Tuesday, October 6, 2009

Get in Line Brother #26 - Another Plea to Encourage the Reticent and Risky

The Government posted another notch in its publicity belt yesterday which it went public with the squeeze it put on another hapless UBS depositor and thereby, it hopes, to squeeze the masses to come forward. The DOJ Tax announcement of the plea is here. I have received a copy of the plea agreement but have not yet posted it on the web. I may do that later or, hopefully, when someone else does, I will link to it. I offer here just a few brief comments on the plea agreement in the Cittadini plea. I will probably add to this and refine or revise it (particularly if errors are called to my attention).

1. The Plea Count. Cittadani pled to violation of 26 U.S.C. § 7206(1), often referred to as tax perjury. This means, in effect, that Cittadani admitted that he will told a material lie on the tax return with respect to his reporting and nonreporting regarding the UBS account.

2. Origin of the Account. The seed monies for the accounts was originally received from his family in Argentina and deposited in the UBS account in 1991.

3. Use of Entities to Disguise. In 2001, he created a Hong Kong Corporation to avoid QI requirements, with advice and assistance of Hansruedi Schumaker. The HK corp named Swiss lawyers A.M.R. and Matthias Walter Rickenbach as First Directors.

4. Enablers.

a. Identities. Identifies other Swiss enablers by name where they are already indicted (Shoemaker and Rickenbach) and by initials where not indicted (yet).

b. U.S. Activity. Meetings with one of the enablers were held in the U.S.

5. Relevant Conduct. It is unclear when the UBS account was closed or whether, if closed, the funds went into another offshore account or elsewhere offshore in order to hide from the IRS. The agreement is just silent, perhaps in order to channel the sentencing (i.e., as noted below, the agreement stipulates that the tax loss relevant to sentencing is limited to the years 2001 through 2003). The trend in these cases is certainly to cut off the opening date for relevant conduct consideration, but the truth really is that years prior to that opening cutoff date is relevant conduct. And, of course, a sweeter deal can be achieved if there is an ending date cutoff as there is here. The Government wants pleas and will get its pound of flesh (as well as the perceived needed publicity) by offering goodies to coax out pleas with enough there to permit a significant sentence if that is the sentencing judge's wish. (I should note, however, that he agrees to a single 50% penalty for the FBAR violations for the years 2001 through 2008, certainly suggesting that there was relevant conduct in years after 2003.)

6. Sentencing Factors.

a. Tax Loss (including all relevant conduct): "the tax loss associated with the 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 the tax years 2001 through 2003.” See my comments above.

b. Sophisticated means. A no-brainer.

c. Acceptance of responsibility. A no-brainer.

7. Cooperation.

a. 5K1. Requires cooperation with a possibility of 5K1

b. No Deception. The plea contains this apparently targeted paragraph:
Defendant understands that the United States will tolerate no deception from him. If, in the estimation of the United States Attorney or the United States Department of Justice Tax Division, information or testimony provided from the date of the Plea Agreement proves to be untruthful or incomplete in any way, regardless of whether the untruthfulness helps or hurts the United States' case, the United States may consider that Defendant has breached this Plea Agreement.
c. Use of Information During Cooperation. Not a strange paragraph, but apparently a concern:

d. The parties agree that information provided by Defendant in connection with this Plea Agreement shall not be used to determine Defendant's sentence, except to the extent permitted by USSG § IB1.8.
USSG 1B1.8 provides that information divulged pursuant to plea cooperation agreements contains the usual suspects designed to make the cooperation more effective, but also contains the following exceptions permitting the Government to disclosure: "(5) in determining whether, or to what extent, a downward departure from the guidelines is warranted pursuant to a government motion under §5K1.1 (Substantial Assistance to Authorities)."

d. Cooperation and Rule 6(e). The agreement does not contain an express waiver of Rule 6(e) as seen in other plea agreements but does contain the following:

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.
It is unclear precisely when the proffer(s) occurred, but if they occurrred pre-indictment, I think they have the Rule 6(e) problem that, I am sure, they would prefer to avoid. (I have previously commented on this here.) Certainly, the IRS can get that evidence from him, assuming they formulate the right requests and asks the right questions (based on information independent of the grand jury investigation), but I think it is highly suspect for the "United States" to turn over that information so imbued with the grand jury investigation which was the only investigation DOJ can conduct in a tax case.

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