Tuesday, October 8, 2013

A Swiss Bank Related Sentencing (10/8/13)

On October 4, 2013, Pius Kampfen was sentenced.  See prior blog on the plea agreement: Julius Baer Retired Banker Pleads to FBAR Crime (Federal Tax Crimes Blog 6/28/13), here.  The key documents are listed, with links at the end of this blog.  However, the plea agreement itself is under seal.

Key details:

Defendant:  Pius Kampfen
Age: 69
Count of Conviction (By Plea):  FBAR (1)
Banks: Pictet & Cie, ABN-AMRO, Bank Vontobel
Tax loss:  $1,394 (D calculation); $4,945 (Govt calculation)
Restitution: To be determined in later hearing
FBAR Penalty: $1,465,392 (derived from forfeiture and prior plea agreement; already paid)
High Balance:  $2,930,785. (derived from FBAR penalty at 50%)
Sentence - Incarceration:  0 months (Govt recommended 6 months)
Sentence - Home confinement:  6 months
Probation - 2 years.
Fine: $20,000
Court: ND CA
Judge Jon Tigar (Wikipedia entry here)

Here are the relevant documents:

  • 20130926 Kampfen Opening Sentencing Memo, here.
  • 20130926 Kampfen's Statement with Sentencing Memo, here.
  • 20130927 Government Sentencing Memo, here.
  • 20131001 Kampfen Response to Govt Sentencing Memo, here.
  • 20131001Kampfen Corrections (Exh to Response), here.
  • 20131004 Kampfen Sentencing Judgment, here.
  • 20131004Kampfen Sealing Order, here.
  • 20131004Kampfen Sentencing Minutes, here.
With the indicated tax loss, and the reference to the tax loss table for setting the base offense level, the sentence seems to be not out of line with other sentences.  But, I wonder why the Government would have prosecuted the case with such a small tax loss.  Certainly, probably his role as a Swiss banker himself (working for Julius Baer) probably was in the mix.  Also, the following stuck out to me from the Govt Sentencing Memo:
In order to maintain these accounts, Kampfen paid thousands of dollars annually in fees to the Swiss banks; as noted by the PSR, these high fees are nonetheless deductible for tax purposes, which affects the tax loss for sentencing and restitution purposes. 
Kampfen was interviewed by agents from IRS Criminal Investigation (IRS-CI) in December 2009. When initially interviewed, Kampfen admitted that he had worked for UBS but falsely stated he was not familiar with Albia. When the agents showed Kampfen documents from UBS associated with Albia, Kampfen terminated the interview and stated he wanted to speak with an attorney. IRS agents subsequently obtained additional evidence related to Kampfen's foreign bank accounts and Albia. 
During an interview with IRS agents in May 2012, Kampfen stated that he considered the money held by Albia to be part of his "nest egg" and that he never deposited any of the money he earned in the United States into this account. In contrast to the money he earned in the United States, for which Forms 1099 or Forms W-2 were filed with the IRS, there was no similar reporting of Kampfen's money in Switzerland to the IRS. Kampfen stated that he would receive updates on his Albia accounts when traveling to Europe and withdraw money from the account while there to spend on vacations. [PSR ¶¶ 8-9] Kampfen stated that it was his decision not to hold the money he earned in Switzerland in his name; that was the reason Albia was created. 
* * * * 
Though Kampfen has ultimately accepted responsibility for his actions, the context of that acceptance is important. When initially questioned by the IRS in December 2009, Kampfen falsely denied any knowledge or connection to Albia. It was a little over two years later, in May 2012, after the IRS had obtained additional documentation and records for the Albia accounts, that Kampfen finally admitted to his role and ownership of the accounts at issue. While Kampfen now states it was a "mistake" not to disclose these accounts, his claim that he was not monitoring the accounts is belied by evidence that he would meet with the accounts' manager while traveling in Europe and would withdraw funds in those accounts to pay for his vacations. [PSR ¶ 9] Further, the care that Kampfen took to segregate the money he earned in the United States from the money he previously earned in Switzerland is further evidence that his failure to report the Albia accounts was not a mistake and not a cultural misunderstanding resulting from his "Swiss upbringing": the evidence shows that Kampfen did report the foreign bank accounts into which he deposited money earned in the United States (and thus reported to the IRS) while simultaneously failing to report the interest, dividends, and even existence of foreign bank accounts in which he held assets previously earned overseas (and thus not reported to the IRS). 
* * * * 
The government agrees that Kampfen may indeed be proud, and appears to have conducted himself with honor in other respects of his life. However, while Kampfen's other professional activities may have promoted economic relations between the United States and Switzerland, it is immensely troubling that Kampfen was simultaneously concealing a portion of his overseas assets, in violation of U.S. law. If anything, Kampfen's professional position and the conduct underlying the charge here send precisely the wrong message as to what constitutes permissible behavior: given that Kampfen was the senior vice president of Julius Baer, another Swiss bank, when he retired in 2001, he never should have engaged in the sort of conduct underlying his conviction. Further, he should have been one of the first to avail himself of the IRS voluntary disclosure program. He did not. Rather, he waited until IRS agents approached before he began filing FBARs for the Albia accounts. 
* * * * 
A downward departure is not appropriate here precisely because the total offense level is not based on loss: even assuming there is no tax loss, because Kampfen used sophisticated means to commit this crime, including the formation of Albia and segregation of assets based on location earned (and reporting to the IRS). Because of the sophisticated means enhancement, the total offense level after applying U.S.S.G. § 2T1.1(b)(2), before taking into account acceptance of responsibility, will be 12. With acceptance of responsibility (-2), the adjusted offense level is 10, even assuming no tax loss. [Doc. No. 5, at 5] Given that Kampfen is highly educated and intimately familiar with U.S. financial reporting requirements, including the FBAR, it is far from clear that the one-time civil penalty is sufficient to communicate the seriousness of the offense. The precise reason why a short term of imprisonment is appropriate here is because Kampfen's actions during the period in question indicate a pronounced lack of respect for the law, the very law he was required to be familiar with in order to advise clients as a financial advisor. 
* * * * Based on the foregoing, the United States recommends that Kampfen be sentenced to a term of 6 months' imprisonment, 18 months of probation, a $20,000 fine, and restitution to the IRS. The government submits that the sentence is sufficient, but not greater than necessary, to accomplish the goals of sentencing, and that a lesser sentence is not supported by application of the 18 U.S.C. § 3553(a) factors.
Kampfen mounted a defense to the foregoing in a personal statement, a Correction, filed with his sentencing response.  Here are key excerpts:  
Page 4, lines 6-14 
I did not direct my Swiss attorney to create an entity. 
I discussed with him my desire and need to establish a will for my Swiss assets. A foreign corporation is the preferred vehicle in Switzerland for estate planning, much like a trust in the US. My Swiss attorney recommended that he set up a foreign corporation for me to hold my Swiss assets. I consented and he handled all the mechanics of setting it up. It is the administrator of a foreign corporation who opens and administers such account, not the beneficial owner. I had no role in the Albia accounts being transferred to different banks. I had no saying or input in this. The administrator had to change banks because at that time more Swiss banks started to ask their foreign customers to close and transfer their accounts. 
Page 5, lines 5-12 
I did not bring in or disclose the Swiss assets because I did not know for how long I would be working in the US. When I returned later on and latest when I became a US citizen, I should have declared them on my FBAR. I am now paying mentally and financially for my mistake.  
Page 5, line 12 
The foreign corporation, Albia, was created for estate planning only, with the main purpose of holding and distributing my Swiss assets on my death. 
Page 5, line 14 
I did not receive any interest and dividend. They went directly into the Albia accounts.  
Page 8, line 7 
1 did not open a series of bank accounts for Albia. The administrator made those decisions because the banks forced him to close these accounts as the US-Swiss tax issue grew bigger. I had no input on those changes. 
Page 8, line 8 
I did not receive interest and dividends, they stayed in Albia. 
Page 8, lines 14-15 
My job with UBS 32 years ago was to administer their accounts either at the client's directions, or via the bank's investment management programs, and not to advise individuals on their tax  situation. I was not a tax expert. With Julius Baer in San Francisco, my job was to market the investment management services for Julius Baer New York branch, as their West Coast representative. As this was a branch registered with the US banking authorities, there were no US tax issues involved. 
Page 8, lines 24-25 
This was not a conscious decision to hide, but my mistake to believe that I could just keep them were they were at the time. 
Page 9, line 10-11 
There was no monitoring necessary because about half the assets were in Swiss stocks held for many years, while the other half was managed by a local portfolio manager 
Page 9, line 24 
Again, the reason was that I wanted to keep separate the money earned in the US from the accounts I had before permanently settling in the US. 
Page 10, lines 3-6 
I made no decision to shift assets among different banks. The administrator was forced to transfer these accounts to other banks because many banks started to get rid of their US related clients, due to the pressure on banks relating to the US-Swiss Tax issues. Some smaller banks with no US ties were willing to take these accounts. 
Page 10, line 16 
There was no calculated decision; these accounts have been in Switzerland for so long that there was no reason at that time, to bring them into the United States.
This seems to me to be oddly worded.  Do any readers think so as well?  And does it come close to watering down his acceptance of responsibility?

Finally, readers with interest should note defense counsel's deft use of prior favorable sentencings in his opening sentencing memorandum under the following heading:
The goal of avoiding unwarranted sentencing disparities, which was a principal motivating force for the Sentencing Guidelines, remains a key sentencing factor under 18 U.S.C. § 3553. See United States v. Zavala, 300 Fed. Appx. 792, 795 (11th Cir. 2008); United States v. Owens, 464 F.3d 1252 (11th Cir. 2006); see also 28 U.S.C. § 991(b)(1)(B) (purposes of Sentencing Commission include “avoiding unwarranted sentencing disparities among defendants with similar records who have been found guilty of similar criminal conduct while maintaining sufficient flexibility to permit individualized sentences when warranted by mitigating or aggravating factors not taken into account in the establishment of general sentencing practices”). In this case, a below-guidelines sentence is required to avoid unwarranted disparities with sentences imposed on defendants guilty of similar or more egregious misconduct. 
A review of recent prosecutions of other holders of undisclosed accounts at UBS and other foreign banks shows that probation not only is the most commonly imposed sentence, but has been regularly granted to defendants whose conduct involved none of the mitigating factors present in Mr. Kampfen’s case and several aggravating factors that are not present here. Of the offshore account holder defendants who have pled guilty and have been sentenced since 2007, 18 — approximately 50% — have received sentences of probation (with half of those sentences including a term of home detention). Another six of the 37 cases involved sentences of incarceration of three months or less. Court records and government press releases show that those defendants who have received probation include  [EXAMPLES OMITTED HERE]:
Kampfen's attorney is an experienced tax litigator -- Jay Weill, here, with Sideman & Bancroft LLP, here.\


  1. The moral of this story is that the United States government is going after money, using the Bank Secrecy Act, that was legally obtained. Severe fines of this nature would normally be subject to the Eighth Amendment--in which case, the fact that these funds belonged to Mr. Kampfen's legal accounts in Switzerland, legally earned before he emigrated to the United States, and that the damage to the US government was minimal, should all be serious considerations. The government is prepared to throw the book at people and scare them into believing they will go to prison if they don't accept a plea bargain. The government's case for such a draconian fine is quite weak.

    But who would want to risk imprisonment, and furthermore, legal fees that would likely exceed the penalty? If Mr. Kampfen committed other crimes, then the government should charge him with those crimes. It is not a just society that creates reporting requirements (albeit in violation of the Fourth Amendment) with draconian penalties for failure to comply. It is further injustice to throw a petty failure to file as a form of retaliation against such a person. It is sends the wrong message to everyone: will the government take the same position against an innocent person who never worked for the government? I guess so. Disgusted with these abuses, thousands of us outside the United States are shaking our fists as we head to the Consulate to hand in our US passports.

    This case sends a very serious message to the world: It is very bad idea to emigrate to the United States. The US is only interested in the contents of your bank accounts and if you want to keep what you earned over the course of your lifetime, it is better just to stay away. If you are US person living outside the country, renounce your citizenship and stay clear of US authorities until the statute of limitations has expired.

  2. Good job with the post!


  3. Jack said, "This seems to me to be oddly worded. Do any readers think so as well?
    And does it come close to watering down his acceptance of
    I do not see this as watering down of responsibility, but simply as explaining facts which the Government characterized in a very negative light.

    If this case had not involved Swiss banks, but banks in a US state outside where he lives, the government's characterizations would not have seemed as bad.

    For example, it is not unusual for someone to keep half his wealth in stock of a company where he worked for twenty years. This is often done because of inertia, sentimental attachment to the company, lack of financial acumen etc. People often have domestic accounts earmarked for retirement, or inherited from a family member, which they purposely keep segregated from other funds. People also pay high fees to domestic financial advisers, US mutual funds, lawyers, hotels and restaurants and there is no presumption made that they are paying a premium for secrecy. And people sometimes earn some money renting a room in their own home or babysitting and fail to report it, causing a tax loss often greater than the $1,394 to $4,945 in this case, yet are not fined half the value of their home at the peak of the real estate market just because they rented their home or babysat their kids there and failed to get a rental license or child care license.

    I do not know the defendant's motives or state of mind, but don't see how his actions prove the intent that the government alleged.

    To Peter Dunn, I agree with your comments. The only issue with the SOL I see is that it may be tolled for those abroad, so it never expires.

  4. If Mr. K. had been as nefarious and knowledgeable of FBAR as he is portrayed to be, wouldn't he have either 1) not earned any interest on the account -- since the tax loss of under $5K means he earned almost nothing -- and thus have avoided FBAR penalties since they are not applied to accounts that had no earnings or 2) had the funds in the name of a foreign relative, since he probably had some. (Method 2 would be illegal of course.)

    It seems illogical to me that someone who is familiar with FBAR would risk a $1.5 million penalty and six months home detention in order to cause a tax loss of $5K.

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