1. For context, the defendant's corporation represented Hong Kong and Chinese toy manufacturers for a number of years. Such arrangements with foreign payors offer an opportunity to have compensation flow off the U.S. radar screen. It did so here.
2. Beginning in about 1981, the defendant established foreign accounts for the purpose of concealing income from the IRS. The accounts appear to have been principally in the name of offshore entities that the defendant owned and controlled. One of these entities is identified as the owner of a UBS account. The defendant is identified as the owner of that entity in an "internal UBS Form A, Verification of the Beneficial Owner's Identity, dated April 19, 2002." There is no indication of the source for this particular "internal UBS Form." If indeed it is an internal UBS form, presumably neither the taxpayer nor the U.S. would have access to it through the normal course of events. Question: how did it surface? Good question. There is another indication in the plea agreement discussed below that the U.S. learned of this document through disclosures UBS made pursuant to the UBS deferred prosecution agreement.
3. Money came into these accounts. The defendant would take out significant amounts for various personal expenses (typically just under $300,000 per year). Notwithstanding that, by 2005, the account balance at one of the accounts (there were more than one) was $8,000,000. (This is an odd way to state it and leaves open the issue of how much there was in the other accounts.)
4. A Swiss bank executive serving as a manager for cross-border business assisted the defendant. That executive left UBS because he was concerned about UBS joining the U.S. qualified intermediary program. In 2003, that executive convinced the defendant to invest a portion of his assets in another Swiss bank that was smaller, had no presence in the U.S. and was not in the U.S. qualified intermediary program. The executive told defendant that this smaller Swiss bank could not be pressured to disclose his identity and account information to U.S. authorities.
5. From about 1998 through 2008, defendant had several meetings with that executive, other UBS executives and a Swiss lawyer in the United States to discuss the accounts at UBS and the other Swiss Bank. When traveling to the United States for these meetings the executive and Swiss lawyer would "dress as tourists to avoid detection." The executive "would falsely report to United States customs that he was coming to visit his brother." The account statements to be discussed at these meetings were mailed to a U.S. address rather than hand-carried in order to prevent their seizure by customs agents if carried with the Swiss persons. Further, the account statements would have the identifying information cut from them "so that they could not be tied to the defendant and his accounts."
6. In approximately 2004, defendant on Swiss attorney's advice entered a sham loan transaction in which defendant borrowed his own money from an offshore account to fund the purchase of property. Although knowing the transaction was a sham, defendant "instructed his United States tax return preparer to deduct the 'loan interest' he paid on his income tax returns." (Note that this admission alone admits guilt as to the crimes of tax evasion and tax perjury for the years in which the interest was claimed as a deduction.)
7. In 2008, as the U.S. ramped up the pressure on UBS, the defendant consulted with the Swiss attorney about his concerns that UBS would disclose his identity and account information to U.S. authorities and the possibility of repatriating the money to the U.S. The Swiss attorney then told the defendant that UBS was not disclosing his accounts to the IRS . The Swiss attorney represented that he had received this information from a Swiss official who must be paid $45,000 for it, and, with defendant's authorization, the Swiss attorney withdrew $45,000 to pay that amount. (Note that the defendant participated in the payment of a bribe to a Swiss official, but the agreement is otherwise silent as to that; I suppose it is equally consistent with the public documents that the Swiss attorney pocketed the amount he advised defendant was to be paid to the Swiss official.)
8. For the years 2002 - 2007, the defendant did not file FBARs and did not report the earnings from the foreign accounts on his U.S. tax return (Form 1040). Specific details are given for the 2007 1040. For all years, defendant knowingly and willfully failed to report the income from the foreign accounts. Note that these admissions admit guilt of tax evasion and/or tax perjury for each of these years and perhaps also guilt of failure to file the FBARs, although the language is not as crisp on that.
9. For this pattern of behavior (not all details recounted above), defendant pleads to a single count of tax perjury, § 7206(1), for 2007. His factual admissions do admit guilt of the behavior for all of the years from 2002 - 2007 (all of which are probably still open under the 6-year criminal statute of limitations, presuming that he filed the 2002 return on extension after 7/27/03). Yet he pleads to a single count. This is important, because the single count plea caps the sentence -- incarceration period -- at 3 years (subject to 15% good time credit).
10. The Guidelines advisory sentence range will be determined by including all of the relevant conduct. Relevant conduct is all conduct from the same pattern of behavior involved in the count of the conviction (here tax perjury for 2007). Here, the defendant has been conducting this pattern of behavior since 1981. This means that, for calculating the critical base offense level as the starting point for the sentencing calculations, all tax evaded since 1981 could be included in the "tax loss" calculation. Properly calculating relevant conduct, therefore, the Guidelines range would certainly exceed the 3-year maximum sentence for the single count of conviction pursuant to the plea and would mean that that defendant's Guideline sentence would be 3 years. Notwithstanding that truism, the Plea Agreement says:
a. Tax Loss: The relevant amount of actual, probable, or intended tax loss under Section 2T1.1 of the Sentencing Guidelines resulting from the offense committed in this case and all relevant conduct is the tax loss associated with accounts at UBS that were disclosed to the Government pursuant to the Deferred Prosecution Agreement with UBS, and of which the defendant was the beneficial owner for tax years 2001 through 2007.Focus on what this agreement does. First, it signals that the U.S. discovered this defendant pursuant to UBS disclosures under the DPA. Second, it “limits” the tax loss calculation to considering only tax loss in the years 2001-2007 and then only the tax loss attributable to the UBS accounts. As noted above, the relevant conduct for sentencing purposes includes all such behavior for all years (here since 1981).
Quite frankly, I am stunned that the Department of Justice would enter an agreement that states something that is patently false. It is true that the Plea Agreement does state that this stipulation as to the relevant conduct tax loss is not binding on the probation office or the court, but it is still a falsehood -- let's call it a lie (which is a word DOJ Tax uses when taxpayers or their enablers engage in similar behavior) -- to state, as it clearly does, that the tax loss so constricted is
The relevant amount of actual, probable, or intended tax loss under Section 2T1.1 of the Sentencing Guidelines resulting from the offense committed in this case and all relevant conduct . . . .11. The U.S. agrees to recommend a sentence at the low end of the Guideline range as determined by the court. As noted above, there is no low end of the Guideline range, properly calculated, that is less than the 3 year sentence, so on a properly calculated range, this defendant has an indicated Guidelines sentence of 3 years for the count of conviction. Of course, under Booker, the judge can vary downwards, but the facts admitted in the plea agreement do not seem to me to argue in favor of a downward variance. Undoubtedly, more relevant facts will come out in the sentencing process, so the sentencing judge may find some of those persuasive.
12. The FBAR civil penalties for the open years (2001-2007) are resolved by paying a 50% penalty for a single year "the one year with the highest balance in the account as of June 30 for calendar years 2001 through 2007." It is unclear what this means since he had multiple accounts but the agreement is as to what appears to be a single account. Even if all accounts are included, the limitation to one year is sweet indeed. Note that in trying to coax all other as yet undiscovered and possibly never to be discovered taxpayers absent voluntary disclosure into the voluntary disclosure program, the Government in its FAQs tries coax then into a single year 20% penalty by threatening a 50% penalty for each year. How is this a credible threat when it imposes only a single 50% penalty in a criminal case involving a pattern of behavior that is far more egregious that most cases? Couldn’t one reasonably conclude that if the worst befell, the worst case is really 50% for a single year, which is not that much more draconian than the 20% that the IRS insists on for voluntary disclosure? Is the signal that the real cost / benefit analysis for the voluntary disclosure program more skewed against joining the program than the IRS noises about?
13. The following provision of the plea agreement is curious:
D. The defendant further agrees that any evidence, including statements and documents, provided to the United States by the defendant pursuant to a Proffer Agreement, without any limitations, can be utilized by the United States in its civil examination, determination, assessment, and collection of income taxes related to his income tax returns and any related corporate/entity tax returns, or any other civil proceeding. The United States does not deem this, in any way, to be a waiver of the defendant's attorney-client privilege with respect to any attorney.This raises the issue of whether the information provided pursuant to the Proffer Agreement is grand jury information. If it is, this portion of the agreement contemplates behavior that appears to violate FRCrP Rule 6(e) without an express Rule 6(e) order which cannot be obtained for a civil tax audit. I have previously blogged on this general issue here.