The opinion of the court was delivered by: JACKSON
This matter is before the Court, on motions assignment, on the application of the Internal Revenue Service ("IRS") to enforce a third-party recordkeeping summons it issued in May, 1982, to Deak-Perera Washington, Inc. ("Deak-Perera") for the production of documents reflecting its transactions in precious metals with one of its customers, one Edward O. Uhrig of Ellicott City, Maryland.
Deak-Perera has made return to the order to show cause issued by another judge of this court, and the IRS and Deak-Perera have each, in effect, moved for summary disposition while nevertheless suggesting that issues of fact remain which would preclude the other's motion. They have, however, entered into a Stipulation of Facts from which alone the Court finds the facts hereinafter set forth and concludes that respondent is entitled to prevail.
Deak-Perera is a financial institution located in the District of Columbia which engages in a variety of monetary transactions, including the exchange of foreign currency, the purchase and sale of precious metal and bullion, and the purchase and sale of foreign drafts and travellers checks. As such, it is a so-called "non-bank financial institution" within the meaning of the Currency and Foreign Transaction Reporting Act, ("Currency Act" or "Act") 31 U.S.C., § 5311 et seq. (1980) by which it is obligated to maintain certain records and file periodic reports with the Department of the Treasury concerning transfers of currency or other monetary instruments in both domestic and international commerce. Specifically, such an institution must file reports of transactions involving the physical transfer of more than $10,000 in currency and certain international shipments of currency or monetary instruments exceeding $5,000. 31 U.S.C. §§ 5313, 5315, 5316; 31 C.F.R. §§ 103.21, 103.22, 103.23. It must also maintain records of certain extensions of credit over $5,000 and international transfers of over $10,000. 31 U.S.C., § 5314; 31 C.F.R., § 103.33. The Act authorizes the Secretary of the Treasury to delegate his duties and powers to appropriate supervising agencies, 31 U.S.C., § 5318, and he has done so by regulation, assigning enforcement authority to, inter alia, the Comptroller of the Currency (national banks); the Board of Governors of the Federal Reserve System (state banks belonging to the System); the Federal Home Loan Bank Board (insured thrift institutions); and various others. The IRS is assigned the residuary category into which Deak-Perera falls. 31 C.F.R., § 103.46(8).
Thus it happened that in May, 1980, Revenue Agent Robert G. Heilig of the Baltimore District Director's office began a compliance inspection of Deak-Perera under the Act which he initiated by his written request of Deak-Perera to be allowed to inspect certain forms it had filed, its source documents of daily financial transactions, and account records of individual account holders for the period 1977 to date. (Stips. 1, 2).
The purpose of inspection was to assure Deak-Perera's compliance with its obligations under the Act, viz., to report all cash transactions over $10,000 and certain foreign shipments of cash or bearer instruments, and to keep appropriate records. (Stip. 3).
Heilig was permitted to review Deak-Perera's records of foreign currency and precious metals transactions, travellers' check sales, and overseas remittances, in the course of which he made notes on every transaction in excess of $10,000 -- whether reportable under the Act or not (and most were not) -- memorializing such data as transaction dates as well as amounts, and the customers' names. (Stip. 5, 6). Deak-Perera protested the practice as an invasion of its customers' privacy and was informed by the IRS District Director that Heilig was taking names and dates only to enable him to aggregate the transactions to determine if reportable transactions had been disguised by dividing them into several smaller non-reportable ones. Heilig was not, the District Director assured Deak-Perera, conducting "so-called fishing expeditions." Deak-Perera allowed the inspection to continue, and Heilig continued to make notes. (Stip. 7). From those notes Heilig prepared Audit Information Reports ("AIRs") on every sale of precious metals to (but no purchases from) Deak-Perera involving $25,000 or more, whether in cash (i.e., reportable) or otherwise (not reportable) -- 83 transactions in all -- setting forth the customer's name, address, social security number, telephone number, and transaction date, and dispatched the AIRs to the customers' respective local IRS field offices for the admitted purpose of facilitating audits of the customers' tax returns (and for no purpose whatsoever having to do with the reporting requirements of the Currency Act; none of the transactions were apparently reportable). (Stips. 10-13, 15).
One such AIR sent to Baltimore referred to a sale of foreign coins by Uhrig to Deak-Perera in April, 1980. Special Agent Woodland R. Morris, who had information from an independent source with respect to some seven other Uhrig transactions in precious metals with an "unknown dealer," initiated his own investigation of Uhrig on the basis of the AIR from Heilig (which disclosed only the single transaction with Deak-Perera) and caused the instant summons to issue for "any and all records" pertaining to Edward O. Uhrig and/or Evelyn T. Uhrig for the years 1979-81, including but not limited to records of precious metals transactions paid in cash or by check. The summons would not have issued but for Heilig's report. (Stips. 17-20, IRS Summons of May 6, 1982).
The federal courts, as a rule, have a fairly limited role in the enforcement of administrative subpoenas. While their function is "neither minor, nor ministerial," Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 217, 90 L. Ed. 614, 66 S. Ct. 494 n. 56 (1946), they are to limit inquiry into collateral matters because of the importance of expeditious enforcement, FTC v. Texaco, Inc., 180 U.S. App. D.C. 390, 555 F.2d 862, 872 (D.C. Cir. 1977), and a subpoena is generally to be enforced so long as the agency demonstrates that the investigation is being "conducted pursuant to a legitimate purpose, that the inquiry may be relevant to that purpose, that the information sought is not already within the [agency's] possession, and that the administrative steps required by the [statute] have been followed. . . ." United States v. Powell, 379 U.S. 48, 57-58, 13 L. Ed. 2d 112, 85 S. Ct. 248, (1964). It is to be remembered, however, that it is the court's process which is invoked, and the "court may not permit its process to be abused," i.e., if the summons has been issued for an improper purpose ". . . or for any other purpose reflecting on the good faith of the particular investigation." Id. at 58.
The IRS asserts that the compliance audit of Deak-Perera was one of the "regulatory inspections [which] further urgent federal interest[s]," United States v. Biswell, 406 U.S. 311, 317, 32 L. Ed. 2d 87, 92 S. Ct. 1593 (1972), as to which regulated businesses have little in the way of justifiable expectations of privacy and may be required simply to satisfy "official curiosity . . . that corporate behavior is consistent with the law and the public interest." United States v. Morton Salt Co., 338 U.S. 632, 651-52, 94 L. Ed. 401, 70 S. Ct. 357 (1950). See G.M. Leasing Corp. v. United States, 429 U.S. 338, 353, 50 L. Ed. 2d 530, 97 S. Ct. 619 (1977). Having acceded to an inspection it had no right to refuse, United States v. Biswell, supra, the IRS argues, Deak-Perera cannot object that the information Agent Heilig took away with him -- particularly the sort having a "high degree of usefulness in criminal, tax, or regulatory investigations or proceedings" which justified the Currency Act as constitutionally valid in the first place, California Bankers' Association v. Shultz, 416 U.S. 21, 37, 39 L. Ed. 2d 812, 94 S. Ct. 1494 (1974) -- was not exactly what he started out looking for, given the coincidence of the dual capacity in which the records might be of interest to the IRS. And the summons which followed, it says, is altogether consistent with the IRS' "broad mandate" to investigate and audit persons who may be liable for taxes, and in connection therewith to summon any person to produce records relevant or material to the inquiry as it is empowered to do by 26 U.S.C. § 7602. United States v. Bisceglia, 420 U.S. 141, 145-46, 43 L. Ed. 2d 88, 95 S. Ct. 915 (1975).
Deak-Perera responds that it was cozened. Assuming (but without conceding, in the absence of any express statutory or regulatory provision) that the IRS had a right to conduct a compliance audit of its records, the records which could be audited of right were those having to do with its own recordkeeping and reporting obligations under the Currency Act, not those which might bear upon its customers' tax liabilities.
Had it known in advance the use to which the extraneous information those records contained would be put, Deak-Perera says, it would have supplied Heilig with redacted records. It relied, however, upon the IRS' implied representation at the outset and the express reassurance in mid-audit that Deak-Perera alone was the subject of the inspection in giving it access to its original books of entry.
If regulatory inspections are not inhibited by requirements of warrants or probable cause, neither are they altogether free of the other constraints of reasonableness of the Fourth Amendment. "Where Congress has authorized inspection but made no rules governing the procedure that inspectors must follow, the Fourth Amendment and its various restrictive rules apply." Colonnade Catering Corp. v. United States, 397 U.S. 72, 77, 25 L. Ed. 2d 60, 90 S. Ct. 774 (1970); See v. City of Seattle, 387 U.S. 541, 543-46, 18 L. Ed. 2d 943, 87 S. Ct. 1737 (1967). And if the Currency Act and the implementing regulations contemplate such compliance audits as the IRS made of Deak-Perera here, they clearly do not purport to authorize a general sharing of incidental intelligence so acquired, even intra-agency, if to do so would violate the subject's legitimate expectations for its privacy. Compare United States v. Sells Engineering, Inc., 463 U.S. 418, 51 U.S.L.W. 5059, 77 L. Ed. 2d 743, 103 S. Ct. 3133 (1983). At least to the extent the IRS was enabled to obtain from Deak-Perera's records information having no bearing upon the ostensible purpose of its inspection, although of interest to it in another capacity, its access to that information depended entirely upon Deak-Perera's ...