Friday, November 11, 2011

OK, Mr. Prosecutor, Why Are You Punting on the Relevant Conduct? (11/11/11)

Renzo Gadola, a UBS representative servicing U.S. customers, pled to "conspiring to urge one U.S. taxpayer not to disclose his secret Swiss bank account to the IRS." See my posts on Gadola here. I post a copy of the prosecutors' sentencing memorandum here. I only make one general comment -- the prosecutors are really helping Gadola get the lightest sentence possible. Readers can read the Sentencing Memoranda and perceive that it is a bit of a love fest between the prosecutors and Gadola.

I do have a specific comment about the tax loss which is generally the principal driver the Sentencing Guidelines calculations. Apparently, in the love est negotiations, the prosecutors and the defendant picked a U.S. client for whom there was a no tax loss. If that were all that were considered determining the base offense level, Gadola would be in striking distance for a light tap on the wrist in terms of sentencing, but the Government in its sentencing memorandum, here, says:
Pursuant to U.S.S.G. $ 181.8, the government has the obligation to inform the Court of loss suffered by the government from the defendant's uncharged conduct, even though the loss cannot be used in determining the advisory Guidelines sentence. As part of the IRS's Offshore Voluntary Disclosure Initiative, twelve (12) U.S. customers disclosed to the Service their secret Swiss bank accounts that they used to conceal their assets and income and evade their taxes and that the defendant was one of the bankers who assisted them in their efforts. These taxpayers estimated that, collectively, they had undeclared assets valued at not less than $18 million and not more than $46 million. n2 The taxpayers estimated that their collective unreported income was at least $2 million. 
n2 Further, records produced by UBS pursuant to the Deferred Prosecution Agreement indicated that the defendant managed undeclared accounts for Robert Greeley a U.S. taxpayer residing in San Francisco, Califomia, that, as of December 31, 2004, had assets in excess of $ 13.7 million. Greeley pleaded guilty to filing a false tax retum for tax year 2008, in violation of 26 U.S.C. $ 7206(l), which failed to report $49,770 in income from his undeclared accounts. United States v. Robert Greelev, 3:1 1-cr-00374-CRB (N.D. CA). on November 9,2011, Greeley was sentenced to: 6 months home confinement; 3 years probation; a $3,000 criminal fine; $16,869 in restitution payable to the IRS (which has already been paid); and $6,861,930 for a civil FBAR penalty (which has already been paid).
Note the first sentence where the Government claims (i) it has the obligation to tell the Court something (in this case, uncharged conduct) but (ii) that something is that Gadola was a banker servicing other U.S. taxpayers who had significant deposits and who estimated that their tax loss was at least $2 million. Under well-settled relevant conduct concepts, the tax loss attributable to the taxpayer's related pattern of conduct is included in determining the base offense level. But, for sentencing purposes, the tax loss must be shown by a preponderance of the evidence. What the prosecutors are telling the Court is that all the prosecutors will give the Court is certain aggregate taxpayer estimates of the tax loss. That claim is, of course, hearsay which is allowed in sentencing proceedings (although not during the case in chief unless an exception applies). But, the hearsay has to have sufficient evidence of reliability to meet the standard of preponderance of the evidence that it is true; a mere statement that the taxpayers made the evidence should not be sufficient evidence of reliability that a court would accept it for establishing tax loss by a preponderance of the evidence. A bare claim does not a preponderance make. So this leaves the Court with a zero tax loss for sentencing purposes although it should be clear to the Court that, in fact, the tax loss is substantial.

Now, of course, the prosecutors could have done more to establish significant tax losses for the uncharged conduct. They could have, for example, submitted the amended tax returns submitted by the taxpayers in the OVDI. In the Larson trial (the remnant of the massive Stein trial arises from KPMG tax shelters), the Court did something like acceptance of taxpayer's amended returns to show that there was the required tax due and owing for purposes of establishing that critical element of tax evasion. (Editorial note, whatever happened to Crawford type confrontation concerns?)  Surely if that is permissible in the case in chief, such returns could be used for sentencing purposes where the evidentiary standard is far more relaxed. But, still the Government has to be the proponent of the evidence.

I suppose that the PO or the sentencing court could demand that the prosecutors produce the evidence rather than just make bare claims of the taxpayers' estimates. But, this is a wired deal and, given the 5K1 departure promoted by the taxpayer and the prosecutors, it may not in the final analysis really affect the bottom line sentence. Still, there is ample authority that the Court is supposed to make a finding of the tax loss and that the prosecutors are supposed to make a fair effort to assist the Court in doing so, that the Court should not simply accept this shuffle from the prosecutors to try to help Gadola through the Guidelines calculation rather than directly through a straight-forward Booker variance.

Note also in this regard, the footnote regarding the Greeley case. Greeley was a client of Gadola and definitely had a tax loss which could be attributed to Gadola as relevant conduct.. Notwithstanding, the Government in the Gadola sentencing memorandum tries to de-emphasize any tax losses in Greeley  by stating that Greeley has paid the amounts required -- the implication being that by now there is no actual tax loss. But tax loss is the loss intended not the loss remaining after a defendant is caught and made to pay. Whatever the tax loss was for Greeley should be included in the tax loss calculations and the prosecutors cannot serious claim that they don't know what that is.

For a discussion of omitting key facts in plea bargaining, see Peter J. Henning, The Vanishing $2.5 Million in Insider Trading Profits (NYT DealBook White Collar Watch 10/24/11), here.


  1. FYI, the first sentence of the last paragraph needs an edit.

  2. Thanks, I have corrected it.

    Jack Townsend


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