Wednesday, May 9, 2012

Seventh Circuit Affirms Sentencing for Tax Related Crimes Involving Foreign Accounts (5/9/12)

In United States v. Ghaddar, 678 F.3d 600 (7th Cir. 2012), here, the defendant pled to counts of mail fraud and tax obstruction.  The defendant operated retail tobacco shops and skimmed currency which he used both for the business (paying employees and suppliers) and for his own personal purposes, including diverting to his offshore accounts which were owned individually rather than through entities.
He also channeled a substantial portion of the currency to bank accounts he controlled in Lebanon, his homeland, where he owns property and maintains a residence. He accomplished this overseas transfer by carrying currency or cashier's checks with him when he traveled, wiring money from noncorporate accounts he controlled at stateside banks, and shifting money into the accounts of relatives and associates, who then wired it to his Lebanese accounts. In addition, on at least three occasions, Ghaddar directed his accountant to make multiple deposits of currency in amounts around $9,000 and then transfer lump sums to an account in the Channel Islands (British Crown Dependencies off the French Coast of Normandy). The account was under Ghaddar's control but not in his name; the name of the account holder is not disclosed in the record.
At sentencing, the defendant opposed a 2 point upward adjustment for "sophisticated means."  This adjustment applies under the Chapter 2 Guidelines for both to wire fraud convictions and tax convictions and are interpreted consistently.  U.S.S.G. §§ 2B1.1(b)(10)(C), 2T1.1(b)(2).
Both provisions apply to "especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense," and both guidelines include an application note identifying, as examples of conduct ordinarily warranting the increase, the concealment of assets and transactions "through the use of fictitious entities, corporate shells, or offshore financial accounts." U.S.S.G. §§ 2B1.1 cmt. n.8(B); 2T1.1 cmt. n.4.
The defendant argued that his conduct was not sophisticated and hence the adjustment should not apply.  He attempted to characterize the gravamen of his conduct as mere skimming which should not constitute sophisticated mean.  The Court rejected the argument on the following reasoning (most case citations and quotation marks omitted):
Although Ghaddar's arguments are ultimately unpersuasive, one of his contentions is well-taken: By itself, skimming currency receipts and using that money to pay employees and suppliers is not a particularly elaborate form of tax evasion. As we explained in United States v. Kontny, 238 F.3d 815, 820-21 (7th Cir. 2001), some degree of concealment is inherent in criminal tax fraud, and situations where a shopowner simply empties the cash register and hides the day's receipts under his bed must be distinguished from efforts over and above that concealment to prevent detection. For that reason, the adjustment for sophisticated means is warranted only when the conduct shows a greater level of planning or concealment than a typical fraud of its kind. 
But not all of Ghaddar's actions needed to be elaborate for the adjustment to apply; it is enough that, as the district court found, his actions when viewed as a whole constituted a sophisticated scheme.  
We review the application of the adjustment for clear error, and there is none here. Ghaddar repeatedly channeled money into foreign bank accounts (including one account not in his name or home country), actions that ordinarily qualify as sophisticated means. See U.S.S.G. § 2B1.1 cmt. n.8(B).  In addition, he used elaborate tactics to conceal the source of this money, including exchanging currency for cashier's checks to carry overseas, directing his accountant to illegally structure currency deposits.
JAT Comments:
  1. This defendant pled to two counts.  There is no indication as to whether additional counts were originally charged and dismissed pursuant to the plea.  Sometimes, when a deal is reached pre-indictment, the indictment charges only the counts agreed upon.  The fact pattern described certainly could have supported additional charges (provided that the proof was there), such as most importantly the BSA FBAR and currency reporting violations on taking the currency out of the U.S. and the  tax perjury charge often found in these cases.  Probably a Klein conspiracy could have been charged as well, although the tax obstruction charge covers much of the same ground for an individual (albeit with a three year maximum incarceration rather than five).  This should illustrate that, for many tax related violations (as well as many general federal violations), there are often any number of criminal charges that might be brought, but the sentencing guidelines often negate the benefit to the Government of piling up the number of charges.
  2. The mail fraud charge is unusual in tax crime patterns.  The potential for a mail fraud charge is almost always present in tax criminal cases, but the charges are usually the more directed tax charges -- usually tax evasion, tax perjury or tax obstruction (either individually under Section 7212(a) or, with others, under the Klein conspiracy statute, 18 USC 371(a).  I don't know the dynamics of how the mail charge was included for the plea.  Readers might, however, review DOJ Tax's policy for charging mail fraud or wire fraud, in the DOJ criminal Tax Manual, here.
  3. I am not including this case in my spreadsheet because the gravamen of the case as charged was a tax crime through skimming and the charges do not focus on the offshore accounts in charging.  This may be a bit of an artificial distinction because, for sentencing, all relevant conduct can be considered and can influence the sentence.  Still, there is no indication in the appellate decision that the offshore accounts were anything more than background (and sentencing factors) to the charges that were pled.


  1. Jack,

    Excellent comments. Very edifying, especially but not limited, to your discussion about the prosecutorial disadvantage in piling up charges in the face of the trial judge's discretion to take stock of all relevant conduct (i.e., uncharged conduct and charges where the judge or jury have rendered an acquittal).

    To be sure, sentencing proceedings and the avoidance of collateral consequences such as the withdrawal of immigration benefits to convicted aliens has become a rather complex undertaking. Such undertaking is suitable for experienced white collar criminal defense attorneys; not for those "pretenders" who run a "meet em', greet em' and plead em'" farce masquerading as a law practice.

  2. Tax Crimes JunkieMay 16, 2012 at 8:16 PM

    Hasn't Jack posted something on how the statistics indicate that there may be too many pleas at least in terms of the results that, in some cases, achieve a better result?  And, as you suggest, defense lawyers in these cases need to know the Sentencing Guidelines intimately in order to position a client at risk in the best posture for sentencing -- such as what is relevant conduct and what opportunities to mitigate its impact, what are the opportuities to plead to insure grouping, etc.


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