On August 4, 2016, the United States Court of Appeals for the Second Circuit reversed and vacated a District Court order compelling toy importer Steven Greenfield to produce documents of family offshore bank accounts to the IRS, concluding that the government failed to show how such a request didn’t violate Fifth Amendment protections against self-incrimination.31 The Circuit Court vacated an order by Manhattan US District Judge Alvin K. Hellerstein that required Greenfield to turn over records detailing what the IRS believed to be at least $30 million in family money held in an offshore account in a Liechtenstein financial institution. The Circuit Court found that the IRS failed to satisfy the requirements of the “foregone conclusion” doctrine, which eliminates Fifth Amendment protections against document summonses when the government can safely assume the necessary existence, control and authenticity of the documents.

Background

In 2008, Heinrich Kieber, an employee of Liechtenstein Global Trust (“LGT”), leaked thousands of documents from foreign accounts held at LGT. Steven Greenfield, who owns a toy company with operations worldwide, was one of the individuals implicated by Kieber’s disclosure of LGT documents. Only a few of the documents disclosed by Keiber addressed the Greenfield’s connections to offshore banking directly. These included a March 27, 2001 memorandum from LGT personnel that detailed a meeting in Liechtenstein between the Greenfields and LGT employees and an end of 2001 account statement issued on January 1, 2002 for the Maverick Foundation (“Maverick”). The LGT Memo describes a March 23, 2001 meeting with the Greenfields. According to the LGT Memo, Maverick was established in January 1992 and, as of the meeting, held $2.2 million in cash as well as all the stock of TSF Company Limited (“TSF”) and Chiu Fu, which had been formed to channel assets into Maverick. In the memo, Harvey Greenfield, father of appellant-taxpayer Steven Greenfield, is described as the “sole beneficiary of the Maverick Foundation,” with Steven Greenfield holding a “power of attorney to give instructions” over Maverick. It also states that each of the Greenfields held US passports and lived, part time, in New York City.32

Greenfield never reported income from or ownership of Maverick, Chiu Fu, TSF or the trust. The IRS selected Greenfield’s 2005 income tax return for civil audit and, on May 17, 2013, issued an IDR for a number of documents with the audit (which was later expanded to include the 2006 tax year). Thereafter, on June 17, 2013, the IRS issued a summons that required Greenfield to appear on July 26, 2013 to produce documents (“Summons”). The Summons called for Greenfield to produce documents, in part, “relating to both domestic and foreign bank accounts” over which “Steven Greenfield exercised control during the years 2001 through 2011.” This request required Greenfield to produce “all documents” in his possession for the LGT account. Greenfield objected to the breadth of the Summons; the IRS later agreed to limit the Summons to documents for the 2001 through 2006 tax years. Greenfield continued to refuse to comply with the Summons. The government then brought this enforcement action in October 2014. Greenfield responded with a motion to quash, arguing, in relevant part, that the compelled production of the documents sought would violate his Fifth Amendment right against self-incrimination.

The Government asserted that under Fisher v. United States33 “the act of producing these documents did not violate the Fifth Amendment because it was a foregone conclusion that the documents existed, that Greenfield had control over the documents and that the documents were authentic.” 34 The District Court granted the enforcement of the Summons and denied Greenfield’s motion to quash. The District Court relied in part on United States v. Gendreau, 35 where another district court had granted enforcement of a summons based on the LGT disclosure because “the Government had specific knowledge of the accounts and the individual who controlled the accounts.” Greenfield appealed the decision to the Circuit Court.

Circuit Court Applies US Constitution

While noting that the annual loss of tax revenue at the hands of offshore accounting at $35 billion, US Circuit Judge Guido Calabresi wrote that curtailing tax evasion “nevertheless cannot warrant the erosion of protections that the Constitution gives to all individuals, including those suspected of hiding assets offshore.” 36 In framing the issue, the Circuit Court said that the “question before us . . . is whether the instant case is more like Fisher or Hubbell.37 That is, we must examine whether the LGT Documents independently establish the communicative elements inherent in Greenfield’s production of the sought records or whether Greenfield’s production of the documents is a necessary part of the chain of potentially incriminatory evidence.” 38 Greenfield argued both that (1) the Government has not established with reasonable particularity the existence, control and authenticity of the sought documents as of the documents’ creation beginning in 2001, and (2) assuming arguendo that the Government could demonstrate this as of 2001, it cannot point to any evidence that the documents remained in Greenfield’s control through to 2013, when the Summons was issued.39

The Circuit Court found that the Government had in fact established the existence and Greenfield’s control over certain documents relating to offshore accounts, but decided it had not done the same to prove authenticity. Citing the government’s intent to call current or former bank employees of LGT or Kieber for such purposes, the court said it had not proffered evidence that those individuals would be willing to testify, nor was it a foregone conclusion “that foreign financial institutions and jurisdictions will cooperate with authentication requests.” 40 The court held that the Government “must provide more than speculation as to how authentication would occur.” 41