Friday, May 11, 2012

British Lawyer Charged in Swiss Bank Mess Related to UBS Account (5/11/12)

In a Sealed Complaint (now unsealed) dated May 10, 2012, here, the Government charges Michael Little, a British lawyer with (a) one count of conspiracy (as alleged, it is both a a Klein conspiracy and an offense conspiracy to violated Sections 7201 and 7212(a)) and (b) one count of tax obstruction under 7212(a).  The co-conspirators are identified generally as Little and "others known and unknown, including a Swiss Lawyer, a New Jersey Accountant and five members of a United States-based family (the "S Family")."  The S Family members include the S Family Patriarch and S Family Matriarch who are singled out in the Overt Acts.  S Family Member-1 has pled to "certain conspiracy charges relating to her failure to report to the Internal Revenue Service her ownership and control of a foreign bank account located in Switzerland and is a "cooperating witness."  S Family Members -3 and -4 gave "proffer sessions attended in the hopes of entering cooperation agreements with the United States Attorney's offices in the future."  In addition, the information in the complaint is alleged to come from a variety of sources.

S Family Member-2, identified in the NYT article below as Henry Seggerman,, is apparently still at the highest risk (assuming that S Family Members -3 and -4 ultimately get some type of cooperation agreement with a lesser plea).  S Family Member -2 "oversaw the family's dealing with MICHAEL LITTLE, the defendant, and also tried to place his mother, the S Family Member Matriarch, on a budget with respect to her spending of the amounts she would be bringing to the United States from foreign locations."

The New York times has an article on the unsealed complaint with some details not in the unsealed complaint.  Benjamin Weiser, Family Told How to Hide Inheritance, U.S. Claims (NYT 5/11/12), here.  I think the article is interesting and gives a hint that there are real stories and real lives behind the more egregious attempts to exploit offshore accounts to avoid U.S. tax liability.  The article contains the following selective details:

1.  The defendant, Mr. Little, was arrested yesterday at the airport, hence the unsealing of the complaint.  (How many more sealed complaints or indictments are there out there  for others?)
2.  Bail was granted at $2,000,000.
3.  The Family is the family of "Patriarch" Harr G.A. Seggerman, a respected investment fund president.
4.  S Family Member-1 is Suzanne Seggerman.  Her Wikipedia entry is here.
5.  A grand jury investigation is continuing.

Here are some of my unfiltered quick thoughts:
  1. The overt acts recount the usual types of actions to impair and impede.  Only the involvement of the lawyer is not, more or less, mainstream for these types of charges.  The methods of hiding include use of sham mortgages to get the money into the U.S. with less scrutiny.
  2. The grand jury investigation is described as a "grand jury investigation into S Family Members."  The investigation "also has focused on foreign advisers to the S Family, including MICHAEL LITTLE, the defendant, the Swiss Lawyer, and the NJ Accountant."
  3. A key meeting to inform the members of the S-Family is alleged to have occurred at the Four Seasons in NYC.  I wonder whether there would be some advantage to building a database of the cities and hotels involved in these escapades?  The complaint takes care to allege (in footnote 2, p. 6) that "S Family Member-4 took extensive notes at the Four Seasons meeting (written on For (sic) Seasons stationery), which she kept and has turned over to the Government during this investigation."
  4. Entities were used to implement the scheme; as alleged, they were "from offshore entities to the accounts of United States entities that the S Family Matriarch has set up and used for various philanthropic purposes" which then filed fraudulent tax returns."
  5. The fraud alleged as the object was both income tax and estate tax fraud.
  6. Little's name is not always consistently spelled.  (I know this is picky, but that is what I get paid to do.)  Don't these guys use word processors with a spell feature (or only the feature that has the usual conspiracy charge)?
  7. Interestingly, the complaint alleges a conspiracy to violate 7212(a).  Why I think this is interesting is the Section 7212(a) is sometimes called a one person Klein conspiracy.  Thus, the charging of a conspiracy to violate Section 7212(a) would seem to me nothing more than a Klein conspiracy which is separately charged.  I hope some of you will comment on this aspect of this charge. 
Addendum 5/14/12:  A reader advises that Mr. Little is also admitted to practice in New York.  I attach here a copy of the web site indicating his status with the New York Bar as of today.  I guess I should add just a short editorial.  I had some sympathy for Suzanne Long's circumstance. See Cincinnati Attorney Pleads to Tax Obstruction (5/3/12), here.  Ms. Long, so far as we know, did not make her practice cheating on taxes.  She was a distinguished lawyer who, so for as I can tell, practiced honorably.  Her error was to try to correct a mistake she had made in a way that was dishonest and that the law does not allow.  While that was a wrong thing for her to do, I think we can all understand why she did it.  It was a choice she made, but it was not her practice lifestyle.  Mr. Little according to the allegations engaged in a practice was that was dishonest as a choice for how he wanted to engage in the practice of law. I think the situations are different.  We'll see if the differences play out in terms of sentencing (assuming Mr. Little is convicted) where the respective judges will be aware of the full range of potential mitigating factors).

Articles:
Lawyer Little Charged With 11-Year Swiss Tax-Fraud Scheme (Bloomberg 5/11/12), here.
Martha Neil, Lawyer Held In Lieu of $2M Bail re Claimed Conspiracy to Help Clients Avoid Tax on Offshore $10M (ABA Journal Law News Now 5/14/12), here.

Sam Chadderton, Kings Bench barrister held in US over alleged $10m tax fraud (Court.US 5/14/12), here.

This blog entry was substantially revised on 5/12/12; articles were added on 5/15/12.

12 comments:

  1. Jack,

    "Sealed compliant" is unknown to the accused until he/she is arrest --then it becomes unsealed ?

    That would be scary for some expats who might come back for a family visit.

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  2. Is there a case where an expat who has been upto date with his filing in the home country, owes little tax
    been taken to the court by IRS so far?

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  3. Let me ask a question about the economics of providing professional tax evasion services, if I may:

    Section 4(h) of the complaint states that between 2001 and 2009, Little, the Swiss Lawyer and the NJ Accountant were paid "tens of thousands of dollar of fees". Let's assume that "tens of thousands of dollars" means no more than $100,00 - so say $99,999; let's further assume that fees were divided equally between the defendant, the Swiss Lawyer and the NJ Accountant (not necessarily the case, obviously, but let's assume anyway) - that works out to $33,333 per individual. Let's further say that "between 2001 and 2009" includes both the beginning and ending year - that gives us a period of 9 years.

    If you do the math, all these alleged professional services netted each individual an average of $3,700 a year! Does that make sense? Even if you factor in free lunches and dinners at the Four Seasons, would a professional do all that (allegedly illegal) work for that little? Am I missing something?

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    Replies
    1. Very astute analysis. You raise a good question. My sense is that good lawyers would not work for that small of fees. Bad lawyers might, since they take what they can get.

      Good lawyers are not so blatant in their raids on the fisc. Take the case just decided yesterday, Hewlett-Packard Co. et al. v. Commissioner, T.C. Memo. 2012-135, Prestigious law firms with very good -- and very well compensated -- attorneys somehow lent their good offices to the transaction that the Tax Court ultimately pronounced to be hokey. For the HP opinon, see http://www.ustaxcourt.gov/InOpHistoric/HEWLETTPACKARD.TCM.WPD.pdf and for Lynnley Browning's article, see http://www.ustaxcourt.gov/InOpHistoric/HEWLETTPACKARD.TCM.WPD.pdf

      Jack Townsend

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    2. We don't know that much about the NJ Accountant and the Swiss Lawyer and how good they are at what they do. We know a little about Little (no pun intended) - he's over 60, has had a wide-ranging legal and financial practice, but tax doesn't seem to be his bailiwick. (See http://www.thelawyer.com/kings-bench-barrister-held-in-us-over-alleged-$10m-tax-fraud/1012573.article).
      He couldn't have made that much money, either, as apparently he's can't make a $1m (or is it $2m?) bail - http://www.abajournal.com/news/article/lawyer_held_in_lieu_of_2m_bail_re_claimed_conspiracy_to_help_former_fidelit/.

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  4. Jack,

    I am not a frequent poster but I have a theory I am curious as to what you think of a resident of Texas. Anecdotally in terms of major offshore tax cases very few of them seem to involve residents of Florida or Texas(I might be completely wrong its just I see a lot of offshore cases involving NJ, NY, and CA resident but not FL or TX). My theory, given the lack of state income tax in TX and FL the risk reward ratio for offshore tax shenanigans is simply not there given the effective 15% long term capital gains rate in both states. Additionally the unlimited homestead exemption provides an alternative mechanism of "asset protection." Again what I am saying might be total bunk in fact there was a recent case that was just announced out of Miami.

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  5. According to my spreadsheet, there have been 16 defendants charged  in SD-FL alone.  Indeed, that district is the second highest in terms of charges.  SD-NY is the highest with 20 defendants charged (indictments and complaints).  And, of course, the UBS action was brought in SD-FL.

    I think there will be indictments in TX in the reasonably near future.

    I cannot give even informed speculation as to why there have been none in Texas yet. 

    Best,

    Jack Townsend

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  6.  As Jack points out, there have been several cases out of Florida. I doubt the relatively small amount of state tax (relative to federal tax) has much of an impact either way. And there are perfectly legal means of offshore asset protection that do NOT involve offshore evasion.

    I think part of it just might be the cluster and 'ethnic' effect. UBS seemed to have a number of Jewish customers based in the NYC area, and a number of Iranian American customers in the So Cal area AND focused a lot of resources on Florida. This is NOT to suggest that members of particular ethnic groups may be more likely to engage in tax evasion (although people who have had past histories involving unpleasant regimes may be more likely to keep money offshore), but its just a reflection of how UBS and HSBC marketed their 'services'.

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  7. Very observant. We are all entitled to our own opinion. 

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  8. This is a very well-educated family who could have gotten a second opinion, or indeed, walked away from this scheme, but didn't from sheer greed. None of them are financial fools. What is disturbing here is that the lawyer is being made out to be the heavy while it is really ALL of them that belong in jail. I would assume the Feds have checked their passports and done timelines over the years to determine when and what amounts were taken from the overseas accounts and brought into the country. (The family has a house in St. Martin for ex) Their attitude of entitlement and deception persisted for YEARS and the government needs to come down hard on them to make an example. Enough is enough.
    PS and what about the complicity of the various spouses? Where are they in all of this??

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    ReplyDelete

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