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)

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." 
* * * * 

Tuesday, April 19, 2016

Does A Standard Willfulness Instruction Adequately Inform the Jury of the Good Faith Defense? (4/19/16; 4/21/16)

Note:  I have made significant revisions to this blog entry on 4/20/16 and 4/21/16.

Often, the only defense to the standard Title 26 tax crimes (as well as a Title 18 USC offense conspiracy to commit a Title 26 tax crime will willfulness as an element) is whether the Government proved beyond a reasonable doubt that the defendant acted willfully.  Title 26 tax crimes generally require that the defendant act willfully.  The offense conspiracy to commit such a tax crime imports the mens rea element that the defendant act willfully.  Generally, a subjective good faith belief, other than one based on constitutional claims, that the defendant does not owe the tax means that the defendant did not act willfully, which is defined as an intentional violation of a known legal duty.  See Cheek v. United States, 498 U.S. 192, 203 (1991).  A standard instruction in such cases is basically that the defendant may be convicted only if the Government proves beyond a reasonable doubt that the defendant acted willfully.  A defendant whose sole defense to a tax crime is that he did not act willfully will often claim that he acted in the subjective good faith belief.  Cheek held that the jury should not have been instructed that the good faith belief much be objectively reasonable.  If the jury believes that the defendant had such a good faith belief or, more importantly, that the Government did not prove beyond a reasonable doubt that he did not have such a belief and thereby acted willfully, the instructions will require that the jury acquit.

The question that often arises is whether the defendant is entitled to a jury instruction in addition to a standard willfulness instruction.  The defendant whose defense is good faith will want to rivet the jury's attention on that claim of good faith.  Basically, the desired good faith instruction will be some variation of:
The defendant has raised the defense that he acted in the good faith belief that his conduct was legal.  A good faith belief that the conduct was legal means that the defendant act willfully, for acting willfully requires that the defendant know that he is violating the law.  Therefore, since the government must prove beyond a reasonable doubt that the defendant acted willfully, the government must prove beyond a reasonable doubt that the defendant did not have a good faith belief that his conduct was legal.   If you find that the government did not so prove beyond a reasonable doubt, you must acquit.
Note that I have stated the instruction in perhaps the best way for the defendant (although I would appreciate hearing from readers as to alternative formulations).

Is the trial court required to give such as instruction where the defendant has introduced evidence of good faith (usually, but always, requiring that the defendant testify to assert his good faith belief)?  Where the defendant has not properly put the issue of his good faith belief in play, then such an instruction is not required.  But where the defendant has put the issue of his good faith belief in play, is the court required to give a good faith belief instruction or, stated differently, will a court reverse if it does not?

The Sixth Circuit addressed that issue in United States v. Rae, 2016 U.S. App. LEXIS 6845 (6th Cir. 2016) (nonprecedential), here.  The Court said no to the question but it is critical to note that, ultimately, the Court said that he had not properly raised the issue.  Here is the relevant portions of the opinion (bold face supplied by JAT):
First, Rae alleges that the district court erred by failing to give a good faith jury instruction regarding the tax evasion charge in Count 1, based on his belief that he was not required under the Internal Revenue Code to pay income taxes. Rae contends that the record supported a good faith defense. Challenges to a district court's decision not to give a requested jury instruction are reviewed under an abuse of discretion standard rather than de novo. United States v. Blood, 435 F.3d 612, 623 (6th Cir. 2006). "An omission, or an incomplete instruction, is less likely to be prejudicial than a misstatement of the law." Henderson v. Kibbe, 431 U.S. 145, 155, 97 S. Ct. 1730, 52 L. Ed. 2d 203 (1977). When reviewing a district court's decision not to give a jury instruction, we must reverse only if we find that the proposed instruction is correct, not substantially covered by the actual jury charge, and "so important that failure to give it substantially impairs defendant's defense." United States v. Sassak, 881 F.2d 276, 279 (6th Cir. 1989). 
The district court instructed the jury that as to Count 1, tax evasion in violation of § 7201, the government was required to prove that: (1) Rae owed the income tax, (2) Rae committed an affirmative act constituting an evasion or an attempt to evade or defeat his tax obligation, and (3) that in evading or attempting to evade or defeat his tax obligation, Rae acted willfully. The district court defined "willfully" as follows: 
An act or failure to act is willful. For purposes of tax evasion . . . it is voluntary, intentional violation of a known legal duty rather than the result of an accident, mistake or negligence. (Emphasis added.)  [JAT Note:  bold-face is supplied by me; italics were supplied by the Court.]

Sunday, April 17, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/17/16)

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.

Nicholas Shaxson, Five myths about tax havens (WAPO 4/15/17), here. I think the author uses the term myth to be falsehoods (or not truthoods).  The first myth is:

1. Tax havens protect vulnerable people against despotic governments, unjust laws and political turmoil.

The author addressed this myth:
One benefit of tax havens, to listen to economists such as Cato Institute senior fellow Daniel Mitchell, is that they help shield oppressed groups from greedy and corrupt regimes. The “financial privacy laws” that govern tax havens make them especially “attractive to people who live in nations plagued by incompetent and/or venal governments,” Mitchell argued in a 2008 Cato-produced video titled “The Moral Case for Tax Havens.” The most famous version of this myth was first peddled in 1966 by the Schweizerische Kreditanstalt (today’s Credit Suisse), suggesting that Swiss bank secrecy was set up to protect Jewish money from the Nazis. 
In reality, Switzerland’s famous banking secrecy law of 1934 was triggered by a French tax-evasion scandal involving several wealthy elites, and Swiss secrecy wound up protecting a ton of Nazi loot. Tax havens shield the money of rich people, not vulnerable ones. Indeed, the Panama Papers revealed offshore accounts associated with several dictators and members of oppressive regimes from around the globe, and few linked to ordinary citizens. When tax havens assist kleptocratic elites in hiding their cash with impunity, they don’t guard against corruption and despotism — they help perpetuate them. Tax havens provide an escape route from laws that is available only to a rich minority that can afford to use it, thus removing from the equation the constituency with the greatest power to push for reform.
There are four more.  Enjoy!

David Lawder, U.S. Treasury readies new tax rules as G20 vows to fight evasion (Reuters 4/16/16), here.
The U.S. Treasury Department is finalizing new tax rules aimed at combating the use of shell companies to evade taxes, U.S. Treasury Secretary Jack Lew said on Saturday amid increased pledges by global finance leaders to cooperate on tax issues. 
In a statement to the International Monetary Fund's steering committee, Lew said the Treasury was finalizing a rule that would require banks to identify the beneficial owners of new customers that are companies. 
"In addition, we are about to propose a regulation that would require the beneficial owners of single-member limited liability companies to identify themselves to the Internal Revenue Service, thus closing a loophole that some have been able to exploit," Lew said. 
In the wake of controversy stirred by the so-called Panama Papers, which revealed widespread use of tax havens and shell companies by wealthy global elites, officials from the Group of 20 major economies on Friday threatened to penalize tax haven countries that do not comply with new information-sharing efforts and moves to reduce tax mismatches between countries. 
They called for criteria by July to identify non-cooperative jurisdictions. 
"Defensive measures will be considered by G20 members against non-cooperative jurisdictions" if progress toward tax goals is not made, the group said in its statement.
Lew said the United States fully supports calls for all countries to automatically exchange financial account information.

Saturday, April 16, 2016

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

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.

Leonid Bershidsky, Were the Panama Papers Planted? Who Cares (Bloomberg View 4/15/16), here.

The opening salvo
Last week, a respected Russia scholar in the U.S. speculated that the Kremlin might be behind the so-called Panama Papers, the big dump of data about offshore accounts that has implicated several countries' officials in shady dealings. And on Thursday, President Vladimir Putin of Russia blamed the U.S. for the leak.
And the closing:
But I would argue that, in the end, that the provenance isn't important -- only the accuracy of the data is. 
Putin has confirmed that the Russian part is accurate. The information is, of course, more damaging than Putin is willing to admit: It exposes the inner workings of Russia's crony capitalism. he material also has proved accurate regarding accounts of people from Iceland, Spain, the U.K. and elsewhere. So why get hung up on its source? It makes much more sense to applaud the work of the investigative journalists who checked and developed the leak. It's an extraordinary collective performance by a much-maligned professional community that has proved convincingly that it has an important social role to play. 
Andrew Mayeda and Mark Deen, G-20 Threatens Penalties on Tax Havens After Panama Papers (Bloomberg 4/15/16). here.
Group of 20 economies threatened to penalize havens that don’t share information on their banking clients after the leak of the Panama Papers provoked a global uproar over tax evasion. 
The G-20 will consider “defensive measures” against financial centers and jurisdictions that don’t commit to an international standard requiring the exchange of information about account holders, the group’s finance ministers and central bankers said Friday in a statement after meeting in Washington. 
The group said it would work with the OECD to come up with criteria for identifying “non-cooperative jurisdictions” by July, adding that improving the transparency on who controls legal tax entities is vital to the international financial system. 
* * * * 
Global Standard 
The statement refers to a global standard developed by the OECD and endorsed by the G-20. The standard calls on tax jurisdictions to share information on an annual basis about their banking systems, including the names and tax identification numbers of account holders. 
The language on tax and financial transparency amounts to a victory for major European nations including the U.K., France and Germany, who a day earlier agreed to automatically share information on the ultimate owners of companies and trusts.
China put up the most resistance to the tax-related part of the G-20 statement, and the U.S. was also reluctant, according to two G-20 officials familiar with the talks; one person said China was the main reason why the statement didn’t single out Panama. The officials asked not to be identified because the meetings were private. 
* * * * 
Bright, Dark

Is Good Faith a Defense to False Claim Charges (4/16/16)

In United States v. Croteau, 2016 U.S. App. LEXIS 6547 (11th Cir. 2016), here, the taxpayer was convicted or "ten counts of making false, fictitious, or fraudulent claims on his tax returns, in violation of 18 U.S.C. § 287 and 2, and one count of corruptly interfering with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a)."  Section 287(a), false claims, is one of the panoply of charges that the Government can make for tax crimes.  Today's blog entry will deal with the § 287(a) charges.

Crouteau's misconduct was repeatedly claiming false OID withholding and filing related forms with the IRS, resulting, he claimed, in refunds of well over $3.8 million.  Early on, the IRS caught on and advised him to file corrected returns.  Nevertheless, the taxpayer did not correct and repeated the behavior, which the IRS caught.  And he "Croteau created, submitted, and recorded various fictitious and fraudulent documents claiming rights to millions of dollars owed him by the U.S. Treasury and various government agencies and officials." Finally he "recorded several false, fictitious, and fraudulent liens and documents in the Lee County Clerk's office asserting that the IRS and various IRS officials owed him hundreds of millions of dollars in total."

After several years of trying to get him to behave, the Government had enough:
On August 21, 2013, a grand jury indicted Croteau with ten counts of filing false, fictitious, and fraudulent tax returns with the IRS, in violation of 18 U.S.C. § 287 and 2. Croteau was charged for ten of the false and fraudulent tax returns he filed between September 2008 and September 2010 for tax years ranging from 2006 to 2009, in which he claimed total refunds in excess of $3.8 million. Separately, the grand jury indicted Croteau with one count of corruptly interfering with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2. This charge was based on the alleged false and fraudulent tax returns covered by Counts One through Ten as well as the supplementary submissions supporting the tax refunds including the 1099-OID forms, the separate fictitious and fraudulent instruments Croteau submitted to the U.S. Treasury Department, and the fictitious and fraudulent liens and documents he recorded in the Lee County Clerk's office.
As in many, perhaps most tax cases, there is little or no defense to the objective elements of the crimes charged, so that the defendant is left to the defense that he did not have the requisite mens rea for the defense.  For the usual tax crimes in the Code, the mens rea is the highest -- that the defendant acted willfully, meaning that he intended to violate a known legal duty.  The defense often deployed in such cases is that the defendant did not act willfully because he acted in good faith belief that what he was doing did not violate the law.  This is commonly referred to as the Cheek defense, based on the leading case of Cheek v. United States, 498 U.S. 192 (1991). Technically, where this good faith defense is properly raised in a criminal case with an element that the defendant have acted willfully, the Government must prove that he acted willfully, which requires that the Government disprove the good faith claim.  I have discussed previously the dicey issue of how the defendant puts good faith in play in order to get a jury instruction on good faith to supplement the standard jury instruction on willfulness.  Bottom line it will usually require the defendant to testify, but sometimes there can be sufficient other evidence to raise the defense, thus permitting the defendant to forgo testifying.

Some crimes deployed for tax misconduct, particularly the Title 18 offenses, do not have a textual element that the taxpayer act willfully.  The crimes for which Crouteau was charged do not have a textual willfulness requirement.  I have previously noted that tax obstruction, § 7212(a), although not having a textual willfulness element might have elements which, as interpreted and applied, rise to the same level as willfulness. But I focus today on the 18 U.S.C. § 287, here, charges.  Section 287 provides
False, fictitious or fraudulent claims
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.

Thursday, April 14, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/14/16)

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.  

Max Ehrenfreund, What the Panama Papers don’t say about global finance is just as troubling (WAPO 4/14/16), here.  Another view of the unintended consequences of the developed world's crackdown on offshore financial activity.
Banks' disparate treatment of suspect financial activity suggests that new regulations in the United States and other developed countries, intended to prevent illicit activity, could be detrimental for charities and some less wealthy economies. 
"What the Panama Papers scandal makes really clear is if you’ve got a lot of money, you can get a bank to break more or less any law you want," said Scott Paul, a senior adviser at Oxfam America. "If you don’t have a lot of money, banks will close the door in your face just because of the risk of illegality." 
* * * * 
Yet since the financial crisis made banking less profitable, some banks have decided that vetting their less affluent, less lucrative customers isn't worth the expense, experts say. In part because of the risk of scrutiny from regulators and the press, firms such as Bank of America and Barclays are now reluctant to do business in poor countries where lawbreaking is more common.\ 
Banks' withdrawal from some markets in East Africa, the Middle East, Latin America and other regions has provoked an international debate about the costs and benefits of authorities' efforts to counter illicit finance. 
"Until very recently, there really wasn't a conversation," Paul said. Without careful attention from policymakers, he warned, "it's going to be poor populations and these high-risk jurisdictions that get cut out of the financial system."  

Diplomats and charities have lost their accounts. Meanwhile, migrants working in developed countries as breadwinners for their families in poorer nations are paying more to send them money through informal channels. In the private sector and among nonprofit groups, some worry that rules issued by the U.S. government, along with the European Union and a 35-nation body called the Financial Action Task Force, are making the problem worse. 
Regulators must balance "restrictions that you want to put in place to keep the bad guys out" against "restrictions so strong that you keep the good guys out, too," argued Rob Rowe, a vice president at the American Bankers Association. "There's no easy answer." 
* * * * 
"We recognize that reduced access could impede the flow of money for a family member in need," Szubin said, but he added, "We don't yet see evidence of systemic retrenchment -- and even if we truly are seeing some consolidation, we have not yet identified its scope."

I work for a Swiss Private Bank and serve wealthy Russians (Reddit 4/9/16), here.  Still another view of the offshore account morass.
For 7 years I have been working in Swiss Private Banking, serving wealthy Russian clients. I work with offshore company accounts every day. Many of our clients also had their data leaked together with the 200k other companies. In my old job I even had a meeting with one of the top managers of Mossack Fonsecca but never directly sent clients to them. 
Defending what I do here on reddit is probably as popular as justifying paedophiles so I'm prepared to get insulted. I know that I am doing good work and made peace with the fact that most people probably always will hate me for what I do. 
Anyway, I want to clear up some misconceptions and write about what people like me do and how our industry works. I actually see the recent leaks as a great opportunity for banks like mine to show to the world that they did their homework and that the bad apples that give my profession a bad reputation get sorted out.

Wednesday, April 13, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/13/16)

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.  

Panama papers: Mossack Fonseca headquarters raided (4/13/16), here.
Police carried out Tuesday's raid along with officials from an organised crime unit. Officers set up a perimeter around the headquarters while prosecutors entered the offices to search for documents. 
Afterwards, the attorney general's office said the aim had been "to obtain documentation linked to the information published in news articles that establish the use of the firm in illicit activities". 
The statement added that searches would also take place at subsidiaries of the firm.
Elida Moreno, Panama raids offices of Mossack Fonseca law firm (Reuters 4/13/16), here.
The national police, in an earlier statement, said they were searching for documentation that "would establish the possible use of the firm for illicit activities." The firm has been accused of tax evasion and fraud.
Peter J. Henning, Panama Papers Show How Lawyers Can Turn a Blind Eye (NYT DealBook), here.
Peter Hemmings is a frequent writer on white collar crime.
During the savings-and loan-crisis in the early 1990s, the question “Where were the lawyers?” was asked about the wrongdoing taking place at numerous banks. 
The confidential documents known as the Panama Papers, which show how lawyers helped set up offshore bank accounts and shell companies, provides one possible answer: The lawyers have always been right in the middle of it. 
This is not the only recent example of lawyers acting as willing participants in trying to help clients, while seemingly turning a blind eye to possible violations of the law. A report issued by the nonprofit organization Global Witness, featured on the “60 Minutes” news program in January, included undercover videos of lawyers in New York who appeared quite eager to advise the mysterious representative of an African minister about how to move funds into the United States to buy assets while keeping his ownership anonymous. 
Rather than seeking to keep clients from violating the law, it appears that some lawyers are willing to go right up to the line of legality in their representation. By keeping themselves ignorant about what may be going on, these lawyers have been able to maintain the facade that they are not involved in potentially illegal activities, even though they are often the prime enablers of misconduct. 
Has the legal profession lost its moral compass?
 The article concludes:
It is no surprise that lawyers are at the center of the debate about how to deal with the use of shell companies and secret accounts to hide assets because lawyers are frequently involved in structuring the entities. Despite the elevated rhetoric about the role of lawyers in society, the legal ethics rules do little to restrict how lawyers can represent clients who flirt with the edges of the law. 
Limiting the tools for helping clients engage in misconduct would make it harder for lawyers to claim they are only serving the wishes of those clients.

Tuesday, April 12, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/12/16)

I've been traveling most of the day, so don't have much to offer.  I'll be back up and running in full stride tomorrow.

Eamon Javers, Swiss banker whistleblower: CIA behind Panama Papers (CNBC 4/12/16), here.  This article quotes Bradley Birkenfeld as saying that "the CIA I'm sure is behind this."  Well.

Panama Papers: Spy agencies widely used Mossack Fonseca to hide activities (RT 4/12/16) here. Excerpts:
Intelligence agencies from several countries, including CIA intermediaries, have abundantly used the services of Panamanian law firm Mossack Fonseca to "conceal" their activities, German newspaper Sueddeutsche Zeitung (SZ) says, citing leaked documents. 
Both "secret agents and their informants have used the company's services," wrote the newspaper, which earlier this month published online materials based on 11.5 million documents from the Panamanian law firm. It has been called the largest leak on corruption in journalistic history. 
"Agents have set up shell companies to conceal their activities," the Munich-based newspaper reported, adding that there are CIA mediators among them. 
According to SZ, Mossack Fonseca's clients also included some of those involved in the so-called Iran-Contra affair, in which several Reagan administration officials secretly facilitated arms sales to Iran in the 1980s in order to secure the release of US hostages and fund Nicaragua's Contra rebels. 
The Panama Papers also claim to reveal that some "former high-ranking officials of the intelligence services of Saudi Arabia, Colombia and Rwanda" are listed amongst the company's clients. Among them was Sheikh Kamal Adham, the former Saudi intelligence chief, who according to SZ, was "one of the CIA's key intermediaries in the 1970s" in the Middle East region.
Holly Watt, Panama Papers: global tax officials to launch unprecedented inquiry (Guardian 4/12/16), here.  Excerpts:
Tax investigators from 28 countries will meet in Paris on Wednesday to launch an unprecedented international inquiry following the publication of the Panama Papers.
Senior officials from tax authorities around the world have said they intend to work together to analyse information revealed by the documents, which have provoked international concern over the offshore industry. 
Investigations have been launched in a number of countries over the past week, but the Paris meeting will be an attempt to develop a global strategy to crack down on offenders.
The sheer scale of the leak – 11.5m documents, covering 210,000 companies in 21 offshore jurisdictions – has led to Wednesday’s hastily arranged meeting.

Monday, April 11, 2016

Articles on ICIJ's Panama Papers and Ramifications (4/11/16)

Crawford Kilian, The Man Who Foretold the Panama Papers (The Tyee 4/5/16), here.  This is a book review of Thomas Piketty's new book, Why Save the Bankers? And Other Essays on Our Economic and Political Crisis, here, which was just published.  Piketty, here, is the author who stirred the global pot with his massive Capital in the Twenty-First Century, here, with more data and analysis of data than most of us want to think about much less read. (I have heard that Piketty's book has the lowest number of actual readers among persons who have purchased the book; disclaimer: I too purchased it and have yet to read it other than episodically.)  The book being reviewed here is a collection of other smaller works by Piketty that develop and sometimes predate publication of Capital in the Twenty-First Century.  Here are some excerpts (bold face-supplied by JAT):
But why bother to buy a scrapbook of ancient columns when you can read Capital in the Twenty-First Century? For one very good reason.

The world's greatest economic detective 
Because Thomas Piketty follows the money. He goes into the tax archives of the last two centuries, and he has become the greatest economic detective the world has ever known. He has tracked the wealth of the rentier class since Napoleon -- the families of the "independently wealthy" who live off the income paid them because they own moneymaking enterprises and land.  
In one column, published five years ago on April 5, 2011, Piketty offers what is almost a throw-away line: "... at the world level, the net financial position is negative over-all, which is logically impossible unless we assume that on average we're owned by the planet Mars. More likely, this contradiction suggests that a nonnegligible share of financial assets held in tax havens and by nonresidents is not correctly reported as such." 
In other words, every country in the world is losing money, and therefore losing tax revenue. The implication is that every country is making up for the loss either by taxing its poorer residents more than they should be, or by cutting social services.
Five years later, almost to the day, the Guardian and the German newspaper Süddeutsche Zeitung broke a major global scandal: the Panama Papers.
Piketty's colleague, Gabriel Zucman, published on that issue in the The Hidden Wealth of Nations: The Scourge of Tax Havens (2015), here.

Juan Carlos Varela (President of Panama), Don’t Blame Panama. Tax Evasion Is a Global Problem (NYT 4/11/16), here.
DESPITE their name, the Panama Papers are not mainly about Panama. They are not even primarily concerned with Panamanian companies. The more than 11 million documents, illegally hacked and released last week relating to previously undisclosed “offshore” corporations, is roiling the world with revelations of the vulnerability for rampant abuse of legal financial structures by the wealthy. 
They are unfairly called the Panama Papers because this particular trove of documents came from a single law firm based in Panama. But the problem of tax evasion is a global one. 
Panama does not deserve to be singled out on an issue that plagues many countries. But we are willing to accept the responsibility for fixing it, in part because greater transparency is ultimately a continuation of reforms we have recently undertaken. The world must tackle this problem collectively and with urgency, and Panama stands ready to lead the way.