Tuesday, October 21, 2014

Pretrial Skirmishing in Weil - the Coplan Issue of Improper Expansion of the Defraud / Klein Conspiracy (10/21/14)

As readers know, Raoul Weil, a former high ranking UBS official in charge of its U.S. tax evasion shenanigans, is being tried for tax conspiracy. United States v. Weil (SD FL No. 08-60322-CR-COHN). (See also blog entry links below.)  Before trial, Weil sought dismissal on the basis asserted the issue asserted in United States v. Coplan, et al., 703 F.3d 46 (2d Cir. 11/29/12), here.  That issue is whether the formulation of the defraud conspiracy in Hammerschmidt v. United States, 265 U.S. 182 (1924) more broadly than the scope of the word "defraud" meant at common law and thus means in other criminal statutes improperly expands the scope of the defraud conspiracy.  See the links to the Coplan issue below.  As expanded, the application in the tax context is generally referred to as a Klein conspiracy, after the leading case employing the expanded definition in a tax setting, United States v. Klein, 247 F.2d 908 (2d Cir. 1957).

In a short order, here, the Weil Court denied Weil's motion to dismiss because it was untimely and, in any event, fails on the merits of the motion.  The critical excerpts from the Court's short order are:
However, a review of the Motion demonstrates that it also fails on its merits. Weil was indicted under 18 U.S.C. § 371, which prohibits conspiracies to defraud the United States and its agencies. Indictment ¶¶ 11–13. Weil contends that the common-law definition of "defraud" is to "deprive[] another of property rights by dishonest means." Motion at 2 (quoting United States v. Coplan, 703 F.3d 46, 59 (2d Cir. 2012), cert. denied, 134 S. Ct. 71 (2013)). Weil notes that the Government does not allege that he deprived the IRS of property rights by dishonest means, and thus he is not accused of having conspired to defraud the IRS in the traditional sense. "Instead, the Indictment relies on a judicially and specially crafted definition of 'defraud' that includes 'interfer[ing] with or obstruct[ing] one of the [U.S. government's] lawful . . . functions by deceit, craft or trickery, or at least by means that are dishonest.'" Id. (quoting United States v. Klein, 247 F.2d 908, 916 (2d Cir. 1957)). This specific theory of fraud against the United States and its agencies—involving not the deprivation of property but instead the obstruction of governmental functions—has come to be known as the "Klein conspiracy." See United States v. Adkinson, 158 F.3d 1147, 1154–55 (11th Cir. 1998). 
Weil argues that the Klein conspiracy violates a prohibition on judge-made, common-law crimes. Weil also argues that any ambiguity in the text of section 371 should be interpreted in favor of defendants under the rule of lenity, and the broad interpretation of the term "defraud" that gives life to the Klein conspiracy violates this rule. Motion at 4. Finally, Weil argues that recent Supreme Court precedent rejecting a broad interpretation of honest-services fraud robs the Klein conspiracy of any remaining viability. Id. at 2–3 (citing Skilling v. United States, 561 U.S. 358 (2010)).\ 
In the Motion, Weil leans heavily upon the Second Circuit's criticisms of the Klein conspiracy in Coplan, 703 F.3d 46, to support his argument that the theory must fail as a judge-made basis for criminal liability without a foundation in the text of the criminal statutes. But in Coplan, the Second Circuit ultimately held that the Klein conspiracy was firmly entrenched in the Supreme Court's and the Second Circuit's precedents, and remained viable notwithstanding the Supreme Court's recent decision in Skilling. 703 F.3d at 61–62. Shortly thereafter, the Supreme Court declined to hear an appeal from the Second Circuit's decision. Coplan, 134 S. Ct. 71. 
Like the Second Circuit, the Eleventh Circuit has recognized the Klein conspiracy as a basis for criminal liability subsequent to the Supreme Court's holding in Skilling. See United States v. Kottwitz, 614 F.3d 1241, 1264–66 (11th Cir.), modified on other grounds, 627 F.3d 1383 (11th Cir. 2010). Therefore, though Weil may have a non-frivolous argument for the rejection of the Klein conspiracy, this Court agrees with the holding of the Second Circuit in Coplan: "such arguments are properly directed to a higher authority." 703 F.3d at 62. It is accordingly 
ORDERED AND ADJUDGED that Defendant Raoul Weil's Motion to Dismiss Indictment Pursuant to Federal Rule of Criminal Procedure 12(b)(3)(B) for Failing to State an Offense [DE 148] is DENIED both as untimely and on its merits. 
For further background on the order, Weil's motion is here and the Government's response is here (the attachment to the Government's response (the brief in opposition to certiorari in Coplan, is here).

Blog Entries on the Weil Prosecution

  • Raoul Weil Has First U.S. Court Appearance (Federal Tax Crimes Blog 12/17/13), here.
  • Raoul Weil Pleads Not Guilty: Thoughts and Speculations (Federal Tax Crimes Blog 1/8/14), here.
  • Raoul Weil Trial Begins Next Week; Some Items for the Run-Up (Federal Tax Crimes Blog 10/9/14), here.
Blog Entries on the Coplan Issue

  • Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.
  • Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here.

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