Thursday, July 19, 2012

Third Circuit Addresses Kastigar Requirements After Immunized Testimony (7/19/12)

In United States v. Bagdis, 2012 U.S. App. LEXIS 14672 (3d Cir. 2012), here, cert denied, 2013 U.S. LEXIS 917 (1/22/13), a nonprecedential opinion, the Third Circuit affirmed a taxpayer's conviction for one count of attempting to obstruct the administration of the Internal Revenue Code (§ 7212, 3 year max per count); seven counts of conspiracy to defraud the United States (18 USC § 371, the Klein conspiracy,. 5 year max per count); eight counts of aiding and assisting in the preparation of false tax returns (§ 7206(2), 3 year max per count); three counts of failure to file tax returns or supply information (§ 7203, 1 year max per count); and five counts of failure to file currency transaction reports by a business (31 USC § 5322, 5 year max per count).  (My rough and ready calculation of the permitted effect of "stacking" these to reach the maximum possible sentence indicates a maximum sentence of 90 years.)

In calculating the Guidelines range, the court included an obstruction 2 level enhancement.  The range thus derived was 121 months to 151 months.  The court sentenced to 120 months, but assigned that 120 months to the count for tax obstruction (§ 7212), with the sentencing on the other 26 counts to run concurrently.  The judge must have been asleep at the bench on that one, because the defendants was convicted of only one count of tax obstruction, with a maximum sentence of 3 years (36 months) and sentencing in excess of a count of conviction is a no-no.  (As my calculation above indicates, there is certainly a way to achieve a 120 month sentence, but it cannot be done the way the sentencing judge did it.)  After the parties called the error to the sentencing judge's attention, he then proceeded to make the same genre of error by imposing a sentence of 42 months on an aiding and assisting that had a statutory maximum of 36 months.  [The court of appeals' discussion on this point is less than satisfying, but I decline to speculate further about it; the case was remanded to permit the sentencing judge to get it right this time.]

On appeal, the defendant claimed that the district court had erred by not forcing a Kastigar hearing to prove that the Government had not used immunized testimony.  Kastigar v. United States, 406 U.S. 441 (1972).  The background was that, in its investigation leading to the instant prosecution, the IRS conducted a sting operation on the defendant, a lawyer, who marketed his services as created a labyrinth of corporations to hide taxable income in plain sight.  During that sting operation, the defendant disclosed to the sting agents that the lawyer had given immunized testimony in another district, a phenomenon previously unknown to the investigators.  The immunity had been granted in that separate investigation by letter that "afforded protection that [was] coextensive with, and no less than, formal statutory use immunity" codified at 18 U.S.C. § 6002." A "taint team" was established to insure that, in the current investigation, the IRS used no information from the immunized testimony.  After indictment, the defendant then sought a Kastigar hearing.  (I attach at the end of this blog some materials from the current draft of my Federal Tax Crimes text that explain the purpose of the Kastigar hearing.)

The Court of Appeals rejected the Kastigar claim, finding that the district court properly had the quantum of evidence sufficient to determine that the Government had not used the immunized testimony (or fruits from it, since it was use and derivative use immunity consistent with the immunity statute).  

The Court of Appeals did note in a footnote (fn. 3) a split in the circuits as to the burden on the Government once the defendant shows that he has previously given immunized testimony.  The footnote is:
n3 Bagdis contends that to shift the burden to the government, he must only demonstrate that he provided testimony under a grant of immunity. Our sister courts have taken varying approaches. Some hold that the burden will only shift once the defendant shows that he gave immunized testimony on matters relating to the federal prosecution. See United States v. Blau, 159 F.3d 68, 72 (2d Cir. 1998) ("In the typical case, [a defendant's] failure to show the requisite factual relationship would be sufficient to end the inquiry and avoid the necessity of a Kastigar hearing."); United States v. Serrano, 870 F.2d 1, 15 (1st Cir. 1989). While others shift the burden when a defendant demonstrates he testifies under a grant of immunity, without necessarily inquiring into the subject matter of that testimony. United States v. Cozzi, 613 F.3d 725, 728 (7th Cir. 2010); United States v. Streck, 958 F.2d 141, 144 (6th Cir. 1992). Because we find that the government has met its burden of establishing an independent and legitimate source for the disputed evidence, we do not need to decide what standard would apply and assume that Bagdis has satisfied it.



(4) Securing the Benefit of Immunity - Kastigar.
However the witness obtained immunity, the witness will want the benefit of the immunity.  Obviously, if the witness has transactional immunity (obtainable only by agreement), a breach of the agreement can be easily spotted and policed.  It is more difficult to spot breaches of derivative use immunity and use immunity.  What does the witness do if the Government prosecutes the witness on the basis of evidence that the witness believes violates the immunity granted?  In conjunction with a bill of particulars, the taxpayer may want to invoke a pretrial hearing process called a Kastigar hearing (named for the case upon which it is based, Kastigar v. United States,). 
In Kastigar, the Supreme Court considered whether the United States Government may compel testimony from an unwilling witness given use and derivative use immunity under the immunity statute or, on the other hand, may be compelled only by conferring transactional immunity.  The Court reasoned: 
[I omit here the extensive quote from Kastigar discussing:
1.  How use and derivative use immunity in the statute is co-extensive with the Fifth Amendment privilege:  "[B]oth the reasoning of the Court in Murphy and the result reached compel the conclusion that use and derivative-use immunity is constitutionally sufficient to compel testimony over a claim of the privilege."]
2.  The defendant has an effective remedy once he shows that he has given immunized testimony via a court proceeding in which the Government bears the burden of showing that its case is not improperly based on immunized testimony or the fruits there.]
Kastigar approved a process whereby if a Government desires to prosecute a witness who has been compelled to testify under use immunity, the Government must, upon the witness’s request, demonstrate that it has made no direct or indirect use of the immunized testimony.  This hearing is commonly referred to as a Kastigar hearing.
As the Court noted, the ability to make the Government prove that it has lived up to the bargain is a substantial protection, for the Government often cannot establish that it did not improperly rely upon the immunized testimony.  Indeed, some have noted that derivative use immunity may have the practical effect of transactional immunity.   The substantial burden will often discourage the Government from even seeking an indictment and, if it does obtain an indictment, the Court may shut the Government out in a Kastigar hearing.  
The problems inherent in the Kastigar hearing are the principal reason that federal prosecutors resist conferring derivative use immunity by agreement and are loath to seek statutory immunity.  Still, if the witness’ bargaining position is strong, the obtaining of derivative use immunity can effectively prevent the Government from attempting a prosecution where it anticipates that it will have significant Kastigar problems.  A practitioner who stands his or her ground and obtains derivative use immunity may thus have insulated the witness from prosecution. 
Finally, because of this practical effect of immunity, the USAM [U.S. Attorneys Criminal Resource Manual 726 titled “Steps to Avoid Taint.] provides the following procedures for prosecutors who think there is some realistic possibility that the immunized witness – whether immunized by immunity order or by letter immunity – should be prosecuted.  These steps are designed to meet Kastigar’s requirement that the prosecution be based on information that was not derived from the immunized testimony:
1. Before the witness testifies, prepare for the file a signed and dated memorandum summarizing the existing evidence against the witness and the date(s) and source(s) of such evidence; 
2. Ensure that the witness's immunized testimony is recorded verbatim and thereafter maintained in a secure location to which access is documented; and 
3. Maintain a record of the date(s) and source(s) of any evidence relating to the witness obtained after the witness has testified pursuant to the immunity order.

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