Friday, September 21, 2018

Houston Attorney Charged With Tax Crimes Related to Offshore Accounts (8/21/18)

DOJ Tax has announced here that an attorney, Jack Stephen Pursley, from Houston has been indicted as an enabler in an offshore account matter.  The indictment is here.

The press release summary key excerpts are:
According to the indictment, Jack Stephen Pursley, also known as Steve Pursley, conspired with another individual to repatriate more than $18 million in untaxed earnings from the co-conspirator’s business bank account located in the Isle of Man.  Knowing that his co-conspirator had never paid taxes on these funds, Pursley allegedly designed and implemented a scheme whereby the untaxed funds were made to appear to be stock purchases in United States corporations owned and controlled by Pursley and his co-conspirator. 
The indictment alleges that Pursley received more than $4.8 million and an ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme.  The indictment further alleges that for tax years 2009 and 2010 Pursley evaded the assessment of and failed to pay the incomes taxes due on this money by, amongst other means, withdrawing the funds as purported non-taxable loans or returns of capital.  Pursley allegedly used the money he received to purchase personal assets, including a vacation home in Vail, Colorado and property in Houston.  
The counts charged are:

1. Defraud / Klein Conspiracy - Count One

2. Tax Evasion - Counts Two-Four (Two related to Pursley's taxes and one related to the taxpayer's taxes.)

JAT Comments: 

Friday, September 14, 2018

On Trump, Manafort and Joint Defense Agreements (9/14/18; 9/15/18)

Paul Manafort reached a plea agreement with the special counsel that requires his cooperation with the special counsel.  See e.g.,  Spencer S. Hsu , Devlin Barrett and Justin Jouvenal, Manafort will cooperate with Mueller as part of guilty plea, prosecutor says (WAPO 9/14/18), here.   I noticed just a couple of days ago that Trump's vocal counsel, one Rudy Giuliani, claimed that Trump and Manafort had a joint defense agreement ("JDA").  Colin Kalmbacher, Giuliani Confirms Trump and Manafort Have Joint Defense Agreement for Mueller Probe, Share Confidential Information (Law & Crime 9/13/18), here.

I had not heard that Trump and Manafort had a JDA before (or had not recalled that I had heard that), so I was intrigued as to why Trump's vocal counsel, one Rudy Giuliani, would be making a point of it now.

I will speculate that one reason might be to taint any information that Manafort may give pursuant to the cooperation agreement.  How would that happen?  The essence of a JDA is to assure that privileged information shared among members of the JDA will be privileged as to all members.  Hence, if the prosecution (the special counsel) obtains an indictment of another member of the JDA (here Trump), the prosecution would have to prove that the prosecution is not based directly or indirectly on privileged information Trump shared with Manafort under the JDA.  (See On Joint Defense Agreements (Federal Tax Crimes Blog 11/23/17), here, where I discuss these concepts.)

But the issue here may not be ability to prosecute Trump but ability to share relevant information with Congress as to whether Trump should be impeached and convicted.  The rules that might require exclusion in a criminal prosecution of Trump would not apply in an impeachment proceeding.  In that sense, the issue is not whether Trump should be convicted of a crime but whether his conduct is sufficient to justify impeachment by the House and conviction by the Senate.  Manafort's use of the information he received under the JDA could be used for that purpose.

Addendum 9/15/18 2:45 am:

Tuesday, September 11, 2018

Foreign Bank Enabler Pleads Guilty to FATCA Crime Based on Undercover Operation (9/11/18)

DOJ Tax announced here that:  Former Executive of Loyal Bank Ltd Pleads Guilty to Conspiring to Defraud the United States by Failing to Comply with Foreign Account Tax Compliance Act (FATCA) (9/11/18).  Key excerpts (emphasis supplied):
Earlier today in federal court in Brooklyn, Adrian Baron, the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, an off-shore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, pleaded guilty to conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA).  Baron was extradited to the United States from Hungary in July 2018.  
* * * * 
FATCA is a federal law enacted in 2010 that requires foreign financial institutions to identify their U.S. customers and report information (FATCA Information) about financial accounts held by U.S. taxpayers either directly or through a foreign entity.  FATCA’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses. 
According to court documents, in June 2017, an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank.  The undercover agent informed Baron that he did not want to appear on any of the account opening documents for his bank accounts at Loyal Bank, even though he would be the true owner of the accounts.  Baron responded that Loyal Bank could open such accounts and provide debit cards linked to them. 
In July 2017, the undercover agent again met with Baron and described how his stock manipulation scheme operated, including the need to circumvent the IRS’s reporting requirements under FATCA.  During the meeting, Baron stated that Loyal Bank would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” U.S. involvement.  Subsequently, in July and August 2017, Loyal Bank opened multiple bank accounts for the undercover agent.  At no time did Baron or Loyal Bank request or collect FATCA Information from the undercover agent. 
Baron’s guilty plea represents the first-ever conviction for failing to comply with FATCA.  When sentenced, Baron faces a maximum of five years in prison.
Baron is the second defendant to plead guilty in this case.  On July 26, 2018, Arvinsingh Canaye, formerly the General Manager of Beaufort Management Services Ltd. in Mauritius, pleaded guilty to conspiracy to commit money laundering. 
Peter Hardy offers a very good discussion DOJ Secures First Ever Conviction for Violating FATCA (Money Laundering Watch Blog 9/17/18), here.

Thursday, September 6, 2018

Financial Times Article on the State of Swiss Banks (9/6/18)

Ralph Atkins, Switzerland’s banks try to put the past behind them ( 9/5/18), here.  

Key excerpts:
In total, Swiss banks have paid $5.5bn in US penalties since the first moves against them a decade ago. 
The Swiss would undoubtedly like to think the past is behind them. Times are certainly better. “After years of struggling with structural change stemming from the financial crisis, the tide has begun to turn,” consultancy KPMG reported recently in its annual survey of 90 Swiss private banks. 
* * * * 
Swiss banks have overhauled compliance systems — Americans living in Switzerland today have a particularly hard time opening a bank account — and thrown out clients who cannot prove they are honest with their taxes. Bern has struck automatic exchange of information deals with EU states and 60 other countries. 
* * * * 
Last month, two outstanding US tax cases — against Zürcher Kantonalbank and Basler Kantonalbank — were settled with penalties of $98.5m and $60.4m. The agreements offered a flashback to an era when Switzerland really was a haven for chancers. According to the US justice department, Basler Kantonalbank had in 2008 seen as a “business opportunity” the criminal investigations faced by its larger rival UBS. The Basel bank’s services had included “promoting” Swiss bank secrecy as a means of concealing assets and income. 
* * * * 

Wednesday, September 5, 2018

FBAR Collection Suit Where Taxpayer Put in Writing to UBS That He Wanted to Avoid Disclosure to IRS and Opted Out of OVDP (9/5/18)

The Government brought the following FBAR collection suit:  United States v. Gentges (USDC SDNY Dkt. 7:18-cv-07910), complaint here and Court Listener docket here.  Excerpts that I think are interesting from the complaint are:
15. In November 2001, Gentges signed documents to open the 4959 Account, choosing to open it as a numbered account rather than a “name account.” He identified himself as the beneficial owner of the 4959 Account and listed his address in Hawthorne, New York. 
16. Gentges instructed UBS not to invest in U.S. securities, and signed an instruction to UBS stating, “I would like to avoid disclosure of my identity to the US Internal Revenue Service under the new tax regulations. To this end, I declare that I expressly agree that my account shall be frozen for all new investments in US securities as from 1 November 2000.” 
17. Gentges instructed UBS to retain his mail at the bank, for a fee, rather than mailing it to his address in New York. Subsequently, when Gentges would visit the bank in Switzerland—including three instances in 2007 alone—he retrieved his mail and then authorized UBS to destroy the mail that he did not take with him. 
 * * * * 
C. Subsequent Dealings with UBS and Closure of the Accounts 
32. In September 2008, Gentges was informed by UBS personnel that he had to either file an IRS form W-9 or close his UBS accounts by the end of the year. 
33. Instead of filing an IRS form W-9 and/or making a voluntary disclosure at that time, in September and October 2008, Gentges instructed UBS to transfer securities from his UBS accounts to Migros Bank, another financial institution based in Switzerland. 
34. In November 2008, Gentges instructed UBS to transfer all remaining funds in the 4959 Account and the 4337 Account to accounts at Migros Bank. 
35. In November 2008, Gentges instructed that his retained UBS mail be sent to an
address in Lyss, Switzerland. 
* * * * 
D. Examination and Assessment of Civil Penalties

Saturday, September 1, 2018

Swisspartners' Principal Avoids Punishment in Switzerland for Turning Over U.S. Client Files to DOJ (9/1/18)

Reuters has this article on a Swiss Asset Manager who reached an NPA with DOJ and turned over U.S. client files.  John Miller, Asset manager who helped U.S. find tax cheats beats Swiss spy charges (Reuters 8/31/18), here.  I reported on the NPA in Swiss Non-Bank Enabler Enters NPA and Cooperates to Identify U.S. Persons (Federal Tax Crimes Blog 5/9/14), here.

Excerpts from  the Reuters article:
A Swiss asset manager who in 2013 provided U.S. prosecutors with more than 100 files from clients suspected of dodging taxes has been cleared of spying-related charges in his home country, recently published Swiss court documents showed. 
 * * * * 
In a 17-page ruling, a Swiss judge concluded there was insufficient evidence to convict him. It was delivered in May, but published only later by the Swiss Federal Criminal Court. Details have not been widely reported, even in Switzerland. 
“It can be presumed in favor of the accused that he believed in the legality of his approach and didn’t consider the possibility that he acted unlawfully for a foreign state,” the ruling said. 
In November 2013, Egli's Swisspartners Group provided records on 109 clients to the U.S. Department of Justice, court documents show, helping his company secure a relatively mild $4.4 million settlement deal with American prosecutors aggressively pursuing tax cheats with wealth stashed abroad. 
The move landed him in trouble in Switzerland, however, where authorities accused Egli of “forbidden actions in the service of a foreign country.” The Swiss attorney general’s office (OAG) sought fines of $275,000.
While U.S. DOJ officials lauded his “extraordinary cooperation” at the time, Egli was criticized at home by some Swiss media for turning over client data as he secured a non-prosecution agreement for Swisspartners. 
* * * * 
Egli’s case is an easy-to-miss footnote among the billions of dollars of U.S. settlements in recent years reached by dozens of Swiss banks over harboring untaxed assets.

Friday, August 31, 2018

Update on Manafort Convictions Status (8/31/18)

I post today some links to Court documents from the docket entries on Pacer.  I remind readers that the Court Listener web site (here) offers cloned docket entries for cases (not sure whether it is all cases, but certainly most of the cases of importance).  Sometimes documents listed on the cloned docket entries are downloadable from the Court Listener web site.  The Court Listener docket entries for the Manafort case are here.  Sometimes it takes a day or two to update for the latest docket entries.  However, it does not appear that any of the Manafort documents are downloadable.  That seems strange to me because, the actual Pacer docket entries offers me the opportunity to obtain the documents free from Court Listener, which means that the documents are available on the Court Listener site (although not linked on the Court Listener docket entries).  In any event, since I can get the link to free documents, I offer that the links to key documents below for readers to see the documents if they wish.

Dkt Entry Date Description (JAT Brief Description) Link
261 8/16/18 Jury Questions Link
264 8/22/18 Mistrial Order Link
280 8/21/18 Jury Verdict Link
291 8/29/18 Gov't Motion to Extend Date re Retrial Link
292 8/20/18 Order on Government Motion to Extend Link

I have transcribed the jury's questions (Dkt 261) which are handwritten as follows (bullets added):
  • Is one required to file an FBAR if they own less than 50% of the account, do not have signature authority but do have authority to direct disbursement of the funds?
  • Can you define "shelf company" and filing requirements related to income?
  • Can you please re-define "reasonable doubt?"
  • Can the exhibit list be amended to include the indictment count to which they are related?
I don't have a transcription of the judge's answers.  All I have had is reporters' paraphrasings.  When and if I get the answers, I will post them and offer any comments I may have.  (If anyone has the transcription of the answers, please post them as a comment or email them; and, if anyone has the complete jury instructions, I would greatly appreciate receiving them.  My email is

Now on the possible retrial for the counts that were mistried because of the jury's inability to reach a unanimous verdict, I previously posted a discussion of why the sentencing for the counts of conviction could produce a sentencing range under the Sentencing Guidelines that is the same as if Manafort had been convicted of all counts submitted to the jury.  See Paul Manafort Verdict - On Relevant Conduct (8/21/18), here.  In calculating the Guidelines range the Judge is directed to consider "relevant conduct" -- similar criminal conduct other than the counts of conviction if the Government proves the conduct by a preponderance of the evidence.  Certainly, the mistried FBAR counts (Counts 11-14) are relevant conduct to the FBAR conviction (Count 11) and to the tax convictions (Counts 1-5). Likewise the mistried Bank Fraud and Conspiracy Counts (Counts 28-32) are relevant conduct to the convicted bank fraud count (Count 27).  So, assuming that the Government proves that unconvicted conduct by a preponderance of the evidence, the Guidelines calculations will be just as if Manafort were convicted on all counts.

Thursday, August 30, 2018

Government FBAR Willful Penalty Collection Suit and Issuance of Letters Rogatory (8/30/18)

In United States v. Katholos (W.D. N.Y. 17-cv-00531), docket entries here, the Government is suing Katholos for the FBAR willful penalty which remains unpaid (including penalties, statutory additions, interest and late payment penalties) of $4,474,320.29.  The complaint is here; the answer is here.

According to the complaint:
  • "As a result of the [UBS] John Doe summons, the United States received information regarding Ms. Katholos' Foreign Bank Account." (Complaint paragraph 7)
  • The facts alleged in the complaint seem to be a common fact pattern; the facts are different but the pattern is similar.  Several entities were established.
  • The complaint lists a number of transfers from UBS to other financial institutions.  (Complaint par. 25.)
  • The Government demands a jury. (See last paragraph.)
The answer has the following affirmative defenses:
  • Katholos did not act willfully.  Among the allegations in support of this defense:
50. The Complaint’s case for willfulness appears to rest on three major factual allegations, all of which are either incorrect or misleading. First, the Government alleges that Marika was on “inquiry notice” about FBAR reporting because of a 2007 federal income tax return. At the time of the filing of the Complaint, however, the Government possessed information demonstrating that Marika did not sign the 2007 federal income tax return that allegedly put her on “inquiry notice” regarding her FBAR obligations. Further demonstrating that she did not review this return, the 2007 return filed for Marika contains numerous, obvious errors: Marika’s name is misspelled and her address is incorrectly given in Elma, New York. 
51. Marika’s history of filing U.S. returns since her move to Greece in 1994 demonstrates that she was not fully aware of the relevant U.S. tax rules for reporting income overseas. Prior to 2009, federal tax returns were filed for Marika to report her interests in family assets that generated income in the U.S., such as annuities or rental income from real estate. When there was no U.S. income in a particular year, returns generally were not filed. In many or most cases prior to early 2009, Marika did not see or sign federal tax returns filed for her. 
52. Second, the Internal Revenue Service’s (“IRS’s”) interview with Marika’s return preparer Charles Koelemeyer, conducted more than four years after the relevant events, only demonstrates that he knew of FBAR reporting requirements well after the time period at issue. It does not demonstrate that he ever advised Marika about these requirements—or even that he ever spoke to her directly about taxes or U.S. reporting—prior to January 2009. Instead, once Marika learned of the relevant U.S. reporting requirements, she attempted to make a voluntary disclosure to the IRS in February 2009, months before the start of the formal Offshore Voluntary Disclosure Program. Marika’s effort was rejected as untimely because, on information and belief, UBS had
delivered her name to the IRS within one week prior to her disclosure. 
53. Finally, the Government alleges that Swiss bankers took actions, including signing forms, to conceal the relevant accounts from U.S. authorities. These are simply not allegations that Marika acted willfully: the allegations describe actions taken by Swiss bankers, not by her and her family. Instead, the long history of Marika and her family in Greece demonstrates that the UBS accounts were not set up for a U.S. tax-avoidance purpose. Marika moved to Greece in 1994, shortly after college, and has been a homemaker and caretaker of her children since that time. Marika’s father Theodore Katholos (now deceased) (“Mr. Katholos”) immigrated to the U.S. in the mid-1960s with a second-grade education in Greece, and became successful in the painting and contracting business in Buffalo, New York through hard work and determination, not through formal schooling. Mr. Katholos was largely unable to read or write in English. He was very successful in business, particularly given his background, but he lacked sophistication and training in tax matters. In the 1980s, Mr. Katholos seriously considered emigrating back to Greece, and so did Marika. When Mr. Katholos retired in 1997, he had intended to move back to Greece permanently.

Wednesday, August 29, 2018

Basler Kantonalbank Enters DPA Regarding U..S. Undeclared Accounts; To Pay $60.4 Million (8/29/18

DOJ Tax Announced here that Basler Kantonalbank ("BKB") entered a deferred prosecution agreement ("DPA") approved by the district court for SD Florida.  As part of the agreement, BKB agreed to pay "$60.4 million in total penalties."  (As noted below, the aggregate $60.4 million is broken down as follows:

Restitution to the IRS for Unpaid Tax on the Undeclared Accounts - $17.2 million
Forfeiture - $29.7 million
Fines - $13.5 million

Federal law provides for three primary types of financial penalties — fines, restitution, and special assessments — which can be imposed in addition to imprisonment or probation.86

Other key excerpts:
Basler Kantonalbank (BKB), a bank headquartered in Basel, Switzerland, entered into a deferred prosecution agreement (DPA) that was approved today by the U.S. District Court for the Southern District of Florida, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division, United States Attorney Benjamin G. Greenberg, and Chief Don Fort for Internal Revenue Service-Criminal Investigation.  As part of the agreement, Basler Kantonalbank will pay $60.4 million in total penalties.   
* * * * 
In the DPA and related court documents, BKB admits that between 2002 and 2012 it conspired with its employees, external asset managers, and clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns.  At its peak in 2010, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million (many, but not all of which, were undeclared accounts that were part of the conspiracy).   According to the terms of the DPA approved today, BKB will cooperate fully, subject to applicable laws and regulations, with the United States, the Internal Revenue Service (IRS), and other U.S. authorities.  The DPA also requires BKB to affirmatively disclose certain material information it may later uncover regarding U.S.-related accounts, as well as to disclose certain information consistent with the Department’s Swiss Bank Program with respect to accounts closed between January 1, 2009, and December 31, 2017.  Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow BKB to demonstrate good conduct.  
The $60.4 million penalty against BKB has three parts.  First, BKB agreed to pay $17,200,000 in restitution to the IRS, which represents the unpaid taxes resulting from BKB’s participation in the conspiracy.  Second, BKB agreed to forfeit $29,700,000 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2012.  Finally, BKB agreed to pay a fine of $13,500,000.  This penalty amount reflects BKB’s thorough internal investigation and cooperation with the United States, as well as the bank’s extensive efforts at remediation, and its waiver of any claim of foreign sovereign immunity.  Among other remedial efforts, BKB implemented measures to require all U.S.-related accounts be tax compliant, closed a branch office responsible for much of the tax fraud and fired the employees involved in the offense, and conducted extensive outreach to former clients to encourage them to participate in IRS-sponsored voluntary disclosure programs.  
According to court documents filed as part of the DPA, BKB is a bank incorporated by the Parliament of the Basel City Canton.  From 1997 to 2014, BKB had a private-banking branch that operated from Zurich.  The bank assisted certain U.S. clients in concealing their offshore assets and income from U.S. taxing authorities.  By 2010, when BKB’s U.S.-related business was at its peak, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million.  Many, but not all, of these accounts were undeclared and part of the conspiracy to defraud the United States. 

Monday, August 27, 2018

More on Immunity Granted by USAO SDNY to Persons in the Trump Orbit (8/27/18)

White collar crime lawyers know that the premier white collar crime prosecutors are in USAO SDNY.  That is the office that investigated and prosecuted Michael Cohen, Trump's personal lawyer, to a plea and has obtained two immunity agreements -- one for David Pecker, publisher of the National Enquirer, and for Allen Weisselberg, CFO of the Trump organization.  Those developments appear to bring great risk to Trump as shown in these articles. 

The reason I post them here is that they do inform readers who may not be that familiar with USAO SDNY (often referred to as the "Southern District") of its role in the federal white collar crime universe.  All who practice in this area know that the prosecution teams mounted by the "Southern District are formidable.  Wikipedia, here, notes that the Southern District is often referred to as the "Sovereign District of New York" because "of the office's resources, pursuit of high-profile cases, independence from presidential administrations and transitions, and tenacity."

First, there is this piece by Noah Feldman, a Harvard Law Professor:  The Prosecutors Who Have Declared War on the President (Bloomberg Opinion 8/26/18), here.

Some excerpts:
Once the Southern District gets its jaws onto a string of crimes, it doesn’t let go.
Weisselberg, as part of his deal, will likely be required to provide information on all criminal activity he knows about. 
Trump is now facing a two-front war against the Justice Department. The team led by special counsel Robert Mueller is supposed to focus on Russian interference in the 2016 election. But the Southern District can investigate any aspect of Trump’s behavior that took place in its jurisdiction, at any time. 
And unlike Mueller, who could in principle be fired, the Southern District isn’t one man; it’s a whole office of career lawyers. It can’t be fired. Even if Robert Khuzami, the acting U.S. attorney in this case, were removed, no new U.S. attorney could realistically call off the prosecutors. 
The Cohen conviction makes any such Southern District investigation normal and logical, not a “witch hunt.” 
Consider that the prosecutors now have strong evidence that the Trump Organization was part of a conspiracy to commit campaign-finance violations. The repayment of Cohen by the Trump Organization makes the company fair game. 
In any ordinary criminal investigation by the Southern District, evidence that a corporation has been used as part of a criminal conspiracy, with the knowledge and involvement of its owner and CFO, would naturally trigger further digging. Was this the first time the Trump Organization ever acted criminally? The Southern District prosecutors are going to want to know the answer. And they’re going to find out.
The upshot is that Trump is vulnerable to further revelations of criminal behavior. Some will no doubt have nothing to do with Russia. Others, such as money laundering, may turn up connections to Russians.

Thursday, August 23, 2018

On Trump 's White Collar Issues -- Immunity for Witnesses (8/23/18)

The Trump Presidency is a gift that keeps on giving to lawyers and, a smaller subset, lawyers interested in white collar crime (of which tax crimes is a subset).  I have in the past few days had several postings arising from the developments -- principally convictions by jury and plea agreement of persons close to the President.

Today, we have yet another development of interest.  It is reported that David Pecker, chair and CEO of American Media, the publisher of such publications as the National Enquirer.  (See his Wikipedia page here.)  Pecker used his publication power in support of Trump both in the press and outside the press and before his campaign for President and during his campaign for President.  The prominent instance of such support in the current news was his "purchase" of the rights to one of Trump's extra-marital sex partners' story about her liaisons with Trump (is he really big or as good as he claims?). The purchase was to help Trump by getting the rights to the story and then burying it -- called "catch and kill."

Readers will recall that Trump's long-time personal attorney who was active in paying to suppress such stories pled guilty to campaign finance crimes.  See The Michael Cohen Information and Plea - Some Comments (Federal Tax Crimes Blog 8/21/18), here; and The Tax View of the Hush Money Payments and Cohen's Reimbursements and Bonus (Federal Tax Crimes Blog 8/21/18), here.  One of the suppressions related to the one that Pecker had National Enquirer "catch and kill."  As reported in the news, apparently, Pecker was doing Trump's bidding in that activity.  The news now reports that Pecker has obtained immunity from the prosecutors, presumably the prosecutors on the Cohen prosecution in USAO SDNY, rather than the Special Counsel.  Jim Rutenberg and Rebecca R. Ruiz, David Pecker, Chief of National Enquirer’s Publisher, Is Said to Get Immunity in Trump Inquiry (NYT 8/23/18), here.

This offers an opportunity to talk about immunity in white collar crime cases such as we have under the Trump penumbra.  There are various shades of immunity, and I will get into that below in summary and a cut and paste from my Federal Tax Crimes book.  At this point, let me preface the discussion of immunity by noting that obtaining an immunity agreement is a contractual negotiation, not dissimilar to a plea negotiation.  The issue is how strong a party's perception of the other party's hand is.  Prosecutors will not agree to a strong form of immunity unless, by giving that strong form of immunity, the immunized party will give information that the prosecutors need, usually to nail a bigger fish. With that spare introduction, let's talk about the forms of immunity.  At the end of this blog, in addition to offering links to other blog entries on immunity, I will offer a cut and paste of the discussion of immunity in the working draft my Federal Tax Crimes Book (if I ever publish it again).  But, here is the thumbnail summary.

The types of immunity in the federal criminal universe are (I usually present these from the strongest to the weakest, and will us that ordering here):

1.  Transactional immunity.  Transactional immunity can be either blanket (extremely rare) or, for crimes within the scope of the testimony the witness will give (rare).  In the federal criminal universe, transactional immunity, either general or specific is rarely given.  Transactional immunity is not granted by federal statute.  So, it has to be stated in the "contract."  A subset of this would be a nonprosecution agreement that has been the topic of many blog entries here.  But, there is no indication that Pecker was given a nonprosecution agreement by that name.

2.  Use and Derivative Use Immunity.  This immunity which can be granted via the statute (a judge grants this immunity) or by agreement with the prosecutor assures the witness that the testimony he gives and any leads that might be derived from the testimony will not be used by the prosecutor to prosecute him for a crime.  This type of immunity is also not common, but one would say not rare (except in the SDNY which, in my experience and understanding through the white collar grapevine) seems to have a visceral answer of no to requests for this type of immunity).  This type of immunity still permits prosecution for the crime, but the prosecutor will have to establish in what is called a Kastigar hearing that the prosecution is not based directly or indirectly from the immunized testimony or the fruits of the immunized testimony.  That is usually so difficult that, as a practical matter, use and derivative use immunity is virtually transactional immunity for the crimes within the scope of the investigation.

3.  Use Immunity.  This type of immunity prevents the use of the immunized testimony, but permits the use of any evidence that the prosecutor learned from leads based on the immunized testimony.  This is a weak form of immunity.  This is the type of immunity usually offered, if at all, by USAO SDNY.  Of course, if someone has something major to offer the prosecutors, I am sure a stronger form of immunity can be negotiated.  (I have never been in a position to offer something major to prosecutors in my limited contact with USAO SDNY.)  This type of immunity is contractual and the terms of the contract may vary.  The USAO SDNY has a standard "contract" which offers the witness very limited, if any immunity.  But, since it does offer some immunity, the "contract" is often called a Queen for a Day agreement.  Use immunity,  or Queen for a Day, agreements are used in connection with proffer sessions whereby the witness who may be a subject or target is interview for up to a day (sometimes more than one day) by the prosecutors.  Sol Wisenberg has a good discussion in his posting, Queen For A Day: The Dangerous Game of Proffers, Proffer Agreements and Proffer Letters, here.

Wednesday, August 22, 2018

Is Federal Tax Fraud an Impeachable Offense for a President? (8/22/18)

The question I address here, albeit lightly, is whether, if it is shown that any President committed tax fraud (covering both evasion and tax perjury), the tax fraud would be an impeachable offense.  I do not address the issue of whether he can be indicted for tax fraud or any other offense while he still serves as President (although I do have an aside on that at the end).

The only actual example was President Nixon.  As I note in my chapter on Criminal Penalties and the Investigative Function, Chapter 12 in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015),  ¶12.01. Criminal Penalties in General, ¶ 12.01[1] In General at fn. 6:  Richard Nixon's alleged tax crime was fully pardoned in a general pardon by President Ford who succeeded Nixon on his resignation, but as to impeachment:
Among President Nixon's alleged crimes was tax evasion, which the House Judiciary Committee declined to include in the articles of impeachment because, it believed, tax evasion was not an impeachable offense. Mezvinsky & Freedman, Federal Income Tax Evasion as an Impeachable Offense, 63 Geo. L.J. 1071 (1974-1975).
But, there is authority from a scholar that income tax fraud can be an impeachable offense.  See Charles L. Black, Impeachment: A Handbook (1974), with pertinent portions republished by permission in Charles L. Black, The Impeachable Offense (Lawfare 7/20/17), here:
Income-Tax Fraud 
Serious income-tax fraud by a president, particularly when the vehicle of such fraud is a set of papers resulting from his holding one government office, and when he might anticipate virtual immunity from serious audit because of his occupying the presidency, would seem definitely impeachable, in addition to being criminal. The offense seems akin to bribery, in that it uses office for corrupt gain; in any case, it undermines government, and confidence in government. A large-scale tax cheat is not a viable chief magistrate.


OK, guys, if anyone is interested in this Amazing, Wonderful Cap suitable for wearing at all sorts of events -- court hearings, baseball games, kids soccer games, bar association meetings and, of course, Trump rallies, etc., let me know.  Perhaps we can start a movement here.

The Tax View of the Hush Money Payments and Cohen's Reimbursements and Bonus (8/21/18; 8/24/18)

The NYT reports today:  Carol D. Leonnig, Trump’s company approved $420,000 in payments to Cohen for the hush money, relying on ‘sham’ invoices, prosecutors say (NYT 8/21/18), here.  Basically, as I understand it, Trump ran the payments through his company.  And, according to the article, for his efforts on behalf of Trump personally, company executives decided to give Cohen "an additional $360,000 for expenses and other fees and taxes, plus a $60,000 bonus, prosecutors said." That could be to hide the payments for campaign purposes, but it also has a tax side that is commonly encountered or observed by tax crimes practitioners.  By submitting sham invoices to a corporation controlled by a person who is the personal beneficiary of the payments (Trump), the corporation was poised to claim as deductions what should be treated as nondeductible dividends to the person exercising that control (Trump).  So, potentially, tax is evaded at both the corporate and shareholder levels.  Assuming the Government can establish Cheek intent beyond a reasonable doubt, then that is tax evasion under § 7201.

Added 8/24/18 8:30am:

Catherine Rampell, No collusion? We’ll see. But what about tax fraud (WAPO 8/23/18), here.
What about tax crimes, though? 
There’s plenty of precedent for prosecuting those. And the Cohen filings this week raise serious new questions about whether Trump has criminal tax-fraud exposure. 
* * * * 
To be clear, we don’t know whether Trump has violated any tax laws. But there’s a red flag in prosecutors’ filings against Cohen regarding the fate of hundreds of thousands of dollars in taxes one would expect to have been paid Uncle Sam. 
It’s a little technical, so bear with me. The issue involves payments that the Trump Organization made to Cohen as part of an agreement silencing adult-film actress Stephanie Clifford (a.k.a. Stormy Daniels) and how the company accounted for them.
Cohen paid Clifford $130,000. Trump’s company ultimately reimbursed him for this payment to the tune of $420,000. 
Why so much more than the original hush-money amount? 
Because the Trump Organization peculiarly decided not to categorize the payment as a reimbursement for an expense Cohen incurred, the way a client might normally reimburse a lawyer for airfare while traveling on client business. Instead, according to prosecutors’ filings, the Trump Organization falsely called the entire payment a “retainer” and accounted for it internally as “legal expenses.” 
That is, they indicated they were merely compensating Cohen for legal services provided to the company.

Tuesday, August 21, 2018

The Michael Cohen Information and Plea - Some Comments (8/21/18)

I offer a few comments on the Michael Cohen plea that is much in the news.  The USAO SDNY press release is here.  The criminal information is linked on the press release.  The press release is quite detailed, as perhaps the defendant involved and the circumstances require.

The criminal information and resulting plea is to 8 counts as follows (as corrected 8/22/18 2:40pm):

Convicted Max.
Code Section Description Mos. Counts Mos.
26 7201 Tax Evasion 60 5 300
18 1014 False Statements to a Bank 30 1 30
52 30118(a) and 30109(d)(1)(A) Causing Unlawful Corp. Contribution 60 1 60
52 30118(a) and 30109(d) (1) (A) Excessive Campaign Contr. 60 1 60
Total 8 450
I omit from the Counts of Conviction aider and abettor or causer liability 
under 18 U.S.C. § 2 (which just makes the person a principal)

Of course, all the buzz is about the relationship of the conduct charged in the counts and Trump.  Cohen was Trump's personal lawyer, I think until fairly recently.  I won't go into the political aspects of that.  Rather, I will go into what this may mean in terms of Cohen's providing information to the Special Counsel.  Basically, this involves him providing or being required to provide information about Trump.

Cohen made a straight up plea to the criminal information.  The prosecutor promised him nothing in return.  That is not the way pleas are normally done in tax and other white collar crime cases of which I am familiar. Normally, once the prosecutor has gotten the proverbial pound of flesh against the particular defendant, the prosecutor will agree not to prosecute other potential charges.  I am certain that there are a number of other charges that the prosecutor could have made.  The prosecutor has not agreed to forgo such additional criminal charges.  Now, in order to induce the prosecutor to forgo such other indictments, the defendant usually has to offer to cooperate against the bigger fish, which seems to be floating around this case.  Cohen did not agree to such cooperation in this case.

Does that mean that Cohen will not have to give testimony about Trump?  No.  Because there is the possibility of other charges, Cohen can certainly plead the Fifth Amendment privilege not to testify if called by the Special Counsel.  But, since the federal government has gotten a substantial conviction by plea thus, presumably, satisfying its prosecution angst against Cohen, the Special Counsel can obtain immunity for Cohen and force him to testify.  Of course, if Cohen then refuses to testify, the Court can send him to jail for contempt which, I suspect, would be an add on on the front end or back end to the sentence Cohen will draw for the counts of conviction to which he just pled.

And, of course, if Trump were to pardon Cohen, the same analysis would apply.  Cohen then has no fear of prosecution and cannot properly invoke a Fifth Amendment privilege. (I suspect that the Special Counsel would, just for caution, give him immunity anyway to further confirm that Cohen has no Fifth Amendment privilege he can assert.)

Paul Manafort Verdict - On Relevant Conduct (8/21/18)

Paul Manafort has been found guilty of eight counts and could not reach a verdict on the remaining 10 counts.  The judge has declared a mistrial on those 10 counts.  The case will now proceed to sentencing on the 8 counts of conviction.  Before sentencing, there may be post-trial motions, including a motion for new trial on the counts of conviction.  The Government now has choice whether to re-try on the counts that were subject to mistrial.

Focusing on the count of conviction.  I understand that the counts of conviction and their maximum sentences (by "stacking" the sentences for the counts of conviction) are:
Code Section Mos. Counts Max. Mos.
26 7206(1) 36 5 180
31 5322 60 1 60
18 1344 360 2 362
Total 8 602

Most readers of this blog will know that the maximum sentence amount is maximum possible.  The actual sentence is determined under the Sentencing Guidelines and the sentencing court's Booker discretion.   The Guidelines calculations generally (certainly in most tax cases even with nontax crimes of conviction), produces an indicated sentencing range much less than the maximum.  Readers should also recall that the judge should consider "relevant conduct" -- conduct other than the counts of conviction -- in calculating the Sentencing Guidelines range.  Thus, the judge can consider relevant conduct even if the conduct is: (i) uncharged, (ii) charged and dismissed (usually by plea agreement), (iii) charged but acquitted, or (iv) charged but subject to mistrial.  All the Government has to do to establish relevant conduct is prove the conduct by a preponderance of the evidence.  Thus, specifically, if Judge Ellis is convinced by a preponderance of the evidence that Manafort was guilty of the charges for which he declared a mistrial, the Sentencing Guidelines range will be exactly the same as if Manafort had been convicted of all counts (i.e., no counts were subject to mistrial).  (Some readers may want more on this so, I cut and text below some discussion on this.)

For this reason, if the judge includes some or all of the mistried counts in the relevant conduct calculation, I can't see what the advantage would be for re-trying the mistried counts.


Monday, August 20, 2018

Another Offshore Account Guilty Plea (8/20/18)

DOJ Tax announced here that Ben Zion Birman of Los Angeles pled guilty to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR).  Here are the relevant excerpts:
According to court documents, Ben Zion Birman, of Los Angeles, California held offshore accounts in Israel at Bank Leumi Le-Israel B.M. from 2006 to 2011. Birman willfully failed to file with the Department of Treasury an FBAR for calendar year 2010, despite having over $1 million in Bank Leumi accounts.  In an effort to further hide his money, Birman instructed Bank Leumi to hold bank mail from delivery to the United States, and obtained access to his offshore funds through the use of “back-to-back” loans, which were designed to enable borrowers to tap their concealed accounts.  These lending arrangements permitted Birman to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel. 
In December 2014, Bank Leumi entered into a deferred prosecution agreementafter the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers to prepare and present false tax returns by hiding income and assets in offshore bank accounts in Israel and other locations around the world.  Under the terms of the deferred prosecution agreement, Bank Leumi paid the United States a total of $270 million and continues to cooperate with respect to civil and criminal tax investigations.
* * * * 
Birman faces a maximum sentence of five years in prison, as well as a period of supervised release, restitution and monetary penalties. Birman's sentencing is scheduled for December 10, 2018.  

Hardship Fund for Swiss Bankers Affected by U.S. Swiss Bank Initiative (8/20/18)

Finews reports that "Several Swiss bank staff advocacy groups launched a «hardship fund» to help employees finding themselves in dire financial straits."  Claude Baumann, Financial Aid for Swiss Bankers ( 8/16/18), here. 

The fund will exist until all Swiss bank still on the hook with U.S. prosecutors have settled their respective criminal investigations: those include Basler Kantonalbank, Liechtensteinische Landesbank's Swiss arm which is being wound down, as well as privately-held Pictet and Rahn and Bodmer. 
The situation around HSBC's Swiss bank as well as Israeli firms Hapoalim and Mizrahi remains unclear. All «hardship cases» were accepted, Wyder said; the lobby has committed to supporting personal difficulties, not legal expenses.  
Personal Data Shipped 
Any current or former Swiss banking employees who have had their data sent to the U.S. as a result of a 2012 government decision to do so or the 2013 settlement can apply for emergency funding. Applicants who can show financial, personal, or familial hardship as a result of their names being handed over to U.S. officials are likely to get financial aid.
The funding isn't lavish: payments are capped at 10,000 Swiss francs ($10,300), but in cases of exceptional hardship, bankers can submit a second application. 
JAT Comment:  I don't know whether the fund accepts donations from U.S. taxpayers who feel empathy for the Swiss Bankers.  I doubt, though, that a U.S. income tax deduction will be available for contributions.