This criminal case involves sophisticated financial structuring through the interplay of related corporate subsidiaries in the context of the insurance business. While such financial structuring is not inherently improper, here the two Appellants, William Allen Broughton ("Broughton") and Richard William Peterson ("Peterson"), were convicted of conducting a modern-day financial shell game in which they falsified financial statements, exchanged paper ownership over non-extant fraudulent assets, and collected insurance premiums and monthly payments from unwitting innocents.The investigation leading to the convictions started as follows:
For a little over two years beginning in 1996, the Internal Revenue Service conducted an undercover investigation into insurance fraud in the United States and overseas. In particular, the investigation was directed at individuals and corporations who marketed themselves as insurance providers on the basis of rented assets. Such companies sought to collect insurance premiums while never intending to pay out on any meritorious claims. As will be discussed below, the undercover agents learned of numerous companies, some of which were operated by Appellants, that engaged in a conspiracy to operate in such a fashion.The facts uncovered from the investigation are a bit convoluted and not important for present purposes where the focus of the discussion is 18 U.S.C § 3292(a), here, which suspends the statute of limitations while request to a foreign country for information is pending pursuant to a grand jury investigation. See my prior blog Suspension of Statute of Limitations Period During Request for Foreign Assistance to Obtain Evidence (1/28/11), here. The Government made the application to the district court and the district court granted it. The issue on appeal was:
A plain reading of § 3292 demonstrates that a district court's decision to suspend the running of a statute of limitations is limited to two considerations: 1) whether an official request was made; and 2) whether that official request was made for evidence that reasonably appears to be in the country to which the request was made. Id. If both those considerations are met, the statute of limitations "shall" be suspended. Id. Therefore, the issue before us is whether those conditions were satisfied.Broughton's arguments against application of § 3292 were:
(1) the commission and completion of both alleged conspiracies were fully known to the Government before it made the application to the trial court pursuant to 18 U.S.C. § 3292,The Court concluded before explaining further:
(2) both conspiracies had terminated, or the final acts in furtherance of the conspiracy had occurred, prior to the Government's application to the trial court, and
(3) none of the evidence requested or obtained by the Government from any foreign country as included in the Government's application was necessary and sufficient or relevant.
We find no support, either in our case law or in the facts of the case, for any of Broughton's stated contentions. Our case law demonstrates that § 3292 is a procedural mechanism that may be used by the government under certain circumstances and that a district court's inquiry is constrained by the boundaries of the two elements required by § 3292.The Court distinguished a prior precedent, United States v. Trainor, 376 F.3d 1325 (11th Cir. 2004), which denied the suspension but did so because the Government's application to the district court had not contained evidence from which the district court could conclude by a preponderance of the evidence that the conditions of the statute were met. In this case the conditions were met:
First, as to the requirement that "an official request has been made for such evidence," §3292(a), there can be no doubt that the Government's requests here comply. As defined by § 3292, a request qualifies as an "official request" if it is "a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country." § 3292(d). The Government's requests to both Costa Rica and Panama qualify under this standard. As was noted above, supra, the Government's first request was filed with the district court as a motion for issuance of letters rogatory to Costa Rica on January 3, 2003, and asked that proper Costa Rican authorities search the offices of American Indemnity and Star Insurance, and turn over the bank records for such companies as American Indemnity and others associated with Broughton, Peterson, and Zapetis. Similarly, the Government submitted a request to Panama on July 23, 2003, requesting information regarding Co-op Gatun. Both the letters rogatory to Costa Rica and the request to Panama for evidence necessarily qualify as "official requests" under § 3292(d).
Moreover, the district court also properly found that the second requirement of § 3292 was satisfied because it "reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country." § 3292(a). The Government's initial request to Costa Rica—which, being the first such request is the only one relevant to whether the statute of limitations was properly suspended—was made on the basis of a sworn declaration by an Assistant United States Attorney, declaring the extent of the investigation into the fraudulent activities at issue and affirming the need for the discovery of certain information in Costa Rica. This declaration satisfies our explicit requirement under Trainor. See Trainor, 376 F.3d at 1335.
It also satisfies the implicit requirement of relevance and reasonableness incorporated within § 3292. The Government's initial request to Costa Rica was found in the contemporaneously filed 22-page proposed "International Letter Rogatory," in which the Government noted the extent of the criminal conspiracy and the necessity of certain information found only in Costa Rica. Review of that International Letter Rogatory demonstrates the narrowly tailored evidence sought by the Government, the relevance of that evidence to an ongoing criminal investigation, and the propriety of the request itself.
Simply put, Broughton's perceived shortcomings regarding the suspension of the statute of limitations here are not only nowhere to be found in § 3292(a), but also contrary to the idea of prosecutorial discretion. It is neither here nor there that the Government knew of the conspiracy before sending its official requests to Costa Rica and Panama; that the conspiracy had terminated before the Government requested the statute of limitations be tolled; or that "none of the evidence requested or obtained by the Government" was needed at trial. Accord United States v. Lyttle, 667 F.3d 220, 225 (2d Cir. 2012) ("Section 3292 does not demand that the foreign evidence sought be pivotal to the indictment; rather, it need only be 'evidence of an offense.' Grand juries are not required to vote on indictments as soon as they have probable cause: 'A grand jury investigation is not fully carried out until every available clue has been run down and all witnesses examined in every proper way to find if a crime has been committed.' Section 3292 does not alter this long-standing precept, but rather facilitates it by providing a means to suspend the statute of limitations while evidence is sought from abroad.") (internal citations omitted)). Surely each of those considerations, like other pre-trial concerns, is entrusted to the prosecutor's discretion and the district court's oversight.
Accordingly, having found that both factors of § 3292(a) were satisfied, we find that the district court properly granted the suspension of the relevant statute of limitations.The Eleventh Circuit stated above that two key elements must be met. Actually, that was a truncated version of the elements relevant to the case. As I note in the current draft of my Federal Tax Crimes book, the key elements are (footnotes omitted):
- There must be a grand jury investigation.
- Incident to the investigation, a request for information must be made to a foreign jurisdiction before the return of an indictment. The request must be an official request, defined as “a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country.” I cover below in the text various of these methods for making a request to a foreign country. In the tax context, perhaps the principal form of the request would be under the double tax treaty, which was one of the devices used in the UBS grand jury investigation to flush out information about UBS depositors. Effectively, what I call a “John Doe” request was submitted to the Swiss tax administrators for information and documents related to U.S. taxpayers meeting certain criteria.
- That request to the foreign authority must be made within the otherwise applicable statute of limitations.
- The Government must apply to the district court. There is conflict in the circuits as to whether this application must be filed before the normal statute of limitations expires.
- The tolling period is from the date of the request until the foreign government takes final action on the request.
- There is conflict among the circuits as to whether the application to the district court must be filed before the foreign authority’s final action on the request.
- The tolling period cannot exceed the lesser of (i) three years or (ii) if the final action from the foreign authority is during the otherwise applicable statute of limitations, for more than six months.
I mentioned above that there are two conflicts as to when the application to the district court must be made. The Government has a solution to avoid prejudice to the Government as to these conflicts in interpretation. The Government can simply make the application to the district contemporaneously or soon after the request is made within the otherwise applicable statute of limitations. Why wait?
The application to toll the statute of limitations under § 3292 is filed ex parte, and the consideration of the application and order granting the application are filed under seal. So the target of the investigation has no notice that Government is seeking to unilaterally extend the statute of limitations or, if the Government is successful, that the statute has been extended. In the proceeding on the application, the Government must prove by a preponderance of the evidence that “an official request has been made for such evidence and that it reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country.” What does preponderance of the evidence mean in this context? Do the Federal Rules of Evidence (FRE) apply in the proceeding, so that the Government must introduce admissible evidence? Since the request is inextricably tied to the grand jury which may consider hearsay testimony which would likely not be admissible under FRE, may hearsay evidence be used to meet the Government’s burden in the ex parte proceeding? One court addressed related issues in holding that (1) the Government’s application must contain affirmative evidence other than bare allegations in the application and (2) the Government cannot later after an indictment in the extended limitations period correct deficient evidence in the original application. The Court declined to address the issue of whether FRE applied in the application proceedings (which would have resolved the issue of the types of uses to which hearsay testimony can be put).
Because, as noted, no one outside the grand jury team may know that the statute has been extended, you as a practitioner will be a considerable disadvantage in advising the client as to the criminal statute of limitations for misconduct. Perhaps, the better part of wisdom is to caveat the advice with a statement that the advice may be subject to any action, known or unknown, that would cause the statute of limitations to be extended. Thus, the client may be lulled into a false sense of security.
If indicted, the defendant will have the opportunity to test the validity of any § 3292 order extending the statute of limitations. Recent cases indicate that the courts will be attentive to proper objections.