Saturday, September 28, 2013

Lower Sentences For Offshore Tax Cheats - Role of 5K1 Departures (9/28/13)

Yesterday, I participated in a conference at Villanova University School of Law.  See Villanova Seminar on Selective Issues in Tax Administration (Federal Tax Crimes Blog 8/31/13), here.  I was on a panel on Tax Sentencing along with Kathy Keneally (DOJ Tax AAG), Caroline Ciraolo (practitioner), Peter Hardy (practitioner), Steve Chanenson (Law Prof at Villanova U), Scott Schumacher (Law Prof at University of Washington).

One of the issues we discussed is the lower sentences that seem to prevail in the offshore accounts sentencings over since offshore prosecutions became a priority for DOJ Tax.  For example, the U.S. Sentencing Commission reports that, in fye 2012, from a total of 608 sentencings where tax was the lead charge, the median sentence was 12 months and the average sentence was 17 months.  From the data I have compiled in my spreadsheet for offshore account prosecutions, I show median incarceration of 1.0 months and mean incarceration of 13.7 months.  (The mean figure is driven principally by a small set of outlier cases with high sentences.)  The differences are dramatic.

One cannot explain these taxpayer-favorable results in any theoretical way.  Offshore tax cheating is not intrinsically less culpable than onshore tax cheating.  So what explains the taxpayer favorable results for offshore cheating?

One of the participants at the panel said that 5K1 departures may explain some or much of the taxpayer-friendly results.  5K1 departures, here, are Guidelines sanctioned downward adjustments to the sentence level or sentence based on substantial cooperation with the Government.  It is true that, in the early phases of an initiative this large with multiple bank and enabler targets, the early pleaders (most taxpayers in the offshore initiative), the taxpayers have a lot to offer the Government in terms of prosecuting or threatening to prosecute offshore banks and their enablers.  But, the Government is surely less dependent on criminal targets given the sheer number of voluntary disclosures requiring that the participants name the offshore banks and their enablers and cooperate with Government investigations of those banks and enablers.

The thought was that, because of the phenomenon that is accelerating that information about the banks and enablers is increasingly available from other sources, the Government is going to offer fewer and fewer 5K1 departures.  The suggestion was that, if 5K1 departures account in material part for the taxpayer-friendly sentences, we can expect that sentences will begin to be less taxpayer friendly.

I am not convinced, however, that 5K1 departures really account for the phenomenon.

Let me use an example, let's say that a defendant goes into the Sentencing Table, here, at level 16 which has a guidelines range of 21-27 months.  The Court then gives him a 3 level downward 5K1 departure moving him to level 13 which has a Guidelines Range of 12-18.  The Judge then exercises his Booker variance authority under 18 USC 3553(a), here, to sentence to no incarceration, home confinement of 3 months and supervised release of 2 years.  What role in the final sentence did the 5K1 departure have?  That would be speculation unless the Judge focuses on that issue in stating the basis for the Booker variance.

I don't think the dynamics of sentencing under 31 USC 3553(a) would give a whole lot of benefit for the 5K1 departure and the cooperation that is behind the 5K1 departure.  I think that the sentencing judge weighs the factors and the particular defendant before him and reaches an instinctive judgment which he wraps in the jargon of the Sentencing Guidelines and the Booker variance factors under 18 USC 3553(a).  (This is consistent with much modern psychology that we tend to go with our gut and marshal our arguments to support our gut.)

If that is true, I don't think the 5K1 departure and the cooperation behind it is the motivating factor in the dramatic sentencing differences.  I think those other Booker considerations under 31 USC 3553(a) are more determinative.   If that is true, then I am still unaware of the reasons judges hand out better sentences to offshore tax cheats than to ordinary tax cheats.  I can speculate, but that would be meaningless.


On a related issue, although some may think it a stretch, see Douglas A. Berman, Judge Weinstein quickly responds to Second Circuit reversal of his below-mandatory-minimum child porn sentencing (Sentencing Law and Policy 9/27/13), here, discussing Judge Weinstein's opinion on remand (linked to in Berman's blog).

Judge Weinstein has this money paragraph in the opinion, applicable well beyond the context of mandatory minimum sentences.
An important duty of an Article III district judge is to prevent injustices by the government in individual cases. See United States v. Ingram, 2013 WL 2666281, at *14 n.9 (2d Cir. June 14, 2013) (Calabresi, J. concurring) (“[W]e judges have a right—a duty even—to express criticism of legislative judgments that require us to uphold results we think are wrong.”(footnotes and citations omitted)); Charles E. Wyzanski, Jr., A Trial Judge’s Freedom and Responsibility, 65 Harv. L. Rev. 1281, 1303 (1952) (“clearly ethical in its nature”); Jack B. Weinstein, Every Day Is A Good Day for A Judge To Lay Down His Professional Life for Justice, 32 Fordham Urb. L. J. 131, 155 (2004) (“The judge must decide: does this law violate the essence of my duty to . . . humanity.”). Where, as here, in the opinion of a ruling appellate court, the trial court has exceeded its power, at least the matter has been brought to the government’s and public’s attention, so that in due course, in our caring democracy, future
injustices of this kind will be avoided.
Is that what is going on with downward Booker variances in tax cases?

1 comment:

  1. Your title suggests that the tax cheats are offshore. But appears from further reading that you mean only that their undisclosed financial accounts are offshore.

    Fact is that it is difficult to assess whether the so-called US persons offshore who do not file or declare so-called offshore accounts are "tax cheats" as we are so often disparaged, or that the US law of citizenship-based taxation is a violation of the international law through its disrespect for the sovereignty of other countries. So the US has declared Eritrea's citizenship-based taxation. Thus, your "offshore tax cheats" is potentially misleading.


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