Friday, September 4, 2015

Another Swiss Bank Obtains NPA Under DOJ Swiss Bank Program (9/4/15)

On September 3, 2015, DOJ announced here that another  Schroder & Co. Bank AG,, has entered an NPA under the DOJ program for Swiss banks.  HBL will pay  a penalty of $10.354 million penalty.

Here are key excerpts:
According to the terms of the non-prosecution agreement signed today, Schroder Bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute the bank for tax-related criminal offenses. 
Schroder Bank was founded in 1967 and received its Swiss banking license in 1970.  Since 1984, Schroder Bank has had a branch in Geneva.  The bank has two wholly owned subsidiaries, Schroder Trust AG (domiciled in Geneva) and Schroder Cayman Bank & Trust Company Ltd. (domiciled in George Town, Grand Cayman).  Schroder Cayman Bank & Trust Company Ltd. provides services to clients such as the creation and support of trusts, foundations and other corporate bodies.  Both subsidiaries also acted in some cases as an account signatory for entities holding an account with the bank.  Schroder Bank is in the process of closing the operations of Schroder Trust AG and Schroder Cayman Bank & Trust Company Ltd. 
Schroder Bank opened accounts for trusts and companies owned by trusts, foundations and other corporate bodies established and incorporated under the laws of the British Virgin Islands, the Cayman Islands, Panama, Liechtenstein and other non-U.S. jurisdictions, where the beneficiary or beneficial owner named on the Form A was a U.S. citizen or resident.  In addition, a small number of accounts were opened for U.S. limited liability companies (LLCs) with U.S. citizens or residents as members, as well as for U.S. LLCs with non-U.S. persons as members.  Schroder Bank communicated directly with the beneficial owners of some accounts of trusts, foundations or corporate bodies, and it arranged for the issuance of credit cards to the beneficial owners of some such accounts that appear in some cases to have been used for personal expenses. 
Schroder Bank also processed cash withdrawals in amounts exceeding $100,000 or the Swiss franc equivalent.  For at least three U.S.-related accounts, a series of withdrawals that in aggregate exceeded $1 million were made.  In addition, at least 26 U.S.-related accountholders received cash or checks in amounts exceeding $100,000 on closure of their accounts, including in at least three cases cash or checks in excess of $1 million.
Between 2004 and 2008, four Schroder Bank employees traveled to the U.S. in connection with the bank’s business with respect to U.S.-related accounts.  In 2008, Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by the Internal Revenue Service (IRS) and the department, and that it would be exiting and no longer accepting certain U.S. clients.  In a later deferred prosecution agreement, UBS admitted that its cross-border banking business used Swiss privacy law to aid and assist U.S. clients in opening accounts and maintaining undeclared assets and income from the IRS.  Between Aug. 1, 2008, and June 30, 2009, Schroder Bank opened eight U.S.-related accounts with funds received from UBS, which was then under investigation by the U.S. government. 
Since Aug. 1, 2008, Schroder Bank had 243 U.S.-related accounts with approximately $506 million in assets under management.  Schroder Bank will pay a $10.354 million penalty. 
In accordance with the terms of the Swiss Bank Program, Schroder Bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at Schroder Bank who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased. 
Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at Schroder Bank must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Wednesday, September 2, 2015

Ninth Circuit Affirms False Claim Convictions for Tax Preparer (9/2/15)

In United States v. Defoor, 2015 U.S. App. LEXIS 15400 (9th Cir. 2015), unpublished, here, the Ninth Circuit affirmed conviction of a tax preparer for a fraudulent income tax return scheme in violation of 18 U.S.C. §§ 2 (aiding and abetting), 286 (conspiracy to defraud the government with respect to claims) and 287 (False, fictitious or fraudulent claims).  The Ninth Circuit rejected several arguments (listed at the end of this blog), but the one that I found most interesting is the argument that the trial court should have given instructions that advised the jury that, for conviction, the defendant must have intended to violate the law.

Readers will recall that the standard tax crimes (certainly those in Title 26) require that the defendant act willfully.  As interpreted, the willfulness requirement in tax crimes means intentional violation of a legal duty.  Cheek v. United States, 498 U.S. 192 (1991).  Cheek means that ignorance of the law is a defense.  Even if a defendant intended the acts (actus reus), if he does not intend to violate the law (intend to commit a crime), then he is not guilty of the crime.

The crimes for which Defoor was convicted are not Title 26 crimes.  The crimes are:
§ 287. False, fictitious or fraudulent claims 
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title. 
§ 286. Conspiracy to defraud the government with respect to claims 
Whoever enters into any agreement, combination, or conspiracy to defraud the United States, or any department or agency thereof, by obtaining or aiding to obtain the payment or allowance of any false, fictitious or fraudulent claim, shall be fined under this title or imprisoned not more than ten years, or both.
Aiding and abetting is not a crime in itself, but simply makes someone as a principal who was not otherwise a principal in the substantive crime (§§ 286 and 287) who aids and abets another who is a principal and requires the same mens re for the substantive crimes.  (Technically, in this case, the defendant appears to have been a principal in the underlying substantive crimes, so it is not clear whether he could have been convicted as an aider and abettor; but putting that aside.)

Sections 287 and 297's mens rea is "knowing such claim to be false fictitious and fraudulent" in § 286 and knowing falsity is implicit in § 286.

Tuesday, September 1, 2015

Whistleblower Award of $11.6 Million; Areas of WBO Emphasis Includes Offshore Accounts (9/1/15)

The National Whistleblower Center announced here yesterday an IRS Whistleblower Award of $11.6 million.

In the press release, one of the lawyers (Dean Zerbe) is quoted.  Here is an excerpt:
The IRS has a strong interest in hearing from – and rewarding -- whistleblowers who know about tax cheats.  From conversations I have had with senior IRS officials, the IRS is especially interested in hearing from whistleblowers who know details about the latest corporate tax shelters as well as informed whistleblowers who have knowledge about US taxpayers with illegal offshore accounts around the world – especially Hong Kong, Singapore and Central America.

Saturday, August 29, 2015

Interest and Penalties Issues At Sentencing (8/29/15)

I recently posted a blog entry including a discussion of whether interest and penalties should be included in the tax loss for the Sentencing Guidelines calculation at sentencing.  Seventh Circuit Reverses Sentence for Improper Calculation of Advisory Guidelines Range (Federal Tax Crimes Blog 8/21/15), here.  Briefly, as I understand the rules (S.G. §2T1.1. , Application Note 1), here.
1.  Evasion of Assessment.  If the evasion conduct (which may include relevant conduct to the count of conviction) is to evade assessment of the tax, then only the tax is included in the tax loss calculation. 
2.  Evasion of Payment.  If the evasion conduct (which may include relevant conduct to the count of conviction)  is to evade collection, then tax, penalties and penalties sought to be evaded are included.
In the linked blog entry, I said that the Seventh Circuit confused these rules for two reasons -- (i) where fraudulent checks were submitted to pay amounts that included tax, penalties and interest, the object of the offense included tax, penalties and interest and (ii) evasion of payment was relevant conduct to the crime of tax obstruction.

In United States v. John Cote (2d Cir. 2015) unpublished per curiam, here, Cote was convicted "after jury trial, of one count of conspiracy to commit tax evasion, in violation of 18 U.S.C. § 371, and four counts of tax evasion, in violation of 26 U.S.C. § 7201."  As articulated in the quote, the conspiracy was an offense conspiracy rather than a defraud / Klein conspiracy.  However, according to the DOJ Tax Press Release on the Conviction here, the conspiracy was a defraud / Klein conspiracy.  There are important differences between an offense conspiracy and a defraud / Klein conspiracy, although they are punishable under the same statute, but those differences are not important for this blog entry.  Focusing on the tax loss, the Court said
Cote raises a substantial question as to whether the district court erred in considering interest and penalties when calculating the "tax loss" amount resulting from his conviction for tax evasion conspiracy under 18 U.S.C. § 371, where the relevant commentary provides that "[t]he tax loss does not include interest or penalties, except in willful evasion of payment cases under 26 U.S.C. 7201 and willful failure to pay cases under 26 U.S.C. 7203." U.S.S.G. § 2T1.1, Application Note 1. However, because the district court unambiguously stated that it would have imposed the same sentence were Cote to prevail on his interpretation of the Guidelines, any error in calculating the Guidelines sentencing range was harmless. See United States v. Feldman, 647 F.3d 450, 459 (2d Cir. 2011).

Thursday, August 27, 2015

Another Swiss Bank Obtains NPA Under DOJ Swiss Bank Program (8/27/15)

On August 26, 2015, DOJ announced here that another Swiss Bank, Hypothekarbank Lenzburg AG (HBL), has entered an NPA under the DOJ program for Swiss banks.  HBL will pay  a penalty of $560,000.

Here are key excerpts:
HBL was founded in 1868 and is headquartered in Lenzburg, Switzerland.  Its principal business, focused on the Canton of Aargau, Switzerland, is issuing mortgages on real property and lending to businesses. 
HBL offered a variety of traditional Swiss banking services that it knew could assist, and that did assist, U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS).  For example, HBL, upon client request, did not send mail associated with some U.S.-related accounts to the United States.  In addition, HBL offered numbered accounts to its clients, a service by which access to information about an account, including the identity of the accountholder, was limited to only certain employees of HBL.  In a handful of instances, the accountholders of U.S.-related accounts who refused to provide a Form W-9 or who admitted that they were not tax compliant withdrew significant amounts of cash or physical assets when HBL forced these accounts to be closed. 
In or about 2008, Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by the IRS and the department, and that it would be exiting and no longer accepting certain U.S. clients.  In a later deferred prosecution agreement, UBS admitted that its cross-border banking business used Swiss privacy law to aid and assist U.S. clients in opening accounts and maintaining undeclared assets and income from the IRS.  HBL opened one account for a U.S. person who exited UBS.  For another long-standing holder of a U.S.-related account, HBL received a transfer of funds from an account held at UBS into a pre-existing account at HBL. 
Another accountholder who resided in the United States for many years had two accounts, one of which was a numbered account.  In 2012, the accountholder’s relationship manager requested a Form W-9 for the numbered account and the accountholder refused to provide one.  As a result, the relationship manager directed the accountholder to close the numbered account.  Thereafter, the accountholder came to Lenzburg to close the numbered account.  The accountholder withdrew 240,000 Swiss francs and 12,000 euros and purchased precious metals in the amount of 318,000 Swiss francs. 
Since Aug. 1, 2008, HBL had 96 U.S.-related accounts with an aggregate value of $69.8 million.  HBL’s average annual revenue attributable to U.S.-related accounts in the form of fees, commissions and earnings on client funds that were loaned out by HBL was $198,000, or a total of $1.2 million since Aug. 1, 2008.  HBL will pay a penalty of $560,000.

Tuesday, August 25, 2015

Category 2 Banks under DOJ Swiss Bank NPA Program (8/25/15)

In a recent TNT article on 8/21/15, the author said The Justice Department has executed 31 non-prosecution agreements (NPAs) for Category 2 Swiss banks under its Swiss bank program so far, with its latest batch announced.  Nathan J. Richman, Swiss Bank Non-Prosecution Agreement Total Passes 30, 2015 TNT 162-1 (8/21/15) [no link available].  A reader emailed me to request whether I had the list.  I responded that I have my list which has 31 banks.  Since my list is based on the public announcements by DOJ Tax, I presumed that my list is the same as DOJ's unless I have made an error.

In any event, here is my list:

ARVEST Privatbank AG
Banca Credinvest SA
Banca dello Stato del Cantone Ticino (Banca Stato)
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA
bank zweiplus ag (Bank Zweiplus)
Bank BSI SA
Bank EKI Genossenschaft (Bank EKI)
Bank Linth LLB AG
Bank Sparhafen Zurich AG (BSZ)
Banque cantonale du Jura SA
Banque Cantonale Neuchâteloise (BCN)
Banque Pasche SA
Berner Kantonalbank AG (BEKB)
Credito Privato Commerciale in liquidazione SA (CPC)
Ersparniskasse Schaffhausen AG (EKS)
Falcon Private Bank AG
Finter Bank Zurich AG
LBBW (Schweiz) AG
MediBank AG
Mercantil Bank (Schweiz) AG
Nidwaldner Kantonalbank (NKB)
PKB Privatbank AG
Privatbank Bellerive AG
Privatbank Reichmuth & Co.
Privatbank Von Graffenried AG
Rothschild Bank AG, Zurich
SB Saanen Bank AG
Scobag Privatbank AG
Société Générale Private Banking (Lugano-Svizzera)
Société Générale Private Banking (Suisse) SA (SGPB-Suisse)
Vadian Bank

If anyone thinks this list needs correcting as of now, please let me know.

Keep in mind that these banks will be included in the IRS list here (which also includes banks where other publicly identified initiatives (such as DPAs and JDSs) were involved.  The point is to encourage persons with previoiusly undisclosed offshore accounts to come out to the IRS.

Friday, August 21, 2015

Seventh Circuit Reverses Sentence for Improper Calculation of Advisory Guidelines Range (8/21/15)

In United States v. Black, __ F.3d ___, 2015 U.S. App. LEXIS 14427 (7th Cir. 2015), here,  the Seventh Circuit reversed a sentence because the sentencing judge improperly calculated the Guidelines and remanded the case for proper calculation of the Guidelines for re-sentencing.  The case is a crisp summary of the state of the law under United States v. Booker, 543 U.S. 220 (2005).

To summarize, the state of the law under Booker is:  The Guidelines are advisory.  They must be considered, hence it is important that the sentencing judge properly calculate the Guidelines, otherwise the sentencing judge will not properly consider the advice they are intended to impart in the sentencing process.  So the first step in sentencing is to calculate the Guidelines ranges.  Then, the judge considers the 18 USC 3553(a), here, factors under Booker and imposes a sentence, employing if appropriate the wide discretion that Booker permits to vary from  the properly calculated Guidelines ranges.

In Black, the taxpayer owed $2.2 million in tax alone and, with interest and penalties, $3.89 million.  In 2002, when the tax, penalties and interest aggregated $4.8 million, Black submitted a check to pay but there were not sufficient funds in the account to pay.  The Court said that "This pattern continued," sometimes with checks and sometimes with "bills of exchange."
The government charged Black with one count under 26 U.S.C. § 7212(a) for corruptly obstructing and impeding the IRS in its collection of taxes, penalties, and interest (Count 1) and three counts under 18 U.S.C. § 514(a)(3) for passing or presenting the United States with fictitious instruments appearing to be financial instruments with the intent to defraud (Counts 2, 4-5). Count 3 is not relevant to the appeal. The jury found Black guilty of all counts. 
Before Black's sentencing hearing, the district court issued an order resolving issues related to Black's sentencing guideline range. First, it grouped Counts 1, 2, 4, and 5 for guideline purposes (collectively, the "group 1 offenses"). Next, it determined that the applicable guideline provision was U.S.S.G. § 2T1.1 and found that the offense level under this guideline "is determined on the basis of Black's intended amount of monetary loss to the IRS that was the object of Black's criminal conduct." The district court also found that the guidelines required him to aggregate the value of the fraudulent documents, so it added the face value of each check and bill of exchange Black submitted to the IRS. From this calculation, the district court determined that the tax loss was over $14 million. It recognized that this amount included the taxes, penalties, and interest Black owed. Using the U.S.S.G. § 2T4.1 tax loss table that applies to § 2T1.1, the district court determined that the tax loss applicable to Black's criminal conduct was more than $7 million but less than $20 million, resulting in a base offense level of 26. Because Black was also convicted of Count 3, the guidelines required the district court to increase the offense level by one point. The resulting base offense level was 27, which provides for a sentencing range of 70 to 87 months. At the sentencing hearing, the district court considered the advisory guidelines range along with the factors set forth in 18 U.S.C. § 3553 and sentenced Black to 71 months imprisonment.

Thursday, August 20, 2015

Two More Banks Obtain NPAs under DOJ Swiss Bank Program (8/20/15)

On August 20, 2015, DOJ announced here two other Swiss Banks have entered NPA resolutions under the DOJ program for Swiss banks.  The Swiss banks and their respective penalties are:

bank zweiplus ag (Bank Zweiplus)
$1.089 million
Banca dello Stato del Cantone Ticino (Banca Stato)
$3.393 million

Key excerpts are (bold-face supplied by JAT):
Bank Zweiplus was founded in July 2008 as a retail bank based in Zurich.  Offices located in Geneva and Basel, Switzerland, were closed in 2008 and 2012, respectively.  Since Aug. 1, 2008, Bank Zweiplus maintained and serviced 44 U.S.-related accounts with an aggregate value of approximately $12.1 million.  
Bank Zweiplus was aware that U.S. taxpayers have a legal duty to report to the Internal Revenue Service (IRS) their ownership of bank accounts outside the United States and to pay taxes on income earned in such accounts.  Nevertheless, in disregard of U.S. laws, the bank provided a variety of traditional Swiss banking services that assisted some U.S. taxpayers in concealing their undeclared accounts.  For example, Bank Zweiplus maintained numbered accounts and accounts held in the name of structures which were effectively owned or controlled by U.S. persons, including structures in the British Virgin Islands and the Bahamas. 
Bank Zweiplus cooperated with the department during its participation in the Swiss Bank Program and encouraged its U.S. clients to enter the IRS Offshore Voluntary Disclosure Program.  Bank Zweiplus will pay a penalty of $1.089 million. 
Banca Stato was established in 1915 and is headquartered in Bellinzona, Switzerland.  Banca Stato was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on the basis of all of their income, including income earned in accounts that the U.S. taxpayers maintained at the bank.  Despite this, the bank opened and serviced accounts for U.S. clients who the bank knew or had reason to know were not complying with their U.S. income tax obligations.  
In 2001, Banca Stato entered into a Qualified Intermediary Agreement with the IRS.  In 2001, the bank issued an internal directive prohibiting U.S. persons without a Form W-9 on file with the bank from buying U.S. securities.  However, prior to 2011, Banca Stato’s relationship managers were not instructed to, and did not, evaluate or screen incoming U.S. clients for U.S. tax compliance status.  At that time, more than 70 percent of the assets under management were related to U.S. accountholders who had not provided a Form W-9 to the bank. 
In 2011, Banca Stato implemented a project that it called “Colombo” to change the manner in which it handled U.S. clients.  The bank recognized both risks and rewards of handling U.S. clients.  As to the former, the bank recognized that “[w]e can no longer have clients who are U.S. Persons who have not signed the W-9 form.”  But the bank also recognized an opportunity to attract new U.S. clients because many Swiss banks declined to service U.S. persons from Ticino, Switzerland, and the bank perceived “a huge demand from fully tax-compliant U.S. Persons . . . attracted by the brand BancaStato (especially because we have no branches in the US).” 

When a Prosecutor's Questions Turns the Prosecutor Into a Witness (8/20/15)

A recent column in ABA Criminal Justice Magazine discussed the problems that a prosecutor may encounter when the questioning may turn the prosecutor from advocate to witness, thus violating the rule that a lawyer, particularly a government lawyer, cannot be a lawyer and a witness in a proceeding.  Stephen A. Saltzburg, Foreign Evidence and Tolling of the Statute of Limitations, 29 Criminal Justice 27 (Winter 2015), here (with article beginning on p. 34 of the pdf).  The rule is in Rule 3.7 of the Model Rules of Professional Conduct, quoted in the article.

The case discussed in the article is United States v. Rangel-Guzman, 752 F.3d 1222 (9th Cir. 2014), here.  The opinion is written by Judge Alex Kozinski, who has written some very good opinions in tax cases.  This case involved drugs, rather than taxes.  The gravamen of the issue was whether the prosecutor who had interviewed the defendant early in the investigation shaped her questions at the trial in a way that put her credibility on the line when the defendant testified differently from what her questions implied.  Judge Kozinski noted that government lawyers must be held to a high standard because of the natural tendency of jurors to believe in the honesty of government attorneys.  Judge Kozinski then reasoned:
The prosecutor made a number of statements that used variations on “but you told us” and “I asked you and you said,” as well as assertions of fact about what had occurred during the meeting: “Well, we went over and over it, Mr. Rangel,” “[D]o you remember last week I specifically asked you multiple times who accompanied you to the  Quinceanera?” And she left no doubt about her personal feelings during the meeting: “Don’t you remember that I was shocked that you were saying that it was four to five months before you got arrested [that you met Martha]?”  
When a prosecutor interviews a suspect prior to trial, the “correct procedure” is to do so “in the presence of a third person so that the third person can testify about the interview.” United States v. Watson, 87 F.3d 927, 932 (7th Cir. 1996). Here, Agent Baxter was present for the interview, so he could have taken the stand and testified that Rangel-Guzman had made the prior inconsistent statements. See United States v. Hibler, 463 F.2d 455, 461 (9th Cir. 1972).  
Instead of calling Baxter, the prosecutor became her own rebuttal witness. By phrasing the questions as she did, she essentially testified that Rangel-Guzman had made those prior inconsistent statements. Doing so clearly took “advantage of the natural tendency of jury members to believe” in a prosecutor, Edwards, 154 F.3d at 922, and required the jury to “segregate the exhortations of the advocate from the testimonial accounts of the witness,” Prantil, 764 F.2d at 553. And, because the prosecutor wasn’t actually a witness, Rangel-Guzman had no opportunity to cross-examine her about the accuracy or truthfulness of her account. 
There can be no doubt that the AUSA was asking the jury to choose whether to believe her or the defendant. This was highly improper and unfair to the defendant. 
* * * * 
We recognize the difficulty in identifying errors absent an objection. And we understand the district court’s reluctance to intervene when the opposing party, perhaps strategically, declines to do so. But the prosecutor’s invocation of her own personal knowledge during cross-examination was unquestionably improper. Even absent objection, the court should have recognized this and put a stop to it. See Henderson v. United States, 133 S.Ct. 1121, 1129–30 (2013).

Tuesday, August 18, 2015

Tax Notes today Article on ALI Webcast on Offshore Account Issues (8/18/15)

Tax Notes Today has an article reporting on certain offshore account issues discussed at an ALI CLE webcast.  Nathan J. Richman and Andrew Velarde, IRS May Be Returning to Credit Card Initiative, 2015 TNT 159-3 (8/18/15), no link available.  The following are the key points:

1.  John McDougal, a major IRS player in the offshore account juggernaut, indicated that the IRS might use a summons (presumably John Doe Summons) to obtain offshore credit card information to track and identify U.S. offshore account depositors through correspondent banks.  (It is not clear to me exactly how this works and the report is that the IRS may use it, but there were sufficient specifics to indicate that this is an initiative in process.)

2.  Mr. McDougal indicated that reinstitute a broker initiative to issues summons to brokers to identify U.S. beneficial owners of foreign corporations with U.S. brokerage accounts.

3.  Mark Matthews, a practitioner who was head of CI during the earlier offshore credit card initiative, said the initiative was much more resource intensive and not as productive as had been hoped.  To which, Mr. McDougal said that the IRS had a JDS initiative going through and would be made public shortly.

4.  Mr. Matthews said that U.S. DOJ Swiss Bank Program had been productive but required more resources than anticipated.  For that reason, "he does not expect another version of the program in the future."  It is unclear whether he was saying that he did not expect a version of the program for other countries.  The truth is that there are way more bad foreign banks than can be prosecuted or even investigated civilly without massive resources.  So, I would be surprised if there were not some type of initiative to draw those banks into compliance and subject them to some level of penalties.

5.  Mr. Matthews said that the DOJ and IRS are particularly interested in the Swiss bank leaver lists, identifying U.S. depositors that left a Swiss bank and went to another bank (Swiss or otherwise).  In many instances that pattern would subject the U.S. leaver to extra scrutiny.  He is quoted as saying:   "If there seems to be a special place in hell, in the Justice Department's mind, for people, it is for people who moved banks."

Sunday, August 16, 2015

Ninth Circuit Requires a Filing for Tax Perjury Charge (8/16/15; 8/17/15)

Note:  On August 17, substantial additions have been made to the end of the original posting below.  And, on August 18, I posted an additional discussion on my Federal Tax Procedure Blog, titled:  What is the Date of Filing for Returns Solicited by and Delivered to an Agent (8/18/15), here, discussing inter alia returns submitted in OVDP.


In United States v. Boitano, ___ F.3d ___, 2015 U.S. App. LEXIS 14096 (9th Cir. 2015), here, the Ninth Circuit panel held that filing is an element of the tax perjury crime (§ 7206(1), here).  The Court held that, although filing is not a textual element of the crime in the statute, its precedent required that filing is an element of the crime.  Under the facts, Boitano had merely presented the false return to the agent, but that presentation was not a filing.  The conviction was therefore reversed.

Let's look first at the statute defining the crime.  The statute defines the crime as being committed by any person who:
Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.
There is no textual filing requirement.  Of course, a fair reading of the statue would require that the return signed under penalties of perjury be at least presented in some manner to the IRS.  That is normally done by sending the return in to the Service Center whereupon it is deemed filed.  If the taxpayer signed such a return and kept it in a drawer in his home, I don't think anyone would believe that he had committed the crime of tax perjury.

In Boitano, however, the taxpayer had been delinquent for a number of years' returns. That drew the attention of a Special Enforcement Agent.  During a meeting with the agent:
Boitano handed Connors income tax returns for 2001, 2002, and 2003. The returns were signed under penalty of perjury by Boitano and his wife. Connors stamped the first page of the returns "Internal Revenue Service, SB/SE - Compliance Field, Sep 04, 2009, Area, 7, San Francisco, CA," and hand wrote "delinquent return secured by exam" on the first page of each. Per Boitano's request, Connors copied the first page of the returns and gave the copies to Boitano as receipts.
The returns falsely claimed estimated tax payments in material amounts.  The Agent quickly realised the discrepancy and, rather than sending the returns to the service center for processing, confronted Boitano.  Things went down from there.  There is no indication in the opinion that the returns were ever processed and filed, at least in the usual sense of that term for IRS procedure.

Boitano's argument was that "his act of handing the returns to Agent Connors did not constitute 'filing' within the applicable IRS statute and regulations."  The Government countered that, although "filing is an element of the charged offense," "the filing element was satisfied by the uncontradicted evidence showing that Boitano handed fraudulent returns to Agent Connors."

Botano lost the issue at the trial level.  On appeal, the arguments were:

Wednesday, August 12, 2015

Two U.S. Return Preparer Enablers Sentenced for Offshore Account Conspiracy (8/12/15)

DOJ Tax announced here Monday the sentencing of two tax return preparers for "for facilitating an offshore tax fraud scheme.  They had been previously convicted of one count of conspiracy and two counts of FBAR violations.  For each, the maximum sentences (stacking all counts of conviction) was 15 years.  Key excerpts from the press release are:
David Kalai was sentenced to serve 36 months in prison to be followed by three years of supervised release, with a condition of home confinement to last the entire term of release, and ordered to pay a $286,000 fine, and Nadav Kalai, David Kalai’s son, was sentenced to serve 50 months in prison to be followed by three years of supervised release, and ordered to pay a $10,000 fine.  * * * *  
On Dec. 19, 2014, a federal jury in Los Angeles convicted the Kalais of one count of conspiracy to defraud the Internal Revenue Service (IRS).  The Kalais were also each convicted of two counts of willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR).  An alleged co-conspirator, David Almog, who is charged in the second superseding indictment, remains a fugitive.  The Kalais advised and assisted their high net-worth clients in concealing millions of dollars of assets and income in secret foreign bank accounts and filing false federal income tax returns.  The defendants also maintained a secret offshore account of their own at Bank Leumi in Luxembourg in the name of a foreign sham corporation and failed to disclose the account to the IRS or the U.S. Treasury.  
* * * *  
According to the second superseding indictment and evidence introduced at trial, the Kalais were principals of United Revenue Service Inc. (URS), a tax return preparation business with 12 offices located throughout the United States.  David Kalai worked primarily at URS’ former headquarters in Newport Beach, California, and later at URS’ location in Costa Mesa, California.  Nadav Kalai worked out of URS’ headquarters in Bethesda, Maryland, as well as the locations in Newport Beach and Costa Mesa.  
* * * *  
Evidence introduced at trial established that the co-conspirators purposefully prepared false individual income tax returns for their URS clients that did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts.  In order to conceal the clients’ income, ownership and control of assets from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank Leumi and Bank B.  Bank Leumi is a large financial institution headquartered in Tel-Aviv, Israel, with worldwide branches.  Bank B is also a financial institution headquartered in Tel-Aviv with a worldwide presence. 
The sham corporations that the co-conspirators incorporated in Belize and elsewhere were used to act as named accountholders on the secret Israeli bank accounts.  The co-conspirators then recommended and facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense, or entirely omitted any income earned by a client from a foreign source.  The Kalais also failed to disclose the clients’ secret accounts on tax returns that they prepared, and caused the clients to fail to file FBARs with the U.S. Treasury as required.  
Three URS clients who testified at the Kalais’ trial have pleaded guilty to tax felonies arising from their participation in the scheme.  On July 1, 2013, Alexei Iazlovsky, a client of URS and Nadav Kalai, pleaded guilty in U.S. District Court in Los Angeles to signing and filing a false federal income tax return for tax year 2008.  According to court documents and evidence introduced at trial, Nadav Kalai facilitated the incorporation of a nominee Belize corporation for Iazlovsky, assisted Iazlovsky with setting up an offshore account in Luxembourg at one of the Israeli banks that was held in the name of the Belizean corporation and prepared false federal income tax returns, which Iazlovsky signed and filed with the IRS, that concealed the existence, assets and income of Iazlovsky’s offshore account.  On Nadav Kalai’s advice, Iazlovsky diverted a total of $2.6 million in untaxed business receipts from Russian clients to his undeclared bank account in Luxembourg.  
On July 17, 2013, Moshe Handelsman pleaded guilty in U.S. District Court in San Jose, California, to signing and filing a false income tax return for the 2007 tax year.  According to court documents and evidence introduced at trial, Handelsman was David Kalai’s client since the 1990s.  On David Kalai’s advice, Handelsman used three foreign bank accounts held in the names of two different sham foreign corporations to reduce his taxes.  The last of those accounts was held at the Tel-Aviv branch of one of the Israeli banks.  Nadav Kalai was Handelsman’s tax return preparer from 2003 through 2007.  During those years, Handelsman sent approximately $1.47 million offshore, which was fraudulently deducted as a business expense on corporate tax returns prepared by Nadav Kalai.  
On Feb. 2, Baruch Fogel pleaded guilty in U.S. District Court in Los Angeles to failing to file an FBAR declaring his Bank Leumi account in Luxembourg.  According to court documents and evidence introduced at trial, David Kalai devised a scheme to reduce Fogel’s income taxes in 2002 and 2003 by using a sham offshore corporation and a secret offshore bank account at Bank Leumi Luxembourg held in the name of the offshore corporation.  David Kalai’s scheme involved obtaining $8 million in loans from Bank Leumi USA and transferring that money through one or more of Fogel’s U.S. businesses to Fogel’s Luxembourg bank account.  The $8 million in transfers were designed to make it appear that one or more of Fogel’s U.S. businesses incurred business expenses by paying Fogel’s offshore corporation.  Once the paper trail was created, $8 million was fraudulently deducted as business expenses on Fogel’s corporate tax returns prepared by URS.  David Kalai told Fogel not to disclose his control of the foreign bank account to U.S. authorities.   
The evidence at trial also established that the Kalais each failed to file an FBAR for calendar years 2008 and 2009 with respect to a foreign account held at Bank Leumi in Luxembourg.  According to the bank’s internal records from Luxembourg, the Kalais were the true owners of the account, which was held in the name of Anack Ltd., a nominee Belizean corporation.  In 2008 and 2009, their offshore bank account had more than $300,000 on deposit. 
Bank B is apparently Bank Hapaolim.

The key prior blogs on Federal Tax Crimes are:
  • Tax Return Preparers Convicted of Conspiracy and Failure to File FBARs (12/23/14), here.
  • New Superseding Indictment of U.S. Enablers of Foreign Bank Noncompliance (10/19/13), here.
I suspect that, even though the sentences are significant, the judge made substantial downward variances.  I will try to determine the sentencing findings and the basis for the sentence.  If a reader has that information or some of that information, I would appreciate the reader forwarding it to me.

Saturday, August 8, 2015

Ninth Circuit Reverses Prejudicial Admission of "Bad Acts" Evidence in Tax Perjury Convictions (8/8/15)

In United States v. Martin, ___ F.3d ___, 2015 U.S. App. LEXIS 13828 (9th Cir. 2015), here, the Ninth Circuit (i) reversed a conviction for tax perjury, § 7206(1), for omitting certain income from her corporation's income tax returns but (ii) affirmed non-tax fraud-related and obstruction convictions for fraudulently obtaining government contracts.  I focus on the tax convictions which the Ninth Circuit reversed because the trial judge had impermissibly allowed the prosecutor to introduce evidence of earlier improper state tax deductions which were irrelevant to her alleged omission of income on the federal tax returns which was the basis for the tax perjury charges and convictions.

The Ninth Circuit summarized the relevant facts as follows:
To prove that Martin knew she had a duty to truthfully report her income on her tax returns, the government was allowed to introduce evidence that Idaho tax authorities had audited Martin and that in tax years 1996 and 1997 she had improperly claimed less than $3,000 as deductible farm expenses on her state tax returns. Martin was accused of incorrectly characterizing student loan payments for her children and expenses related to her divorce as farm expenses. Martin settled the issue without conceding liability. 
During closing arguments, the government reminded the jury in its rebuttal of the Idaho audits and argued that Martin knew what she was doing when she subscribed false tax returns because she had tried it before: 
The government is focused obviously on the used materials, but the same thing was brought up and Elaine Martin agreed it was wrong . . . when she tried to charge various things as a farm expense. Things like her divorce fees. Things like her children's health insurance and payment of student loans. Remember that. Remember how you were told that she tried this before. That she tried to say those were farm expenses. Now a farm needs fertilizer, it needs seed, it needs equipment, but does it really need to pay for student loans? Well, in Elaine Martin's book it does.
The evidence of the state tax improper deductions was introduced under FRE 404(b), here,  FRE 404(a), here, generally prohibits the introduction of "Evidence of a person’s character or character trait" to show that conduct in question on a particular time in controversy in the trial was consistent with the character or trait.  FRE(b) carries forward that concept to "crimes, wrongs or other acts" -- so-called "bad acts."  FRE 404(b)(1) says:  "Evidence of a crime, wrong, or other act is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character."  FRE 404(b)(2) then says that such prior bad acts are admissible in a criminal case if for another purpose than merely showing bad character -- i.e. "such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident."  The Ninth Circuit explains this limited window of opportunity"
This general rule reflects our concern that a person charged with a crime be convicted only if its elements are proved beyond a reasonable doubt. A person should not be convicted merely because he or she has done prior bad acts. Rule 404(b) will not be violated if the prior bad acts are relevant on some issue in the current prosecution, such as "motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident." Fed. R. Evid. 404(b). But when bad acts are not relevant, they can only be viewed as being presented to inflame prejudice in the trier of fact, in which case they are at odds with our fundamental premises on the need for a fair trial. And even when relevant on some issue, evidence of prior bad acts should not, under Federal Rule of Evidence 403, be admitted when its "probative value is substantially outweighed by dangers of unfair prejudice, confusion on issues, waste of time, or needlessly presenting cumulative evidence." Fed. R. Evid. 403.

Friday, August 7, 2015

USAO SDNY Announces FBAR Failure to File Plea Agreement (8/7/15)

USAO SDNY has announced here the plea agreement for Peter Canale to one count of willfully failing to file Reports of Foreign Bank and Financial Accounts ("FBARs").  The superseding information for the plea is here.  The key excerpts from the press release are:
Beginning in the early 1990s, a relative of CANALE (the “Relative”) maintained an undeclared offshore bank account at a predecessor firm of the Swiss bank UBS AG.  Upon the Relative’s death in July 2000, CANALE met in Manhattan with two Swiss bankers, Hans Thomann and Beda Singenberger, and discussed the continued maintenance of the assets that CANALE and his brother, Michael Canale, had inherited from the Relative.  They agreed that Thomann, working with Singenberger, would continue to maintain the assets in an undeclared bank account in Switzerland for the benefit of CANALE and Michael Canale.  Later, in July 2005, with the assistance of Singenberger, CANALE opened an undeclared account at Wegelin & Co. (“Wegelin”), a Swiss private bank.  CANALE’s undeclared account at Wegelin was opened in the name of a sham foundation organized under the laws of Liechtenstein, called the Janara Foundation.  CANALE, however, remained the beneficial owner of the assets in the Janara Foundation account.  As of December 31, 2009, the Janara Foundation account at Wegelin held assets valued at approximately $788,920. 
In May 2010, Singenberger, acting under the authority given to him by CANALE, opened an undeclared bank account in the name of the Janara Foundation at another Swiss private bank (“Swiss Bank A”), and transferred the assets from the Janara Foundation account at Wegelin to the Janara Foundation account at Swiss Bank A.  As of October 31, 2010, the Janara Foundation bank account at Swiss Bank A, of which CANALE was the beneficial owner, held assets valued at approximately $718,143.
As charged in the superseding Information, for each of the calendar years from 2007 through 2010, CANALE was required, but failed, to file FBARs with the IRS disclosing his signatory or other authority over the Janara Foundation accounts held at Wegelin and Swiss Bank A, which had an aggregate value of more than $10,000 during each of these years.  For each of the calendar years from 2007 through 2010, CANALE also filed false Forms 1040 with the IRS, in which he failed to report as income the dividends, interest, and other income received by him from the Janara Foundation accounts at Wegelin and Swiss Bank A. 
*                *                * 
            CANALE, 62, faces a maximum sentence of five years in prison.  As part of his plea, CANALE has agreed to pay a civil penalty of $394,460, file amended tax returns, and pay back taxes of $106,820. 
Prior blog entries related to Peter Canale are:

  • SDNY District Court Denies Statute of Limitations and Venue Motion for Offshore Account Defendant (Federal Tax Crimes Blog 6/18/15), here.
  • Another UBS/Wegelin Related Indictment in SDNY (Federal Tax Crimes Blog 11/19/14), here.

Three More Swiss Banks Enter NPAs Under US DOJ Swiss Bank Program (8/7/15)

On August 6, 2015, DOJ announced here three other Swiss Banks have entered NPA resolutions under the DOJ program for Swiss banks.  The Swiss banks and their respective penalties are:

Privatbank Reichmuth & Co.
$2,592,000.
Banque Cantonale du Jura SA
$970,000
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA
$ -0-

Key excerpts are:
Privatbank Reichmuth & Co. was founded in 1996 as an external asset management firm.  It is now a private bank headquartered in Lucerne, Switzerland.  Reichmuth knew that it was likely that certain U.S. customers who maintained accounts there were not complying with their U.S. income tax and reporting obligations.  
Reichmuth opened and maintained undeclared numbered or code name accounts for individual U.S. customers and held statements and other mail at its offices in Switzerland.  In the period since Aug. 1, 2008, Reichmuth opened at least 14 undeclared U.S.-related accounts that came from UBS or another bank under investigation by the department.  
In 2001, Reichmuth entered into a Qualified Intermediary (QI) Agreement with the Internal Revenue Service (IRS).  The QI Agreement took account of the fact that Reichmuth, like other Swiss banks, was prohibited by Swiss law from disclosing the identity of an accountholder.  In general, if an accountholder wanted to trade in U.S. securities and avoid mandatory U.S. tax withholding, the QI Agreement required Reichmuth to obtain the consent of the accountholder to disclose the client’s identity to the IRS. 
Reichmuth’s position was that it could assist U.S. accountholders that it knew or had reason to believe were engaged in tax evasion so long as its accountholders were prohibited from trading in U.S.-based securities or the account  was nominally structured in the name of a non-U.S. based entity.  In the latter circumstance, U.S. accountholders, with the assistance of their advisors, would create an entity, such as a Liechtenstein or Panama foundation, and pay a fee to third parties to act as directors.  Those third parties, at the direction of the U.S. accountholder, would then open a bank account at Reichmuth in the name of the entity or transfer a pre-existing Swiss bank account from another Swiss bank.  Reichmuth made no effort to determine whether such an entity was valid for U.S. tax purposes. 
Since Aug. 1, 2008, Reichmuth permitted U.S. customers to open and maintain at least 18 undeclared accounts held in the name of non-U.S. corporations, foundations, trusts or other legal entities.  Of these structures, seven were domiciled in Liechtenstein, five in Panama, five in St. Vincent and the Grenadines and one in the British Virgin Islands.  Even though Reichmuth was aware that U.S. persons were the beneficial owners of those accounts, Reichmuth obtained documents from the nominal accountholders that falsely declared they were not U.S. taxpayers.  
In connection with one structured account, Reichmuth agreed to open an “insurance wrapped” account for the U.S. beneficial owner, whereby the beneficial owner funded an insurance policy with assets held in an undeclared account at Reichmuth.  While the insurance-wrapped account was held in the name of a Panamanian structure and Reichmuth was not named as a party to the insurance contract, the assets held in the account were provided by the beneficial owner, held for his benefit and controlled by him.  Reichmuth was aware that the account consisted of assets supplied by the beneficial owner and retained for his benefit.  By accepting this account, Reichmuth knowingly enabled the beneficial owner in the evasion of his U.S. tax liabilities and concealment of his assets. 
Since Aug. 1, 2008, Reichmuth maintained and serviced 103 U.S.-related accounts with an aggregate value of approximately $281 million, including both declared and undeclared accounts.  Reichmuth will pay a penalty of $2.592 million. 
Banque Cantonale du Jura SA (BCJ) was formed in 1979 and is headquartered in Porrentruy, Switzerland.  BCJ opened and maintained undeclared accounts for certain U.S. client taxpayers knowing or having reason to know that by doing so, BCJ likely helped these U.S. taxpayers evade their U.S. tax obligations.  BCJ was aware, or should have been aware, that this conduct violated U.S. law.

Wednesday, August 5, 2015

Guest Blog: Milan Patel on Swiss Expeditiously Approves Recent IRS Treaty Request (8/5/15)

Today, I am pleased to off a guest blog by Milan Patel.  Milan is a U.S. tax attorney and former IRS senior trial attorney.  At present, Milan is a partner and co-head of the U.S. tax group at Anaford AG, a Swiss law firm based in Zurich, Switzerland. During his time at the IRS, Milan co-managed the New York region Offshore Credit Card Program (ostensibly, the first-ever IRS offshore voluntary disclosure program).  Milan now represents clients from around the world in the various IRS offshore voluntary disclosure compliance programs with a particular emphasis on cross-border and international tax issues.  Comments may be made to this blog and, if desired, specific comments may be made directly to Milan via his email milan.patel@anaford.ch.  His web site with contact information is http://www.anaford.ch/project/milan-patel/.

Switzerland has expeditiously approved a recent IRS treaty request for account holder information from Union Bancaire Privee, UBP SA (“UBP”), a Category 2 Swiss bank.  Pursuant to the DOJ Program for non-prosecution agreements or non-target letters for Swiss banks (the “Swiss Bank Program”), any participating Swiss bank requesting a non-prosecution agreement (i.e., Category 2 Swiss banks) must, as a condition, “provide all necessary information for the United States to draft treaty requests to seek account information; such cooperation will include but not be limited to the development of appropriate search criteria.”  Swiss Bank Program, II. D. 4.  Therefore, although UBP is still in the process of negotiating a non-prosecution agreement under the Swiss Bank Program, it is still required to cooperate with the treaty request condition presently.  Similarly, other Category 2 Swiss banks have provided information for such treaty requests, which are being expeditiously approved by the Swiss Federal Tax Administration (the “SFTA”), although still in the process of negotiating a non-prosecution agreement under the Swiss Bank Program.

In a recent treaty request sent by the IRS to the SFTA regarding U.S. account holders at UBP, the SFTA approved the treaty request within three days, which is unusually fast compared to prior requests and seems to indicate that the IRS and SFTA worked out an arrangement to facilitate the swift approval of all IRS treaty requests involving Category 2 Swiss banks.  This notion is generally supported by the comments previously made by then AAG for the Tax Division Kathryn Keneally, who testified before the Senate Permanent Subcommittee on Investigations on February 26, 2014, indicating that the U.S. and Switzerland had made such an arrangement, but could not disclose the details of that arrangement.

It appears that the IRS/DOJ is using information provided by the Category 2 Swiss banks under II.D.2 of the Swiss Bank Program – the so-called “leaver data list” – to make these treaty requests.  It also appears that the IRS/DOJ is “cherry picking” only certain accounts to avoid possible rejection by SFTA, or even worse, a negative court decision in Switzerland on the grounds that the request does not meet the “tax fraud or the like” standard set forth in Article 26 (Exchange of Information) of the 1996 U.S.-Switzerland income tax treaty.  The fear for the IRS/DOJ here is that if the treaty requests for Category 2 Swiss banks, which are based on the “leaver data” information, are insufficient to show “tax fraud of the like” then a Swiss court would deny the treaty request if challenged.

For prior IRS treaty requests involving Swiss banks, the history is checkered.  In the UBS matter, ultimate resolution required a special protocol to the U.S.-Swiss income tax treaty (signed on August 19, 2009) incorporating an agreed-upon criteria for determining “tax fraud or the like” under the treaty to finally withstand a challenge brought in Swiss court (the so-called “4450 UBS cases”).  In the Credit Suisse cases, after some back and forth, the Swiss Federal Supreme Court ruled ultimately on July 8, 2013, that U.S. “group requests” were permissible under the treaty if the request included enough detail to establish “tax fraud or the like.”  However, a subsequent Swiss court decision on January 6, 2014, invalidated a treaty request for client data from Julius Baer attempting to draw a distinction between a detailed group request that is considered valid and the treaty request under review that was deemed a “fishing expedition” and therefore invalid under the treaty.  This most recent decision also referenced the 2009 protocol that is still stalled in the U.S. Senate, which would remove the distinction between “tax fraud or the like” and tax evasion, thus facilitating the exchange of information under the treaty and potentially obviating future legal challenges in Switzerland.

What seems clear at this time is that the IRS and DOJ are being more circumspect about the scope of these Category 2 bank treaty requests.  However, what still seems unclear at this time is the following:  (i) whether these treaty requests will include individual account holders, which does not seem to be the case thus far; (ii) whether there is an established criterion for these treaty requests as was done in the UBS matter; and, most importantly, (iii) whether these treaty requests would meet the “tax fraud or the like” standard if challenged in Swiss court.  On this last point, you should bear in mind that the IRS considers any challenge subject to the notice requirements on the Attorney General of the United States under 18 U.S.C. 3506, and failure to do so will cause a taxpayer to be ineligible for the Offshore Voluntary Disclosure Program.

Monday, August 3, 2015

Another Swiss Bank Enters NPA Under US DOJ Swiss Bank Program (8/3/15)

DOJ just announced here another Swiss Bank NPA resolution under the DOJ program for Swiss banks.  The Swiss bank is Bank EKI Genossenschaft (Bank EKI).  The penalty is $400,000.  Here are key excerpts:
Bank EKI was founded in 1852 and has its headquarters in the tourist resort town of Interlaken, Switzerland.  It also operates small branch offices in Bönigen, Wilderswil, Grindelwald and Lauterbrunnen, Switzerland. 
Bank EKI opened, serviced and profited from accounts for U.S. clients with the knowledge that many were likely not complying with their tax obligations.  Many of the U.S.-related accounts were transferred from other Swiss financial institutions that were closing such accounts, and Bank EKI knew or had reason to know that a portion of these accounts were likely undeclared. 
Bank EKI provided traditional Swiss banking services that it knew could assist, and that did in fact assist, certain U.S. taxpayers in concealing their Bank EKI accounts from the Internal Revenue Service (IRS).  One such service was hold mail: for a fee, Bank EKI would hold all mail correspondence for a particular client at the bank.  By accepting and maintaining such accounts, Bank EKI thus ensured that documents reflecting the existence of the accounts remained outside the United States, beyond the reach of U.S. tax authorities and protected by Swiss banking secrecy laws. 
Due in part to the means provided by Bank EKI and its personnel, and with the knowledge that Swiss banking secrecy laws would prevent Bank EKI from disclosing their identities to the IRS, many of the U.S. clients of Bank EKI filed false and fraudulent U.S. Individual Income Tax Returns, or IRS Forms 1040, that failed to report their respective interests in their undeclared accounts and the related income.  Moreover, many of the U.S. clients of Bank EKI also failed to file and otherwise report their undeclared accounts on Reports of Foreign Bank and Financial Accounts (FBARs).
Bank EKI did not sufficiently implement an effective system of supervisory policies, procedures or controls over its relationship managers to increase its U.S.-related clients’ tax compliance.  Moreover, Bank EKI’s relationship managers too readily accepted representations and directions from the accountholders without adequately investigating questionable information. 
Since Aug. 1, 2008, Bank EKI held a total of 64 U.S.-related accounts with just over $21 million in aggregate assets.  Bank EKI will pay a penalty of $400,000.

Saturday, August 1, 2015

DOJ and Court of Appeals Confuse Causer Liability under 18 USC § 287 (8/1/15)

In United States v. Johnson, ___ F.3d ___, 2015 U.S. App. LEXIS 13349 (8th Cir. 2015), here, fourteen persons were indicted for tax refund fraud related to the Original Issue Discount fraudulent scheme promoted around the country (by those persons and others).  Basically, there were promoters, franchise-type sub-level promoters (called branch managers or affiliates, but serving as return preparers for purposes of this discussion) and taxpayers.  Each in their respective roles would would claim that the taxpayer had OID income (a type of cash-less income) but further claimed that a very high percentage of the cash-less income had been withheld and paid to the IRS.  Although, the taxpayers had phony tax to pay on the phony OID income, the phony over withholding would indicate that the IRS owed the taxpayers a substantial refund.  In many cases, the IRS paid the phony refund claim.

The fourteen persons were indicted for their respective roles in the scheme.  This trial in this case involved only two -- a preparer and a taxpayer.  (The case does not say what happened to the other 12, but I suspect they pled or, perhaps, one or more died which would moot their cases.)  I focus here on the preparer -- Johnson -- who prepared OID returns for taxpayers to sign. "The jury convicted Johnson on one count of making a false claim, and acquitted her on four other substantive counts and on conspiracy to commit tax fraud."

So, her sole count of conviction was making a false claim under 18 USC § 287, here. The crime is
18 U.S. Code § 287 - False, fictitious or fraudulent claims
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.
Johnson, the preparer, first claimed that the taxpayer in the single count of conviction signed the return / claim and therefore was the only culpable person.  The argument was a "but for" argument -- but for the taxpayer's fraud, the crime would not have been committed and therefore the preparer is not guilty.  The Government had apparently charged Johnson under "causer" liability in 18 USC § 2(b), here.  The Court agreed as follows: