required records doctrine generally applied in situations where individuals were compelled by the government to create and keep records. The court also found the third factor present in this situation, as the purpose of imposing the statutory scheme was regulatory, which necessarily had some public aspects. Moreover, the court looked to the related regulations requirement that records be available for inspection as further evidence of public aspects.
In Craib v. Bulmash, the California Supreme Court rejected a claim for privilege against self-incrimination relating to wage and hour violations by an employer. Employers in California are required under the Labor Code to maintain records, including employee identification, payroll, wages, and hours information. An employer, Jay Bulmash, was subpoenaed by the California Division of Labor Standards Enforcement (the Division) to produce time and wage records and the names and addresses of all employees over a previous three-year period.
Bulmash did not produce the records as requested, and the Division successfully petitioned for a court order for production. Bulmash appealed, reiterating arguments of violation of the privilege against self-incrimination among other arguments. The appellate court agreed with Bulmash and reversed the trial court order, prompting an appeal to the California Supreme Court.
Bulmash argued that compliance with the subpoena risked disclosure of noncompliance with wage and hour laws. Noncompliance carried the risk of both civil and criminal penalties. On review, the California Supreme Court determined that the required records doctrine did apply and reversed the appellate court.
In review of the Grosso test factors, the court found all three factors to be applicable. With respect to the first factor, the court found the labor laws to be essentially regulatory in nature, despite the risk of criminal prosecution. The purpose of the labor laws was viewed as being for the mutual benefit of employees and employers alike. The goal was not to punish criminal conduct but to ensure that employees were not forced to work under unlawful conditions and that employers had protection from unscrupulous competitors. The court viewed regulation of working conditions as a core regulatory power of the state. Accordingly, the labor laws and reporting requirements were held to be essentially regulatory in nature.
Regarding the second and third factors, the court viewed them as less emphasized but similarly met. Cursorily, the court stated:“[T]he instant subpoenaed records undoubtedly contain information of a kind ‘customarily kept’ by employers and having ‘public aspects.’ This data occupies a basic role in any employer’s accounting practices, and must be regularly summarized in payroll statements provided to employees.”
As shown in both cases, even when records are maintained due to statutory requirements, determination of whether the statutory scheme is essentially regulatory in nature is a critical issue to evaluate. In that regard, the purpose or goal of the statutory scheme must be evaluated, and the presence of criminal penalties alone is not determinative of whether the regulation is essentially regulatory.
Another scenario is whether record retention requirements in rules promulgated by an agency or organization are sufficient to raise the required records doctrine. In some regulatory schemes, the statutes do not themselves require records retention. Instead, the statutes include clauses delegating rulemaking authority to an agency or organization. The agencies or organizations can then promulgate rules or regulations requiring records retention or the authorization to issue orders for records retention.
Respondents may argue that such rules or regulations are outside of the scope of the required records doctrine because the statutory scheme as ratified by the legislature does not include records retention. Under such reasoning, the required records doctrine should be limited to where the legislature indicates specific intent to apply the doctrine by including records retention directly in the statutes.
However, courts in New York and California have held that the required records doctrine reasonably extends to records kept according to rules authorized by statute. The rules, and procedures contained in them, can be viewed as an extension of the statutes, authorized by the legislature’s delegation of rulemaking authority.
In United States v. Silverman, an attorney, Frank Silverman, appealed his conviction of attempted income tax evasion. Silverman unsuccessfully objected to the admission of evidence obtained by the Internal Revenue Service from closing statements filed with the Appellate Division of the New York Supreme Court, First Department, and with the Judicial Conference of the State of New York. In New York, attorneys in contingent-fee cases were required by the rules of court to file statements showing the amount of compensation received by the attorney. In this case, the Internal Revenue Service used Silverman’s filed statements to establish his gross income for purposes of prosecuting the attempted income tax evasion.
On appeal, the Second Circuit affirmed the trial court’s decision allowing the usage of the filed statements. In its analysis, the appellate court found that the filed statements, which were required by rule, were records kept pursuant to a reasonable regulatory scheme with public aspects and subject to examination for evidence of criminal conduct. Furthermore, the statements themselves and their filings had no relevance to exposures of criminal conduct. The court drew a distinction from the trio of Marchetti, Grosso, and Haynes, finding that criminal conduct only arises after the filing of tax returns that do not report certain income included in the filed statements.
The germane fact here was that the statements at issue were filed in compliance with then New York Court Rules section 603.4(b). The New York Court Rules are not statutes ratified by legislature. Instead, the rules are promulgated by the judiciary to supervise the administration and operation of the court system. In establishing the judiciary, the New York Constitution broadly authorizes the legislature to delegate, in whole or in part, any power possessed by the legislature to regulate practice and procedure in the courts to a court or the chief administrator of the courts. In the case of the New York Court Rules, such authority has been vested in the Chief Administrator of the Courts, on behalf of the Chief Judge. Said another way, the required records doctrine applied to statements that were required by rule rather than legislature-ratified statute.
The California court in Machado v. State Water Resources Control Boardlikewise applied the required records doctrine to reports required under an order issued by a governmental agency. In Machado, plaintiffs challenged the issuance of a cleanup and abatement order from the Regional Water Quality Control Board (Water Board).
In 1991, the Water Board issued a waste discharge requirement order to plaintiffs after discovering violations of wastewater discharge guidelines. The waste discharge requirement order required certain measures to protect surface and ground water, including a monitoring and reporting program. Plaintiffs were required to conduct daily inspections, noting any discharge off-property when wastewater was applied to croplands, and to record the results of all such inspections for inclusion with required reports. However, plaintiffs never reported any off-property discharges.
In 1998, a Water Board inspector noticed wastewater discharge from plaintiff’s property in violation of the waste discharge requirement order. This discovery led to the issuance of the cleanup and abatement order in question. The cleanup and abatement order required, in part, that plaintiffs submit an annual report and future reports for the prior waste discharge requirement order, report any off-property discharges of wastewater, and submit reports outlining operational changes needed to ensure compliance.
Plaintiffs filed a petition for writ of mandate, arguing that compliance with the cleanup and abatement order required waiver of constitutional rights because the mandatory reporting potentially infringed on the privilege against self-incrimination. The trial court found against the plaintiffs and rejected the Fifth Amendment concerns. Subsequently, a California court of appeal affirmed the trial court.
On review, the appellate court found that the reports required under the cleanup and abatement order could not be avoided by invoking the privilege against self-incrimination. The Water Board had the authority to require the reports under the Porter-Cologne Water Quality Control Act (Water Act). Although the Water Act does have criminal liability provisions, the court viewed the Water Act as primarily regulatory. In view of a legislative intent to provide for the health, safety, and welfare of Californians, the court held that the Water Act was “designed to protect water quality and its focus is primarily regulatory.” The court reached this conclusion as it is only when the requirements are violated that criminal penalties attach.
The important fact to note is that the records or reports at issue were required by the Water Board’s cleanup and abatement order. The records were not mandated directly by statute or even rule. Instead, the Water Board only received authority to prescribe requirements under the Water Act:
The regional board, after any necessary hearing, shall prescribe requirements as to the nature of any proposed discharge, existing discharge, or material change in an existing discharge, except discharges into a community sewer system, with relation to the conditions existing in the disposal area or receiving waters upon, or into which, the discharge is made or proposed.
Therefore, the required records doctrine may be applied to any mandatory records, regardless of whether the requirement originates in statute, rules, or authorized orders. So long as there is some statutory basis for delegation of authority to prescribe a records retention requirement, there should be sufficient foundation for consideration of the required records doctrine. This comports with a public policy argument that an expansive view of record retention authority serves the common good by providing disclosure of information. In contrast, a narrow interpretation demanding a records retention requirement be written in statutes would arbitrarily hide misconduct based on where the requirement is written. This outcome would go against the protective goals of regulatory schemes, as noted by the Machado court’s quoting of the Ninth Circuit: “[T]here is a difference between using the privilege [against self-incrimination] as a shield against inquisitorial and unfair government practices and using it as a sword to carve a path through the laws of the land.”
Beyond concerns of what legal authority is necessary for the required records doctrine, another concern is the scope of the documents that can be demanded. The scope may be straightforward in some situations, such as where labor laws specify that employers must keep records of wages, hours, and contact information of employees. However, questions arise as to the full scope when considering whether records are customarily kept in the industry or where records retention policies are broader. Questions can also arise as to whether the government can demand multiple documents that may include certain information when statutes only list types of data.
Respondents may challenge document requests as being overly broad or exceeding the scope of the records required to be obtained. One may argue that there needs to be some delineation so that respondents know what records have public aspects and what records are private. Does the specific data or document need to be expressly identified to put the respondent on notice that the documents are not subject to the privilege against self-incrimination?
As illustrated by two cases below, the scope of records sought may be broad, depending on the language of the relevant statutes. The required records doctrine may extend beyond specifically identified documents and may potentially encompass all records that would customarily be kept by a similar business.
The seminal case of Shapiro touches upon the issue of what documents can be requested in light of a records retention requirement. That there was a retention requirement is often referenced, but it is important to analyze the actual requirement and compare it to the issued subpoena.
In Shapiro, the issued subpoena sought “all duplicate sales invoices, sales books, ledgers, inventory records, contracts and records relating to the sale of all commodities from September 1st, 1944, to September 28, 1944.”
Looking at the EPCA’s statute, the requirement to retain records was exceedingly broad in requiring “any person who is engaged in the business of dealing with any commodity . . . to furnish such information under oath or affirmation or otherwise, to make and keep records and other documents, and to make reports.” This statement in and of itself does not provide significant guidance and leaves unclear the scope of what documents are required.
However, guidance on specific records can be found in the federal regulations associated with the EPCA. Section 14 of Maximum Price Regulation 426 in the federal regulations provided:
(a) Every person subject to this regulation shall, so long as the Emergency Price Control Act of 1942, as amended, remains in effect, preserve for examination by the Office of Price Administration all his records, including invoices, sales tickets, cash receipts, or other written evidences of sale or delivery which relate to the prices charged pursuant to the provisions of this regulation.
(b) Every person subject to this regulation shall keep and make available for examination by the Office of Price Administration for so long as the Emergency Price Control Act of 1942, as amended, remains in effect, records of the same kind as he has customarily kept, relating to the prices which he charges for fresh fruits and vegetables after the effective date of this regulation and in addition as precisely as possible, the basis upon which he determined maximum prices for these commodities.
Review of the regulations shows two aspects, one being a general requirement for records of prices charged and the other being a non-exclusive but specific list of records—invoices, sales tickets, cash receipts, or other written evidences of sale or delivery.
In comparison with the list of documents sought by the regulations, the listing in the subpoena contained substantially more documents. Both the regulation and subpoena listed invoices, but otherwise the subpoena listed multiple types of documents that would all likely contain sales information that are not mentioned in the regulations.
Accordingly, subpoenas may be able to seek documents beyond those explicitly listed in the records retention requirements, particularly if the language in the requirements is broad in scope or non-exclusive. While this observation may seem rudimentary, it counters a potential narrative from respondents that they were not on notice that certain documents would be considered as required records. From the very first case establishing the required records doctrine, it can be seen that documents beyond those explicitly listed can be a required record. So long as the requested documents contain the information required to be kept, the required records doctrine likely encompasses them, provided that the three factors of the Grosso test are otherwise satisfied.
In United States v. Lehman, the Seventh Circuit found that a governmental subpoena seeking all records that would normally be kept in the specific type of business was enforceable. There, the Packers and Stockyards Administration (Administration), a federal agency, was investigating Marvin Lehman for a scheme to illegally manipulate livestock prices. Lehman was a non-bonded packer buyer allegedly buying cattle for a sham account and then repurchasing the cattle from the sham account at a higher price for his employing packer. The buying and selling of livestock is regulated under the Packers and Stockyards Act of 1921 (the Act), and the alleged conduct would violate a surety bond requirement and a prohibition against unfair or deceptive practices. Additionally, the Packers and Stockyards Act of 1921 has a records retention requirement mandating every livestock dealer to keep full records for all transactions involving a business.
As part of its investigation, the Administration issued a subpoena seeking records “pertaining to livestock buying and selling” and obtained a court order compelling compliance. Upon Lehman’s failure to comply with the order compelling compliance, the trial court issued a civil contempt order. The civil contempt order expanded the scope of the order compelling compliance by including Lehman’s personal banking records in an attempt to close any loopholes that Lehman would use to hide responsive information. Lehman appealed the contempt order, arguing that it would violate his Fifth Amendment rights as he would necessarily be testifying to the existence of records.
On review, the Seventh Circuit affirmed the trial court on appeal and found that the subpoena itself was valid. However, the court found inclusion of personal banking records in the trial court’s contempt order to be overly broad.
Analyzing the Grosso test factors, the court found all three factors to be applicable. For discussion of the scope of documents sought, the analysis of the second factor is the most relevant. The second factor requires that the information involves records of a kind that the regulated party has customarily kept. In this case, this factor was satisfied as the Act required keeping “such accounts, records, and memoranda as fully and correctly disclose all transactions involved in his business,” and the subpoena sought records “pertaining to livestock buying and selling.” Although seemingly broad in application, the court found a sufficient limitation in what would ordinarily be kept in the cattle dealing industry.
Regarding the first factor, the Act was deemed to be essential regulatory in nature. The purpose of the Act was to monitor the middlepersons arranging the sale and shipment of cattle. It was implemented to prohibit unfair or deceptive practices, price manipulation, undue influence, or creation of a monopoly. The records kept did not ordinarily implicate criminal activity. Regarding the third factor, the nature of the relationship between a cattle dealer and the Administration was deemed sufficient to give the records a public aspect.
Accordingly, the required records doctrine is not necessarily limited to specific data or documents identified by a records retention requirement. A broad requirement for retention of records relating to the business may be sufficient for the required records doctrine. This inference is significant to note as some records retention policies identify specific data or documents to be retained and may include generalized statements requiring the retention of all records pertaining to a business. Assuming a broad statement requiring retention of relevant records, investigatory subpoenas can likely seek information beyond the specifically listed data or documents, so long as they pertain to the business and would be customarily kept in such a business, in view of the decision in Lehman.
The balance between the privilege against self-incrimination and protecting the common good is particularly fraught when contemplating whether the required records doctrine applies to unlicensed businesses illegally operating within a regulatory scheme requiring licensure.
Respondents may raise arguments that an unlicensed business fundamentally operates outside the scope of a licensing scheme. They may cite to the trio of Marchetti, Grosso, and Haynes in support of this proposition, as the U.S. Supreme Court found registration to have a correlation to criminal prosecution. Consequently, they would argue that documentation showing activity without a license is inherently tied to potential criminal prosecution.
However, this article proposes that an unlicensed business is still subject to the required records doctrine. The respondent’s state of licensure does not affect the evaluation of whether the laws at issue are essentially regulatory in nature rather than criminal. The analysis of the Grosso test factors is independent of the licensure state of any individual respondent. Additionally, allowing unlicensed persons to avoid the required records doctrine creates fundamental unfairness in the application of constitutional protections as detailed below.
To highlight the issues raised by unlicensed businesses, consider a hypothetical where the petitioner in Shapiro was unlicensed. In this hypothetical, all of the sales and violative conduct are the same as in the original facts. The invoices are the same. The business records are the same. The business is essentially a carbon copy with the exact same violations of the EPCA. In this hypothetical, the only difference is that Shapiro is unlicensed. On a practical level, nothing has changed in terms of the business with this scenario. Shapiro’s interactions with consumers are the same. The transactions and the records of the transactions are the same.
Turning to the three-factor test established in Grosso, the statutory scheme evaluated under the first factor remains the same. The EPCA’s goals to stabilize prices and “prevent speculative, unwarranted, and abnormal increases in prices and rents” remain constant. Inquiries into businesses operating within the scope of the EPCA are essentially directed to the protection of the common good through the stabilization of commodity prices. The status of Shapiro’s licensure does not suddenly change the purpose of the EPCA. That the solicited documents may implicate violative conduct of the EPCA in this hypothetical (unlicensed activity and tie-in sales) is no different than the original facts where the documents also implicated violative conduct (tie-in sales) of the regulatory scheme. Shapiro’s licensure status does not transform the government’s inquiry from enforcement of a civil regulatory scheme for protecting consumers into a search for criminal conduct.
From a policy standpoint, even if there is some level of risk of criminal prosecution, the goal of the civil regulatory scheme can be sufficiently compelling to require the production of records. As discussed in cases such as Machado, the focus should be on whether the relevant laws are essentially regulatory in nature or criminal. Where the regulatory scheme has a sufficiently useful purpose in furthering the common good, the licensing status of an individual respondent should not affect the applicability of the required records doctrine.
Analysis of the second factor will similarly show that the status of licensure has no effect as to the preservation of records of a kind that a regulated party has customarily kept. The core issue is what has been customarily kept as business records pursuant to the regulatory scheme in the industry. Records kept in the ordinary course of business often exist because they are essential to logging transactions and for internal record keeping. Not only would the regulatory scheme identify documents, but any given industry has a general understanding of what records are customarily kept. The industry’s recognition of customarily kept records is independent of any singular respondent’s belief of whether such records are customarily kept. Therefore, an unlicensed respondent should produce such records to the extent that these records exist.
The third factor also remains unchanged. The records themselves have not transmuted. They continue to have public aspects rendering them analogous to public documents because of the retention requirement under an essentially regulatory scheme. This inherent characteristic of the records and their relevancy to protection of the common good do not change due solely to the status of licensure.
Consequently, all of the factors are established for usage of the required records doctrine. The issue of licensure is distinct from the issue of correlated evidence of criminal actions discussed in the trio of Marchetti, Grosso, and Haynes. The statutory schemes in the trio were aimed at persons inherently suspected of criminal activity. The activity contemplated in those cases were inherently illegal in nature. Due to the correlation to criminal activity, the Supreme Court held that none of those cases met the Grosso test factors. In contrast, the analysis using the three-factor test of Grosso in the present hypothetical remains unchanged—whether the respondent is licensed or unlicensed. Shapiro’s activities satisfied the factors for the required records doctrine when he was a licensee, and the status of licensure does not affect this conclusion.
Moreover, a fundamental issue with inconsistent constitutional protections exists if unlicensed persons or businesses are allowed to invoke the privilege against self-incrimination solely because of their unlicensed status. If this position is taken, it creates an untenable situation in which licensees cannot invoke the privilege against self-incrimination but unlicensed persons conducting the exact same acts can. This would create an uneven constitutional protection and, worse yet, it would create an illogicality that favored wrongdoing. People who try to comply with the laws by obtaining licensure would be disadvantaged relative to people who made no efforts to comply. Effectively, if one is exceedingly violative of the regulatory scheme, they can stymie governmental investigations into their misconduct.
Consider Shapiro and Shapiro’s unlicensed twin once again. If the applicability of the required records doctrine hinged on licensure status, Shapiro would be compelled to produce documents as a licensee, whereas his hypothetical twin could hide behind the veil of privilege for the exact same conduct. Such an interpretation fundamentally incentivizes cheating and fraud. Within complex regulatory frameworks, it can be supposed that there is likely to be technical violations of some overlooked statute, even by those with the best intentions. With this in mind, the ability of unlicensed persons to circumvent investigations would disincentivize even attempts to comply with a regulatory scheme, which seems to increase the risks of bad actors in the regulated space.
The privilege against self-incrimination was not intended to make it easier for people to break the law. Its underlying history relates back to combatting governmental inquisition and overreach where respondents were guilty until proven innocent. It was not intended to allow or promulgate consumer harm. While producing documents may be a link in the chain leading to criminal prosecution, public policy considerations override this concern when the alternative is an inability to enforce regulatory schemes to protect the public.
Accordingly, the required records doctrine should compel unlicensed businesses to produce records that correspond to those customarily kept by licensed businesses pursuant to the relevant regulatory scheme.
In review of how courts have addressed the required records doctrine, there remain ambiguities as to the limits of the privilege against self-incrimination. The three-factor test in Grosso established guidelines for applicability of the required records doctrine, but substantial concerns remain about whether a statutory scheme is regulatory in nature or criminal. A significant issue is how much of a causal link to criminal prosecution is created by the production of records.
In consideration of public policy concerns, the privilege against self-incrimination evolved as a protection against inquisitorial and unfair government practices. It was not intended to be a weapon against regulations designed to protect society at large. To prevent bad actors, the balancing of private rights and regulations allows for application of the doctrine when laws are essentially regulatory in nature, even if there is a risk of criminal prosecution.
Analysis of case law supports a broad interpretation of the doctrine in light of the public policy considerations. The doctrine extends beyond statutory records retention requirements and encompasses record keeping authorized under regulations and even agency orders. Depending on the inclusivity of the record retention language, the scope of documents sought can be broad and extend beyond specifically identified documents. Lastly, the reasoning established by the case law likely extends the required records doctrine to cover unlicensed activity in regulatory schemes requiring licensure.
