Tuesday, October 17, 2017

TIGTA Report on CI (10/17/17)

TIGTA recently issued a report titled Declining Resources Have Contributed to Unfavorable Trends in Several Key Criminal Investigation Business Results (Ref. #  2017-30-073 9/13/17), here.

Here is the excerpt of the summary of the findings:
WHAT TIGTA FOUND 
Since FY 2011, reductions in staffing and available funding for CI activities contributed to a decrease in the number and size of CI field offices throughout the United States. While managing its core mission tax work with declining resources, the IRS continued to work general fraud, international, and Bank Secrecy Act (BSA) cases as well. 
For FY 2016, CI was budgeted approximately $576 million to fund programs that investigate potential criminal violations of the Internal Revenue tax laws and certain other laws, and recommend prosecution as warranted. Since FY 2012, the attrition of field special agents resulted in a decline in the number of cases initiated and completed. In FY 2016, CI initiated 3,395 cases, an overall decrease of 34 percent compared to the 5,125 cases initiated in FY 2012. 
Overall, special agents have consistently maintained inventory levels over an average of 5.30 cases per field special agent. Special agent inventories included a focus on international cases. In FY 2016, international cases resulting in sentencing improved approximately 33 percent from FY 2012.  
CI relies on a variety of internal and external sources to initiate cases. The percentage of cases initiated from functions within the IRS has decreased 5 percent from FY 2012 to FY 2016. The percentage of cases initiated from the United States Attorney’s Offices and other Government agency sources increased, representing 64 percent of the 3,395 initiations. 
Between FY 2012 and FY 2016, CI implemented policy changes that affected the BSA and identity theft cases. CI will no longer pursue seizure and forfeiture of funds related to legal source structuring cases under the BSA unless justified by exceptional circumstances. In September 2012, the Department of Justice implemented an expedited and parallel review of proposed indictments arising from stolen identity refund fraud cases resulting in a spike of initiations and completions for FY 2012 through FY 2013 of identity theft cases. 
TIGTA identified a trend of special agent inventory taking longer to turnover because of the increased time it takes for special agents to determine a case did not contain prosecution potential. In FY 2016, it took an average of 540 days (1.5 years) to determine that there was no prosecution potential, while it took an average of 422 days in FY 2012.
TIGTA made no recommendations, but did include IRS's response.  The following are key excerpts from the response:

Supreme Court Accepts Cert in Microsoft Involving Search Warrants for Emails on Foreign Servers (10/17/17)

Guest bloggers previously wrote about the Microsoft case and the Stored Communications Act.  Peter D. Hardy and Carolyn H. Kendall, Guest Blog on Stored Communications Act Reach to Cloud Storage Outside the U.S. (4/25/15), here.  The panel decision in Microsoft is here, and the order denying rehearing en banc (with concurring and dissenting opinions) is here.

The Supreme Court has granted certiorari in the Microsoft case.  Orin Kerr, Supreme Court agrees to review Microsoft Ireland warrant case (Volokh Conspiracy 10/16/17), here; and Robert Barnes, Supreme Court to consider major digital privacy case on Microsoft email storage (WAPO 10/16/17), here.

The question presented in the petition, here, filed by the United States is:
QUESTION PRESENTED 
Whether a United States provider of email services must comply with a probable-cause-based warrant issued under 18 U.S.C. 2703 by making disclosure in the United States of electronic communications within that provider’s control, even if the provider has decided to store that material abroad.
Readers wanting to track the case in the Supreme Court may do so on the SCOTUSblog, here.

In a somewhat related development, a district court has granted search warrants, as modified, issued in a tax fraud and identity theft investigation to obtain emails stored by email service providers.  United States v. In the Matter of the Search of Information Associated with Fifteen Email Addresses, 2017 U.S. Dist. LEXIS 159535 (M.D. Ala. 2017), here.    The district court's conclusion is:
V. CONCLUSION 
The Magistrate Judge's denial of the search warrant applications was not clearly erroneous. Because the constitutional infirmities can be corrected with moderate alterations, however, the Government's search warrants will be issued with the specific modifications described in the accompanying Order. Those limitations impose (1) a date restriction on the data to be turned over by the provider based on an individualized assessment of the accompanying probable cause evidence for each email account, and (2) an instruction applicable to all the accounts that the searches be conducted through keyword searches and other appropriate protocols so as to limit the universe of data to be reviewed to that which is more likely to be pertinent. The Government is free to return and seek additional search warrants based on the new evidence it discovers.
This case apparently does not involve the issue of emails stored on servers outside the U.S., and the opinion does not even mention the Microsoft case.  Still, practitioners should be alert to the possibility of Government investigators obtaining search warrants requiring email service providers providers to produce emails.  Even though Microsoft involves the issue of foreign servers, the Supreme Court's opinion will likely address a number of issues in this increasingly important context.

Monday, October 16, 2017

Tax Attorney Sentenced to Two Years for Evasion and Obstruction (10/16/17)

USAO SDNY announced here the sentencing of a tax attorney, Harold Levine, to two years imprisonment for counts of tax evasion and tax obstruction to which he pled.  I previously wrote on denial of his earlier motion to dismiss.  Court Denies Motion to Dismiss Counts Against Tax Shelter Lawyer (Federal Tax Crimes Blog 4/14/17), here.  The following are the key excerpts from the USAO SDNY press release for the sentencing:
Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that HAROLD LEVINE, a Manhattan tax attorney, was sentenced today by U.S. District Judge Jed S. Rakoff to 24 months in prison for tax evasion and obstruction of the Internal Revenue Service (“IRS”), stemming from his scheme to siphon millions of dollars of tax shelter fee income from the law firm at which he worked and failing to report the diverted fees as income.  LEVINE’s scheme also involved making false statements to IRS auditors, and urging a witness to provide false testimony to the same IRS auditors who were investigating LEVINE’s receipt of the fees.  
* * * * 
Between 2004 and 2012, LEVINE, a tax attorney and former head of the tax department at a major Manhattan Law Firm (the “Law Firm”), schemed with co-defendant Ronald Katz, a certified public accountant, to obstruct and impede the due administration of the Internal Revenue laws by evading income taxes on millions of dollars of fee income generated from tax shelter and related transactions that LEVINE worked on while a partner of the Law Firm.  Specifically, LEVINE failed to report approximately $3 million in income to the IRS on his personal tax returns during the period 2005-2011.  Most of the fee income LEVINE failed to report was routed by him through a limited liability company LEVINE controlled, which was nominally owned by a family member. 
 As part of the scheme, for example, LEVINE caused tax shelter fees paid by a Law Firm client to be routed from the Law Firm’s escrow account to a partnership entity he co-owned with Katz and thereafter used those fees – totaling approximately $500,000 – to purchase a home in Levittown, on Long Island.  LEVINE caused the home to be purchased as a residence for a Law Firm employee (the “Law Firm Employee”) with whom he then enjoyed a close personal relationship.  Although LEVINE allowed the Law Firm Employee to reside in the Levittown house for over five years without paying rent, LEVINE and Katz prepared tax returns for the entity through which the home was purchased that claimed false deductions as a rental property. 
 In February 2013, LEVINE was questioned by IRS agents concerning his involvement in certain tax shelter transactions and the fees received by LEVINE from those transactions.  During that questioning, LEVINE falsely told the IRS that the Law Firm Employee paid him $1,000 per month in rent while living in the Levittown home.  In addition, when the Law Firm Employee was contacted by the IRS and summoned to appear for testimony, LEVINE urged the employee to falsely tell the IRS that she had paid $1,000 per month in rent to LEVINE.
I do not have the transcript of the sentencing hearing and will post it if and when I get it.  The USAO SDNY press release linked about quotes the sentencing judge as follows:  “There was no one in the world who knew better that he was committing a crime than Harold Levine.”

I do have the following documents that readers interested in the process from acceptance of the plea to the sentencing hearing:
  • Levine Plea Hearing Transcript, here.
  • Defendant's Sentencing Memo, here.
  • U.S. Sentencing Memo, here.
  • U.S. Sentencing Memo, Exhibit C, Sentencing Data Chart, here.
  • Defendant's Reply Sentencing Memo, here.
  • U.S. Letter Response to Defendant's Reply Sentencing Memo, here.
  • Docket Entries as of today, here.

I have just a few comments on the linked documents:

Wednesday, October 11, 2017

Another Interesting NonTax Case on Willful Blindness (10/11/17)

In United States v. Oti, ___ F.3d ___, 2017 U.S. App. LEXIS 19180 (5th Cir. 2017), here, the court held that the willful blindness instruction was given in error but affirmed anyway based on harmless error.  In so holding, the Court said: 
We emphasize once again, however, that the deliberate ignorance instruction should rarely be given. Kuhrt, 788 F.3d at 417; United States v. Faulkner, 17 F.3d 745, 766 (5th Cir. 1994); United States v. Ojebode, 957 F.2d 1218, 1229 (5th Cir. 1992); see also United States v. Cartwright, 6 F.3d 294, 301 (5th Cir. 1993) ("Because the deliberate ignorance instruction may confuse the jury, the instruction should rarely be given."). The instruction is not a failsafe mechanism that the government can implement to relieve itself of proving the mens rea requirement of a crime. See Kuhrt, 788 F.3d at 417 ("The proper role of the deliberate ignorance instruction is not as a backup or supplement in a case that hinges on a defendant's actual knowledge."). We caution the government that, while this instance of misapplying the deliberate ignorance instruction amounted to harmless error, that will not always be the case.
Just a few points about the decision on willful blindness:

1.  The court held that the instruction may be appropriate in conspiracy cases where a proper foundation exists in the evidence.  The court cited United States v. Inv. Enters., 10 F.3d 263, 269 (5th Cir. 1993) ("To the extent that the instruction is merely a way of allowing the jury to arrive at the conclusion that the defendant knew the unlawful purpose of the conspiracy, it is hardly inconsistent with a finding that the defendant intended to further the unlawful purpose.")  As a side note to the specific holding, I call attention to the phrasing of the willful blindness instruction -- that a finding of willful blindness is merely a way of "allowing the jury to arrive at the conclusion that the defendant" had the requisite knowledge.  I have harped on it before, but I think the willful blindness instruction should not compel a finding the requisite knowledge that is the element of the crime but merely permits the jury to find that knowledge based upon evidence of willful blindness in conjunction with all the other evidence.

2.  The court then offered the following discussion which, I think, is quite good:
"We have often cautioned against the use of the deliberate ignorance instruction." Mendoza-Medina, 346 F.3d at 127. In United States v. Skilling, we noted that such an instruction should be given only in "'rare' instance[s]" and observed: 
The concern is that once a jury learns that it can convict a defendant despite evidence of a lack of knowledge, it will be misled into thinking that it can convict based on negligent or reckless ignorance rather than intentional ignorance. In other words, the jury may erroneously apply a lesser mens rea requirement: a "should have known" standard of knowledge. 
Skilling, 554 F.3d at 548-49, rev'd on other grounds, 561 U.S. 358, 130 S. Ct. 2896, 177 L. Ed. 2d 619 (2010). "The instruction is appropriate [*33]  only in the circumstances where a defendant claims a lack of guilty knowledge and the proof at trial supports an inference of deliberate indifference." United States v. Kuhrt, 788 F.3d 403, 417 (5th Cir. 2015).
Appellants argue that the instruction was inappropriate because, with the evidence before it, the jury had the choice of deciding whether Appellants were actually aware of the pill mill activities or actually not aware of the activities. We agree. "[T]he district court should not instruct the jury on deliberate ignorance when the evidence raises only the inferences that the defendant had actual knowledge or no knowledge at all of the facts in question." Mendoza-Medina, 346 F.3d at 133-34. The government has failed to cite to specific evidence in the record that demonstrates that Okechuku, Oti, or Iwuoha purposely contrived to avoid learning of the pill mill activities. This showing is necessary as to each defendant to justify the use of the deliberate ignorance instruction. A boilerplate deliberate ignorance instruction that applies to all defendants in a case is inappropriate absent a showing that the proper factual basis exists as to each defendant. See Fuchs, 467 F.3d at 902. Where the government relies on evidence of actual knowledge, the deliberate ignorance instruction is not appropriate. Kuhrt, 788 F.3d at 417.
 Addendum 10/11/17 1:00pm:

Sunday, October 8, 2017

Tax Court Holds that Restitution Assessments under § 6201(a)(4) Do Not Permit Tax Interest and Additions (10/8/17)

Readers of this blog will likely recall that Congress adopted a statutory scheme to permit the IRS to assess tax restitution imposed in a criminal case without having to go through the predicate notice of deficiency and thereby expeditiously deploy the tax collection mechanisms (levy, etc.) dependent upon an assessment.  I collect a number of the more relevant blog entries on the subject at the end of this blog entry.

In Klein v. Commissioner, 149 T.C. ___, No. 15 (10/3/17), here, the Court held the § 6201(a)(4) "does not authorize R to add underpayment interest or failure-to-pay additions to tax to a title 18 restitution award, and R may not assess or collect from Ps underpayment interest or additions to tax without first determining their civil tax liabilities."

The relevant facts are simply stated and in some respects disturbing for reasons I will discuss later.  The taxpayers pled to tax perjury, § 7206(1), for 2006.  At sentencing, for the Guidelines tax loss calculation, the Government submitted a calculation indicating a tax loss of $562,179 (including the tax loss for the year of the plea, 2006, and the relevant conduct years, 2003-2005).  The taxpayers objected because, they asserted at sentencing, the calculations did not allow unclaimed deductions that would have significantly reduced the tax loss.  The Court adopted the Government's calculations for tax loss purposes to determine the base offense level and thus the final offense level.  For Sentencing Guidelines calculations, the Court adopted the conviction year and relevant conduct years for a tax loss of $562,179, but for the wife included only the year of conviction tax loss (2006).  But, the Court then ordered the taxpayers to pay, jointly and severally, restitution to the IRS of $562,179 based on the tax loss for the year of conviction and the relevant conduct years.

The assumption I think the sentencing court made was that tax loss for the Guidelines calculation and the tax loss for purposes of restitution are the same thing.  They are not the same concepts.  The numbers will sometimes be the same, but not necessarily.  For example, although not applicable in the case, the tax loss can include the intended tax loss whether or not a tax loss actually resulted.  More pertinent, the tax loss can omit unclaimed deductions otherwise permissible but the restitution amount should not because unclaimed deductions, if proved, means that the IRS did not suffer loss of the taxes covered by the unclaimed deductions.  Therefore, the Court should not simply adopt the tax loss calculation as the restitution amount where the defendant is asserting unclaimed deduction that may not be available in calculating the tax loss.  See Restitution Less than Tax Loss Based on Burden of Proof for Unclaimed Deductions; and Application of Section 3553(a) / Booker (Federal Tax Crimes Blog 1/19/14), here.

The problem as I discuss in some of the blog entries cataloged at the end of this blog entry is that simply adopting the tax loss may result in tax restitution exceeding the actual tax loss to the IRS.  And, once the restitution order becomes final, the IRS can assess and is unable to do anything about it even if it knows that the restitution assessment is excessive.  In other words, if indeed, the defendants in Klein had unclaimed deductions that would materially lower the actual tax loss to the IRS, they were screwed by the entry of the restitution order in the amount of $562,179.  (To avoid this injustice, I have previously argued that the tax restitution amount should be the lowest possible amount of the possible tax liability, with the IRS then making up any difference through its civil audit deficiency procedures.  See What Can Be Done If Tax Restitution Exceeds the Tax Due (Federal Tax Crimes Blog 9/2/13), here.

Saturday, October 7, 2017

Court Dismisses Fraudulent Transfer Claims for FBAR Willful Penalty For Failure to State Claims with Particularity But Grants Leave to Amend (10/5/2017)

In United States v. Park, 2017 U.S. Dist. LEXIS 165173 (N.D. Ill. 10/5/17), here, the Government sued to collect an FBAR willful penalty (erroneously called a tax penalty) assessed against a taxpayer, deceased, and joined the taxpayer's family members on various transferee liability provisions.  The Court granted the children's motion to dismiss for failure to lead the cause of actions properly, but granted the Government leave to file an amended complaint resolving the deficiencies.  For context, the original complaint is here.

The Government's claims against the children were under the Illinois Uniform Fraudulent Transfer Act ("IUFTA"), 740 ILCS 160/5.  The children asserted that, because that claim sounds in fraud, the Government was required to assert the elements with particularity under FRCP 9(b).  The court discussed the elements and judicial interpretations and then concluded:
The government has not come close to describing with particularity the precise circumstances of the alleged transfers in the way that these decisions have required. The complaint contains no particularized description of the events surrounding the conveyance of Mr. Park's assets or the Trust to the Park children; in fact, it makes no particularized allegations of any such conveyance or conveyances at all. Particularized facts concerning "what (or how much) was transferred, when the transfer was made, how it was made, who made it, who received it, and under what circumstances," are largely missing; the government only pleads who received the alleged transfers (the Park children). The government has not met its pleading burden under Rule 9(b) on Counts V and VI.
The Court also rejected the Government's claims that, as to Illinois common law for tracing asset transfers, the more liberal Rule 8 pleading standard applied and was met.  The Court rejected the claim.

Finally, for additional flavor, readers should review the complaint which I link above.

The Court did give the Government leave to amend to correct the deficiencies if it can.

JAT Comment:  There was an issue floating around at one time as to whether the FBAR penalty was the type that abated upon the penalized party's death.  I suppose that issue, to the extent that it is still alive, might be presented in the case.  I did research that issue at one time and concluded that it was a long shot at best.

Government FBAR Suit Amended Complaint Survives Motion to Dismiss (10/7/17)

In United States v. Pomerantz, 2017 U.S. Dist. LEXIS 165488 (W.D. Wash. 10/5/17), here, the court denied Pomerantz's motion to dismiss in this FBAR willful penalty civil action.  I previously reported on the court's granting in part of a prior motion to dismiss.  See Court Dismisses Government Complaint for FBAR Willful Penalty with Leave to Amend for Failure to Allege Facts Supporting Willfulness (Federal Tax Crimes Blog 6/12/17; 6/26/17), here.  The Government amended the complaint and in this latest order, it survives the motion to dismiss.

Readers can review the order for the details, but basically the Government made relatively minor amendments which were sufficient to satisfy the pleading requirements.

The Court also denied Pomerantz's motion to strike the Amended Complaint references to the prior Tax Court case.  The Court quotes the references as follows:
In case number 25058-15 before the United States Tax Court, Pomerantz stipulated to entry of a decision including a tax deficiency and civil fraud penalty under 26 USC § 6663 with respect to his [2007-2009] United States income tax liability. 
Both the deficiency and the fraud penalty for the [2007-2009] tax year[s] to which Pomerantz stipulated in the United States Tax Court case were based at least in part on income generated by and/or income deposited into the foreign accounts identified in paragraph 21, above, that were not disclosed on Pomerantz' [2007-2009] income tax return[s].

JAT Comment:  I have no substantive comment since the holding is straightforward and routine.  The merits will be fought out later.  The indication is that Pomerantz is proceeding pro se.

Tuesday, October 3, 2017

Defense Request of Lesser Included Offense Instruction Precludes Questioning Sufficiency of Conviction (10/3/17)

In United States v. Hurley, 2017 U.S. App. LEXIS 17217 (9th Cir. 2017) (nonpublished), here, Hurley, a former IRS agent, was convicted for receiving a gratuity under 18 USC. § 201(c).  As the Court of Appeals explains in the cryptic nonpublished decision, this conviction was for a lesser included offense to the more serious offense actually charged (solicitation of bribery).  Hurley questioned on appeal whether the evidence was sufficient to support the conviction on the lesser included offense.  The Court held
Hurley is precluded from challenging the jury's verdict regarding this crime because he asked that the jury be permitted to consider it as a lesser included offense on this count. United States v. Butler, 74 F.3d 916, 918 n.1, 924 (9th Cir. 1996) (rejecting argument that conviction on lesser included offense was improper when defendant himself requested the challenged instruction). Even if Hurley received nothing of value on the day he allegedly solicited the $20,000, his actions at trial invited any error in the verdict. See United States v. Frank, 36 F.3d 898, 903 (9th Cir. 1994) ("The doctrine of invited error prevents a defendant from complaining of an error that was his own fault." (citation omitted)).
The use of lesser included offense instructions to give the jury a point between the normal binary choice of guilt or innocence to the more serious offense charged is an interesting topic.  I discuss that topic in more detail in the chapter, Chapter 12, Criminal Penalties and the Investigation Function, for which I was principal draftsman in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015).  I offer the following from the introduction in ¶ 12.05[3][b][i] (footnotes omitted):
The doctrine is most frequently encountered at the close of a trial for a greater offense when one of the parties wants the jury to have a choice in addition to guilt or acquittal on the charged greater offense. Why would either the prosecutor or the defendant want to present to the jury this additional choice? The prosecutor may be concerned that he has not proved all elements of the greater offense beyond a reasonable doubt or that the jury may not be willing to convict for the charged greater offense but, the prosecutor fears, will return a verdict of acquittal unless given a lesser alternative. The defendant may assess the risks differently. The defendant may be concerned that the jury will convict of the greater offense rather than acquit, but would convict only of the lesser offense if offered that opportunity. 
If the jury properly determines that one or more uncommon elements of the greater offense were not proved beyond a reasonable doubt, but that all of the common elements were proved, a conviction for the lesser included offense works just as the lesser included offense doctrine is intended to work. It permits the jury to convict for the lesser offense because the lesser offense was proved beyond a reasonable doubt. But a fear expressed with presenting to the jury an alternative between conviction and acquittal is that it will permit a jury to compromise. Moreover, even in a case where the jury believed the elements of the greater offense were proved, the jury may think the law simply wrong and effectively nullify it in the case by returning a verdict of not guilty. Offering the compromise verdict may effectively mitigate the benefits or harms (depending on perspective) of occasional jury nullification. And perhaps the greatest concern — a concern of constitutional dimensions — arising from a failure to give a lesser included offense choice to the jury where it is appropriate is that without that choice the jury may convict where it is convinced that the defendant did something seriously wrong and worth punishing even though it is not convinced that he is guilty of the crime charged.
I had not previously considered the issue of whether the lesser included offense presented to the jury at the defendant's request would preclude the defendant from questioning whether the evidence supported a conviction of the lesser included offense.  Apparently it does.

I attach the Government's brief, here, which, at pp. 47-52, the Government discusses the authority the Ninth Circuit accepted summarily.

Because Hurley asked for the lesser included offense instruction, the Court sustained a conviction that the evidence apparently did not support.  That is a bit odd.  It seems to me that the time to hash out whether there is a sufficient record to permit the instruction is at the close of trial.

Eleventh Circuit Affirms Tax Obstruction Conviction Over Objections to Evidence on Tax Court Proceeding (10/3/17)

In United States v. Wrubleski, 2017 U.S. App. LEXIS 17168 (11th Cir. 2017) (nonpublished), here, Wrubleski was convicted of one count of tax obstruction under § 7212(a), and four counts of false claism under 18 USC § 287. I focus on the tax obstruction count and Wrubelski's argument on appeal.  In this regard, I remind readers that the Supreme Court has accepted certiorari in a tax obstruction case.  See Supreme Court Grants Certiorari in Marinello Involving Whether § 7212(a)'s Omnibus Clause Requires Knowledge of Pending Investigation (Federal Tax Crimes Blog 6/27/17), hereWrubleski does not involve the issue in that Marinello.

Over the years, Wrubleski had done many acts that the Government argued met the elements of that tax obstruction crime.  Among the items the Government introduced was evidence of Wrubleski's handling of a Tax Court case.  As recounted by the Court of Appeals, here is how that evidence offer played out:
At trial, the government called Ken Hochman, an attorney at the IRS, as one of its witnesses. Hochman testified that he represented the IRS in United States Tax Court, including in a case filed by Wrubleski in 2004 in which Wrubleski challenged the validity of an IRS collection action. Outside the presence of the jury, the district court expressed concern about Hochman's testimony. The court said it was "concerned that [] the government is attempting to take a taxpayer's participation in [the IRS] review process . . . as activity that can be looked at for the basis of a criminal charge" because "the government thinks the taxpayer was so baseless" in bringing the Tax Court action. The government explained that although Wrubleski's litigation in Tax Court could not itself constitute the crime of interference with the administration of the Internal Revenue laws, Wrubleksi's previous experience in Tax Court showed his "overall willfulness" to commit other acts that constitute the crime. 
When the jury returned, the district court gave a curative instruction. The court said:
I want to be clear that the fact that [Wrubleski] went to tax court, and the fact that, for instance, the government may not be happy with how [he] acted in the tax court . . . that can't be the basis of a charge of corruptly trying to impede the proper administration of the Internal Revenue Service. 
If you tell somebody they can take an appeal [to the Tax Court] and they take an appeal and they lose the appeal, that's not the basis of the charge here. 
The court then explained that information about Wrubleski's Tax Court litigation was "relevant only to the question of whether the government can prove that Mr. Wrubleski acted willfully." Before resuming Hochman's testimony, the court reiterated: "I want to make sure that everybody understands that how Mr. Wrubleski conducted himself in the litigation, that cannot serve as the basis for the first charge, which is the charge of corruptly impeding the administration of justice." Despite the court's instruction, Wrubleski moved for a mistrial on the ground that his "use of judicial [*4]  process . . . has been portrayed as being something improperly done toward the IRS." The district court denied his motion.
The Court of Appeals handled Wrubleski's complaint on appeal as follows:
Wrubleski appears to argue that using a defendant's previous legal proceedings against the IRS to prove the offense of interfering with the administration of the Internal Revenue laws, 26 U.S.C. § 7212(a), is an improper "theory of culpability." He says the evidence of his Tax Court proceedings showed only that "[h]e took advantage of the legal avenues offered to him," and did not prove he was "corruptly trying to obstruct or impede the IRS." 
Even assuming it was error to admit the evidence of Wrubleski's litigation history—a question we need not decide—the admission of this evidence did not mandate a mistrial here because the court gave an adequate curative instruction. The district court agreed with Wrubleski that a person's litigation in Tax Court could not constitute a violation of § 7212(a). As we described above, this prompted the district court to give an extensive curative instruction. The court instructed the jury that any actions Wrubleski filed in Tax Court "can't be the basis of a charge of corruptly trying to impede the proper administration of the Internal Revenue Service. . . . [H]ow Mr. Wrubleski conducted himself in the litigation, that cannot serve as the basis for the first charge, which is the charge of corruptly impeding the administration of justice." "When a curative instruction is given, this court reverses only if the evidence is so highly prejudicial as to be incurable by the trial court's admonition." United States v. Garcia, 405 F.3d 1260, 1272 (11th Cir. 2005) (per curiam) (quotation omitted). Here, the evidence that Wrubleski challenged his tax liability in Tax Court was not so prejudicial as to be beyond the cure offered by the district court's prompt and thorough instruction. Because the district court cured the error Wrubleski complains of, the court did not abuse its discretion in denying his motion for a mistrial. See Newsome, 475 F.3d at 1227.
I have written before on the breadth of the Government's claims as to what constitutes obstruction for tax crimes, including tax obstruction in 7212(a) and the defraud / Klein conspiracy in 18 USC 371.  See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here; and in a companion online appendix,  9 Hous. Bus. & Tax L.J. A-1 (2009), here.

The issue presented in Wrubleski, of course, is whether a defendant with a pattern of obstruction gets a pass with respect to his handling of a Tax Court case -- or presumably any other court case.  That is, how he brought and pursued the case could be a continuation of the overall pattern and thus part of the conduct within the scope of the crime.  Usually, as here, the are enough facts left in the pattern independent of the court proceeding that the conduct in the court proceeding is surplusage.  In a case like that, it would probably be the better part of wisdom on the prosecution just to not offer the evidence and on the judge not to allow introduction.

Interesting NonTax Case on Willful Blindness (10/3/17)

In United States v. Parker, 2017 U.S. App. LEXIS 18103 (1st Cir. 2017), here, Parker was convicted of firearm transportation and firearm transportation after a felony conviction. 18 USC §§ 922(g)(1) and (a)(3).  Parker raised several interesting issues, but I focus on the willful blindness issue because it has played a prominent role in criminal tax cases.

As I read the Court of Appeals' discussion, the parties apparently did not ask for the instruction; rather, the judge raised the issue:
At a charge conference held before the close of evidence, the judge asked the parties if he should give a willful-blindness instruction and if so, why.
Of course, the defense will not ask for the instruction, so the judge was apparently just helping the Government out by raising the issue.  So, as recounted by the Court of Appeals, this happened:
The prosecutor responded that yes, the judge should give the charge. For support, the prosecutor pointed to Parker's post-arrest statement to law enforcement that Scott had paid him $200 "like three times" to drive him to New Hampshire but that "each time, when we stayed in the hotel, when we came back to Boston, the only thing we came back with was marijuana." Parker added that he "didn't want to know" what else Scott was up to — and though Scott once went to the car to get "stuff," a word Parker took to mean guns, Parker claimed that he left the room because he "didn't want to know about nothing." According to the prosecutor, Parker's comments show "that he's willfully blind by attempting to close his eyes to the conduct." "I think it's fairly presented in the evidence or it certainly will be when the government introduces [the] statement tomorrow," the prosecutor stressed. 
Parker's lawyer saw things differently, to put it mildly. The government does not "have to" put Parker's statement in evidence, counsel said. "We're not putting any evidence in" on the lack-of-knowledge issue, he added. And, he noted, the prosecutor "can't put [the statement] in and then say I want to get a particular instruction that otherwise would be inappropriate." Focusing on the proposed instruction's language, counsel complained that the judge could not use it because it would have "the effect of shifting the burden of proof" on the questions of Parker's knowledge and intent. 
The judge reserved ruling on the matter, saying he wanted to see what Parker said, "assuming [the statement] comes in." "I'm going to go back and look at the case law on willful blindness, when it's appropriate and when it isn't and give some more thought to it," the judge added. The next day, the judge told the parties that he intended to give a willful-blindness instruction. Regardless of whether Parker claims a lack of knowledge, the judge ruled, his statement — if it is as represented by the government — "suggest[s] a conscious course of deliberate ignorance," and the charge "as drafted does not suggest in any way that an inference of knowledge is mandated." Later that morning, the government — without objection — introduced the statement. 
The government rested its case that same day. The defense, in turn, rested too — without calling any witnesses. The attorneys then made their closing arguments. And the judge gave the final charge to the jury.  
Pertinently for our purposes, the judge instructed the jury that it "may infer" Parker "had knowledge of a fact if" it found Parker "deliberately closed his eyes to a fact that otherwise would have been obvious to him." "[T]o make such an inference," the judge explained, the jury had to "find two things: [f]irst, that [Parker] was aware of a high probability of the fact in question; and, [s]econd, that [he] consciously and deliberately avoided learning that fact — that is to say, he willfully made himself blind to that fact." And, the judge emphasized, whether Parker "deliberately closed his eyes to [a] fact, and, if so, what inference, if any, should be drawn," was "entirely up to you." Also, the judge cautioned the jury that Parker "must have consciously and deliberately avoided learning the fact" — neither "[m]ere negligence, recklessness or mistake in failing to learn the fact," nor "[t]he fact that a reasonable person in [Parker's] position would have known the fact," sufficed. Plus, the judge warned that a finding that Parker "made himself willfully blind to one or more facts" was not alone "sufficient to find him guilty of a crime." Rather, the prosecution had to "prove[] all of the elements of the crimes as charged in the indictment" — something the judge stressed after referring to Parker's presumption of innocence and the prosecution's burden to prove beyond a reasonable doubt the elements of each offense.
The Court of Appeals affirmed the use of the instruction as follows:

Sunday, September 24, 2017

Sixth Circuit Approves NonDetailed Allegations of Ownership in Making Claim for Seized Property Sought to be Forfeited (9/24/17)

In United States v. $31,000 in U.S. Currency, ___ F.3d ___, 2017 U.S. App. LEXIS 18159 (6th Cir. 2017), here, the Sixth Circuit rendered an important decision for claimants in in rem forfeiture proceedings in the Sixth Circuit.  The Court summarizes its holding in the opening two paragraphs of the opinion:
The federal law governing civil in rem forfeiture actions gives the government authority to seize items it suspects were used in furtherance of criminal activity and to commence civil in rem proceedings against the property without charging the property's owner with a crime. See United States v. Seventeen Thousand Nine Hundred Dollars ($17,900.00) in U.S. Currency, 859 F.3d 1085, 1087 (D.C. Cir. 2017) explaining the practice of civil forfeiture); see also Leonard v. Texas, 137 S. Ct. 847, 848-49, 197 L. Ed. 2d 474 (2017) (Thomas, J.) (statement respecting the denial of certiorari) (describing some abuses in the administration of civil forfeiture laws in the United States and questioning the constitutionality of such laws). Federal agents and entities have significant latitude to pursue these claims, from special discovery provisions written into the governing rules to a burden of proof that is lower than required in standard criminal cases. But this latitude has its limits, and this case requires us to define some of these limits. The district court granted the government's motion to strike Taiwan Wiggins's and Dalante Allison's claims to currency seized from each man at the Cleveland Hopkins International Airport. Each man's claim asserted that he owned the currency that had been taken from his suitcase. The district court recited the facts as alleged by the government, found that each claim presented "nothing more than a naked assertion of ownership," and held that, under Sixth Circuit precedent, Wiggins and Allison lacked the standing necessary to pursue their claims. 
In many ways, this civil forfeiture action looks routine, for federal courts have developed well-settled principles concerning a forfeiture claimant's need to demonstrate both Article III and statutory standing. But this case comes to us in a procedural posture unlike most civil forfeiture actions—the government apparently moved to dismiss the claim before it engaged in any discovery. Its basic argument before the district court and on appeal is that the claimant's pleadings must do more than assert a bare ownership in the res that is subject to forfeiture, and that the claimant's pleadings must provide the government sufficient detail to draft interrogatories allowing it to test the claimant's claim of ownership. As we will explain, the procedural rules governing civil forfeiture actions do not demand such a heightened standard. Accordingly, we REVERSE the district court's order granting the government's motion to strike the claim and REMAND for further proceedings.
The factual background is that DEA agents questioned two persons seeking to depart from an airport and gained access -- allegedly consensual access -- to their baggage.  The DEA agents discovered cash in their baggage of $31,000 and $10,000 respectively.  A DEA canine alerted the agents to odor of narcotics.  Upon questioning, each of the individuals claimed employment with a cleaning service company and one individual could name only one customer of the company.  The DEA agents could not locate any of these companies or the customer.  The Government then moved to forfeit the cash under "21 U.S.C. § 881(a)(6), as proceeds traceable to drug trafficking activities or that were used or intended to be used to facilitate drug-trafficking in violation of 21 U.S.C. §§ 841(a), 846."  Each of the individuals filed claims for their respective cash the Government sought to forfeit.  The claims appeared to be slim on details but did make critical assertions that the claimants owned the respective funds and that the funds had been illegally seized.

The Court said that, "]b]ecause this case presents an issue of first impression in this circuit, we discuss the applicable procedural rules and case law in some detail."  The Court discusses the rules governing in rem forfeiture actions -- 18 U.S.C. § 983, here, and Rule G of the Federal Rules of Civil Procedure's Supplemental Rules for Admiralty or Maritime Claims and Civil Forfeiture Actions (the "Supplemental Rules"), here.  The Court then discussed those rules as follows:

Second Circuit Orders Abatement of Criminal Conviction on Appeal but (i) Denies Abatement of Tax Conviction Not Appealed and (ii) Affirms $48 Million Bail Bond Revocation (9/24/17)

In United States v. Brooks, ___ F.3d ___, 2017 U.S. App. LEXIS 18170 (2d Cir. 2017), here, the defendant was convicted (i) by jury verdict for offenses related to fraud and securities laws violations and (ii) by guilty plea for tax evasion.  The defendant appealed the jury verdict convictions but did not appeal his guilty plea conviction.  He died while his case was on appeal.  The principal issue resolved was whether the death while pending appeal abated the convictions and collateral consequences.  The Court summarizes its holdings as:
Appeal from the United States District Court for the Eastern District of New York. No. 6-cr-550 — Joanna Seybert, Judge. Appeal from a judgment of the United States District Court for the Eastern District of New York (Seybert, J.) entered following a jury verdict finding defendant David Brooks guilty of offenses related to fraud and securities laws violations, and Brooks's guilty plea to tax evasion. After Brooks filed his appeal, he died while incarcerated and his estate and members of his family moved to abate his convictions. We conclude that Brooks's counts of conviction resulting from the verdict abated with his death, but not the counts resulting from his guilty plea; the bail bond subscribed by Brooks and his family remains forfeited; and the order of restitution related to the fraud and securities laws counts is abated but not the order of restitution related to the tax counts. Accordingly, the estate-appellant's motion for abatement is GRANTED in part and DENIED in part, Brooks's judgment of conviction for the non-tax counts is VACATED, the motion by Brooks's family members for abatement of the bail bond forfeiture is DENIED, the order denying the motion to set aside bond forfeiture is AFFIRMED, the Government's cross-appeal is DISMISSED, and the case is REMANDED for the dismissal of the non-tax counts of the indictment.
The Court's resolution of the abatement issue is important although relatively straight-forward.  It is black-letter that death while on appeal does abate the conviction.  The nuance addressed -- or at least implied -- is that the appeal has to question the conviction.  There was no appeal of the tax conviction pursuant to the guilty plea (likely because many pleas require waiver of the right to appeal and even when an appeal is permitted under the plea usually is not permitted for guilt of the crime or counts for the plea).

The takeaway is that a defendant convicted by jury verdict or judge decision should always appeal the conviction if the defendant appeals anything.  For example, an appeal of only the sentence likely would not require abatement of the guilty conviction (verdict or judge decision).  Of course, in almost all cases, the appeal does attack the conviction in some way, so that this precaution would usually be covered anyway.

Another interesting aspect of the holding is the forfeiture of the bond.  The district court had set a $400 million recognizance bond, with $28 million in cash as security.  The Court of Appeals noted:
The amount of the entire bond was $400 million, apparently the largest ever imposed on an individual defendant, and the cash security posted was originally $48 million, also an extraordinary cash security.  These amounts were required by the district court because of the nature of the crime, the amounts allegedly involved in the crimes, and Brooks's wealth. They arose out of a concern that Brooks would be able to flee and access those accounts to aid his flight. 
In setting the bond, the district court addressed the Government's concern that the defendant might be hiding assets while free on bond.  In the bond conditions, the district court specifically provided that "[a]ny knowing violation of this agreement, including . . . an attempt . . . to conceal assets . . . will be grounds for revocation of his bail release and for forfeiture of the $[48] million in bond security."  Finding that the defendant had attempted to secrete assets, the district court revoked bail and forfeited the $48 million cash.  That finding was made only upon consideration of the Government's submissions.

Thursday, September 21, 2017

Big Win for Taxpayer/Filer in FBAR Willful Penalty Case (9/21/17; 9/23/17)

In Bedrosian v. United States, 2017 U.S. Dist. LEXIS 154625 (E.D. Pa. 2017) (E.D. Penn. 2017), here, the District Court held that the Government had not established willfulness for the FBAR penalty and ordered refund / return of the illegal exaction the Government had collected.  I have previously written on some of the pre-trial developments in the case and provide links to those blog entries at the end of this blog.  So, I will just focus on this latest decision on the merits.  I will be rather brief since I am posting this from Dublin while on vacation (which also explains why I have been relatively silent on the blog recently).

The key points are:

1.  The trial was a one-day trial as indicated in my most recent blog (linked below).

2.  The Court found Bedrosian, presumably the principal witness for himself, credible, thus accepting some key claims he made as to his now deceased accountant's knowledge of and advice regarding the omitted foreign account. The accountant was named Handleman.  From the opinion:
Bedrosian did not tell Handelman about his Swiss account until some point in the mid-1990s, at which time Handelman advised him that he had been breaking the law every year that he did not report the account on his tax return. (Id. at 49-50.) Bedrosian asked Handleman what he recommended doing about it, and Handelman stated that he could not “unbreak the law,” and should therefore take no action. (Id. at 50-51.) Handelman assured Bedrosian that his estate could deal with it upon his death, when his money was repatriated. Heeding Handleman’s advice, Bedrosian continued to not report either Swiss account on his tax returns.
So, this is a variation of the reliance on tax professional defense to a crime or civil penalty requiring willfulness.  But, the reliance is inherently inconsistent with the ultimate holding.  Handleman, by Bedrosian's admission, told Bedrosian that he was violating the law by not reporting the account.  Hence, by his own admission, he thus knew the law and must have intended to violate it, albeit with the goal of leaving it to his estate to work out the solution.

3. Of course, Bedrosian's defense is more subtle. Bedrosian must have told his new accountant, Bransky, who started in 2007 because that accountant did check the Box yes on the Schedule B foreign account question.  The resulting FBAR, though, only included one of Bedrosian's accounts, omitting the much larger one.

4.  Then in 2008, Bedrosian began discussing this matter with his attorney.  It is not stated precisely why he began that discussion, but UBS -- the bank involved -- was then feeling the heat from the Government.  (All that is history which, although not recounted in the opinion, was very much known to the practitioner community and a number of more sophisticated lay people with an interest in knowing.)  The opinion says:  "Notably, at the time Bedrosian took these steps to rectify the issue, the government had not begun its investigation of him and he did not know that UBS had turned his information over to the IRS."  The timing here is not as detailed as I would have liked to have seen it, but it suggests that UBS had turned over information in 2008.  I thought that did not occur until 2009.  (And, my prior blog indicated that his seeking legal advice occurred in 2009.)

5.  On advice of the attorneys then consulted and without knowledge of an IRS investigation, Bedrosian amended his returns for 2004 forward and paid the resulting taxes.  As written, that appears to have been a quiet voluntary disclosure rather than OVDP.  That probably was a dicey move at the time because, on his fact pattern, I suspect that most attorneys would likely have advised the then iteration of OVDP rather than quiet disclosure.  (Remember that, at that time, the Government was asserting its right and willingness to assert multiple year FBAR willful penalties.)

6.  The Court held that the standard of review of de novo.  (Consistent with prior holding discussed in the most recent blog on the case.)

7. The Court held that the Government must prove willfulness by a preponderance of the evidence, thus falling in line with the critical mass of cases deciding that issue (either as a direct holding or as dicta).  (I have said much on that issue in prior blog entries, so won't dig into it here.)

Saturday, September 16, 2017

DOJ Tax Targeting Swiss Life Insurance Companies Offering Insurance Wrappers to Help U.S. Taxpayers Evade Tax (9/16/17)

DOJ Tax is reportedly looking at Swiss life insurance companies who participated in providing so-called insurance wrappers to hide U.S. taxpayer's investments.  I offer a recent article and then two other older items for more information.

John Revill, Oliver Hirt, UPDATE 1-Swiss Life speaks to DOJ about possible tax evasion by U.S. clients (Reuters 9/14/17), here.
Swiss Life could face a fine in the United States after it was contacted by the U.S. Department of Justice (DOJ) about whether it helped U.S. clients avoid tax, Switzerland’s biggest life insurer said on Thursday. 
The disclosure comes as U.S prosecutors have been widening their probe of Swiss banks who have been helping wealthy American clients dodge taxes to include insurance companies. 
* * * * 
The Zurich-based company started selling the products in 2006, but stopped selling them in the United States in 2012. Swiss Life returned funds to hundreds of American clients who had invested in insurance wrappers linked to bank accounts at Bank Frey in 2013, The Wall Street Journal has reported.

Reuters Staff, U.S. looks at Swiss insurers in offshore probe: WSJ (Reuters 2/24/2014), here.
Insurers in Switzerland have been preparing for months for U.S. officials to investigate products known as insurance wrappers - life insurance policies into which the very wealthy place stocks, private equity holdings and other bankable assets, allowing them to lower their tax rate.
Justice Department Announces Resolution under Swiss Bank Program with Union Bancaire Privée, UBP SA (DOJ Tax 1/6/16), here.
UBP maintained undeclared accounts at UBP for U.S. clients in the nominee names of non-U.S. insurance companies.  Such accounts, known commonly as insurance wrappers, were titled in the names of insurance companies but were funded with assets that were transferred to the accounts for the beneficial owners of the insurance products.  Insurance wrappers were marketed to Swiss Banks by third-party providers in the wake of the UBS investigation as a means of disguising the beneficial ownership of U.S. clients.  For example, in November 2009, UBP worked with a third-party service provider to assist a U.S. beneficial owner in restructuring three existing ac=counts he held at UBP in the names of nominee Panamanian entities into three accounts owned by the insurance company. 
* * * * 
Effective January 2001, UBP entered into a Qualified Intermediary (QI) Agreement with the IRS.  The QI Agreement was designed to help ensure that, with respect to U.S. securities held in an account with UBP, non-U.S. persons were subject to the proper U.S. withholding tax rates and U.S. persons were properly paying U.S. tax.  As a consequence of UBP entering into a QI Agreement with the IRS, UBP allowed U.S. clients to create and open accounts in the name of sham offshore entities and insurance wrappers.  Certain UBP employees caused UBP to certify compliance with the QI Agreement event though the true beneficial owners were not reflected in the IRS Forms W-8BEN in the account files.  UBP also divested U.S. securities from its undeclared U.S. accounts for the purpose of subverting its QI Agreement.

Monday, September 11, 2017

Order on Motion In Limine and Trial Briefs in Case Involving FBAR Willful Penalty (9/11/17)

In Bedrosian v United States, 2017 U.S. Dist. LEXIS 142793 (E.D. Pa. 2017), here, the Court granted the U.S. motion in limine "to preclude evidence concerning the 'procedures, actions, analyses, or viewpoints of the Internal Revenue Service and its personnel at the administrative level regarding willfulness.'"  Basically, the holding is that the FBAR willful liability at issue is determined by the Court de novo.  That means that Bedrosian's willfulness is determined based upon his own mental state -- willfulness -- and his actions in failing to report his UBS account at issue.  The IRS's administrative actions are irrelevant to that issue.

While downloading the order, I also downloaded the following:
  • Bedrosian Docket Entries as of 9/11/17, here.
  • Bedrosian Trial Brief 8/28/17, here.
  • United States Trial Brief 8/28/17, here.
The docket entries (#59) indicate a Minute entry for proceedings on 9/8/17.  I could not get to that minute entry because, the message said, "You do not have permission to view this document."  I don't know if that was the minute entries of the trial.  But, in view of the court's order the previously indicated trial time of two days was likely much shorter and could have been completed in one day.

Key points from the trial briefs are (keep in mind that, when I state a fact from the briefs, it is what the party asserts the record will establish):

Bedrosian Brief:

1.  Bedrosian told his accountant in the 1990s about UBS account.  His accountant told him that he should have been reporting the account but to "leave the account as it was and that he (or his estate) would pay taxes on the money in the account when repatriated." Plaintiff dutifully followed his accountant's "instructions."

2. The accountant passed away in 2007.  There is no indication that there is any written or otherwise objective evidence of the accountant's advice to Bedrosian other than Bedrosian's testimony.

3.  Bedrosian's new accountant (i) answered the Schedule B foreign account question in the affirmative and indicated the account was in Switzerland and (ii) prepared an FBAR with only one of two accounts listed because he "inadevertently" omitted it and "plaintiff always viewed it as one account with a subaccount."

4.  In 2009, Bedrosian began to question his reporting position, engaged an attorney who, in turn, engaged a "forensic accountant" to prepare amended returns and FBARs and engaged Swiss counsel to obtain the bank records.  Swiss counsel then advised that UBS had turned over the account information to the IRS.  "Significantly, Plaintiff had already decided to file amended returns and FBAR forms when he learned this fact.  He then filed his FBAR reports.  [JAT note:  Significantly, this flurry of activity in 2009 probably occurred after UBS was in the news for its assistance to U.S. taxpayers in evading or avoiding their income tax obligations.]

5.  In 2011, the IRS advised Bedrosian that his 2007 and 2008 returns had been selected for examination.  The following then occurred in the audit activity:

a.  Bedrosian was "very cooperative," according to the agent.

b.  The IRS agent "requested and received plaintiff's FBAR reports for 2006-2009."  It is not clear whether this was the original filing of those reports or was copies of the earlier filing after the activity in 2009.

c.  The IRS agent "ultimately determined, based on the totality of his investigation, that plaintiff's violation of the FBAR requirements was non-willful."

d.  In 2012, the IRS agent and his supervisor "met with the treaty case panel which "recommended that platintiff's case be closed with non-willful violations, thereby sustaining [the IRS agent's] conclusions."

e.  That revenue agent went out on medical leave.  Another agent was assigned to the matter and "decided that the penalty proposed by [the first revenue agent] was not correct."  Bedrosian makes certain claims as to deficiencies in the new agent's investigation.

f.  On July 18, 2013, the IRS imposed a 50% willful penalty "the highest penalty that could be imposed."  [I question this since the statute allows 50% per year, although the IRS will generally not assert more than 50% of the high amount in the open years.]

[JAT Note:  the assertions regarding the IRS investigation appear not relevant based on the Court's order on the motion in limine.]

Friday, September 8, 2017

KPMG Report Indicates 60 or 70 Swiss Private Banks are in Serious Difficulty (9/8/17)

Reuters Staff, Up to 70 Swiss private banks fighting for survival: KPMG (Reuters 9/7/17), here.  Key exerpt:
Some 60 to 70 Swiss private banks are facing serious problems that could force them to close down or sell up, according to a study published on Thursday by consultancy KPMG.
Fighting diminishing profits caused by fierce competition and a global clampdown on tax evasion, these banks must work to cut costs and buy up competitors to reach adequate size. 
But many of the affected banks will ultimately have to exit the market, the study concluded. 
“I‘m convinced that at least half will disappear,” KPMG manager Christian Hintermann said, adding many of these banks were now making losses. “It’s ultimately a question of how long their owners want to carry these losses.”
* * * * 
The number of Swiss private banks has already fallen by over a third from 180 in 2005, according to the data. 

Eighth Circuit Rejects Argument of Prosecutor Abuse in Closing Argument (9/8/17)

In United States v. Melton, ___ F.3d ___, 2017 U.S. App. LEXIS 16753 (8th Cir. 2017), here, the Court affirmed the conviction and sentence for for twelve counts of mail fraud (18 USC § 1341) and five counts of failure to pay employment taxes (§ 7202).  The defendant raised a number of arguments on appeal, mostly related to the mail fraud and its background.  I excerpt here only the discussion of the defendant's argument that the prosecutor improperly argued in closing argument that the prosecutor believed the defendant was guilty or that a witness was credible or not credible, rather than leaving those determination to the jury.  E.g., United States v. Warshak, 631 F.3d 266, 301-308 (6th Cir. 2010), reh'g and reh'g en banc denied, 2011 U.S. App. LEXIS 5007 (6th Cir. 2010) (involving a litany of improper prosecutor assertions); United States v. Bess, 593 F.2d 749, 755 (6th Cir. 1979) ("Implicit in an assertion of personal belief that a defendant is guilty, is an implied statement that the prosecutor, by virtue of his experience, knowledge and intellect, has concluded that the jury must convict. The devastating impact of such 'testimony' should be apparent."); United States v. Wolfe, 701 F.3d 1206 (7th Cir. 2012) (noting as a tyope of impermissible vouching: "a prosecutor may not express her personal belief in the truthfulness of a witness, and a prosecutor may not imply that facts not before the jury lend a witness credibility."); and United States v. Woods, 710 F.3d 195, 202 (4th Cir. 2013) ("highly improper for the government to refer to a defense witness as a liar.).

Here is the excerpt from Melton:
B. Government's Closing Argument 
Melton asserts a new trial should be granted because the government's remarks during closing affected his right to a fair trial. Because Melton did not object on those grounds during trial, we review for plain error. See United States v. White, 241 F.3d 1015, 1023 (8th Cir. 2001). The burden is on Melton to demonstrate the district court plainly erred by allowing the government's comments. See id. "We will reverse an improper remark during closing argument without an objection only under 'exceptional circumstances.'" United States v. Branch, 591 F.3d 602, 609 (8th Cir. 2009) (quoting United States v. Eldridge, 984 F.2d 943, 947 (8th Cir. 1993)). Reversal for prosecutorial misconduct requires proof that "'the prosecutor's remarks were improper,'" and "'such remarks prejudiced the defendant's rights in obtaining a fair trial.'" Id. (quoting United States v. Bentley, 561 F.3d 803, 809 (8th Cir. 2009)). 
Melton calls our attention to several statements made during closing. Referring to Melton's testimony, counsel for the government remarked, "His lips are moving, things are going through his brain coming out his mouth and it's just flat out lies. That pretty much typifies Mr. Melton." Counsel repeated he believed Melton was lying, and Melton was selling "magic" on the stand. Counsel also called Melton's testimony "silly" and "made up," and remarked, "there is just arrogance flowing from that man [Melton] right there." Near the end of his closing, counsel concluded: "The evidence is Andrew Melton is lying. . . . It's amazing what that man got up there and testified about and lied to you. . . . That man right there is guilty. Convict him." 
While these comments taken together and out of context arguably may be inappropriate for a federal government prosecutor, we liken their effect to those discussed in United States v. White, where we determined the prosecutor's comments were "questionable," but did "not rise to the level of plain error affecting [the defendant's] substantial rights." White, 241 F.3d at 1023. In White, under plain error review, the defendant challenged the prosecutor's statements that the defendant was "'lying bold face to you,'" and "'tried to lie to you,'" by suggesting he had not used drugs for several decades. Id. at 1022-23. The prosecutor also stated, "'If he can suggest to the government that witnesses are willing to lie, what kind of lies do you think he would tell in order to evade responsibility entirely?'" Id. at 1023. We determined the comments did not warrant reversal because the prosecutor "outlined the evidence and highlighted the reasons he believed [the defendant's] testimony was not credible," and "we [chose] not to employ the discretion conferred by Rule 52(b)" because it was not "a miscarriage of justice." Id. (citation omitted); see also Fed. R. Crim. P. 52(b). We reasoned it was "permissible for a prosecutor to interpret the evidence as indicating that the defendant [was] not telling the truth." Id. "So long as prosecutors do not stray from the evidence and the reasonable inferences that may be drawn from it, they, no less than defense counsel, are free to use colorful and forceful language in their arguments to the jury." United States v. Robinson, 110 F.3d 1320, 1327 (8th Cir.1997); cf. United States v. Holmes, 413 F.3d 770, 775 (8th Cir. 2005) (holding the prosecutor's closing comments implying defense counsel was "conspiring with the defendant to fabricate testimony" were "highly improper because they improperly encourage the jury to focus on the conduct and role of [the defendant's] attorney rather than on the evidence of [the defendant's] guilt"); United States v. Johnson, 968 F.2d 768, 772 (8th Cir. 1992) (granting a new trial where closing remarks improperly ignited "fear and concern engendered by the national drug epidemic"). 

Sunday, September 3, 2017

Consideration of Sentencing Disparities in Sentencing (9/3/17; 9/8/17)

In United States v. Pierre, ___ F.3d ___, 2017 U.S. App. LEXIS 16851 (8th Cir. 2017), here, the Eighth Circuit affirmed the conviction and sentence of the defendant for defraud conspiracy with respect to Government claims (18 USC § 286) and for money laundering (18 USC § 1957).  The defraud conspiracy related to multiple false refund claims.  Only one part of the opinion caught my particular attention.  In the opinion, the Court held:
Pierre also complains that the district court created unwarranted sentencing disparities when it sentenced him based on intended loss ($5.2 million) rather than actual loss ($1.2 million), because his co-conspirators received sentences based on the actual loss amount attributable to them. The guidelines direct the court to consider the greater of actual loss or intended loss, USSG § 2B1.1, comment. (n.3(A)), so there was no error in using the larger amount. The statutory direction to avoid unwarranted disparities among defendants, 18 U.S.C. § 3553(a)(6), refers to national disparities, not differences among co-conspirators, so Pierre's argument founders on a mistaken premise. See United States v. Fry, 792 F.3d 884, 892-93 (8th Cir. 2015). In any event, any disparity among co-conspirators here was warranted by Pierre's greater culpability in the conspiracy. Pierre was aware of the full scope of the conspiracy: he recruited co-conspirators to open several phony tax-preparation companies and bank accounts, and he directed them to deposit and withdraw money from the bank accounts. Most of the co-conspirators were associated with only a single fictitious company and bank account. The district court reasonably sentenced Pierre based on a greater amount of loss.
For review, 18 USC § 3553(a), here, states the "Factors To Be Considered in Imposing a Sentence," including in subparagraph (6) "the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct."  § 3553(b) requires the sentencing court to "impose a sentence of the kind, and within the range, referred to in subsection (a)(4) unless the court finds that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described."  As interpreted by Booker, the Court has ultimate discretion in applying the § 355a(a) factors to vary from the Guidelines.

The concurring judge, Kelly, disagreed that the majority should have reached the proper scope of the "unwarranted sentence disparities" command of 18 USC § 3553(a)(6).  His concurring opinion is short, so I quote it in full:
Our court has not previously decided whether "[t]he statutory direction to avoid unwarranted disparities among defendants [in accordance with] 18 U.S.C. § 3553(a)(6) refers to national disparities [rather than] differences among co-conspirators." Supra at 8. See Fry, 792 F.3d at 892-93 (noting in dicta that "[m]ost courts say that the statutory direction to avoid unwarranted sentence disparities, see 18 U.S.C. § 3553(a)(6), refers to national disparities, not differences among co-conspirators" but affirming defendant's longer sentence as substantively reasonable when compared to sentences of other participants in fraud scheme because "disparate sentences among dissimilar defendants are not unwarranted") (emphasis omitted); United States v. Nshanian, 821 F.3d 1013, 1019 (8th Cir. 2016) (citing Fry, 792 F.3d at 892, but nonetheless "[a]ssuming for the sake of analysis that the statutory direction to avoid unwarranted sentence disparities might refer to differences among co-conspirators rather than national disparities"); United States v. Avalos, 817 F.3d 597, 602 (8th Cir. 2016) (citing Fry, 792 F.3d at 892-93, but "assuming for the sake of analysis that sentence disparities among co-conspirators could demonstrate unreasonableness"). In my view, there is no need to do so here, because any disparity between Pierre's sentence and those of his co-conspirators was warranted for the reasons stated by the court. For this reason, I concur in the result, but not in the conclusion regarding the proper scope of § 3553(a)(6). I otherwise concur in the court's opinion.
For some more context, I thought I would first offer a quote from a Supreme Court case on § 3556(a)(6), then offer a discussion Judge Jack Weinstein by linking to a prior blog discussion, and then some quotes from some representative tax cases.  I caution that these examples are more anecdotal to give readers some flavor for the analysis and are not intended to be exhaustive or even a fair representation of the § 3556(a)(6) authority: