The federal government thinks that it can now subpoena the kind of business records that it has not been able to get its hands on for nearly a hundred years. Until the Supreme Court lays down the law on whether or not such papers can be kept secret, businessmen who are the targets of grand jury probes are going to have to fight demands for documents on a case-by-case basis.
What is at issue are the records of sole proprietorships, the millions of businesses simply operated by their owners without being set up as legal entities. "Everybody from the corner store to the big businessman who has never incorporated" operates as a sole proprietorship, says West Orange, N.J., attorney Richard T. Philips, who won a recent victory on the subpoena issue.
Because such a business has no separate legal existence, its property is the property of its owner, and that includes all its records. And in a key decision back in 1886 in a case called Boyd v. United States, the Supreme Court ruled that the protection in the Fifth Amendment against self-incrimination gives citizens the right not only to refuse to talk but also to refuse to turn over documents that might reveal wrongdoing. The privilege is not available to corporations or partnerships (or to such other group endeavors as labor unions or political parties). But for close to a hundred years everyone agreed that right could be invoked by a sole proprietor.
But business owners can't count on that any more. The government is now getting from grand juries subpoenas for just such written material. In the case Philips defended, one company was told to turn over five years' worth of 25 different kinds of records, including its general ledgers, cash disbursement journals, invoices, payroll records, bank statements, and contracts. "It would be anomalous to hold that a corporation or partnership, no matter how small or personal, enjoys no Fifth Amendment rights, while a sole proprietorship, no matter how large or impersonal, is shielded from producing business records," the Justice Department argued.
The question, of course, is not whether it is anomalous, but whether it is the law. And the government believes that the special protection for sole proprietorships is no longer the law, because the Supreme Court six years ago began backing away from the 1886 holding. The broad protections then given personal papers "have not stood the test of time," Justice Byron White explained; the court told a taxpayer to turn over to investigators some particular workpapers prepared by his accountant. But the defendant in that case did not own those documents; his accountant did. The opinion has left judges unsure how radically the high court meant to alter the rights of business owners to keep secret the papers that are indisputably their own property.
The U.S. Court of Appeals in Boston calls continued protection for sole proprietorships "an irrational hole in the constitutional system of regulation of crime detection." But in the case Philips argued, the Court of Appeals in Philadelphia in June came out just the other way, telling the government it has little power to force a businessman to turn over such papers.
That decision "is tailored for Supreme Court review," according to Maryanne Trump Desmond, the executive assistant U.S. attorney in Newark, who argued the government's side. "What they're really saying is, 'Take this matter up,' " she said, and Desmond is encouraging her superiors in Washington to make such a test case of the Philadelphia ruling to "put the final nail in the Boyd coffin."
If the government doesn't win, Desmond warns, it could lead investigators to "not bothering to go the subpoena route at all." Rather than asking for records--and giving the target of an investigation a chance to go into court and argue against the demand--she suggests Justice lawyers could simply get a search warrant, barge into an office and rifle the files.
The constitutional issue revolves around whether or not turning over documents amounts to a violation of the Fifth Amendment guarantee that no one can be forced "to be a witness against himself." Six years ago White suggested that business records could be the equivalent of just such incriminating testimony in cases where the very act of turning them over to a grand jury would be an admission that the documents exist and that they are, in fact, authentic. But complying with the usual investigatory subpoena--which attempts to sweep in everything in hopes of finding something incriminating--would almost always fit that definition, the Philadelphia judges intimate. In the case before them, the government admitted that it was not even sure that the target of its investigation was involved in the businesses in question.
Until the Supreme Court acts, U.S. attorneys are likely to continue to demand such records. "I can't blame the government for trying," says New York lawyer Richard H. Kuh, who now handles a lot of white-collar crime cases. "I can appreciate the frustration of the prosecutors, having been one myself. Prosecutors are frequently frustrated by the Bill of Rights--that's why it's there."