Saturday, July 18, 2015

D.C. Circuit Affirms Upward Variance in Tax Crimes Case to Send Message to Government Officials Who Abuse Their Position (7/18/15)

I blogged just last week on the Seventh Circuit's affirmance of a major downward variance from the sentencing Guidelines.  See Seventh Circuit Affirms No Incarceration Sentence for Ty Warner (Federal Tax Crimes 7/10/15; 7/14/15), here.  Upward variances are not common, but the D.C. Circuit affirmed one just yesterday.  United States v. Saani, 650 F.3d 761 (D.C. Cir. 2015), here.  The was Saani's second appeal, the earlier one resulting in a remand for re-sentencing.  United States v. Saani, 650 F.3d 761 (D.C. Cir. 2011), here.

Saani raised two issues on the second appeal -- (1) failure to credit acceptance of responsibility and (2) Upward variance.  I focus here only on the second.

The key facts are:  Saani was a U.S. Air Force contract specialist in Kuwait.  An investigation determined that he "Saani spent approximately $2.4 million more than he received from known sources of income."  He was indicted for five counts of tax perjury.  He pled to all five counts.  The sentencing court originally and on the remand varied upward from the Guidelines range.  On this second appeal, Saani raised the issue of whether the upward variance was proper.  The D.C. Circuit's resolution of the issue is short, so I just quote it:
At Saani's initial sentencing, his Sentencing Guidelines range was determined to be 78 to 97 months. Saani I, 650 F.3d at 765. The district court, however, varied upward from that determination, sentencing Saani to 110 months. Saani previously argued to us that the district court varied upward because of Saani's refusal to disclose the source of his unreported income, and that this was a violation of his right against self-incrimination. Although we agreed with Saani that portions of the record could be read to suggest that the district court varied upward in part because Saani refused to disclose the source of his funds, we nevertheless remanded the case to the district court for further clarification on its reason for varying upward. We noted that it was "not evident a constitutional violation occurred . . . because the record makes clear that, in addition to concern about the source of Saani's income, the decision to vary upward was based upon the need to deter tax evasion by persons entrusted with the expenditure of federal funds." Id. at 771. We further noted that if the district court's decision "to vary upward rested solely upon the latter ground [i.e., deterrence], then it would be not only constitutional but also a reasonable exercise of the district court's considerable discretion." Id. At the sentencing hearing on remand the district court again denied that Saani's refusal to reveal the source of his funds was a factor in the sentencing decision. The district court stated: 
With regard to an upward departure, the basis for that decision also had nothing to do, nothing to do with [Saani]'s refusal to discuss or reveal the source of his income, nothing to do with that. It was to put it bluntly an overarching concern on the Court's part of the importance of deterring other Government officials, other Government employees working in foreign countries during a war and having access to large sums of money and having the ability to manipulate that money and manipulate contracts relating to it, was to deter them from engaging in any conduct of this kind in the future. 
Transcript of Resentencing at 4, Aug. 1, 2012.
Saani now argues that the district court erred on remand when it varied his sentence upward for the purpose of deterring government officials from manipulating government funds or contracts. He contends that although we concluded in Saani I that a higher sentence to deter tax evasion by government employees with public funds would have been reasonable, that conclusion did not endorse a higher sentence to deter manipulation of government funds or contracts. It does not follow, according to Saani, that a higher sentence for tax fraud would further the purpose of deterring similarly situated individuals from committing crimes other than tax fraud. In response, the government argues that the district court did not err in varying upward from the sentencing guidelines range. In support of this argument, the government explains that in Saani I this Court remanded so that the district court could clarify whether its decision to vary upward was based on the need to "deter tax evasion by persons entrusted with the expenditure of federal funds," which this Court said "would be not only constitutional but also a reasonable exercise of the district court's considerable discretion." Saani I, 650 F.3d at 771. The government states that in answering this question, the district court explained that it was indeed deterrence, and not Saani's refusal to disclose the source of his funds, that underlay the upward variance. 
Saani did not object to the district court's reliance on deterrence during his re-sentencing, nor did he ask for clarification; we therefore review for plain error. United States v. Ginyard, 215 F.3d 83, 86-87 (D.C. Cir. 2000) (per curiam); cf. In re Sealed Case No. 98-3116, 199 F.3d 488, 491 (D.C. Cir. 1999); United States v. Pinnick, 47 F.3d 434, 439 (D.C. Cir. 1995). We conclude that the district court did not plainly err in its reasoning for an upward variance. Justifying its decision to depart upwards, the district court stated that it did not rely on the undisclosed source of the charged income but instead relied on deterrence. We concluded in Saani I that deterrence of tax evasion was a permissible reason. While the district court's statement on remand may have evidenced a certain ambiguity with regard to the behavior it intended to deter, it certainly did not constitute plain error.

2 comments:

  1. ChiTownTaxAttorneyJuly 21, 2015 at 11:51 AM

    Unless I've missed something, and I confess to having read nothing but this blog, the opinion seems a little off base. Defendant pled guilty to all 5 indicted counts of tax perjury. Ultimately, the district court and in a little more diffuse manner the Circuit Court said it was reasonable vary upward to "deter tax evasion [especially by people entrusted with government funds]". All things being equal, aren't the Guidelines generally considered sufficient to deter tax evasion and thought to provide sentencing consistency?

    To me, it seems the District Court and Circuit Court have at least created some sort of "enhancement" akin to position of trust for persons "entrusted with government funds". Defendant well may NOT have occupied such a "fiduciary-like" position, as we know there is generally no breach of trust in most criminal tax cases. And aren't all taxpayers really "entrusted with government funds" after they don't pay what is due and owing? So I do not think the upward variance on the grounds of the defendant being a federal employee is appropriate, and really appears to be a judicially created "substitute" for a breach of trust enhancement (or maybe just subterfuge for not "accepting responsibility", which is necessarily different than "cooperation").

    Another option would have been if the USA had argued relevant conduct: The source of the unreported income was illegally obtained federal funds through fraud or embezzlement. Given the preponderance burden at sentencing and very limited application of any "rules of evidence", that would have seemed a relatively simple course. Maybe that was argued? But if it was not, and there really was no "position of trust", I don't see a valid basis for the upward variance.

    So based upon the blog, it seems the district court just varied upward because he should have been "trusted" more, without any requirement of a showing of a breach of trust or relevant conduct that the judge suspected, but couldn't find.

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  2. I think that for the fruit of the poisoned tree notion to prevent its use in US courts, the US criminal investigators (or the US government, if you will) would have to be involved in the illegal activity.

    For example, assume that one criminal X steals information on another criminal Y, in a local sense that is a theft (even if there is local law doctrines that might preclude prosecution on notions such as joint malfeasors, etc.). But, focusing on US law, if criminal X is not an "agent" of the US government, the US government can use the stolen information that criminal X gives the US government about criminal Y.

    Jack Townsend

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