Money: The Bank Secrecy Act

The government wins again


As we have discussed earlier (REASON, December 1973), the Bank Secrecy Act of 1970 requires, inter alia, that persons taking in or out of the United States more than $5,000 in cash at any one time file certain reports with the Treasury Department. These reports call for the person to identify himself, his place of embarkation and destination, the amount of currency involved, and whether the money is being carried on behalf of some other person, in which case he must identify the other person's name, address, and business.

In a previous challenge of the Bank Secrecy Act, California Bankers Assn. v. Schultz, decided in April 1974, the Supreme Court had upheld the domestic reporting provision of the Act but did not touch on this foreign transactions reporting requirement. On December 29th a case was decided in the U.S. District Court in Vermont which ruled for the first time on a constitutional challenge to these foreign reporting requirements.

The principal attack raised against the reporting requirement was that the required reports amounted to compulsory self-incrimination in violation of the Fifth Amendment. The government maintained that the reports had only minimal hazards of self-incrimination and that, in any event, they fell within the "required reports" exception to the Fifth Amendment rule.

The "required reports" exception to the rule against self-incrimination is another fallout of the liberals' beloved distinction between economic rights and personal rights blessed by the Supreme Court in the infamous Carotene Products case. The leading case for this particular exception, Shapiro v. U.S., is appropriately enough, a price control case.

In Shapiro the defendant, accused of the heinous crime of committing commerce with a consenting adult, objected to having his guilt proven by records which he was required to keep under the Emergency Price Control Act of 1942.

The Supreme Court decided that Shapiro could be required to incriminate himself, the Fifth Amendment notwithstanding. They reached this result by announcing the "required reports" exception, which provided that the Fifth did not apply if the records required were "essentially regulatory," of a sort customarily kept, and have somehow assumed "public aspects." Lest one waste too much time trying to understand what all that means, a fair translation would be that the government can require people to make some kinds of incriminating reports and the courts will figure out what kinds as the cases come up.

For example, the courts have decided that there is a significant distinction between the sort of disclosure which operates in a basically non-criminal context (e.g., the requirement that a driver involved in an accident stop and identify himself) where self-reporting is thought crucial to some enforcement program and, on the other hand, those reporting requirements that compel disclosure in an essentially criminal area (such as the required disclosure in the purchase of a Federal gambling stamp).

In the present case, the court examined these issues and concluded that the government's contention that these reports were essentially regulatory in nature was not well founded. The statement of Congressional purpose in adopting the Bank Secrecy Act clearly sets out that these records and reports are required because Congress believed them to have a "high degree of usefulness in criminal investigations and proceedings." The court thus concluded that the fear of self-incrimination was not frivolous or imaginary and would expose the individual to a risk of subsequent prosecution as a result of the material disclosed by the reports.

Of course, to say that a claim is not frivolous is not the same as saying that it is compelling. Examining other Fifth Amendment cases the court observed that the disclosure required was not as threatening as those which the Supreme Court had struck down, yet it was more threatening than others which the Supreme Court had found unobjectionable.

Since a modern state cannot function unless it extracts at least a certain amount of forced confessions from its subjects, it has long been settled that not all compulsory disclosures, even if they may involve a risk of incrimination, are forbidden by the Fifth Amendment. Whether a disclosure may be required, explained the court, "depends on the relative weight of competing governmental policies and individual liberties." A cynic might claim this rule amounts to saying that individual rights will be respected so long as they do not too greatly inconvenience the government, but then cynics are always looking on the dark Side.

Having stated that they will weigh the government policies, the court suddenly notes that the transaction takes place over national boundaries and, since the government has always had greater leeway in these matters (e.g., warrantless searches by customs agents, etc.), and since the reports merely create a "possibility of incrimination," they conclude that the Fifth Amendment is not violated and the required reporting of currency movements is constitutional.

The court's opinion may be very bad logic but it is, unfortunately, probably good law.

Davis Keeler's Money column alternates monthly in REASON with John J. Pierce's Science Fiction column. © 1976 Davis E. Keeler