Saturday, February 21, 2015

Superseding Indictment for Wegelin Individual Enablers to Add Tax Obstruction Count to Tax Conspiracy Count (2/21/15)

A superseding indictment has been filed in United States v. Berlinka, Frei & Keller (SDNY S 12 Cr. 02 (JSR)).  For discussion of the original indictment, see New Swiss Enabler Indictments - Bankers Related to UBS and, Allegedly, Wegelin (Federal Tax Crimes Blog 1/3/12), here.  The superseding indictment continues the original offense and defraud / Klein conspiracy charge and adds one charge each against the three defendants.  One of the defendants, Keller, was recently arrested in Germany.  See Wegelin Banker Arrested in Germany on U.S. Charges (Federal Tax Crimes Blog 2/6/15), here, so this apparently was the time to expand the scope of the indictment..

The additional charge against each defendant is the substantive crime of tax obstruction, Section 7212(a), here.  The charge is under what is called Section 7212(a)'s Omnibus Clause.  Tax obstruction has been called a one-person Klein conspiracy (which is also charged against each of the defendants).  So, I thought I would discuss the new tax obstruction charge as it relates to the conspiracy charge.

The guts of the conspiracy charge is:
138. From at least in or about 2002 up through and including in or about 2011, in the Southern District of New York and elsewhere, MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with Wegelin, Managing Partner A, Executive A, Client Advisor A, Beda Singenberger, Gian Gisler, Clients A through JJ, and others known and unknown, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to defraud the United States of America and an agency thereof, to wit, the IRS, and to commit offenses against the United States, to wit, violations of Title 26, United States Code, Sections 7206(1) and 7201. 
139. It was a part and an object of the conspiracy that MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with others known and unknown, willfully and knowingly would and did defraud the United States of America and the IRS for the purpose of impeding, impairing, obstructing, and defeating the lawful governmental functions of the IRS in the ascertainment, computation, assessment, and collection of revenue, to wit, federal income taxes. 
140. It was further a part and an object of the conspiracy that various U.S. taxpayer-clients of MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with others known and unknown, willfully and knowingly would and did make and subscribe returns, statements, and other documents, which contained and were verified by written declarations that they were made under the penalties of perjury, and which these U.S. taxpayer-clients, together with others known and unknown, did not believe to be true and correct as to every material matter, in violation of Title 26, United States Code, Section 7206(1). 
141. It was further a part and an object of the conspiracy that MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with others known and unknown, willfully and knowingly would and did attempt to evade and defeat a substantial part of the income tax due and owing to the United States by certain of Wegelin's U.S. taxpayer clients, in violation of Title 26, United States Code, Section 7201.
As thus charged, the conspiracy is an offense conspiracy and a defraud / Klein conspiracy to impair or impede the lawful functioning of the IRS.  In other words, it is one overarching conspiracy with the two stated objectives.  The offense objective charged is an to commit tax evasion, Section 7201, here and to commit tax perjury, Section 7206(1), here.  See pars. 140 and 141 quoted above.  As typical with conspiracies the indictment alleges a litany of means and methods (pars. 16-17, involving Clients A - JJ, excluding Clients D&E, N&O, P-U, AA-DD).  The indictment alleges overt acts in par. 142, suparagraphs a - i (a fairly short list of overt acts as these things go, but the Government may rely at trial on any other overt acts proved).  These allegations are more or less standard fare for bank enablers.

The indictment then includes the tax obstruction, Section 7212(a) , charge against Berlinka, Frei and Keller, in Counts Two (par. 143-144), Three (pars. 145-146) and Four (pars. 147-148), respectively.  These counts, worded the same except for the defendant's name, are short and straight-forward.  I quote Berlinka's tax obstruction count to illustrate:
The Grand Jury further charges: 
143. The allegations in paragraphs 1 through 137 and 142 of this Indictment are repeated and realleged as though fully set forth herein. 
144. From at least in or about 2002 up through and including in or about 2011, in the Southern District of New York and elsewhere, MICHAEL BERLINKA, the defendant, did corruptly obstruct and impede, and endeavor to obstruct and impede, the due administration of the Internal Revenue Laws, to wit, BERLINKA engaged in a corrupt endeavor to, among other things, conceal from the IRS undeclared accounts owned by U.S. taxpayers at Wegelin.
JAT Comments:
  1. The standard charge for indictments of offshore bank account enablers has been a conspiracy charge -- both offense and defraud / Klein conspiracy.  When a plea is obtained, it is for conspiracy.  Raoul Weil's recent trial was for a single count of conspiracy.  (Readers will recall that Weil was acquitted.  See Raoul Weil Found Not Guilty (Federal Tax Crimes Blog 11/3/14; 11/6/14), here.
  2. The role or goal of the additional tax obstruction charge for each defendant is not clear.  The defraud / Klein conspiracy substantially overlaps tax obstruction -- both being to impair or impede the IRS.  Perhaps the goal is to protect against a jury not finding a conspiracy.  One of the implications of the Weil acquittal might be that the culpable low level actors were not part of a conspiracy but were rather lone-wolf actors.  The obstruction charge could thus permit acquittal on the conspiracy charge but guilt on the obstruction charge.  (That may not have worked in the Weil case, had it been charged, because it appears that he was not close enough to the action to be charged without conspiracy either as a separate offense or as the nexus for Pinkerton liability for the substantive tax obstruction crime.)
  3. In the same vein, it would seem likely that tax obstruction could be charged along with a defraud / Klein conspiracy in every case.  Even if there might be instances where the defraud / Klein conspiracy could be charged where tax obstruction could not, I  suspect that in the cases that DOJ Tax would actually charge, there would be sufficient overt acts of  the conspiracy (elements of the crime) that would make a tax obstruction charge appropriate for the individuals committing the acts and for other members of the conspiracy under the Pinkerton doctrine.  See Pinkerton v. United States, 328 U.S. 640 1946), here.  For further discussion of the issue, see The Intersection of Conspiracy and Tax Obstruction (7212(a)) (Federal Tax Crimes Blogt 1/16/14), here; and Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (Federal Tax Crimes Blog 5/26/11), here.
  4. If the jury were to return a verdict of guilt as to each on both counts in which each is named, the sentences could be up to 5 years for the conspiracy and 3 years for tax obstruction, or 8 years total.  It is not likely that these actors would draw a sentence in excess of 3 years, so obtaining a double conviction would not seem to be the ultimate goal of charging both.  Perhaps it would permit the Government appear to make an illusory concession in a plea setting by dropping one count.
  5. It looks like Keller's trial may be teed up first without Berlinka and Frei who apparently remain in Switzerland, outside the scope of treaties that would permit the U.S. to extradite.


  1. ...."Principal Deputy Assistant Attorney General Ciraolo commended special agents of IRS..."

    Caroline D Ciraolo a former FBAR attorney of Rosenberg,Martin and Greenberg who until 12/31/2014 defended taxpayers is certainly not wasting any time to claim credits.

    I wonder how the grey zone of her former "conflict of interest" is and will be handled in the future.

    Imo. very questionable and shady ethics after such a short period of time to be allowed to prosecute the very same kind of cases she helped to defend... I am sure this kind of revolving door carreer move is legal but as I said very shady.

  2. As usual very spotty press release from the DOJ with not many numbers released. When is sentencing and are we finding out how that played out or as usual silence ?!
    $169,935 for failing to report any income earned and failing to pay any taxes on such foreign income and failing to file FBARs for over 10 years on approx. $7mio...... I guess the civil FBAR penalty is dead.

  3. I don't think the single-year high balance 50% civil FBAR penalty is dead. I don't know why it was not mentioned in the plea agreement. However, I do know that the DOJ is very careful not to mention anything in press releases that is not part of the public record. It may be that that piece of information is not now in the public record. I suspect it will be by sentencing when the defendant will urge his payment of the "onerous" 50% penalty is a mitigating sentencing factor.

    Jack Townsend

  4. First, on an individual level, Caroline Ciraolo has the highest personal integrity and ethics. I am sure that she will recuse herself from any matter related to her private practice.

    Second, on the systemic, there may be some at least potential from having top officers appointed by the President come principally from private practice. That is the system we have. Given the system, I think most who receive such appointments do their best to assure that do the best in their appointed positions without influence from their past practices and associations.

    Third, given her position and the nature of the system, I would bet that Ms. Ciraolo had no involvement with the particular defendant. One of her roles as head of the Tax Division which prosecuted the case is to appear on press releases, most commonly drafted by others. When I was with DOJ Tax, the practice was that everything that went out had the DOJ Tax AAG or, in his (always his at that time) absence, the next down the line (which in this case now would be Ms.Ciraolo because there is no DOJ Tax AAG). The person whose name was a the top of the brief, letter, etc., did not know what was in the document and usually did not know anything about the case. That is the nature of organizations with a pyramid structure.

    Jack Townsend

  5. Well, as to her personal integrity, if there is an issue with former clients, I hope that they will raise the problem in an appropriate context.

    As to the systemic issue of appointment people from the private bar to such positions, that has been the practice for all of this country's history. I doubt that it will change. What I have observed in the Tax Division since I started work there in 1969 is that the people appointed are always people of very high integrity. They sometimes had varying credentials (but most usually recognized top professionals), but they always had integrity.

    Jack Townsend

  6. As to Jack's point 1 re. restitution amount seeming low. As you know, Swiss banks provide not only deposit accounts in various currencies but also brokerage of stocks, bonds, mutual funds. Stocks and currencies go up and down. Looks like his account didn't earn much.

  7. You note that there is no restitution for the FBAR crime because there is no financial loss related to the FBAR crime. It's nice to see for once someone acknowledging this fact. There is NEVER any loss due to an FBAR "crime" on its own, despite the efforts of the government to convince the little sheep otherwise, because failure to properly file an FBAR is a documentation failure, it has no direct connection to any other types of reporting or payment.

    So the government once again is pounding its chest and rattling its sabres to scare the little sheep in line, however when we take this into context, what we see is restitution of $169k over what time period? Since 2008? 1992? Even if you're talking about 08 forward, the amount of annual tax loss is fairly small comparatively speaking. We're not talking about millions of dollars in tax loss as a result of a purposely concealed account. We're talking about a few thousand. An amount that can and should have been handled via a civil assessment with interest and penalties. Once again there's simply no reason for the theater of criminal prosecution based solely on the existence of a foreign bank account and some small amount of tax due.

    All that having been said, lying to the authorities, if in fact that is true (I tend to discard at least 50% of what the government puts in its press releases as hyperbole, exaggeration and outright lies), particularly during an investigation is a really bad move and for that I can see how he might run into a little trouble. If he didn't have an attorney present, that seems like a really poor choice even in a civil audit, almost as bad as not keeping his mouth shut. You can assert your 5th amendment rights and refuse to answer questions and hand over certain protected types of documents, but lying is always a no no and the IRS is never ever your friend and they don't go away quietly.

    I am very surprised they didn't go after the FBAR penalty though because this whole initiative is really just a mafia style shakedown. What I'd love to see here is an analysis of the other side of the story. You're great at posting the highly biased press releases and rendering opinions on them, but I'm curious what the real story is. Having read through a number of sentencing memorandums and a few PSR reports and related objections for these types of cases, what I've seen is the press release that you're going on is never ever the whole story and while failing to properly file the FBAR is a common truth, it's only because it's a very easy charge to prove and a slam dunk conviction. Beyond just the form however, there's always a lot more to it than simply wealthy tax cheats purposely hiding money to evade taxes..

  8. You are correct but unfortunately you hardly ever get the other side of the story from Jack Townsend - "you can take the man out of the DOJ but never the DOJ out of the man". He mostly posts these highly biased press releases and his boring swiss "sculldrugery" analysis but I guess beyond that has no insight obviously what the real story is.


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