Friday, November 21, 2014

Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)? (11/21/14)

DOJ has this press release:  Credit Suisse Sentenced for Conspiracy to Help U.S. Taxpayers Hide Offshore Accounts from Internal Revenue Service (11/21/14), here.  Excerpts (Bold-face by JAT):
Credit Suisse AG was sentenced today for conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS).  Credit Suisse pleaded guilty to conspiracy on May 19. * * * * 
At sentencing in the U.S. District Court for the Eastern District of Virginia, U.S. District Chief Judge Rebecca Beach Smith entered judgment and conviction and a restitution order requiring Credit Suisse to pay approximately $1.8 billion dollars to the United States by Nov. 28, per the plea agreement.  Credit Suisse will pay the Justice Department’s Crime Victims Fund, through the District Court Clerk’s Office for the Eastern District of Virginia, a fine of approximately $1.136 billion and will pay the IRS $666.5 million in restitution.  The parties agreed that Credit Suisse cannot challenge the restitution amount, which can also provide a basis for an IRS civil tax assessment.
 * * * * 
The plea agreement, along with agreements made with state and federal agencies, provides that Credit Suisse will pay a total of approximately $2.6 billion—approximately $1.8 billion in a criminal fine and restitution, $100 million to the Federal Reserve and $715 million to the New York State Department of Financial Services.  Earlier this year, Credit Suisse negotiated cease and desist orders with the Federal Reserve and the state of New York requiring the bank to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations in addition to the civil penalties.  Credit Suisse also paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.  Together, these actions by U.S. law enforcement and state and federal partners appropriately punish Credit Suisse for its past behavior in these matters.
As part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.
According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including by: 
  • Assisting clients in using sham entities to hide undeclared accounts;
  • Soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;
  • Failing to maintain records in the United States related to the accounts;
  • Destroying account records sent to the United States for client review;
  • Using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts;
  • Facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;
  • Structuring transfers of funds to evade currency transaction reporting requirements; and
  • Providing offshore credit and debit cards to repatriate funds in the undeclared accounts.
As part of the plea agreement, Credit Suisse further agreed to make a complete disclosure of its cross-border activities, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed and to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.  Credit Suisse has also agreed to implement programs to ensure its compliance with U.S. laws, including its reporting obligations under the Foreign Account Tax Compliance Act and relevant tax treaties, in all its current and future dealings with U.S. customers. 
On December 5, two former employees of a Credit Suisse subsidiary will be sentenced for their involvement in assisting U.S. customers to evade their taxes.  On March 12, Andreas Bachmann, a former banker at Credit Suisse Fides pleaded guilty to a superseding indictment in connection with his work as a banker at Credit Suisse Fides.  On April 30, Josef Dörig, a former Credit Suisse Fides employee and owner/operator of a trust company, pleaded guilty to conspiring to defraud the IRS in connection with his role managing offshore entities used by U.S. taxpayers to conceal their accounts at Credit Suisse.  The pleas were accepted by U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia.  Bachmann and Dörig each face a statutory maximum sentence of five years in prison.
JAT Comments:

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Wednesday, November 19, 2014

Another UBS/Wegelin Related Indictment in SDNY (11/19/14)

USAO SDNY announced here the unsealing of an indictment against Peter Canale, a Kentucky resident who was arrested yesterday at this home in Kentucky. The indictment and prosecution will be in SDNY.  The key excerpts from the press release are:
Canale conspired with others – including Michael Canale, his brother, Beda Singenberger, a Swiss citizen who ran a financial advisory firm, and Hans Thomann, a Swiss citizen who served as a client adviser at UBS and certain Swiss asset management firms – to establish and maintain undeclared bank accounts in Switzerland and to hide those accounts from the IRS.  Canale used a sham entity to conceal from the IRS his ownership of the undeclared accounts and deliberately failed to report the accounts and the income generated in the accounts to the IRS. 
In approximately 2000, a relative of Canale’s who held an undeclared bank account in Switzerland died and left a substantial portion of the assets in the undeclared account to Canale and Michael Canale.  Canale and his brother met with Thomann and Singenberger and determined they would continue to maintain the assets in the undeclared account for the benefit of Canale and his brother.  
Thereafter, in approximately 2005, Canale, with Singenberger’s assistance, opened an undeclared account at the Swiss bank Wegelin.  The account was opened in the name of a sham foundation formed under the laws of Lichtenstein to conceal Canale’s ownership.  As of Dec. 31, 2009, the account held assets valued at approximately $789,000.   
For each of the calendar years from 2007 through 2010, Canale willfully failed to report on his tax returns his interest in the undeclared accounts and the income generated in those accounts.  For each of these years, Canale also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS, as the law required him to do.
Canale, 61, is charged with one count of conspiracy to defraud the United States, evade taxes, and file a false and fraudulent income tax return, which carries a statutory maximum sentence of five years in prison.  The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
My prior blog entries on Michael Canale are:
  • U.S. Taxpayer Pleads to FBAR and Tax Perjury Violation (3/14/13), here.
  • U.S. Using a Client List of Indicted Swiss Banker/Enabler (3/14/13), here.
The conspiracy count, as I read the description, is a defraud and offense conspiracy.  Also, it is not clear from  the description why the indictment was sealed and the necessity for an arrest.

When I first saw the venue in SDNY, I thought this might signal or evidence a trend to go to SDNY rather than more remote districts.  But given the relationship to the other conspirators, including his brother, Singenberger and Thomann who were indicted in SDNY, then SDNY would be the logical venue.  (Note that the Government has wide discretion of venue on conspiracy charges.)

Tuesday, November 18, 2014

White House Fact Sheet Brisbane G-20 Summit (11/18/14)

The White House has posted a Fact Sheet on the G-20 Brisbane Summit, here.

The parts relevant to this blog are (emphasis supplied by JAT):
The G-20 is the world’s premier forum for economic policy cooperation – where Leaders representing economies generating 85 percent of global GDP assemble around the table to promote strong, sustainable and balanced growth and to address urgent global economic challenges. 
The Brisbane G-20 Summit – the eighth that President Obama has attended since taking office – focused on growth and jobs.  With the global economic recovery still fragile, G-20 Leaders sent a clear signal of their commitment to take decisive steps, recognizing that the global economy is being held back by a shortfall in demand.  G-20 Leaders announced a Brisbane Action Plan of individual country commitments and collective actions that could increase the G-20’s combined output by 2.1 percent or more over the next five years. 
Leaders agreed on a number of specific steps to strengthen the resilience of the global economy and to address challenges such as climate change.  These include new initiatives on infrastructure investment, female labor force participation, combating corruption, and remittances.  Leaders also issued a separate statement about Ebola and global health security.  
Among the most significant agreements were: 
* * * * 
• principles that would help prevent the abuse of anonymous shell companies to facilitate illicit financial flows stemming from corruption, tax evasion, and money laundering 
* * * * 
Fighting corruption 
• The G-20 has taken significant steps over the last four years to fight the scourge of corruption in our own countries and overseas.  In Brisbane, Leaders adopted a two-year plan to strengthen enforcement, enhance transparency, and facilitate the recovery of assets stolen by corrupt officials.  This includes meaningful steps to ensure that corrupt actors cannot exploit our financial and legal systems.  The G-20 also reached a significant agreement to end the abuse of anonymous shell companies by endorsing implementation of “Beneficial Ownership” principles.  The G-20 will work to ensure that corrupt actors can no longer use these shell companies to evade taxes or launder the proceeds of their crimes, and the Administration has proposed legislation to end the use of anonymous shell companies in the United States.
JAT Comment:  Some readers have commented on this blog that the U.S. was hypocritical in criticizing other jurisdictions permitting anonymous shell companies, which permit corrupt official and other law violators (including tax violators) to hide their assets.

Monday, November 17, 2014

IRS Documents On OVDI/P From FOIA Request (11/17/14)

Dennis Brager, an outstanding tax practitioner active in the offshore financial account practice, has posted to his web site the documents he received from a FOIA request.  The web site with links to the documents is titled Previously Unreleased IRS Guidelines for FBAR Audits, here.

Brager's firm posted an article about the FOIA request and documents titled Brager Tax Law Group Obtains Over 6,500 Pages in Freedom of Information Act Request for Offshore Voluntary Disclosure Program Documents (Yahoo Finance 11/12/14), here.

I haven't had time to review the documents.  A reader requested that I post a blog entry so that readers who do have the opportunity to look at the documents can comment.  I will post my comments when and as I have time to read the documents.

Friday, November 14, 2014

Former Rahn & Bodmer Senior V.P. Charged with Conspiracy Related to U.S. Taxpayer Accounts (11/14/14)

The US Attorney for SDNY has announced here the indictment of Martin Dunki, "a former client advisor and Senior Vice President at a Swiss bank headquartered in Zurich, Switzerland ("Swiss Bank No. 1"), for conspiring with U.S. taxpayer-clients and others to hide hundreds of millions of dollars in offshore accounts from the IRS, and to evade U.S. taxes on the income earned in those accounts."  The indictment is here.  The bank is identified in news reports (some linked below) as Rahn & Bodmer.  The key excerpts from the announcement are:
Between 1995 and 2012, DUNKI helped U.S. taxpayers evade taxes and hide hundreds of millions of dollars in undeclared accounts at Swiss Bank No. 1. DUNKI provided this advice and assistance to U.S. taxpayers in his capacity as a client advisor at Swiss Bank No. 1, where DUNKI was employed until early 2012. 
One of DUNKI's co-conspirators was Edgar Paltzer, an attorney based in Zurich, Switzerland, who previously pled guilty in the Southern District of New York for his role in assisting U.S. taxpayers and others to evade taxes. In 1999, DUNKI, Paltzer, and an attorney from Santa Barbara, California ("Attorney 1") began working together in the management of undeclared accounts at Swiss Bank No. 1 for a number of U.S. taxpayers (collectively, the "Dunki/Attorney 1 Clients"). The undeclared assets of the Dunki/Attorney 1 Clients were maintained in accounts held in the names of sham foreign foundations, rather than in the names of the clients individually, to help the clients conceal their ownership of these undeclared accounts from the IRS. Initially, the sham foundations that held the accounts were organized under the laws of Liechtenstein. In December 2008, however, Liechtenstein and the United States signed a Tax Information Exchange Treaty ("TIEA"), under which Liechtenstein agreed to provide the United States with access to certain bank and other information needed to enforce U.S. tax laws. As a result of the TIEA between Liechtenstein and the United States, and to prevent disclosure to the IRS of the undeclared accounts maintained by the Dunki/Attorney 1 Clients, DUNKI and others transferred the undeclared assets of the Dunki/Attorney 1 Clients to new accounts at Swiss Bank No. 1, held by new sham foundations organized under the laws of Panama. Moreover, beginning in August 2009, in response to the investigation of another Swiss bank, UBS AG ("UBS"), for helping U.S. taxpayers maintain undeclared accounts in Switzerland, DUNKI and others helped to further conceal the undeclared accounts of the Dunki/Attorney 1 Clients by using assets in those accounts to purchase gold and other precious metals. The gold and precious metals, which amounted to tens of millions of dollars, were then transferred to escrow accounts opened at Swiss Bank No. 1 and hidden, along with substantial sums of cash, in a vault in Switzerland for the benefit of the Dunki/Attorney 1 Clients. 
In addition to opening, maintaining, and managing undeclared accounts at Swiss Bank No. 1 for the Dunki/Attorney 1 Clients, DUNKI opened, maintained, and managed undeclared accounts at Swiss Bank No. 1 for other U.S. taxpayers. For instance, between 2000 and 2012, DUNKI helped one U.S. taxpayer hide nearly $300 million in assets at Swiss Bank No. 1, in undeclared accounts held in the names of sham Liberian corporations. Further, between 1995 and 2008, DUNKI helped another U.S. taxpayer maintain approximately $70 million in an undeclared account at Swiss Bank No. 1. When DUNKI met with this taxpayer in the United States, the account statements that DUNKI brought with him were deliberately cut off at the top, to omit the account number and the name of Swiss Bank No. 1, because -- as DUNKI himself acknowledged to the taxpayer -- DUNKI had to be careful not to leave a trace when going through U.S. customs. 
DUNKI also helped U.S. taxpayers bring funds back to the United States in ways designed to ensure that U.S. authorities would not discover the existence of the taxpayers' undeclared accounts at Swiss Bank No. 1. For example, on at least one occasion, DUNKI met a U.S. taxpayer in the United States and provided the taxpayer with an envelope containing approximately $10,000 in cash, which represented a cash withdrawal from the taxpayer's undeclared account at Swiss Bank No. 1. On other occasions, DUNKI helped send money from a U.S. taxpayer's undeclared account at Swiss Bank No. 1 to another account in Geneva, Switzerland and, from there, to a diamond dealer in Manhattan. Once the money was received by the diamond dealer, the U.S. taxpayer would pick it up and give the diamond dealer a fraction of the money as a commission. 
* * * 
DUNKI, 66, a Swiss citizen, resides in Switzerland and has not been arrested. DUNKI is charged with one count of conspiracy to defraud the IRS, which carries a maximum sentence of five years in prison. 
JAT Comments:

Sunday, November 9, 2014

IRS on Quiet Filings for Offshore Account Delinquencies or Underreporting (11/9/14)

Tax Notes Today reports the following on quiet disclosures (Amy S. Elliott,  IRS Working With SSA on Offshore Streamlined Filing Requirement, 2014 TNT 216-3 (11/7/14), no link available):
Regarding so-called quiet disclosures -- when taxpayers file amended returns and delinquent foreign bank account reports without coming in through the offshore voluntary disclosure program or the streamlined program -- Best [senior adviser to the deputy commissioner (international), IRS Large Business and International Division] said, "The IRS recognizes that a quiet filing is a choice that the taxpayer has." 
But Best added, "We would prefer that taxpayers come in through one of our programs so that we have tracking mechanisms, information gathering mechanisms set up, but ultimately it's up to the taxpayer."
In the past, when I have heard IRS representatives pronounce on quiet disclosures they have been more discouraging than Ms. Best.  I and other practitioners, however, have viewed quiet disclosures as a real option.  Of course, the taxpayer will be required on the FBAR to explain the delinquency and should, if possible state the case for the IRS not to audit or assert an onerous penalty.  Still, it is good to hear an IRS representative reported to have present quiet disclosures as an option without, apparently, saying stronger words of discouragement.

Quiet disclosures are not for willful actors.  OVDI/P is for willful actors.  But, for nonwillful actors, particularly those with facts and circumstances toward the nonwillful end of the spectrum can generally (at least conceptually) get better results by OVDI/P with opt out, by Streamlined and by quiet disclosure with audit (should always assume an audit in testing whether quiet disclosure is a viable option).  In all three of those cases, the income tax is the tax plus interest with no accuracy related penalty for only open years and  the FBAR penalty will be the nonwillful penalty for the open years.  The key drill down, of course, is given the range of possible nonwillful FBAR penalties, a taxpayer may prefer the Streamlined with some certainty as to the offshore penalty (a surrogate for the FBAR penalty because the other potential penalties probably would not apply).

Saturday, November 8, 2014

The Charge to the Jury on the Defraud / Klein Conspiracy in the Weil Case (12/8/14)

I write today on the single charge made in the Weil case -- the charge for the defraud conspiracy (also known as a Klein conspiracy, from United States v. Klein, 247 F.2d 908 (2d Cir. 1957), cert. denied 355 U.S. 924 (1958).  John A. Townsend, Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?, 9 HOUS. BUS. & TAX L.J. 260 (2009) Article available here; Appendix to article available here (discussing, among other things, the Klein conspiracy).

Weil was head of UBS's wealth management business which included the services rendered to U.S. taxpayers for which UBS entered a deferred prosecution agreement with DOJ, paid $780 million and undertook other obligations.  Some UBS employees and related enablers have been charged with and convicted of conspiracy.  So there would seem to be some evidence of a conspiracy -- or perhaps more than one conspiracy -- involving UBS personnel.  The question, as I see it, presented in Weil was how far up the executive chain the conspiracy went.  Conspiracy cases often have indicted and unindicted co-conspirators.  In the closing argument, the Government attorney claimed as follows:
The Defendant can be found guilty only if all of the facts are proved -- if the Government proves beyond a reasonable doubt that it has met the elements. First -- and these are before you, and the judge read them to you -- two or more people in some way agreed to try to accomplish a shared unlawful plan.
Who are those people? The Government submits they are Mr. Weil, the defendant, Marcel Rohner, the former CEO, Peter Kurer, the former general counsel, Martin Liechti, who testified before you, Michel Guignard, client advisers like Gadola and Marti, outside enablers, Beda Singenberger and Matthias Rickenbach, the clients themselves, Mr. Goldberg, Mr. McCarthy and Mr. Stedman.
Some, but not all of those named, have been indicted and some have pled.  So the scope of the conspiracy alleged was very broad, but the ultimate object of the conspiracy was to assist the U.S. taxpayers evade U.S. tax.  As the Court instructed the jury:
He is on trial only for a conspiracy to defraud the Internal Revenue Service by assisting U.S. clients to evade their income tax obligations.
[JAT Note:  As stated, this could be viewed as an offense conspiracy, but it was charged as a defraud / Klein conspiracy; I won't get into that now, but the differences between an offense conspiracy and a defraud / Klein conspiracy are covered in my article cited above,]

The following are the conspiracy charges given to the jury (bold-faced supplied by JAT):
 Now, Count 1 in the indictment charges that the defendant knowingly and willfully conspired to defraud the Internal Revenue Service of the U.S. Department of Treasury. The indictment charges that it was an object of the conspiracy that the defendant and other alleged co-conspirators acted to increase the profits of UBS by providing unlicensed and unregistered banking services and investment advice in the United States and by other acts intended to conceal from the Internal Revenue Service the identities of the bank's U.S. clients who willfully evaded their income tax obligations by, among other things, filing false income tax returns and failing to disclose the existence of their UBS accounts to the Internal Revenue Service. 
Please note that the defendant is not charged with a substantive violation of the tax laws. 
Now, it is a federal crime for anyone to conspire or agree with someone else to defraud the United States or any of its agencies.  
To defraud the United States means to cheat the Government out of property or money or to interfere with any of its lawful Governmental functions by deceit, craft or trickery.  
A conspiracy is an agreement by two or more persons to commit an unlawful act. In other words, it is a kind of partnership for criminal purposes. Every member of the conspiracy becomes the agent or partner of every other member. 
The Government does not have to prove that all the people named in the indictment were members of the plan or that those who were members made any kind of formal agreement.

DOJ Tax Representative Touts Government Successes (11/8/14)

Tax Notes Today has an article reporting on a presentation by Gil Rothenberg, Chief of DOJ Tax Appellate Section noting the recent success of DOJ Tax.  Margaret Burow, Appellate Chief Points to DOJ's Recent Tax Prosecution Successes, 2014 TNT 217-8 (11/10/14) [no link available].   The presentation was at the November 6 at the American Bar Association Section of Taxation conference in Philadelphia..  I offer here certain items from the article on statistics.

As a predicate on statistics, I offer the following from my current working version for the next edition of my Federal Tax Crimes book:
Per the Wikipedia entry on “Lies, damned lies and statistics,” here Mark Twain popularized the saying which he attributed it to Benjamin Disreali, 19th Century British Prime Minster, but there is no evidence that Disreali actually said it.  There is, as usual, a more nuanced aphorism: “It is easy to lie with statistics, but easier to lie without them,” attributed to Fred Mosteller, one of the most eminent statisticians of the 20th Century. 
I doubt that the statistics presented by Mr. Rothenberg lie in any material way either in the data, the data set, and the implications desired from the presentation of the statistics.  But, that may not always be the case with statistics from DOJ Tax.  (For example, I have questioned some of the criminal statistics and, upon inquiry to DOJ Tax to explain them, received no response; that's another story, however.)

First, Rothenberg starts with statistics of offshore bank initiative:
Since reaching an agreement with Swiss bank UBS in 2009, the Tax Division has charged 78 account holders and 39 banks and advisers in connection with the use of foreign financial accounts to evade U.S. taxes and reporting requirements, Rothenberg said. Sixty-three account holders have pleaded guilty to tax evasion, seven have been convicted, and some remain fugitives, he said. While enforcement efforts were initially focused on wrongdoing in Switzerland, there are disclosure initiatives involving banking activities in other countries, such as India, Israel, Liechtenstein, Luxembourg, and some Caribbean countries, he said.
My statistics have slightly different numbers but not enough to be material.  See the most recent statistics on the page titled Offshore Charges / Convictions Spreadsheet (11/7/14), here.

Second, Rothenberg presented DOJ Tax's win rates:
Rothenberg discussed the division's 95 percent litigation and 96 percent appeals win rate, which included a 63 percent success rate in appeals brought by the government. He added that if the government decides to appeal a taxpayer victory, practitioners should advise their clients of the odds of success. 

Friday, November 7, 2014

Weil and Reliance on Counsel / Good Faith Defense (11/7/14)

In my earlier blog, I noted:
3.  Since Weil did not testify, I wonder how exactly Weil's attorney got in the evidence that Weil had been advised by lawyers that the business was not illegal.  Note that Weil's attorney made the argument to the jury, so presumably there was some factual predicate in the record.  This is a variation of the good faith defense -- which is really not a defense but an attack on whether the Government has proved the level of mes rea required for the crime.  In most Title 26 tax crimes, that level of mens rea is willfulness -- voluntary, intentional violation of a known legal duty.  For the conspiracy charge, that level of mens rea is certainly required if the conspiracy charged is an offense conspiracy to commit a Title 26 tax crime requiring willfulness and, I would argue, something like that even with the defraud / Klein conspiracy.  I have discussed the of "good faith" and "reliance on professionals in my Federal Tax Crimes book.  The relevant excerpts from the book (as updated) are "good faith," here, and "reliance on professionals," here.
In the jury instructions, the Court advised the jury (boldface supplied by JAT):
It is further part of Mr. Weil's defense that this misconduct was in direct violation of UBS' policies and rules, including the U.S. Country Papers, and was done without Mr. Weil's knowledge or approval.  
This misconduct was not reported to Mr. Weil and was concealed by those who committed the misconduct. 
It is further a part of Mr. Weil's defense that Mr. Weil was also advised by lawyers for UBS that the existence of the U.S. cross-border business, including the non-W-9 business, was agreed to by the IRS and permitted by the QI Agreement and U.S. Tax Law. 
Lawyers and subordinates also advised Mr. Weil that the U.S. cross-border business, including the non-W-9 business, was operated in a way that was compliant with the QI Agreement and U.S. Tax Law. 
Now, evidence that the defendant in good faith followed the advice of counsel would be inconsistent with the element of willfulness. 
Willfulness has not been proved if the defendant, before acting, made a full and complete good faith report of all material facts to an attorney he considered competent, received the attorney's advice as to the specific course of conduct that was followed and reasonably relied upon that advice in good faith.
Although, it is clear from reading the context that the Court was simply stating Weil's reliance on professional defense argument, I think the bold faced items could be misconstrued as the Court stating the truth of the matters in those sentences.  Read those sentences on their own, and the conclusion is inevitable.  Of course, context matters, but who knows how a jury might have perceived these statements.

Moreover, focus on the requirements in the last paragraph of the defense that the defendant have made made full disclosure and reasonably relied on the advise.  I ask again how the evidence established those elements of the defense if the defendant did not testify.  I do understand that there may have been documents indicating that lawyers were involved and may have even rendered some opinions that some conduct -- not really specified -- was legal.  But that would not seem to fit the requirements for the defense.

In any event, and finally on this subject, from the reports I have read, the jury may have failed to convict because the Government's case was deficient to pin willfulness or knowing conduct of conspiracy on Weil, wholly independently of his good faith.  That is a fine line, I know, but perhaps that is what happened.


Further on Investment and Banking Services for U.S. Expats (11/7/14)

A reader pointed me to the following article relevant to the discussion on this blog about the difficult of U.S. ex pats getting banking and investment services.  Frederic Behrens, Why US Brokerage Accounts of American Expats are Being Closed (2015) (THUN Financial Advisors undated), here.  The article goes substantially beyond my expertise, but it does seem to speak knowledgeably on the subject.  I would appreciate readers comments.

Monday, November 3, 2014

The Honorable Jed Rakoff on Why Innocent People Plead Guilty (11/3/14)

Judge Jed Rakoff, a pre-eminent jurist (Wikipedia entry here), has this great article in the New York Review of Books.  Jed S. Rakoff, Why Innocent People Plead Guilty (New York Review of Books 11/20/14 Issue), here.  I would not even attempt to try to summarize Judge Rakoff's powerful development of the thesis presented here.  I can only present some excerpts that, I hope, will encourage practitioners and students to read and fully digest the whole article.
The criminal justice system in the United States today bears little relationship to what the Founding Fathers contemplated, what the movies and television portray, or what the average American believes. 
To the Founding Fathers, the critical element in the system was the jury trial, which served not only as a truth-seeking mechanism and a means of achieving fairness, but also as a shield against tyranny. As Thomas Jefferson famously said, “I consider [trial by jury] as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.” 
* * * *  
In 2013, while 8 percent of all federal criminal charges were dismissed (either because of a mistake in fact or law or because the defendant had decided to cooperate), more than 97 percent of the remainder were resolved through plea bargains, and fewer than 3 percent went to trial. The plea bargains largely determined the sentences imposed.' 
* * * * 
The practice of plea bargaining never really took hold in most other countries, where it was viewed as a kind of “devil’s pact” that allowed guilty defendants to avoid the full force of the law. But in the United States it became commonplace. And while the Supreme Court initially expressed reservations about the system of plea bargaining, eventually the Court came to approve of it, as an exercise in contractual negotiation between independent agents (the prosecutor and the defense counsel) that was helpful in making the system work. Similarly, academics, though somewhat bothered by the reduced role of judges, came to approve of plea bargaining as a system somewhat akin to a regulatory regime. 
* * * *
In addition to mandatory minimums, Congress in 1984 introduced—with bipartisan support—a regime of mandatory sentencing guidelines designed to avoid “irrational” sentencing disparities. Since these guidelines were not as draconian as the mandatory minimum sentences, and since they left judges with some limited discretion, it was not perceived at first how, perhaps even more than mandatory minimums, such a guidelines regime (which was enacted in many states as well) transferred power over sentencing away from judges and into the hands of prosecutors. 
One thing that did become quickly apparent, however, was that these guidelines, along with mandatory minimums, were causing the virtual extinction of jury trials in federal criminal cases. Thus, whereas in 1980, 19 percent of all federal defendants went to trial, by 2000 the number had decreased to less than 6 percent and by 2010 to less than 3 percent, where it has remained ever since. 
The reason for this is that the guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains. In the majority of criminal cases, a defense lawyer only meets her client when or shortly after the client is arrested, so that, at the outset, she is at a considerable informational disadvantage to the prosecutor. If, as is very often the case (despite the constitutional prohibition of “excessive bail”), bail is set so high that the client is detained, the defense lawyer has only modest opportunities, within the limited visiting hours and other arduous restrictions imposed by most jails, to interview her client and find out his version of the facts. 

Raoul Weil Found Not Guilty (11/3/14; 11/6/14)

This news just flashed into my in-box.  I will post more as I get it (see below).  This is twice in just a few days that a banker has been found not guilty.

For all Federal Tax Crimes blogs on Weil, click here.

Addendum 11/4/14 8:00 am:

Susannah Nesmith and David Voreacos, Ex-UBS Executive Weil Acquitted of U.S. Tax Conspiracy (Bloomberg 11/3/14), here.  Excerpts (with bold face added by JAT):
The federal jury in Fort Lauderdale, Florida, reached its verdict after deliberating about 90 minutes yesterday. Weil, 54, was indicted in 2008 on a charge of conspiring to help as many as 17,000 U.S. taxpayers hide $20 billion from the IRS. Weil was arrested last year in Bologna, Italy, and waived extradition. Weil, who didn’t testify, had faced five years in prison. 
* * * * 
“The verdict shows you the difficulty of going after senior management who can at times blame the bank’s customers and lower-level employees for the bank’s mistakes,” Nathan Hochman, a former assistant attorney general who oversaw the Justice Department’s tax division, said in a phone interview. “It’s difficult to prove a historical case beyond a reasonable doubt when the government heavily relies on witnesses who have received very favorable treatment.” 
* * * * 
Prosecutors argued that Weil knew that UBS used sham corporate structures to help U.S. clients hide their identities from the IRS, and its bankers used cloak-and-dagger methods to deliver them cash and account statements. 
“This conspiracy lasted for years and years, all done to conceal this business and hide these clients,” Mark Daly, a Justice Department trial attorney, said yesterday in summarizing a case that began Oct. 14. “It’s a pyramid. At the top, you’ve got the senior executives who have the power to either grow or shut down this business.” 
* * * * 
Menchel [Weil's lawyer] argued in his summation that prosecutors failed to prove that Weil was part of a single conspiracy involving taxpayers. He also said that Weil was unaware of the activities of a group of bankers below him. 

Sunday, November 2, 2014

IRS and FinCEN Form 8300 and Geographic Targeting Order (11/2/14)

Recently, FinCEN issued a Geographic Targeting Order, here, imposing additional reporting and recordkeeping requirements on a relatively small (but apparently financially active) area of Los Angeles, California.  The order and the cover communication for the order is here.  Key excerpts of the order are:
GEOGRAPHIC TARGETING ORDER 
The Director, Financial Crimes Enforcement Network (FinCEN), U.S. Department of the Treasury, is authorized to issue an order that imposes certain additional reporting and recordkeeping requirements on one or more domestic financial institutions or nonfinancial trades or businesses in a geographic area to carry out the purposes of and prevent evasions of the Bank Secrecy Act. See 31 U.S.C. § 5326(a); 31 C.F.R. § 1010.370; Treasury Order 180-01,  
IT IS HEREBY FOUND that reasonable grounds exist tor concluding that the imposition of the additional reeordkeeping and reporting requirements described in this Geographic Targeting Order ("Order") upon the Covered Businesses described below is necessary to carry out the purposes of and prevent evasions of the Bank Secrecy Act. See 31 U.S.C. § 5326(a); 31 C.F.R. § 1010.370. 
THEREFORE, IT IS ORDERED THAT: 
Part 1 - Definitions. 
** * * 
1.2 ''Covered Business" means the following trades and businesses located in the Covered Geographic Area, including their agents, subsidiaries, and franchisees:
(a) garment and textile stores;
(b) transportation companies;
(c) travel agencies;
(d) perfume stores;
(e) electronic stores (including those that only sell cell phones):
(I) shoe stores;
(g) lingerie stores;
(h) flower/silk flower stores;
(i) beauty supply stores; and
(j) stores bearing "Import" or "Export" in its name. 
1.3 "Covered Geographic Area" means the area in the City of Los Angeles, California, south of East 8th Street, north of East 16th Street, and between Santee Street and South Central Avenue. 
1.4 "Currency" shall have the same meaning as provided in 31 C.F.R. § I 0 I 0.330(c)(I). 
* * * * 
1.10 "Order Period" means the 180-day period beginning, October 9, 2014 and ending the close of business on April 6, 2015. 
Part 2- Special Reporting, Recordkeeping, nnd Customer Identitification Obligations of the Covered Businesses. 
2.1 A. Covered Business which, in the course of a trade or business in which such business is engaged, receives currency in excess of $3,000 in 1 Transaction (or 2 or more related Transactions in a 24-hour period) shall make a report of each such Transaction or Transactions by filing a FinCEN Form 8300. Each such FinCEN Form 8300 must be:
(a) completed in accordance with the terms of this Order and the FinCEN Form 8300 instructions (when such terms conflict, the terms of this Order shall apply): and
(b) e-filed through the Bank Secrecy Act E-filing system. 
* * * * 
2.3 It shall be unlawful for the Covered Business to process, accept, or receive funds for, or otherwise participate in a Transaction that is the subject of this Order unless the Customer conducting the Transaction provides an officer, director, employee, or agent of the Covered Business with identification in one of the following forms:
(a) a driver's license or an identification card issued by a State of the United States, the District of Columbia, or a Territory or Possession of the United States;
(b) a military or military dependent identification card;
(c) a non-resident alien registration card:
(d) a foreign national identity card:
(e) a passport n2/ or
(f) a combination of other unexpired documents, with an individual's name and address, and a photograph.
   n2 Because a passport does not contain an individual's permanent address, when a Customer provides a passport as form of identification, a Covered Business would need to review additional identification that specifies the Customer's address. 

Mizrahi Tefahot Bank U.S. Banker Acquitted (11/2/14)

A  Mizrahi Tefahot Bank Ltd. banker has been acquitted of conspiracy, the only charge against him.  See David Voreacos, Ex-Mizrahi Octogenarian Banker Acquitted at Tax Trial (Bloomberg 11/1/14), here.  Key excerpts:
Prosecutors claimed Baravarian helped clients who opened accounts in Israel, didn’t declare them to the IRS and accessed money through loans from the Los Angeles branch. 
Six taxpayers testified as government witnesses, including three who pleaded guilty and two who avoided prosecution by entering an IRS disclosure program. On cross-examination, all six admitted they didn’t conspire with Baravarian to cheat on their taxes, defense attorney Marc S. Harris said. 
“These taxpayers did what they did on their own, and they didn’t pay taxes on their accounts,” Harris said. “Dr. Baravarian had nothing to do with that. The linchpin of the case was that the loans were fake, and they were a mechanism to access that money. Dr. Baravarian helped people get legitimate loans for legitimate purposes.”
Thanks to Dave Wolf for calling this to my attention.

Saturday, November 1, 2014

IRS and Practitioner Comments on the Streamlined NonWillful Certification (11/1/14)

Tax Notes Today has an article summarizing some discussion by an IRS representative and practitioners at the October 30 at the University of San Diego School of Law-Procopio International Tax Law Institute annual conference.  Amanda Athanasiou, IRS Addresses Questions About OVDP and Streamlined Filing, 2014 TNT 212-7 (11/3/14) [no link available].  I offer only one short excerpt that I found particularly interesting and might be interesting to many readers of this blog.
Addressing the concern that the IRS may not accept non-willful certification for taxpayers transitioning from the OVDP to the streamlined program, Price [Daniel Price, supervisory attorney with IRS Chief Counsel] said the Service is concurring with non-willful certification in most of those cases. In the case of assertions that are clearly deficient, Price said the IRS is giving taxpayers another chance by requesting additional information. "We're giving taxpayers and their reps an opportunity for a do-over, but we do expect actual statements of facts," he said. 
Martin R. Press of Gunster, Yoakley & Stewart PA [attorney for Zwerner in the much publicized FBAR penalty case] noted that only U.S. willfulness counts for purposes of the streamlined program. For the most part, he said, what someone does overseas is not a factor, even if a foreign account is willfully unreported in the foreign country of residence. 
"The IRS is taking that seriously for purposes of the streamlined program," Price confirmed. 
However, the IRS has left itself some wiggle room, Press noted. For example, deliberate evasion of foreign residence country income tax is a negative factor.
I thought the comment that most taxpayers certification of nonwillfulness is being accepted and that the IRS is giving taxpayers some opportunity to supplement the information to justify nonwillfulness.  It is not clear to me where the participants ended up on the willful violation of foreign tax law issue.  Perhaps some reader who attended the session could offer their recollection / impression of where that discussion ended up.

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."