Friday, October 31, 2014

Must a Trial Judge Advise a Pro Se Defendant Specifically that He Has a Right to Closing Argument and Ensure a Proper Waiver of the Right (10/31/14)

In United States v. Bell, 2014 U.S. App. LEXIS 20258 (9th Cir. 2014), here, the defendant appealed "from his jury convictions for making false, fictitious, and fraudulent claims to the United States Treasury under 18 U.S.C. § 287, assisting in the filing of false tax returns under 26 U.S.C. § 7206(2), criminal contempt under 18 U.S.C. § 401(3), and mail fraud under 18 U.S.C. § 1341."  The scam underlying his conduct was the tried and untrue Form 1099-OID claim for taxes claimed to have been withheld but, in fact, were not.

At trial, the defendant represented himself pro se.
The criminal proceedings show Bell's consistent refusal to recognize the authority of the district court or to participate in the proceedings, including filing a motion to dismiss styled as a "habeas corpus petition" arguing that his prosecution was illegal because he was not subject to federal tax laws; declaring his "sovereignty as a chief ruler" who was "independent of the Court" and enjoying "sovereign immunity"; declining the offer for an opportunity to give an opening statement; and repeatedly stating that he did not consent to the proceedings and was reserving his rights pursuant to U.C.C. § 1-308. 
At trial, after the district court delivered jury instructions, the government gave its closing argument. The district court did not prompt Bell to make a closing argument, and Bell remained silent. The jury convicted Bell as charged. 
The appeal issue I write on is the one that should be apparent from the bold-faced sentence.  The defendant did not make a closing argument, but the district court did nothing, apparently, to ensure that the defendant knew he had the right to do so.  Of course, a defendant has the right to make a closing argument.  The defendant usually does that through his lawyer who certainly will know of the right without any prompting by the trial judge.  But a pro se defendant may or may not know that and may or may not know the right to to insist upon it.  That was the problem raised on appeal.  Here are selected excerpts of the majority's opinion:
[The defendant] was not precluded from making a closing argument. The district court told all parties just before recess that when proceedings resumed the court would entertain Rule 29 motions and objections to the proposed jury instructions, and then "we are going to have closing arguments." When the government's counsel delivered his closing argument, Bell remained silent. Nothing in Herring or our precedents gives a self-represented defendant a right to be affirmatively and individually advised that he or she has a right to present a closing argument. Rather, these cases held that a court may not prevent a litigant from making a closing argument. Bell's Sixth Amendment right was not violated because he was not precluded from making his closing argument and simply chose to remain silent.
But waivers of important rights -- closing arguments are surely important -- seems to me to require more than mere silence from a pro se defendant.  The earlier fleeting generic reference to closing arguments does not seem to me to be the type of notice required for a pro se defendant.  The Court tried to justify its holding in a footnote as follows:

Concern that IRS CI Resources Are Disprorportionately Allocated to Tax Return Identity Theft Fraud (10/31/14)

Readers will have noticed that I have not spent many words on this blog about identity theft.   Most of the times the term shows up in a blog focused on another issue.   As I have said, identity theft is just a form of relatively garden-variety fraud and theft which is related to tax only because tax forms -- usually claims for refund -- are used to implement the theft.   I picked up the following quote from an article on the 30th annual Tax Controversy Institute in Beverly Hills, California.  William R. Davis, Identity Theft Focus Hindering CI Division, Former Officials Say, 2014 TNT 211-1 (10/31/14) [no link available].  The article noted concerns by the agency and practitioners on IRS CI's devotion of inordinate resources to identity theft because the IRS still must serve effectively its mission to support the overall tax system.

I thought the following excerpt from the article was particularly apropos.
The only thing IRS-related about identity theft is that it involves a tax return, Nathan J. Hochman of Bingham McCutchen LLP said, adding, "Other than that, it's an FBI case."

Thursday, October 30, 2014

Update on Pleaded or Pled (10/30/14)

I previously blogged on the choice of pleaded or pled as the past tense of the verb plead.  Is it Pled or Pleaded? (Federal Tax Crimes Blog 1/18/13), here.  Today, I received a daily email from a site called Daily Writing Tips, here.  Today's serving was on "Pleaded vs. Pled."  As I noted in my earlier blog entry, I usually use pled rather than pleaded.  But the choice is a matter of debate among English aficionados and others with anal retention proclivities.  So, I thought I would provide readers some more links that address the issue.  The bottom-line, I take it, is that either usage is correct, at least in the ultimate test of the English language -- common usage and understanding.  Hey, some people insist that it is wrong to split infinitives.  See Wikipedia, here (citing as an example of the dreaded split infinitive, the following from Star Trek: "to boldly go where no man has gone before").

  • Daily Writing Tips, Pleaded v. Pledhere.
  • Staci Zaretsky, Grammar Pole of the Week: Pleaded v. Pled (Above the Law 12/16/11), here.
  • Debra Cassens Weiss, Law Prof Enters the Great Debate: Is It ‘Pleaded’ or ‘Pled’? (ABA Journal 11/22/10), here, with links in the blog entry to Eugene Volokh's discussions.
  • Natalie West, When Choosing Pleaded or Pled, Grammar Pitted Against Popular Usage (The Docket July/August 2013), here.
So, I previously pled guilty to using "pled" rather than "pleaded in my writing."  I expect to  be a repeat offender, if offense it be (can't teach an old dog new tricks).

Wednesday, October 29, 2014

I have often said -- I suspect that, in number at least, most readers would say too often -- that Swiss banks are, well, whatever the word was (it changed from time to time, but it was not a term of endearment).  Well, Swiss banks are not alone.  See Ben Protess and Jessica Silver-Greenberg, Prosecutors Wrestling With Wall Street’s Repeat Offenders (NYT DealBook 10/29/14), here.  And U.S. financial institutions also misbehave big-time.  Some of the senior management of all of them or, given prosecution limitations and priorities, a representative sampling of them, should go to jail.  In the U.S.  As perhaps Raoul Weil will, mitigated perhaps by his serving up higher level bank management.

Here are some excerpts:
Prosecutors in Washington and Manhattan have reopened an investigation into Standard Chartered, the big British bank that reached a settlement in 2012 over accusations that it funneled billions of dollars for Iran and other nations blacklisted by the United States, according to the lawyers briefed on the cases. The prosecutors  are questioning whether Standard Chartered, which has a large operation in New York, failed to disclose the extent of its wrongdoing to the government, imperiling the bank’s earlier settlement.
New York State’s banking regulator is also taking a fresh look at old cases, reopening a 2013 settlement with the Bank of Tokyo-Mitsubishi UFJ over accusations that the bank’s New York branch did business with Iran, according to the lawyers who were not authorized to speak publicly. The regulator, Benjamin M. Lawsky, the lawyers said, is negotiating a new settlement deal with the bank that, if finalized, would involve a penalty larger than the $250 million it paid last year. Mr. Lawsky suspects that the bank initially played down the scope of its wrongdoing. 
PricewaterhouseCoopers, the influential consulting firm that advised the Japanese bank on that case, is also under investigation itself, according to the lawyers briefed on the matter. The Manhattan district attorney’s office is examining whether the firm watered down a report about the bank’s dealings with Iran before it was sent to government investigators. 
Those developments — which have not been previously reported — are part of a broader revisiting of settlements with some of the world’s biggest banks, an effort that has focused on foreign banks but could eventually spread to American institutions.
As reported earlier by The New York Times, prosecutors are also threatening to tear up deals with banks like Barclays and UBS that were accused of manipulating interest rates, pointing to evidence that the same banks also manipulated foreign currencies, a violation of the interest rate settlements. The prosecutors and banks have agreed to extend probationary periods that would have otherwise expired this year. 

Bank Leumi Negotiating with New York Banking Regulator About US Tax Evasion Enablement (10/29/14)

Bank Leumi is in the sights of the NY banking regulator who has lowered the boom of offshore bank enablers of tax evasion.  See David Voreacos and Greg Farrel, Bank Leumi Said to Face $300 Million Demand in Tax Case (Bloomberg 10/29/14), here.  Excerpts:
New York’s banking regulator will ask for more than $300 million to settle an investigation into whether Bank Leumi Le-Israel (LUMI) BM helped Americans evade taxes, a person familiar with the matter said.\ 
Benjamin Lawsky, head of the state’s Department of Financial Services, is seeking more than what the bank set aside to resolve a separate criminal investigation by the U.S. Justice Department. In June, Leumi said it allotted 950 million shekels ($254 million) for the federal matter, which would make it the first Israeli bank to settle a tax probe with the U.S. 
* * * * 
Bank Leumi, Israel’s second largest lender by assets, said today it’s in talks with Lawsky’s department on a settlement, according to a filing with the Tel-Aviv Stock Exchange. It’s too early to estimate if an accord may be reached and a final settlement may be “significantly higher” than the provisions it’s already set aside to cover those costs, the bank said. 
* * * * 
Lawsky’s Leverage 
Lawsky, the banking superintendent since 2011, has leverage over Leumi because it holds a New York banking license and he can threaten to revoke it for violations of the law. He has used that power to extract other settlements. 
In August 2012, he struck a $340 million accord with Standard Chartered Plc (STAN) after threatening to pull its license. The London-based bank was accused of evading U.S. sanctions laws by stripping the names of Iranian clients from billions of dollars in wire transfers. Lawsky required the bank to hire an outside monitor to oversee the controls for handling transactions with sanctioned nations. 
Lawsky’s settlement with Credit Suisse also required the bank to hire a monitor. 
* * * * 
Legal Liability 
The bank said in June that it sought to resolve its legal liability for activities on behalf of U.S. taxpayers from 2002 to 2010. Leumi is “working towards a resolution” with the Justice Department “in accordance with the outline and the sum” proposed by the federal agency, according to its statement.

Tuesday, October 28, 2014

Other Country Envy of FATCA (10/28/14)

A Tax Analysts Blogger, Robert Goulder, reports on other nations' envy of our FATCA law, discussing Colombia in particular.  See Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog 10/24/14), here.
The South American nation of Colombia does not have its own version of FATCA, but its government wishes it did. That's evident from its current tussle with neighbor Panama. The root of the problem between the two nations is FATCA-style reporting of bank data, or the lack thereof. Colombia wants it badly; Panama wants nothing to do with it.
The current disagreement is with Panama, which, on a Latin American scale, is the local Switzerland with a (relatively) thriving financial center.  The result is:
So long as the banking sector is thriving -- and it is -- Panama's government doesn't care whether residents of other countries cheat on their taxes. The banks' position is that all nonresident clientele are free to self-report their interest income and it's not their fault when a Colombian client violates her country's tax laws. Nobody puts a gun the accountholders' heads and forces them to dodge taxes, although Panama's de facto bank secrecy certainly enables that outcome. 
For Colombia in particular,
Colombian law requires taxpayers to fully disclose bank deposit income regardless of where it was earned. But If a Colombian taxpayer failed to report his or her income from a Panamanian bank, the tax authorities would be very unlikely to detect the omission because of Panama’s lack of reporting. For practical purposes, the offshore account would remain a secret known only to the bank and the accountholder. Taxable income is thus concealed from Colombia’s revenue body with minimal risk. 
The result of all this is tax enforcement on the honor system, without the traditional backstops of withholding or reporting. Predictably, noncompliance in Colombia is a massive problem. Officials in Bogotá estimate the revenue loss from nondisclosure of offshore bank income at $2 billion to $7 billion annually. Those are large numbers for a country Colombia's size.
So, Colombia asked Panama to enter a Tax Information Exchange Agreement ("TIEA") which, would be FATCA-like, in requiring the reporting of bank account income for Panamanian accounts owned by Colombians.  Panama, not surprisingly, said "no thanks."

Panama may be relenting in the spat, as the author reports.

The key point is that the world is moving toward more transparency in fiscal affairs.  Over time, something like FATCA will be ubiquitous to require reporting to tax authorities initially in the developed countries but, eventually, very far out in the future, the world.  People who want to rant and rave about FATCA are playing a losing game.  But the focus of much of their angst is really the requirement of worldwide reporting on citizens, particularly those living outside the taxing jurisdiction.  That is a different issue, but so long as the law in the US and elsewhere (including Colombia) have tax on worldwide income, FATCA and inter-country agreements achieving the same effect are required to backstop the tax system.

IRS CI Modifies Its Policy Regarding Forfeitures for Structuring on Bank Deposits for Legal Source Deposits (10/28/14)

An important facet of the criminal tax practice is the money laundering laws, including the reporting requirements for currency transactions.  Among those requirements are the the currency transaction report by financial institutions for deposits of $10,000 or more.  Piece mealing deposits -- often called structuring -- to make each individual deposit less than $10,000 to avoid the reporting requirements can be a crime and can result in forfeitures.  This law and its punitive penalties (meant to be redundant) is designed to support the criminal laws by identifying criminal conduct.  But, persons not involved in criminal conduct can be caught in and violate this provision.  In a recent article, the New York Times raised questions about the IRS's expansive use of the forfeiture power against persons not otherwise involved in criminal activity -- against small business owners and others who, perhaps from ignorance, engage in a pattern that can be viewed as structuring.  See Shaila Dewan, Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required (NYT 10/25/14), here.

In response to the article (or just in advance of it), the IRS announced in a statement, here, to the New York Times as follows:
After a thorough review of our structuring cases over the last year and in order to provide consistency throughout the country (between our field offices and the U.S. attorney offices) regarding our policies, I.R.S.-C.I. will no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (D.F.O.) level. While the act of structuring — whether the funds are from a legal or illegal source — is against the law, I.R.S.-C.I. special agents will use this act as an indicator that further illegal activity may be occurring. This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.'s mission and key priorities. The policy involving seizure and forfeiture in “illegal source” structuring cases will remain the same.
Kudos to the investigative reporter for the New York Times for shining light on this aggressive use of the law by the IRS.  And Kudos to the Institute for Justice, here, mentioned prominently in the article for representing citizens caught in this trap.

One question readers my have is how the IRS would learn about structuring -- the pattern of depositing less than $10,000 from which an inference might be made that the activity was to avoid the CTR reporting requirements?  I suspect -- you know where this is going -- that the banks may report most of such activity on Suspicious Activity Reports ("SARs").  See Wikipedia discussion of SARs, here.  In my Federal Tax Crimes book, I describe SARs as follows (footnotes omitted):
Although there is no general duty under American law to report crimes, certain financial institutions (including money services businesses and high cash businesses such as casinos) are required to file with FinCen a report, called a Suspicious Activity Report (“SAR,” but not to be confused with the Special Agent’s Report with the same acronym which we encountered earlier).  This SAR combines features of earlier reports and is in addition to the CTR if required.  The SAR is required if the financial institution “knows, suspects, or has reason to suspect the money was derived from illegal activities” or the transaction was “part of a plan to violate federal laws and financial reporting requirements (structuring).”  The financial institution is not required to investigate or confirm that a crime has been committed. The financial institution is prohibited from telling its customer of the filing of the report, even in response to a subpoena.  The financial institution is protected from liability to the customer.  The IRS may share this SAR with the IRS examination function having civil tax responsibility, but components of the IRS receiving the information are required to keep the information secure to the same extent as if received from a confidential informant.
Financial institutions have computer algorithms that can detect certain types of activity, including patterns of deposits below the $10,000 CTR reporting threshold and report the activity to FinCEN on the SARs.  So patterns by the unsuspecting or uncurious can be reported.

And readers should keep in mind that structuring to avoid the reporting requirements is a crime.  The statute does not require that structuring be related in any way to other criminal conduct or to hiding such other criminal conduct.  If the intent in the structuring is to avoid the reporting requirements, it is a crime.  Given that the reporting requirement is primarily designed to flush out crimes with important national priorities, it becomes an act of discretion not to proceed against persons committing no other crime than structuring.  Note that the CI statement quoted above does hold out the possibility that, in some cases. legal source structuring may be pursued.


Saturday, October 25, 2014

Australia is Also Flushing Out Its Offshore Tax Avoidance (10/25/14)

I found this article on Australia's efforts to flush out unpaid tax related to offshore accounts, both in the past and in the new reporting regimes such as FATCA-like initiatives in other countries. Georgia Wilkins, Australians confess to stashing $1b in assets offshore (Sydney Morning Herald 10/23/14), here.  Excerpts:
The Tax Office is keeping a close eye on foreign banks as part of its push to stop money being sent offshore by wealthy individuals. 
It comes as Australians flock to declare money in hidden accounts, under an amnesty from criminal convictions running until December.  
Around $180 million in undeclared offshore income has now been recovered as part of the amnesty, the ATO said. A further $1 billion in assets has also been recovered.
ATO assistant commissioner David Allen said Australians were realising that international tax loopholes were closing, with Switzerland now pledging to sign up to the OECD's automatic information sharing agreement. 
"What we'll see in a couple of years is the Swiss will be providing to Australia details of Australians' bank accounts in Switzerland." Mr Allen said.  
"This is really starting to snowball and reinforce the message that there are no more tax havens." 
Around half of the disclosures relate to accounts in Switzerland. Other popular destinations for hiding money overseas were Israel, Liechtenstein, Hong Kong and the UK, the ATO said. 
 * * * * 
"We monitor closely, not just the US but there's a lot of other activity happening with foreign banks in Europe as well," he said.  
In May, Swiss banking giant Credit Suisse was hit with a record $US2.6 billion fine for helping Americans hide money in secret bank accounts in Switzerland.  
The case revealed an elaborate scheme involving a private elevator for clients to access their accounts at the Zurich airport.  
ATO assistant commissioner David Allen said he could not rule out the banks operating similar facilitation schemes for Australians, but that it was watching them, including Credit Suisse, closely.  
"We've got a full idea what they [Credit Suisse] have been doing in the US. We've obviously been doing our own analysis and continuing our engagement with a range of foreign banks," he said.  
"The writing's on the wall for how some of these banks may have behaved in the past."
The ATO has been criticised for allowing deliberate tax evaders to escape proper punishment under the law.  
People who come forward under the arrangement will avoid harsh penalties and are only assessed for the last four years. They are only liable for a maximum shortfall penalty of 10 per cent, and will not be referred for criminal investigation. 

Friday, October 24, 2014

Swiss Category 2 Banks Push Back on DOJ's Draft NPA Agreement (10/24/14)

There are media reports that Swiss Category 2 banks are pushing back on the draft of the model NonProsecution Agreement ("NPA") DOJ offered them.  John Letzing, Swiss Banks Want Changes in Justice Dept. Hidden Account Program (WSJ 10/23/14), here; Kristen A. Parillo, Swiss Banks Slam DOJ's Proposed Non-Prosecution Agreement, 2014 TNT 206-1 (10/24/14) (no link available).  The pushback occurred in a letter from a number of attorneys representing the banks to the DOJ tax.  According to the reports,  28 lawyers representing 73 Swiss banks signed the letter.

According to the Parillo article, the draft NPA requires the Category 2 banks to :
  • cooperate fully with the DOJ, the IRS, and any other domestic or foreign law enforcement agency designated by the DOJ regarding all matters related to the conduct described in the NPA;
  • assist the DOJ or any designated domestic or foreign law enforcement agency in any investigation, prosecution, or civil proceeding arising out of or related to the conduct covered by the NPA;
  • provide testimony as needed to enable the U.S. to use the information and evidence provided by the bank under the NPA; and
  • provide the DOJ, upon its request, all information, documents, records, or other tangible evidence not protected by legal privilege or work product regarding matters arising out of or related to the covered conduct.
    The draft NPA also requires the banks to assist the U.S. with the drafting of treaty requests seeking U.S. account information (whether the account is open or closed), and to retain all records relating to its U.S. cross-border business for a period of 10 years from the NPA's termination date. The agreement also describes the circumstances under which the DOJ may determine that a bank has violated the terms of the NPA and may be prosecuted.
I don't have a copy of the letter, but the WSJ reports:
The requested changes included limiting what the Justice Department could do with the information it collected and dropping a requirement that banks also agree to disclose similar information to other foreign authorities.
* * * * 
In the letter, attorneys representing the banks took issue with a number of aspects of the program, including a provision that participants disclose information related to foreign parent companies or affiliates. The banks also panned a stipulation that they also open their books to other, unspecified foreign legal authorities probing hidden accounts.

For prior coverage of the draft NPA Agreement, see Swiss Category 2 Banks Reportedly Get Draft of NPA Agreement (Federal Tax Crimes Blog 10/11/14; 10/14/14), here.

Addendum 10/24/14 4:00pm:

Wednesday, October 22, 2014

Blog on the Disqualification of Some Canadian "Snowbirds" from Streamlined Treatment (10/22/14)

Moodys Gartner Tax Law has published a blog entry, here, on the Canadian Snowbird trap in the Streamlined procedures.  The following summary was provided:
The IRS recently released FAQs concerning its amnesty programs for noncompliant taxpayers who want to become compliant with their  U.S. tax filing obligations. The FAQ for the nonresident flavor of the new streamlined amnesty program, SFOP, is particularly troubling for snowbirds (i.e., folks, particularly Canadians) who migrate to the U.S. each year but who have not filed forms 1040 for the three-year period for which tax returns must be filed under streamlined. If these snowbirds spend more than just 35 days (36 in a leap year) in the U.S. during each of these three years, they are ineligible for streamlined and must either use OVDP or file without the protection of an IRS amnesty program to get compliant. Before the FAQ, there was an interpretation of the streamlined procedures' "non-residency requirement" that qualified these nonfiler snowbirds under streamlined using section 911 of the Code. The result is troubling for those affected. 
Follow the link above for the full blog entry.


Tuesday, October 21, 2014

Pretrial Skirmishing in Weil - the Coplan Issue of Improper Expansion of the Defraud / Klein Conspiracy (10/21/14)

As readers know, Raoul Weil, a former high ranking UBS official in charge of its U.S. tax evasion shenanigans, is being tried for tax conspiracy. United States v. Weil (SD FL No. 08-60322-CR-COHN). (See also blog entry links below.)  Before trial, Weil sought dismissal on the basis asserted the issue asserted in United States v. Coplan, et al., 703 F.3d 46 (2d Cir. 11/29/12), here.  That issue is whether the formulation of the defraud conspiracy in Hammerschmidt v. United States, 265 U.S. 182 (1924) more broadly than the scope of the word "defraud" meant at common law and thus means in other criminal statutes improperly expands the scope of the defraud conspiracy.  See the links to the Coplan issue below.  As expanded, the application in the tax context is generally referred to as a Klein conspiracy, after the leading case employing the expanded definition in a tax setting, United States v. Klein, 247 F.2d 908 (2d Cir. 1957).

In a short order, here, the Weil Court denied Weil's motion to dismiss because it was untimely and, in any event, fails on the merits of the motion.  The critical excerpts from the Court's short order are:
However, a review of the Motion demonstrates that it also fails on its merits. Weil was indicted under 18 U.S.C. § 371, which prohibits conspiracies to defraud the United States and its agencies. Indictment ¶¶ 11–13. Weil contends that the common-law definition of "defraud" is to "deprive[] another of property rights by dishonest means." Motion at 2 (quoting United States v. Coplan, 703 F.3d 46, 59 (2d Cir. 2012), cert. denied, 134 S. Ct. 71 (2013)). Weil notes that the Government does not allege that he deprived the IRS of property rights by dishonest means, and thus he is not accused of having conspired to defraud the IRS in the traditional sense. "Instead, the Indictment relies on a judicially and specially crafted definition of 'defraud' that includes 'interfer[ing] with or obstruct[ing] one of the [U.S. government's] lawful . . . functions by deceit, craft or trickery, or at least by means that are dishonest.'" Id. (quoting United States v. Klein, 247 F.2d 908, 916 (2d Cir. 1957)). This specific theory of fraud against the United States and its agencies—involving not the deprivation of property but instead the obstruction of governmental functions—has come to be known as the "Klein conspiracy." See United States v. Adkinson, 158 F.3d 1147, 1154–55 (11th Cir. 1998). 
Weil argues that the Klein conspiracy violates a prohibition on judge-made, common-law crimes. Weil also argues that any ambiguity in the text of section 371 should be interpreted in favor of defendants under the rule of lenity, and the broad interpretation of the term "defraud" that gives life to the Klein conspiracy violates this rule. Motion at 4. Finally, Weil argues that recent Supreme Court precedent rejecting a broad interpretation of honest-services fraud robs the Klein conspiracy of any remaining viability. Id. at 2–3 (citing Skilling v. United States, 561 U.S. 358 (2010)).\ 
In the Motion, Weil leans heavily upon the Second Circuit's criticisms of the Klein conspiracy in Coplan, 703 F.3d 46, to support his argument that the theory must fail as a judge-made basis for criminal liability without a foundation in the text of the criminal statutes. But in Coplan, the Second Circuit ultimately held that the Klein conspiracy was firmly entrenched in the Supreme Court's and the Second Circuit's precedents, and remained viable notwithstanding the Supreme Court's recent decision in Skilling. 703 F.3d at 61–62. Shortly thereafter, the Supreme Court declined to hear an appeal from the Second Circuit's decision. Coplan, 134 S. Ct. 71. 
Like the Second Circuit, the Eleventh Circuit has recognized the Klein conspiracy as a basis for criminal liability subsequent to the Supreme Court's holding in Skilling. See United States v. Kottwitz, 614 F.3d 1241, 1264–66 (11th Cir.), modified on other grounds, 627 F.3d 1383 (11th Cir. 2010). Therefore, though Weil may have a non-frivolous argument for the rejection of the Klein conspiracy, this Court agrees with the holding of the Second Circuit in Coplan: "such arguments are properly directed to a higher authority." 703 F.3d at 62. It is accordingly 
ORDERED AND ADJUDGED that Defendant Raoul Weil's Motion to Dismiss Indictment Pursuant to Federal Rule of Criminal Procedure 12(b)(3)(B) for Failing to State an Offense [DE 148] is DENIED both as untimely and on its merits. 
For further background on the order, Weil's motion is here and the Government's response is here (the attachment to the Government's response (the brief in opposition to certiorari in Coplan, is here).

Blog Entries on the Weil Prosecution

  • Raoul Weil Has First U.S. Court Appearance (Federal Tax Crimes Blog 12/17/13), here.
  • Raoul Weil Pleads Not Guilty: Thoughts and Speculations (Federal Tax Crimes Blog 1/8/14), here.
  • Raoul Weil Trial Begins Next Week; Some Items for the Run-Up (Federal Tax Crimes Blog 10/9/14), here.
Blog Entries on the Coplan Issue

  • Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.
  • Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here.


Monday, October 20, 2014

Offshore Depositor Pleads to Tax Perjury; Banks - UBS, Israeli Bank & Jersey Bank (10/20/14)

DOJ Tax announced, here, that another offshore bank depositor, Menashe Cohen, has pled guilty to one count of tax perjury, Section 7206(1). Key Excerpts
According to court documents, Menashe Cohen, an oriental carpet dealer, and his sister maintained an undeclared bank account at UBS in Switzerland that had a balance of approximately $1.3 million.  Cohen also maintained bank accounts in Israel and in Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy, France.  Although Cohen’s return for tax year 2009 reported that he had a financial interest in a bank account in Jersey, the return failed to report that he had financial interests in the accounts located in Switzerland and Israel.  In addition, Cohen’s return only reported $350 in interest income, when in fact he had received approximately $66,500 in interest income during 2009. 
In total, for tax years 2006 through 2009, Cohen failed to report approximately $170,000 in income earned from offshore bank accounts.  In addition, Cohen filed a false and fraudulent Report of Foreign Bank and Financial Accounts (FBAR) for 2009, wherein Cohen reported he had bank accounts in Israel and Jersey on the FBAR, but failed to report his financial interest in the UBS account in Switzerland. 
* * * *
Cohen faces a statutory potential maximum sentence of three years in prison and a maximum fine of $250,000 at his Jan. 26, 2015, sentencing.  In addition, Cohen has agreed to resolve his civil liability for failing to report his financial interest in the UBS account on a FBAR by paying a 50 percent civil penalty to the IRS based on the high balance of his one-half interest in the account.
JAT Comment:  Straightforward continuation of DOJ Tax's plea requirements.  However, the limitation of the FBAR penalty to his interest in the UBS account.  From the narrative, it would appear that he had FBAR and income tax delinquencies for other accounts in a period that would have been relevant to the prosecution.

Wednesday, October 15, 2014

Gary Stern Indictment (1015/14)

A reader just forwarded me the indictment titled United States v. Gary J. Stern (ND IL No. 14 CR 580), here.  (There is something curious about the indictment; the caption states the "Norther" District of Illinois; a typo certainly, but one would think that the word  processing template would /  should preclude such typos related to the identity of the court; oh well.)  The Counts:

  • Count One:  Section 7212(a), tax obstruction, count with a lot of allegations of "corrupt endeavor" conduct.  (Similar to what one sees in a defraud / Klein conspiracy count indictment; oh, but then section 7212(a) is a one person defraud / Klein conspiracy charge (at least until and unless the Supreme Court re-imagines what defraud means).)
  • Count Two: Section 7206(2), aiding and assisting, count with less flowery allegations related to "Taxpayer DJ."
  • Count Three: Section 7206(2), aiding and assisting, count with similarly less flowery allegations related to "Taxpayer PB."
  • Count Four: Section 7206(2), aiding and assisting, count with similarly less flowery allegations related to "Taxpayer SM."
  • Count Five: Section 7206(2), aiding and assisting, count with similarly less flowery allegations related to "Taxpayer RL."
  • Count Six: Section 7206(2), aiding and assisting, count with similarly less flowery allegations related to "Taxpayer BF."
  • Count Seven: Section 7206(2), aiding and assisting, count with similarly less flowery allegations related to "Taxpayer JK."
  • Count Eight: Section 7206(2), aiding and assisting, count with similarly less flowery allegations related to "Taxpayer SR."
I will add more on the indictment later.

I do note that the indictment designation sheet attached is signed by Stephen Heinze.  That is a name from my past, but that is another story (I doubt that I will write anything on it, but I can disclose that I was neither a target, subject, person of interest or otherwise of the earlier matter, although I did represent a client who allegedly fell into one of those categories until leveler heads prevailed).

For an earlier article in the proceedings against Mr. Stern, see Jared S. Hopkins, Feds: Lawyer helped clients claim $16 million in false tax credits (Chicago Tribune 11/6/13), here.  The complaint related to this earlier civil cases is here (from the Chicago Tribunes).

For an earlier blog on the civil proceeding, see Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes (Federal Tax Crimes Blog 11/7/13), here.

Tuesday, October 14, 2014

An Example of the Difference Between Pleading and Not Pleading (10/14/14)

Over 95% of federal criminal cases are resolved by plea agreement.  One of the reasons is that, in the Sentencing Guidelines calculations, defendants who plead will usually qualify by the plea for the acceptance of responsibility two or three level decrease in the Guidelines calculation.  Moreover, by pleading, the defendant may make himself or herself more attractive for a Booker downward variance from the reduced Guidelines range already reduced for acceptance of responsibility.  Conversely, by going to trial, a defendant generally forgoes any realistic hope of an acceptance of responsibility adjustment or any favorable Booker downward adjustment and may behave at trial in a way that will not endear the sentencing judge to the defendant.

These dynamics played out in United States v. Morgan, 2014 U.S. App. LEXIS 19025 (11th Cir. 2014), here.  There the appellant, Morgan, and three others -- one her husband -- were indicted for one count of conspiracy (18 USC § 371), seven counts of funds taken by fraud (18 USC § 2314), six counts of money laundering (18 USC § 1957), and three counts of tax perjury (26 USC § 7206(1)).  Two of the other defendants each pled guilty to two nontax counts (one conspiracy count and one other); one was sentenced to 51 months and the other -- her husband -- was sentenced to 121 months.  There is no explanation for the differences in these two sentencings.  The third of the other indicted defendants resides in Denmark, has not been extradited and presumably is a fugitive from justice.

Morgan did not plead.  There is no indication that she was offered a plea, but defendants are usually offered a plea of some sort.  Sometimes the central person in a large crime with several counts will not be offered a plea, except on onerous terms.  At any rate, she went to trial.  Moreover, when she went to trial, she waived her Fifth Amendment privilege and testified.  That's bad enough, for the resulting cross-examination can make the defendant look very bad.  But, not only did she open herself to cross, she lied in her testimony.  Not good.  She was convicted on all counts.  The maximum possible punishment for the counts of conviction (stacked) was 264 years imprisonment.  The advisory calculated Guidelines range exceeded that maximum, so the Guidelines range became that maximum.  The judge sentenced her to 420 months (35 years), thus making a major Booker downward variance.  The sentencing was reversed on appeal.

On remand for sentencing, the sentencing judge "subtracted two levels from Morgan's offense level for the erroneous abuse-of-trust enhancement and determined Morgan's correct Guidelines range was 324 to 405 months of imprisonment."  The judge then sentenced her to 405 months imprisonment, stating that "nothing had changed in the case other than the enhancement for abuse of a position of trust."  (The judge could therefore have left the sentencing at 420 months, but did give her a 15 month lesser sentence.)  The judge stated that Morgan had not accepted responsibility and that "a 405-month sentence was appropriate, regardless of Morgan's life expectancy."

Monday, October 13, 2014

Chuck Rettig Article on Certification of Non-Willfulness (10/13/14)

Chuck Rettig, here, a major player in the criminal tax and offshore account arena, has published an article on the certification of non-willfulness in the recent Streamlined Procedures and the OVDI/P transition to partial Streamlined treatment.  Charles P. Rettig, OVDP and Streamlined Procedures: Am I Non-Willful?, J. Tax Prac. & Proc. 17 (August-September 2014), here.

Key excerpts:
Taxpayers and their representatives must be cautious when certifying non-willful status to the government. The vast majority of taxpayers having previously undisclosed interests in a foreign financial account or asset likely believe they are more “non-willful” than not. The issue at hand in the streamlined procedures is whether the IRS will agree. Feel lucky? 
* * * * 
How does a taxpayer actually provide “specific reasons” in his certification confirming that he did not know of the FBAR filing requirements? The ability to prove something that simply did not exist is difficult, at best. Will the government discount statements by the taxpayer attempting to disprove knowledge as self-serving unless accompanied by objective supporting evidence? What objective evidence might exist to appropriately demonstrate a lack of personal knowledge by the taxpayer about their foreign reporting requirements? 
* * * * 
Taxpayers recently attempting to transition from the OVDP into the streamlined procedures are receiving some degree of pushback from the government. Transitional treatment has been denied for many on the basis of “willful blindness” where the government believes the return preparer “likely” inquired about the existence of a foreign account or where the taxpayer simply failed to advise their return preparer of the existence of an interest in a foreign financial account (whether or not the preparer inquired about such an account). 
* * * * 

Saturday, October 11, 2014

Bitcoins Update (10/11/14)

I will summarize key points I found interesting from an article I just read on the tax treatment of Bitcoin and the IRS's response to it.  David D. Stewart, ABA Meeting: IRS Preps Bitcoin Investigators as Treatment Questions Remain, 2014 TNT 184-9 (9/23/14), no link available.  The article summarizes discussion at an ABA Tax Section meeting of the Civil and Criminal Tax Penalties Committee on 9/20.

1.  Use of bitcoin is not inherently illegal.  However, using bitcoin to skirt the U.S. tax law is illegal.  It's use can also be illegal under other laws such as money laundering.

2.  According to Bryan Skarlatos of Kostelantetz & Fink, Bitcoin is not as anonymous as cash, although in some cases its use may be more convenient.

3.  According to an IRS representative, "the government is getting more sophisticated in tracking transactions in which the currencies are used improperly."  The principal focus of the investigations is money laundering, but the IRS is gearing up for criminal tax investigations.

4.  The article reports on how the government traces:
"Sparkman noted that because bitcoin transactions are recorded in the public block chains, investigators have been able to trace them back all the way to their origins. She said that the one difficulty that remains is in breaking the passwords used to protect the private encryption keys that grant control over the coins themselves, but that it can be done, or the government may gain access through a cooperative party."
5.  The IRS/Treasury is getting suspicious activity reports on bitcoin activity.

6.  The substantive treatment is that bitcoins are treated as property rather than as currency.

7.  One participant said that, for underlying substantive tax treatment, the gain from realization of bitcoins would be taxable but the losses would not be deductible because bitcoin acquisitions are not entered for profit.

8.  On Bitcoin custodians:
"Bitcoin custodians that hold accounts are money transmitters under federal law, while foreign custodians could be foreign financial institutions. Asked whether virtual currency intermediaries should be subject to FATCA requirements, Keyso said the government is aware of the issue but does not yet have a "published position" on the question.
9.  On use of bitcoins as cash payments for CTRs/Forms 8300:  Uncertain.

Swiss Category 2 Banks Reportedly Get Draft of NPA Agreement (10/11/14; 10/14/14)

A reader forwarded me a link to an article in Neue Zürcher Zeitung, Zoé Baches, Schock für Schweizer Banken: USA fordern totale Kooperation (11/10/14), here.  The article is in German.  My German is rusty.  So I relied on a Google translation of the article which, I think, is not perfect but better than if I had tried to translate it (not sure how much better, since I did not try very hard).  The Google translation has the title of the article as follows:  Shock for Swiss banks: USA require total cooperation.

A Reuters article in English reports on the NZZ article, Alice Baghdjian, Draft US deal for Swiss banks in tax row seeks "total cooperation" - paper (Reuters 10/11/14), here.  I rely for the comments below principally because the Google translation is not clear on a lot of points, and my inference from it alone might not  be good.

Here is my summary:

1.  DOJ has emailed the banks participating as Category 2 banks in the DOJ Swiss bank program a "Model-NPA."  NPA is the acronym for nonprosecution agreement which is what the Category 2 banks seek in the program.

2.  DOJ demands "total cooperation."  The requirements "would also apply to parent companies, subsidiaries, management, workers and external advisors"

3. Quoting NZZ: ""This total cooperation would, in addition, not only apply with respect to the DOJ and the Internal Revenue Service, but also to anyone, even foreign law enforcement agencies, that the DOJ is supporting in its investigations," with "no end date."

4.  "It is also unclear whether the requested information would only need to be handed over when doing so complied with Swiss law, the paper said."

5.  "Failure to follow any one of the terms of the agreement would render it void, and the bank could risk prosecution from the DOJ."

Although, as noted the Google translation of the German is not perfect, I infer that it says also the following (which is not reported in the Reuters article):

6.  Either within the Model-NPA or separately, the banks must commit for the future to report about U.S. taxes -- presumably violations or suspected violations.

7.  Hardliners have taken over the leadership of DOJ, mentioning Tamara Ashford, Acting AAG Tax, who is awaiting confirmation to the U.S. Tax Court.  (I don't know what this means other than that DOJ Tax will continue to do what it was doing with respect to Category 2 banks; I am not aware that Ms. Ashford is tougher on the issues than the prior AAG.)

Addendum 10/14/14 10:00 AM:

A reader, Andre Watts, sent me the following and gave me permission to post it since, for some reason, he could not get it to post as a comment.  It adds considerable nuance to the article from the German rather than the rough translations:

Friday, October 10, 2014

Court Holds that a False Claim Crime Can Be Committed by Unsigned Claim for Refund on 1040 (10/10/14)

In United States v. Sroufe, 2014 U.S. App. LEXIS 18078 (11th Cir. 2014), here, unpublished, the Eleventh Circuit held that a claim for refund filed on a Form 1040 can be a false claim prosecutable as a false claim under 18 U.S.C. section 287, here.  

The unsigned 1040 would not be a return under the traditional Beard test.  Beard v. Commissioner, 82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986).  In relevant part, Beard held that a "return" for purposes of the penalty sections based on a return filing requires the following elements:
First, there must be sufficient data to calculate [the] tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury. 
All of these elements are subject to interpretation, but the requirement that the taxpayer execute the return under penalty of perjury is fairly straight-forward.  If the taxpayer sends in an unsigned return claiming a refund (or even just misreporting the tax due), he cannot be prosecuted for penalties requiring a return, such as the accuracy related penalty (Section 6662, here), the civil fraud penalty (Section 6663, here), or tax perjury, Section 7206(1), here (which has its own penalty of perjury requirement).  Nor, from the sole act of filing an unsigned return, can he be tried for tax tax evasion, Section 7201, here.  The IRS could charge failure to file (Section 7203, here).  I suppose at the stretches, the IRS might be able to prosecute the filing of an unsigned return in egregious cases (Sroufe was one) under the tax obstruction provision, Section 7212(a), here; Sroufe was charged and convicted for tax obstruction but not failure to file..

But Sroufe was charged and convicted for making a false claim via the unsigned 1040.  That is troubling because an unsigned 1040 simply is not a valid claim via a return under the Beard test.

I wonder whether, if the defendant here had encountered the Commissioner on the street and asked for a refund in the amount claimed, that would be sufficient to make a false claim case?  There is no textual requirement in the statute that the claim be made in writing.  Or what if during an audit of why a taxpayer had not filed a return, the taxpayer asked the agent for the same amount as a refund.  Or what if the defendant encountered an IRS mail room clerk and requested the refund?  Or what if all of those requests were made by unsigned letter.  Could any of the instances be prosecuted as a false claim case.  Perhaps -- if this case and the Snipes lower court decision discussed below are correct.

As cited in the DOJ CTM, the false claim crime can be charged with a signed return claiming a refund.  See DOJ CTM 22.04 (2012 ed.), here, citing "United States v. Drape, 668 F.2d 22, 26 (1st Cir. 1982) (holding that the signing and filing of a false tax return claiming a refund constituted a false claim under 18 U.S.C. § 287)."  DOJ says that a refund claim must be made, but in the context of a Form 1040, the unsigned return is not a refund claim for the reasons noted above.