Monday, August 17, 2009

Get in Line Brother #18b - McCarthy Plea Guidelines Sentencing Range Calculations

I continue my discussion of the McCarthy UBS related plea. All installments of this discussion may be reviewed here. This blog discusses the Sentencing Guidelines calculations which, under Booker, must be considered although not mandatory.

1. Alternative Guidelines Regimes - Monetary Reporting or Tax?

a. The Monetary Reporting Calculations. The starting point under Chapter Two is Part S, §2S1.3. Following the pattern of Chapter Two, this section provides a Base Offense Level and adjustments for Specific Offense Characteristics. The Base Offense Level is determined under §2S1.3(a)(2) providing for a level of 6 plus the additional levels from §2B1.1 dealing with theft loss but using the "value of the funds" instead of the loss. In the case of the FBAR, the value of the funds would be the amount reportable on the FBAR -- i.e., the highest amount in the account during the year. The calculation is made for the year of conviction and all relevant conduct (a Guidelines concept that basically includes related activity whether charged or uncharged, convicted or acquitted or even outside the criminal statute of limitations). So, presumably, since McCarthy admitted willful failure to file FBARs for multiple years, the aggregate for all years for all foreign accounts would be used for the §2B1.1 calculation. The plea documents do not provide the information from which the Base Offense Level calculation can be made. With the inclusion of all years, however, the Base Offense Level might get up pretty high. After determination of the Base Offense Level, §2S1.3 provides Specific Offense Characteristics for adjustments to the Base Offense Level. The relevant Characteristics is §2S1.3(b)(2) which, in pertinent part, provides a 2 level increase if the conviction offense was “part of a pattern of unlawful activity involving more than $100,000 in a 12-month period.” I believe that that calculation will include FBAR reporting amount for the offense year of conviction and the years for which the FBAR willful failure to file was admitted even though not charged. Possibly also, it might include income tax loss (i.e., the tax loss stipulation (discussed below) and the agreement to a civil fraud penalty should suffice to be a tax loss admission under the preponderance of evidence standard for sentencing purposes). So, I think that a two level increase would apply if the amounts involved more than $100,000 as they almost certainly did for the FBAR violations. (Note if those nonconviction items were omitted from the calculation as not constituting a pattern of unlawful activity, McCarthy might qualify for a reduction of the offense level to 6. § 2S1(b)(3).) As noted, I cannot provide the calculations for the offense level because the plea documents do not provide the amounts that would permit calculation of the Base Offense Level.

b. The Tax Crimes Calculations. Notwithstanding the foregoing, if the tax crimes calculations would produce a higher offense level, then the tax crimes calculations apply. § 2S1.3(c). The pertinent tax crime calculations are made under Chapter Two, Part T, and specifically under § 2T1.1. The plea agreement assumes that the tax crimes calculations will be the applicable calculations. See e.g., the agreement as to tax loss in plea par. 12 specifically referencing §2S1.3(c). As often occurs in tax pleas, the parties try to pre-empt the sentencing factors, including tax loss, in the plea agreement. The parties stipulated to a tax loss ($200,000 - $400,000) which produces a Base Offense Level of 18 and then stipulated a Specific Offense Characteristic of “sophisticated means” requiring a 2 level increase. See §2T1.1(a) and (b). So the offense level coming out of Chapter 2 is 20. The parties then provide for the standard acceptance of responsibility reduction (2 if the offense level is 15 or less and 3 if, as indicated here, more than 15), so the indicated offense level is 17 considering only these matters. The plea agreement suggests that the offense level of 17 is what the parties contemplate / hope for. (See e.g., defendants’ waiver of appeal right so long the Court determines an offense level of 17 or below.) Level 17 indicates a Guidelines range of 24-30 months with a criminal history of I. Of course, the parties stipulations as to the factors are not binding upon the probation office or the sentencing court, but (i) it looks like 24-30 months is the Guidelines range the parties expect and, if the court sentences within the indicated range, it is common in tax cases to go to the lower end of the range and (ii) the court might even vary below the range upon a strong showing.

2. The Tax Loss Agreement.

I noted above that the parties stipulated the tax loss in order to derive the Base Offense Level under the tax Guidelines. Let's take a closer look at the stipulation:
a. Tax Loss: The relevant actual, probable, or intended tax loss under Section 2Tl.l of the Sentencing Guidelines resulting from the offense committed in this case and all relevant conduct is the tax loss associated with funds deposited into the COGS Eenterprises Ltd. (COGS) account at UBS AG that was disclosed to the U. S. Government pursuant to the Deferred Prosecution Agreement with UES AG, plus the tax loss on the net income earned on those funds for the years 2003 through 2007. The parties agree that the tax loss is more than $200,000, but less than $400,000 (exclusive of interest and penalties) for an Offense Level of 18 . See U.S. S. G. §§ 2S1.3(c), 2T1. 1, and 2T4. 1 (G).
The tax loss agreement is curious because it limits the tax loss to tax attributable to the UBS account disclosed to the U.S. Government pursuant to the DPA. Why would it not at least include all similar tax loss for all foreign accounts. The statement of facts states that money was transferred into "UBS Accounts" (plural) and that defendant was discouraged from transferring money out of his "UBS Swiss bank accounts" (plural). Further, the statement of facts states that those transfers came from a Caymans bank account that defendant controlled. (In the next sentence, the statement refers to a UBS Caymans banking relationship, but the UBS identifier is missing from the statement as to the source of the transferred funds.) So why does the agreement attempt to limit the tax loss just to that related to the one UBS account? The plea agreement does not address that question.

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