Tuesday, May 24, 2016

Prominent and Very Rich Investor Indicted in SDNY (5/24/16)

Most readers will already know of the indictment of Morrris E. Zukerman, an affluent alleged tax cheat.  The indictment is here and the Press Release from the USAO SDNY is here.  One of the news items about this indictment is:  Jesse Drucker, Oil Investor Zukerman Dodged $45 Million in Taxes, U.S. Says (Bloomberg News 5/23/16), here.

I think the USAO SDNY provides a good summary of the criminal mischief.  The key excerpts from the press release are:
MORRIS E. ZUKERMAN, a Manhattan businessman who owns companies involved in energy investments, was charged today in a three-count Indictment with engaging in multi-year tax fraud schemes pursuant to which he evaded over $45 million in income and other taxes.   
* * * * 
U.S. Attorney Preet Bharara said: “As alleged in the indictment, Morris Zukerman cheated on virtually all of his various tax obligations: he evaded tens of millions of dollars of corporate income taxes arising out of $130 million sale of an oil company; he prepared personal tax returns for himself and family members that claimed millions of false deductions; he evaded employment taxes based on personal employees; and he evaded New York sales and use taxes.  To top it off, when the IRS auditors examined his returns, Zukerman allegedly schemed to defraud and obstruct the IRS auditors who were examining his false tax returns.” 
* * * * 
According to the Indictment unsealed today in Manhattan federal court and other court filings related to this matter: 
ZUKERMAN, the principal of M.E. Zukerman & Co. (“MEZCO”), an investment firm located in Manhattan, schemed to evade taxes based on income received from the January 2008 sale of a petroleum products company (the “Oil Company”) he co-owned (through a MEZCO subsidiary) with a public company.  ZUKERMAN schemed to evade the reporting of the sale – which resulted in the receipt by the MEZCO subsidiary of $130 million in gross sales proceeds – by falsely telling his accountants in mid-2008 that he had transferred ownership of the MEZCO subsidiary to a family trust in early 2007.  In support of the story he gave to the accountants, ZUKERMAN created backdated documents such as promissory notes and a board resolution purporting to show the transfer of the subsidiary to his family trust in 2007.  The false documents allowed ZUKERMAN to remove the MEZCO subsidiary from the consolidated tax reporting being handled by the accountants for MEZCO and thereby evade the reporting to the IRS of the sale of the Oil Company, as well as the payment of over $35 million in corporate income taxes. 
Following the sale of the Oil Company, ZUKERMAN transferred the proceeds of the sale from the MEZCO subsidiary to his family trust and various corporations he controlled, including a company called Zukerman Investments.  Between 2008 and 2013, ZUKERMAN directed that over $50 million of the funds transferred to Zukerman Investments be used to purchase paintings by European artists from the 15th through the 19th centuries (the “Old Master paintings”), which ZUKERMAN used to decorate his Upper East Side apartment and the apartments of two family members – Family Member-1 and Family Member-2.

Wednesday, May 18, 2016

Whack a Mole - Fifth Circuit Confirms that the Stench of a Bullshit Shelter Does Not Smell Better with Time (5/18/16)

In Chemtech Royalty Associates, L.P. as Tax Matters Ptnr v. United States, ___ F.3d ___, 2016 U.S. App. LEXIS 9037 (5th Cir. 5/17/16), here, the Fifth Circuit rejected odorific (Urban Dictionary here) arguments in support of the bona fides of the partnership's investment bullshit tax shelter.  The Fifth Circuit had previously called the shelter itself foul indeed.  See Chemtech Royalty Assocs., L.P. v. United States, 766 F.3d 453 (5th Cir. 2014); see my blog on the prior Fifth Circuit opinion in Another Bullshit Tax Shelter Bites the Dust on Appeal Also (Federal Tax Crimes Blog 9/12/14; 9/20/14), here.  This time on appeal the issue was whether the partnership could avoid a penalty after the Fifth Circuit had previously called the shelter foul indeed.

In the first appeal, the district court had rejected the merits of the shelter (a holding affirmed on appeal) and held that two 20% accuracy related penalties applied -- the negligence and the substantial understatement.  Each of those penalties could apply, although only one 20% accuracy related penalty would apply (2 reasons for the one penalty).  The taxpayer appealed.  In the first opinion calling the merits of the shelter foul indeed, the Fifth Circuit vacated the penalties to remand for the district court to determine whether the penalties remained applicable in light of the Fifth Circuit opinion on the merits and the Supreme Court's opinion in United States v. Woods, 134 S. Ct. 557 (2013) (which actually involved the substantial and gross valuation misstatement penalties but which effectively, according to the Fifth Circuit, overruled two Fifth Circuit precedents).  On the remand, the district court re-affirmed the application of the negligence and substantial understatement penalties, and the partnership again appealed.

In this iteration, the Fifth Circuit held the negligence penalty applicable but deferred opining on the substantial understatement penalty.  It seems to me that the Court's opinion is a bit confusing (at least to me), so I will try to summarize my understanding of how the Court got there.

1.  The substantial understatement penalty.  Because the transaction in question was a tax shelter, the substantial understatement penalty applied unless, under the law applicable at the time, the taxpayer established that it reasonably believed that the tax benefits were more likely than not to prevail.  The Court essentially ducked that issue for now, by holding that the defense based on reasonable belief did not have to be litigated in the partnership proceeding, thus perhaps deferring it to another day when the taxpayer might pursue it.

2. The negligence penalty.  After rejecting the Government's procedural arguments to consideration of the taxpayer's defense to the negligence penalty, the Court rejected the partnership's claim that it had substantial authority, a traditional defense to the negligence penalty.  Basically, there was no substantial authority that the a taxpayer can hide a lending arrangement as a partnership.

Readers of this blog will recall that the Second Circuit said basically the same thing in GE's tax shelter misadventure in TIFD-III-E Inc. v. United States, 604 Fed. Appx. 69 (2d Cir. 2015), which, like the instant case, bounced from trial court to appellate court with the only difference that there was an obstinate trial judge in TIFD trying to help GE; the Second Circuit had to call the matter to a halt in a way that did not appear favorable to either GE or the trial judge; in the instant case, of course, the trial judge got it right and was affirmed by the Fifth Circuit.  See on the TIFD saga, my discussion of the final Second Circuit holding GE Gets Slapped Down Again for its BullShit Tax Shelter (Federal Tax Crimes Blog 5/20/15), here.

Sunday, May 15, 2016

Sam Wyly's Continuing Travails -- the Bankruptcy Edition (5/15/16; 5/21/16)

I have previously written about the travails, visited upon themselves, by the Wyly brothers, Sam and Charles, very wealthy men who decided that they did not have to play by the rules.  All blog entries on the Wyly's are here.  The Wyly brothers lost a previous round on disgorgement by the SEC.  See Wylys Ordered to Disgorge Hundreds of Millions of Tax Benefits With Interest (Federal Tax Crimes Blog 9/27/14), here.

The latest chapter is a bankruptcy decision involving Sam Wyly, Charles Wyly and Charles' wife, Dee Wyly.  In re Samuel Evans Wyly, et. al. (Bkr No. 14-35043-BJH 5/10/16), here (because of the length of the opinion, I have used the Adobe bookmarking feature to bookmark in outline format because of its length; readers can download and use the bookmarks to more easily move around the lengthy document).  [JAT Note I just discovered on 5/21/16 that I had the wrong link to the opinion; I have corrected that and apologize to readers.]  The opinion is 459 pages (including Exhibits).  Without exhibits and excluding the table of contents, the opinion is 427 pages long.  This is a substantial read, depending on the level the reader chooses to drill down into the opinion.  For those merely wanting the judge's own summary, see the Conclusion which is 9 pages, beginning on p.418 and ending on page 427.  The bottom line (my summary of the judge's summary as to the key holdings):

1.  The issues (p. 418, footnote omitted):  "First, did Sam and Charles commit tax fraud? Second, if they did, what role, if any, did Dee have in that fraud?"

2. The conclusion as to Sam and Charles (p. 419):  "the Court is convinced — by clear and convincing evidence — that Sam and Charles committed tax fraud."

3.  The linchpin for the offshore structure was that a key trust created in 1992 was a nongrantor trust as to Sam and Charles.  Although Sam and Charles, through their advisor, received a number of opinions as to various facets of the structure, he never received an opinion that this key nongrantor trust linchpin was met until 2003.  Actually in 1993, Sam's and Charles' advisor had been told by a lawyer that an expert on this subject had concluded that there was a "significant risk" that the trust would be characterized as a grantor trust, which would defeat the planning.  At that point, the lawyer advised that the Wylys needed a real nongrantor trust settled by someone other than Wylys so that the Wylys were not grantors.  The characteristics of such a nongrantor trust were:
(i) the grantor of the trust has known the Wylys “for a considerable period of time,” (ii) the trust is being established as “an entirely gratuitous act,” and (iii) the grantor has not received and will not receive any “consideration, reimbursement or other benefit” for settling the trust, “directly or indirectly.”
4.  Then, pursuant to the advice, "an individual residing in the IOM [Isle of Man] who Sam barely knew, King, settled a trust in February 1994 naming Sam and his family members as beneficiaries."  The factual predicates stated in the documents for the new trust were false.  But, Sam began acting as if the façade was real.
Sam starts transacting business through it offshore by undertaking two more complicated private annuity transactions in 19961672 and a myriad of extremely complicated real estate transactions involving, among other things, homes, an art gallery, and an office for himself and other family members in Texas and Colorado in the late 1990s and early 2000s1673—all tax and reporting free.
5.  Sam then causes to be settled a similar supposed nongrantor trust through the façade of a stranger, again with false statements in the documents.  The Court takes the trouble to quote the key lies in its Conclusion, so here it is with the nominal nongrantor making the statement:
I wanted to take this opportunity to let you know what a pleasure it has been knowing you over the past years and dealing with you on both business and social matters. I appreciate your many courtesies. As you know, I have established a trust with Wychwood Trust Limited, called The La Fourche Trust, for the benefit of you and your family, and have provided this trust with the sum of $25,000.00. This is to show my gratitude for your loyalty to our mutual ventures and your personal support and friendship. I hope that, wisely managed, this trust fund can grow for many years and inure to the benefit of many generations of your family.
The Court says "All of this is a lie, except that the La Fourche IOM Trust was established with Wychwood Trust Limited."  [Those who have watched bullshit offshore planning will easily recognize this type of façade built on lies.]  Based on the lies and the façade of a nongrantor trust, a legal opinion was then forthcoming that the structure depending on the façade would work tax magic.  Of course, Sam claimed not to know about the lies (meaning, if believed, Sam's own lawyer had kept him in the dark), but the Court notes:
did Sam not wonder why King and Cairns, one individual he barely knew and the other who he did not know at all, each settled a trust with $25,000 in the IOM and named him and his wife and children as beneficiaries? Perhaps that happens all the time in Sam’s life, but if it happened in mine, I would be asking questions—lots of them.

Tuesday, May 10, 2016

Letter 3708 Demand for Payment of FBAR Penalty Assessment (5/10/16)

A colleague has provided a redacted copy of Letter 3708, here, which a client received after having been assessed FBAR penalties that remained unpaid.  Basically, the letter is a demand for payment.

The letter discusses payment options such as an installment agreement.  The letter also discusses interest and penalties that accrue after 30 days.  Interest accrues at 1% per year; penalties accrue at 6% per year after 90 days.

If the payment is not made within 30 days, the letter advises that the IRS has following collection enforcement options which may result in additional costs:
• Referral to the Department of Justice to initiate litigation against you.
• Referral to the Department of the Treasury's Financial Management Service. (This referral involves an additional debt-servicing fee that is approximately 18% of the balance due.)
• Referral to private collection agencies. (Referral to a private collection agency increases the additional debt-servicing fee from approximately 18% to 28% of the balance due.)
• Offset of federal payments such as income tax refunds and certain benefit payments such as social security.
• Administrative wage garnishment.
• Revocation or suspension of federal licenses, permits or privileges.
• Ineligibility for federal loans, loan insurance or guarantees
The letter also advises that (i) Administrative Appeals rights are available if not previously offered and (ii) refund suit may be available in the district court or the Court of Federal Claims.  In a refund action, one early issue will be whether the penalty is subject to a full-payment rule of the type that applies in income tax matters under the Flora rule.  I don't think so, but won't go down that rabbit-trail right now.

Among the bulleted options above, the Government's maximum leverage will come from a DOJ suit to reduce the assessment to judgment.

My colleague who provided the letter asked for input from readers whether the Government has exercised any of the listed collection alternatives other than suit to reduce the assessment to judgment.  My understanding is that the Government can do the Treasury offset and the garnishment whether or not a suit was filed within the key two year period.  And presumably the Government can do the actions that are not directly collection actions (the latter two).  But I wonder whether the Government could refer the debt to private collection agencies without obtaining a judgment in the required two year period.  I and he would appreciate hearing from others on this issue.

Aiding and Assisting Sentence After Extradition from Germany (5/10/16)

I received an email press release dated May 9, 2016 from IRS CI with the following information about a tax sentencing:
A former Orange County resident was sentenced this morning by United States District Court Judge Percy Anderson to a term of imprisonment of one year and one day for providing false and incomplete information to his income tax return preparer. 
Donald M. Baxi, 69, a Canadian citizen formerly residing in Ladera Ranch, was further ordered by Judge Anderson to pay restitution of $56,319. 
Baxi pleaded guilty in March to one count of aiding and abetting in the preparation of a false income tax return.  According to the plea agreement filed in the case, Baxi was responsible for having the partnership income tax returns of Vintages Wine Bar, LLC (“VWB”), prepared and filed with the Internal Revenue Service.  For each of the years 2003, 2004, and 2005, Baxi deliberately provided false and incomplete information to his tax return preparer so that VWB’s interest income would not be reported to the IRS.  During these years however, VWB received interest income from two separate sources totaling $201,142.  This unreported interest income caused a tax loss to the government of $56,319. 
In November 2010, a federal grand jury indicted Baxi on six counts of aiding and assisting in the preparation of false income tax returns.  Upon learning of those charges, Baxi fled the United States. 
Five years after being indicted by a federal grand jury on tax charges, Baxi was arrested by German authorities and extradited back to the United States to face the charges contained in the indictment. 
Baxi was convicted of garden-variety aiding and assisting, Section 7206(2).  See the plea agreement here.  The interesting part is that the inference from the press release is that he chose to flee the country, thereby becoming a fugitive after being indicted. (The facts themselves may be a bit more nuanced as I discuss below.)  His absence from the U.S. led ultimately to his extradition from Germany.  The more surprising part is that, according to the pleadings submitted by the parties, the defendant's alleged flight from the U.S. to avoid trial seems not to have been that significant a factor, if a factor at all.  The U.S. original sentencing position pleading, here, had this cryptic statement in closing:
Finally, it appears to the government that defendant deliberately attempted to avoid arrest in this case, keeping himself out of the country and attempting to remove his name from the INTERPOL watch list. See facts proffered in Government's Request for Detention (Doc. 11). This conduct too supports a sentence of 15 months incarceration.
Fifteen months was a mid-range sentence, with the Guidelines range being 12 to 18 months.

Monday, May 9, 2016

Articles on ICIJ's Panama Papers and Ramifications (5/9/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:
  • Wikipedia entry on Panama Papers, here.
  • Wikipedia list of people named in Panama Papers, here.
In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Andrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

ICIJ's searchable database released 5/8/16, here.  The searchable database has this opening disclaimer:
There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly. Many people and entities have the same or similar names. We suggest you confirm the identities of any individuals or entities located in the database based on addresses or other identifiable information. If you find an error in the database please get in touch with us.
The page has links and allows users to download the database (or subsets of it in csv format) here.  I love databases but am not familiar with the database ICIJ uses:  Neo4j, here, a graph database engine that structures data in nodes (the icons you see in the visualization) and edges (the links between nodes).  I plan to try to dig into the database later, but will probably first poke around the cvs files (viewable in Excel) to see the scope of what is there.

ICIJ releases database revealing thousands of secret offshore companies (ICIJ 5/9/16), here.
The new data that ICIJ is now making public represents a fraction of the Panama Papers, a trove of more than 11.5 million leaked files from the Panama-based law firm Mossack Fonseca, one of the world’s top creators of hard-to-trace companies, trusts and foundations. 
ICIJ is not publishing the totality of the leak, and it is not disclosing raw documents or personal information en masse. The database contains a great deal of information about company owners, proxies and intermediaries in secrecy jurisdictions, but it doesn’t disclose bank accounts, email exchanges and financial transactions contained in the documents. 
* * * * 
The Panama Papers underscore the fundamental injustices and inequalities created by the offshore system, media commentators and political leaders say. 
“When taxes are evaded, when state assets are taken and put into these havens, all of these things can have a tremendous negative effect on our mission to end poverty and boost prosperity,” Jim Yong Kim, the president of the World Bank, said as he opened the spring meetings of the World Bank and IMF in Washington soon after ICIJ and more than 100 other news organizations began revealing the results of the media collaboration’s investigation. 
President Barack Obama, meanwhile, pointed out that the biggest problem was that many of the schemes revealed by the Panama Papers were legal. “It’s not that they’re breaking the laws, it’s that the laws are so poorly designed,” he said. 

Selected Items from ABA Tax Section Civil and Criminal Penalties Session (5/9/16; 5/10/16)

On 5/10/16, I added item 7 regarding whether, in Streamlined, the IRS might require adjustments for earlier years where the statute of limitations might otherwise be open.

I attended the ABA Tax Section May Meeting this past week.  My favorite session at these meetings is the Civil and Criminal Tax Penalties Meeting on Saturday.  I cover here the highlights from my perspective, but do not cover those items that I have previously covered in earlier blog entries:

1. Panama Papers.  Not much new was provided regarding the Panama Papers Disclosures.  See my  posting from last Friday, Articles on ICIJ's Panama Papers and Ramifications (Federal Tax Crimes Blog 5/6/16), here.  I expect to offer soon more on the President's and related initiatives announced.

2. Luis v. United States, No. 14-419, 578 U.S. ____, 130 S. Ct. 1083, 2016 U.S. LEXIS 2272 (March 30, 2016), here.  The Supreme Court held that untainted assets -- assets not obtained from the alleged illegal conduct -- could not be forfeited or restrained in violation of the owner's Sixth Amendment  right to retain counsel.  Prior cases permitted forfeiture or restraint of tainted funds.  See Kaley v. United States, 571 U.S. ___, 134 S. Ct. 1090 (2014), Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, (1989), and United States v. Monsanto, 491 U.S. 600, (1989).  The Government wanted to preserve the untainted funds for payment of restitution and penalties.  The Court adopted a balancing of interest approach rather than a clear rule.

3. Anecdotal evidence indicates that the IRS may be focusing on attorney Form 8300 compliance.  Form 8300 if a joint IRS and FinCEN form to report cash payments over $10,000 received in a trade or business.  Exams are focusing on aggregation issues, correct and timely filing of Form 8300, and timely notice to the payor of the currency.

4. The key recent inclusion in the Domestic Voluntary Disclosure Program is the requirement for preclearance, a procedure clearly inspired by preclearance in OVDP.  If the preclearance clears (meaning the IRS has no disqualifying indication), the IRS sends for completion a 10 question "intake" letter.  Rather than focusing on others involved as the OVDP intake letter does, the Domestic Voluntary Disclosures intake letter focuses on the actions of the taxpayer.  Assuming the intake responses clear, the taxpayer will be directed to send amended or delinquent returns to an IRS office in Massachusetts.  It is reported that the IRS has been reasonable in the number of years of amended or delinquent returns required.  It is not clear where "quiet disclosures" fit in the new scheme, but presumably the formal program with preclearance and intake letters would be appropriate only for the "nonwillful." (JAT conclusion)  I will try to do a blog entry on the state of domestic voluntary disclosures this week.

5. There was discussion of potential criminal prosecution of false Streamlined Certification.  It was generally agreed that a streamlined certification (Foreign or Domestic) which has a robust narrative of the material good and bad facts should not generate a criminal action for false certification even if the IRS disagrees with the taxpayer's conclusion that those facts support nonwillfulness.  Where, however, the taxpayer fails to properly and fairly disclose the material facts-- good and bad -- the taxpayer may be at risk of prosecution.  I suppose the one caveat would be where the facts fully and fairly disclosed do not in any reasonable way support nonwillfulness, there might be prosecution or some other untoward response.

6. With regard to Streamlined Voluntary Disclosures, there was some noise that the IRS will be deploying incoming information from other sources to ensure that the Streamlined Voluntary Disclosures are complete.  If the amended returns and FBARs submitted in the Streamlined Voluntary Disclosure process are not reasonably complete, the taxpayer will be at considerable risk to explain why.

7. One key discussion at the meeting involved whether the Streamlined Program which requires three years of amended returns (and in the case of SFOP, delinquent returns) and 6 years of FBARs effectively closes out exposure for earlier years.  Years other than the latest three years for which amended returns are required could be open for a couple of reasons.  Since the predicate for Streamlined qualification is that the taxpayer acted nonwillfully (same as civil fraud), I assume that the earlier years are not open under the fraud exception that keeps the statute open forever.  So, absent fraud, why would earlier years be open, keeping in mind that the general statute is three years and the taxpayer is delivering 3 years of amended or delinquent returns?  First, all years in which the taxpayer failed to file a return could be open.  For example, if the taxpayer moved overseas 10 years ago for legitimate reasons but failed to file returns after the move, all of those years would otherwise be open.  Second, for those taxpayers filing returns (and assuming no fraud), the statute could be open for 6 years rather than the normal three years for two years -- a 25% income omission or a $5,000+ income omission for Form 8938 assets.  So, the question was whether, as to any year before the covered three years in the Streamlined program that might otherwise be open, is there any assurance that the IRS will not require adjustments for those years?  The Streamlined programs textually offer no such assurance, but most practitioners have assumed that, given its design and the way voluntary disclosure programs have worked in the past, earlier years would not be subject to adjustment.  John McDougal, an IRS attorney who has been a major player in the IRS's offshore initiatives since the inception, said that, while he could only speak for himself and not the IRS (the standard disclaimer), he thinks there is practical assurance because that is the design of the program and seems to be implicit.  He said that, should the IRS choose to go after earlier years, that action would impede the effectiveness of the program that encourages people to get back into the system to the extent they have not in the past.  Fewer people would join the program, and the IRS will have shot itself in the foot.  While Mr. McDougal is a lone voice not speaking for the IRS, he is an authoritative voice whose comments need to be considered by taxpayers and practitioners.

Friday, May 6, 2016

Articles on ICIJ's Panama Papers and Ramifications (5/6/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:
  • Wikipedia entry on Panama Papers, here.
  • Wikipedia list of people named in Panama Papers, here.
In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Andrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Scott Shane and Eric Lipton, Panama Papers Source Offers to Aid Inquiries if Exempt From Punishment (New York Times 5/6/16), here.
The anonymous source behind the huge leak of documents known as the Panama Papers has offered to aid law enforcement officials in prosecutions related to offshore money laundering and tax evasion, but only if assured of protection from punishment.
“Legitimate whistle-blowers who expose unquestionable wrongdoing, whether insiders or outsiders, deserve immunity from government retribution,” the source, who has still not revealed a name or nationality, said in a statement issued Thursday night. 
The documents, which list the true owners of thousands of companies created to hide the people behind them, expose the holdings of current and former world leaders and other prominent figures. The source, who uses the pseudonym John Doe but whose gender is not known, said that the papers could spur thousands of prosecutions, “if only law enforcement could access and evaluate the actual documents.” 
John Doe noted that journalists who have viewed the papers have said they will not turn over the full archive of 11.5 million documents. “I, however, would be willing to cooperate with law enforcement to the extent that I am able,” the source wrote.
The statement, which was issued Thursday night under the condition that it not be reported until Friday morning, gave some hints about John Doe’s political views and concerns. They include income inequality, the American campaign finance system and the “revolving door” of United States officials who take jobs at banks or other companies they once regulated.
Tonya Somander, President Obama's Efforts on Financial Transparency and Anti-Corruption: What You Need to Know (White House Blog 5/6/16), here
What do today’s actions do to help address this kind of financial abuse?  
Today, the Treasury Department took several steps to increase transparency and disclosure requirements. 
First, the Treasury Department finalized its “customer due diligence” rule, which requires financial institutions – such as banks , mutual funds, and other financial institutions – to find out and verify who actually owns and profits from the companies that make use of their services, i.e, the “beneficial owner.” Under this rule, if an entity (like a shell company) opens an account at a financial institution, that institution will be required to identify and verify the real people actually behind that entity. And law enforcement can then seek out that information from those institutions. 
By requiring disclosure of beneficial ownership information, we will increase financial transparency and give financial institutions and law enforcement the ability to identify the assets and accounts of criminals and national security threats. 
Now, while the beneficial owners of shell companies often exploit weak rules in offshore tax havens, gaps also exist in U.S. tax rules that foreigners can currently exploit to set up and hide their assets or financial activity in an anonymous shell company in the United States.
So the second step Treasury took today is to propose a rule that would plug this gap by requiring certain foreign-owned companies to obtain a tax identification number from the IRS, thereby requiring these entities to report ownership and transaction information to the IRS. 
Taken together, these steps go a long way in helping to combat money laundering and tax evasion, but additional tools are needed to promote transparency and strengthen law enforcement. And only Congress can help on that front.  

Wednesday, May 4, 2016

Video from Offshore Alert Conference 2016 (5/4/16)

Video on Panama Papers from the Offshore Alert Conference at the Ritz-Carlton, South Beach, 2016.  The video is here.  The conference details are here.  The speakers are here.

I have not had time to review the video, but I am told that the video includes a statement by ICIJ Director (Gerard Ryle) that there are a lot of US names yet to be revealed, including many non-US citizens residing in the USA (and using non-US passports to set up their offshore vehicles and accounts via Mossack Fonseca).

The speakers in the video are:
GERARD RYLE, Director, International Consortium of Investigative Journalists (Washington, D.C.)
ARTHUR VANDESANDE, Founder, Concorde Associates & Retired Senior Special Agent, IRS Criminal Investigation, Offshore Coordinator (Miami).

Monday, May 2, 2016

DC Circuit Opinion Limiting District Court Oversight of Deferred Prosecution Agreements (5/2/16)

The Government has used deferred prosecution agreements (DPAs) in tax cases (e.g. the UBS DPA in 2009 and the DPAs offered in the DOJ Tax Swiss Bank initiative).  For the UBS Deferred Prosecution Agreement and other DOJ Preferred Prosecution Agreements see Brandon Garrett's excellent compilation on his UVA Law Website here; and for the DOJ Tax Swiss Bank Initiative which offered nonprosecution agreements but reserved the right to required a DPA in a particularly egregious case (see Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks, par. II.K. (apparently, as yet DOJ Tax does not seem to have exercised that discretion, see here.))

Readers interested in DPAs likely will want to read the opinion in United States v. Fokker, ___ F.3d ___, 2016 U.S. App. LEXIS 6176 (DC Cir. 2016), here.  Bottom line, the decision gives wide deference to prosecutiorial discretion in charging decisions and limits the district court's discretionary oversight in accepting DPAs.  The opinion is notable for its content, but also notable because it is written by Judge Srinivasan, Wikipedia here, who was recently on the short list for appointment to the Supreme Court and who, likely, will be on the short list for the next President, to use President Obama's phrase, "whoever she is."  I focus in this blog only on the content of the opinion limiting the district court's discretion.

Although I strongly encourage federal tax crimes and white collar crimes enthusiasts to read and study the opinion, I offer here the opening of the opinion to introduce the summary background and holding in the opinion:
The Constitution allocates primacy in criminal charging decisions to the Executive Branch. The Executive’s charging authority embraces decisions about whether to initiate charges, whom to prosecute, which charges to bring, and whether to dismiss charges once brought. It has long been settled that the Judiciary generally lacks authority to second-guess those Executive determinations, much less to impose its own charging preferences. The courts instead take the prosecution’s charging decisions largely as a given, and assume a more active role in administering adjudication of a defendant’s guilt and determining the appropriate sentence.  
In certain situations, rather than choose between the opposing poles of pursuing a criminal conviction or forgoing any criminal charges altogether, the Executive may conclude that the public interest warrants the intermediate option of a deferred prosecution agreement (DPA). Under a DPA, the government formally initiates prosecution but agrees to dismiss all charges if the defendant abides by negotiated conditions over a prescribed period of time. Adherence to the conditions enables the defendant to demonstrate compliance with the law. If the defendant fails to satisfy the conditions, the government can then pursue the charges based on facts admitted in the agreement. 
This case arises from the interplay between the operation of a DPA and the running of time limitations under the Speedy Trial Act. Because a DPA involves the formal initiation of criminal charges, the agreement triggers the Speedy Trial Act’s time limits for the commencement of a criminal trial. In order to enable the government to assess the defendant’s satisfaction of the DPA’s conditions over the time period of the agreement—with an eye towards potential dismissal of the charges—the Speedy Trial Act specifically allows for a court to suspend the running of the time within which to commence a trial for any period during which the government defers prosecution under a DPA.  
In this case, appellant Fokker Services voluntarily disclosed its potential violation of federal sanctions and export control laws. After extensive negotiations, the company and the government entered into an 18-month DPA, during which Fokker would continue cooperation with federal authorities and implementation of a substantial compliance program. In accordance with the DPA, the government filed criminal charges against the company, together with a joint motion to suspend the running of time under the Speedy Trial Act pending assessment of the company’s adherence to the agreement’s conditions. The district court denied the motion because, in the court’s view, the prosecution had been too lenient in agreeing to, and structuring, the DPA. Among other objections, the court disagreed with prosecutors’ decision to forgo bringing any criminal charges against
individual company officers. 
We vacate the district court’s denial of the joint motion to exclude time under the Speedy Trial Act. We hold that the Act confers no authority in a court to withhold exclusion of time pursuant to a DPA based on concerns that the government should bring different charges or should charge different defendants. Congress, in providing for courts to approve the exclusion of time pursuant to a DPA, acted against the backdrop of long-settled understandings about the independence of the Executive with regard to charging decisions. Nothing in the statute’s terms or structure suggests any intention to subvert those constitutionally rooted principles so as to enable the Judiciary to second-guess the Executive’s exercise of discretion over the initiation and dismissal of criminal charges. 
In vacating the district court order, we have no occasion to disagree (or agree) with that court’s concerns about the government’s charging decisions in this case. Rather, the fundamental point is that those determinations are for the Executive—not the courts—to make. We therefore grant the government’s petition for a writ of mandamus and remand for further proceedings consistent with this opinion.

Sunday, May 1, 2016

Articles on ICIJ's Panama Papers and Ramifications (5/1/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:
  • Wikipedia entry on Panama Papers, here.
  • Wikipedia list of people named in Panama Papers, here.
In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Andrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Frederik Obermaier, Bastian Obermayer, Vanessa Wormer and Wolfgang Jaschensky, About the Panama Papers (Süddeutsche Zeitung), here.  A great report (with links) from the newspaper and reporters that originally obtained the data.

Coming Soon: ICIJ to Release Panama Papers Offshore Companies Data (ICIJ 4/26/16), here.
The International Consortium of Investigative Journalists will release on May 9 a searchable database with information on more than 200,000 offshore entities that are part of the Panama Papers investigation. 
The database will likely be the largest ever release of secret offshore companies and the people behind them. 
* * * * 
While the database opens up a world that has never been revealed on such a massive scale, the application will not be a “data dump” of the original documents – it will be a careful release of basic corporate information . 
ICIJ won’t release personal data en masse; the database will not include records of bank accounts and financial transactions, emails and other correspondence, passports and telephone numbers. The selected and limited information is being published in the public interest. 
Meanwhile ICIJ, the German newspaper Süddeutsche Zeitung which received the leak, and other global media partners, including several new outlets in countries where ICIJ has not been able to report, will continue to investigate and publish stories in the weeks and months to come.
Meta S. Brown, Why Panama Papers Journalists Use Graph Databases (Forbes 4/30/16), here.

Saturday, April 30, 2016

FRE 404( b) Order on Motion in Limine for Charges under § 7214(a)(5) & (7) (4/30/16)

This posting will be for students and new practitioners.  Most experienced practitioners will have encountered the key FRE 404(b), here, issue before.

In United States v. English, 2016 U.S. Dist. LEXIS 54352 (ED 2016), the Court ruled on the Government's Motion in :imine involving, in part, FRE 404(b).  A motion in limine is a pre-trial motion filed to address some matter, usually evidentiary, that is expected to arise during the trial and that may efficiently be handled prior to trial.  I have stated the case name as United States v. English, which is the style of the key Order on Motion in Limine that I discuss here.  The indictment, however, stated her name as Kimberly Brown-English.  I don't know why the subsequent Order uses only English, but for convenience I refer to her as English here as did the Order rather than Brown-English.

First I will offer some background.

The relevant documents are:

  1. Docket Entries through 4/29/16, here.
  2. Indictment filed 10/9/14, here.
  3. Government's Motion in Limine, here.
  4. Defendant's Opposition to Government's Motion in Limine, here.
  5. Government's Reply to Defendant's Opposition to Government's Motion in Limine, here.
  6. Order on Government's Motion in Limine, here.

The defendant, Kimberly English (English), was charged with six counts of violating § 7214(a)(5) & (7), here, which provides in relevant part:
26 U.S. Code § 7214 - Offenses by officers and employees of the United States
(a) Unlawful acts of revenue officers or agents. Any officer or employee of the United States acting in connection with any revenue law of the United States—
* * * *
(5) who knowingly makes opportunity for any person to defraud the United States, or
* * * *
(7) who makes or signs any fraudulent entry in any book, or makes or signs any fraudulent certificate, return, or statement, * * * *
shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both. The court may in its discretion award out of the fine so imposed an amount, not in excess of one-half thereof, for the use of the informer, if any, who shall be ascertained by the judgment of the court. The court also shall render judgment against the said officer or employee for the amount of damages sustained in favor of the party injured, to be collected by execution.
According to the indictment, English was an employee of the IRS.  During the relevant period,
her primary duty was to provide assistance to taxpayers throughout the United States that were under IRS examination by educating taxpayers on tax laws and helping them resolve IRS examination issues. To hold the position, defendant KIMBERLY BROWN-ENGLISH was required to complete training courses that included, among other topics, the Earned Income Credit, Child Tax Credits, claimed dependents, and filing status (e.g., status as Head of Household).

Friday, April 29, 2016

An Interesting CDP Case with Foreign Bank Aspects (4/29/16)

The Tax Court (Judge Cohen) yesterday decided Brown v. Commissioner, T.C. Memo. 2016-82, here.  It is a jeopardy assessment and collection due process case.  The taxpayer (the husband) "is a life insurance salesman with a high-net worth clientele."  The IRS issued notices of deficiency for a number of years, the taxpayer petitioned the Tax Court for redetermination.  The Court the said (bold-face supplied by JAT):
Pursuant to settlements made by the parties on May 4, 2012, the IRS subsequently calculated petitioners’ total tax liability, including penalties and interest, at approximately $33.5 million for the years in issue (2003 was not included as there remained an outstanding issue for trial). 
Prompted by the amount of petitioners’ liability and IRS-determined factors such as petitioner’s foreign bank accounts in tax haven jurisdictions, his concealment of assets through nominees, and his having listed petitioners’ personal residence for sale at $17.7 million, the IRS decided to make a jeopardy assessment regarding the years in issue.
After the jeopardy assessment, the taxpayer started a collection due process (CDP) proceeding.  The taxpayer then offered to make full payment under a long-term complex arrangement described as follows.
After granting petitioners an extension to provide their proposal by December 9, 2013, the settlement officer received a 300-plus-page document on December 12, 2013, which presented a payment arrangement alternative to the collection actions. The first five pages of the proposal outlined how the arrangement would work, as follows in part:
Typically, a policy is purchased from the elderly person at a discount from the death benefit (thus, giving the elderly person the opportunity to spend or invest the cash during their lifetime) and then packaged by the purchaser into a portfolio of such policies. The portfolio can then be sold on the open market to investors. 
A typical portfolio consists of approximately 10 policies with an aggregate death benefit of approximately $50 million. The average age of the insured individuals is typically around 82 years, with an average life expectancy of about 8 years. (Obviously, some of the insured individuals will die in less than 8 years and some will live [*8] longer than 8 years.) An investor who purchases a portfolio of policies can either take a risk as to the mortality rate of the insured individuals, or the investor can purchase insurance, known as Mortality Protection Insurance Coverage (“MPIC”), which will insure that 75% of the forecasted death benefit will be paid out in each of the first 15 years of the MPIC coverage.  
The cost to acquire a $100 million portfolio is around $10 million and the cost of the MPIC coverage on such a portfolio is around $2 million. Bank financing from a bank in Germany, North Channel Bank, is available to cover half of those costs. In addition, the bank financing will also cover 100% of the premiums that will be due on the policies.

Thursday, April 28, 2016

Praises for My Cousin Vinny as a Teaching Tool for Law Students and Young Lawyers (4/28/16)

In December 2015, I finished many years of teaching at the University of Houston Law School.  My courses for most of that time were Tax Procedure and Tax Fraud and Money Laundering (Tax Crimes for short).  In those courses, I recommended to those interested in doing serious trial work that they watch the movie My Cousin Vinny several times.  There are some interesting trial techniques.  Even when exaggerated, they make important points.  For that reason, I have sometimes referred to My Cousin Vinny in blog entries.  (The collected blog entries mentioning the movie are here.)

I was thus quite interested to see this article:  Nick Vedala, New Jersey’s US attorney praises accuracy of 'My Cousin Vinny’ (Philly.com 4/28/16), here.  One good excerpt is:
Fishman specifically referenced a scene from the movie in which Pesci’s character questions a witness who says he saw the murder in question occur. In that scene, the argument comes down to the preparation of grits, with Pesci uttering the famous line, “Are we to believe that boiling water soaks into a grit faster in your kitchen than anywhere else on the face of the Earth?” 
“I have taught trial techniques for 15 years using that because his cross [examination] is terrific," Fishman said. “Go back and watch it and see. It’s over the top, it’s outrageous, but the way he does it is great.”
JAT Note: Great cross-examination from a random fact Pesci aka Vinny learned earlier in the movie.  And while on grits, there is a saying in the South that a day without grits is a day wasted.  Taking that expression to heart, I enjoyed grits for dinner last night at the Old Ivy Inn (actually the menu item was shrimp and grits, but I got the chef to make the grits far removed from the shrimp; very good.)  And, this morning, Irene made me grits.  Good living here in Charlottesville.

Two Participants in BullShit Tax Shelter Sue the Government for Colluding to Protect the Promoter (EY) from the Participants (4/28/16; 5/15/16)

On 5/15/16, I added a link at the bottom of this blog entry to an excellent discussion of the case in the Procedurally Taxing Blog.

Two former Sprint Executives who participated in a bullshit tax shelter are suing the IRS for aiding and abetting EY's breach of conflict of interest with respect to their investment in the shelters and the fallout from their investment in the shelters.  The complaint is here.

The gravamen of the claims are:

1. EY was the outside auditor for Sprint, a public corporation.

2. The plaintiffs were executives of Sprint.

3. The plaintiffs on their own initiative and with no compulsion from or even knowledge of Sprint invested in abusive tax shelters that EY promoted to executives such as them.  EY may also have designed or participated in the design of the shelters, but that is not alleged and is probably irrelevant.

4. The IRS discovered EY's promotion of the shelters.  The IRS conducted a civil penalty examination of EY as a result of which EY made penalty payments to the IRS.  EY negotiated with the IRS and the IRS collusively agreed to not mention in the press release that the payment was for a penalty.

5. The two were apparently aware of the settlement payment but, because of the IRS's collusion with EY in not describing the payment as a penalty, the plaintiffs did not know it was a penalty.

6.  The IRS began a civil audit of the investors in these shelters.  The plaintiffs were included.  EY represented the plaintiffs in the audits.  Apparently, EY failed to disclose to the plaintiffs that the civil investigation and settlement created a potential conflict of interest with the plaintiffs whose IRS audits EY was handling.  Further, the IRS knew EY was representing plaintiffs at the same time that it was conducting an audit of plaintiffs.  The IRS should have prevented that conflict.  (Paragrpah 54 of the complaint, however, indicates that the audit was of a partnership rather than the partners; not clear that the allegations are consistent.)

7.  Sprint's Board got wind of this somehow and the potential for a conflict of interest between EY and the plaintiffs at the same time that EY was auditing Sprint's financials.  That put Sprint in a bind, requiring that it either terminate EY or the plaintiffs, or perhaps both.  Sprint terminated the executives, an action which would not have occurred had the executives not invested in the bullshit tax shelter EY promoted to plaintiffs.

8. The plaintiffs discovered later that the IRS had colluded with EY.

9.  Such collusion (or aiding and abetting) is actionable under New York law.

10.  As a result, the US is liable under the Federal Tort Claims Act.

A lot of interesting stuff should come out of this case.  The U.S. has not yet filed an answer.

Notably, however, plaintiffs make no attempt in the complaint to discuss the bullshit tax shelter or defend their participation in such bullshit tax shelters.  One would have thought that such astute taxpayers (suggested by the damage model for $42,550,000 and $116,800, respectively) would have invested in bullshit tax shelters.  When that comes up, as it undoubtedly will, they will surely claim that they relied on EY and whatever other professionals were involved.  But whether anyone will believe it may be another issue.

The pdf of the complaint is linked above.  Here is a table of the relevant complaint paragraphs.  The allegations in the complaint are in the left hand column.  My comments to some of the paragraphs are in the right hand column.

Monday, April 25, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/25/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:
  • Wikipedia entry on Panama Papers, here.
  • Wikipedia list of people named in Panama Papers, here.
In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Andrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Panama Papers: Mossack Fonseca raids seize 'large amount of evidence' (ABC News 4/22/16), here.
Panamanian investigators have raided a property used by Mossack Fonseca, the law firm at the centre of a massive leak of offshore financial data, removing bags full of shredded documents as evidence, a local prosecutor said. 
"We have secured a large amount of evidence found in the location," said organised crime investigator Javier Caraballo. 
He said they also found many shredded papers, which they removed as evidence.
In a statement, Mossack Fonseca said it had digitised all its documents and that the shredded papers taken from its premises were bound for recycling. 
The law firm added that as a result of a previous search, prosecutors already had copies of all the documents they removed on Friday (local time).
Charles (Chuck) Rettig, US Launches Criminal Inquiry Into 200 US Citizens Named In The Panama Papers (Forbes 4/23/16), here.
The Panama Papers. A massive law firm data breach of otherwise secretive financial information identifying numerous high-ranking government and public officials around the world was recently disclosed online by the International Consortium of Investigative Journalists. (ICIJ). Almost forty years of confidential information from 1977 to December 2015 was somehow obtained by an anonymous source from the internal database of Panama-based law firm Mossack Fonseca & Co. and apparently includes approximately 11.46 million files comprising approximately 2.6 terabytes (the equivalent of approximately 600 DVDs) of otherwise confidential financial data. 
US Launches Criminal Inquiry into Several of the 200 US Citizens Named in the Panama Papers. The ICIJ has now confirmed that it received an email (published by the Guardian) from U.S. Attorney Preet Bharara for the Southern SO +0.00% District of New York indicating that his office had “opened a criminal investigation regarding matters to which the Panama Papers are relevant.” Further, his office would greatly appreciate the opportunity to speak as soon as possible with any ICIJ employee or representative involved in the Panama Papers Project in order to discuss this matter further.” 
* * * * 

Friday, April 22, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/22/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:
  • Wikipedia entry on Panama Papers, here.
  • Wikipedia list of people named in Panama Papers, here.
In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Julia Harte, Journalists will not share Panama Papers with Justice Department (Reuters 4/21/16), here.
The media group that coordinated the Panama Papers investigation into offshore companies said on Thursday it would not participate in a criminal probe by the U.S. Department of Justice. 
"ICIJ, and its parent organization the Center for Public Integrity, are media organizations shielded by the First Amendment and other legal protections from becoming an arm of law enforcement," said Gerard Ryle, director of the consortium, in a press release on the group's website.
Martha M. Hamilton and Hamish Boland-Rudder, Banks Ordered to Provide Info on Panama Dealings to NY Regulator, here.
More than a dozen banks will have to turn over details of their dealings with Panama law firm Mossack Fonseca to New York’s banking regulator, as authorities continue to respond to revelations from the Panama Papers investigation.
The order came from the New York Department of Financial Services and was sent to 13 foreign banks identified in articles published by ICIJ and its media partners, including Deutsche Bank AG, Credit Suisse Group AG, Commerzbank AG and ABN Amro Group NV, Bloomberg reported. 
The banks have been given 10 days to respond, and were asked to provide communications, phone logs and records of transactions between their New York branches and employees or agents of Mossack Fonseca, as well as any subsequent communication with shell companies formed as part of these transactions. According to Bloomberg, the regulator has also asked banks to identify any New York-based personnel who may have held positions at the shell companies. 
The regulator is reportedly searching for potential violations of rules or regulations related to the law firm. The banks have not been accused of wrongdoing.
Panama Papers: About 80 serious Australian criminals named in leaked documents, ATO says (ABC News 4/21/16), here.

Wednesday, April 20, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/20/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:
  • Wikipedia entry on Panama Papers, here.
  • Wikipedia list of people named in Panama Papers, here.
In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Josh Meyer, Panama Papers: Federal Prosecutor Looking for Crimes By U.S. Citizens (NBCNews 4/10/16), here.
The Justice Department has opened a formal criminal investigation into potentially widespread illegalities exposed by the Panama Papers, the massive leak of financial details about secret offshore accounts, federal law enforcement officials told NBC News Wednesday -- and its first priority will be finding wrongdoing by U.S. firms and individuals. 
The U.S. Attorney for the Southern District of New York, Preet Bharara, confirmed the investigation in a letter written to the International Consortium of Investigative Journalists (ICIJ), which has led a worldwide effort to report on suspected money laundering, tax evasion and other criminal activity exposed in the documents.
Many financial transactions related to global money laundering, drug trafficking and other illegal activity involve New York-based banks. A senior federal law enforcement official said the initial focus will be identifying illicit activity by American citizens and corporations. 
Bharara's efforts are the first evidence that criminal prosecutors from the Justice Department have become involved in the Panama Papers and will be looking for wrongdoing by U.S. companies and citizens. NBC News reported Sunday that IRS and U.S. Treasury officials have met with their counterparts from around the world in an effort to analyze and use the data about more than 214,000 offshore companies listed by Panamanian law firm Mossack Fonseca. 
In his brief letter, Bharara simply said that his office -- which has jurisdiction over many of the world's largest banks and financial firms -- has "opened a criminal investigation regarding matters to which the Panama Papers are relevant." 
* * * *