Sunday, January 31, 2016

60 Minutes Exposé on Money Laundering Into the U.S. (1/31/16)

60 Minutes had an exposé on money laundering into the U.S., a process enabled by the ease to create U.S. corporations whose owners are anonymous.  I recently posted on some U.S. initiatives to curb the practice for real estate cash deals in the names of corporations whose owners are anonymous.  More on Transparency for Entities Acquiring Valuable Real Estate in Some U.S. Markets (Federal Tax Crimes Blog 1/23/16), here; and One Step in Attacking Lack of Transparency in U.S. (Federal Tax Crimes Blog 1/13/16), here.  Both article  have links to other sources.

The 60 Minutes program involved undercover investigations by Global Witness, a London-based nonprofit organization that exposes international corruption, here. The 60 minutes programs are entitled Anonymous, Inc., parts I and II.  The programs with transcripts and some extra materials and key excerpts are available here.  (Note:  Ad blockers must off in order to access the content.)

Here is the opening from the transcript:
If you like crime dramas and movies with international intrigue, then you probably have a basic understanding of money laundering. It's how dictators, drug dealers, corrupt politicians, and other crooks avoid getting caught by transforming their ill-gotten gains into assets that appear to be legitimate. 
They do it by moving the dirty money through a maze of dummy corporations and offshore bank accounts that conceal their identity and the source of the funds. 
And most of it would never happen without the help -- witting or unwitting -- of lawyers, accountants and incorporators; the people who actually create these anonymous shell companies and help move the money. In fact, the U.S. has become one of the most popular places in the world to do it. 
Tonight, with the help of hidden camera footage, we're going to show you how easy it seems to have become to conceal questionable funds from law enforcement and the public. 
You need look no further for evidence than the changing skyline of New York City, where much of the priciest residential real estate is being snapped up not by individuals, but by anonymous shell companies with secret owners. 
There's nothing illegal about it as long as the money's legitimate, but there's no way to tell, if you don't know who the real buyers are. It is one of the reasons Global Witness, a London-based nonprofit organization that exposes international corruption, came to New York City 19 months ago. It wanted to see how helpful U.S. lawyers would be in concealing questionable funds. 
This hidden camera footage was shot in law firms across Manhattan without the lawyers' knowledge by the man in the gray coat with the German accent.
The hidden videos recorded some pretty disturbing behavior by lawyers.  Some of it is perhaps ethically equivocal, but one lawyer did show the "client" the door.  Here are two of the excerpts:

Thursday, January 28, 2016

My List of Category 2 Banks Obtaining NPAs (1/28/16; 1/30/16; 2/7/16)

In developing my statistics on the Category 2 Financial Institutions (Banks) in DOJ's Swiss Bank Program, here, I populated my Excel spreadsheet with the names of banks that indicated they would join or some other source indicated they would join.  I have included the number indicating or indicated that they would join in my statistics.  As of my most recent posting, Final Swiss Bank Achieves NPA Under Swiss Bank Program (1/25/16), here, the number of banks I had was 98.  DOJ Tax said that the original number of banks indicating they would join was around 106.  Since the program started, some of the banks upon further consideration, determined not to participate as Category 2 banks.  The final number indicated in DOJ's press release is 80.  My stats show 81 actually joining (but I think one that I include is participating through a related bank); I have not attempted to to reconcile the banks.  I thought I would list in this blog the banks which joined to obtain NPAs according to my spreadsheet and the banks that I show indicated interest but, finally, did not join.

Category 2 Participating Banks (in Alpabetical Order):
Aargauische Kantonalbank
ARVEST Privatbank AG
Banca Credinvest SA
Banca dello Stato del Cantone Ticino (Banca Stato)
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA
Bank CIC
Bank Coop AG
Bank EKI Genossenschaft (Bank EKI)
Bank J. Safra Sarasin AG
Bank La Roche & Co AG
Bank Linth LLB AG
Bank Lombard Odier & Co Ltd
Bank Sparhafen Zurich AG (BSZ)
bank zweiplus ag (Bank Zweiplus)
Banque Bonhôte & Cie SA
Banque cantonale du Jura SA
Banque Cantonale du Valais
Banque Cantonale Neuchâteloise (BCN)
Banque Cantonale Vaudoise
Banque Heritage SA
Banque Internationale à Luxembourg (Suisse) SA
Banque Pasche SA
Baumann & Cie, Banquiers
BBVA Suiza S.A.
Berner Kantonalbank AG (BEKB)
BHF-Bank (Schweiz) AG (BHF)
BNP Paribas (Suisse) SA (BNPP)
Bordier & Cie Switzerland
Cornèr Banca SA
Coutts & Co Ltd
Crédit Agricole (Suisse) SA
Credito Privato Commerciale in liquidazione SA (CPC)
Deutsche Bank (Suisse) SA
Dreyfus Sons & Co Ltd, Banquiers
DZ Privatbank (Schweiz) AG
E. Gutzwiller & Cie. Banquiers
Edmond de Rothschild (Lugano) SA
Edmond de Rothschild (Suisse) SA
EFG Bank European Financial Group SA, Geneva
Ersparniskasse Schaffhausen AG (EKS)
Falcon Private Bank AG
Finter Bank Zurich AG
Gonet & Cie
Graubündner Kantonalbank
Habib Bank AG Zurich (HBZ)
HSZH Verwaltungs AG
Hyposwiss Private Bank Genève S.A. (Hyposwiss Geneva)
Hypothekarbank Lenzburg AG (HBL)
KBL (Switzerland) Ltd.
LBBW (Schweiz) AG
Leodan Privatbank AG
Luzerner Kantonalbank
Maerki Baumann & Co. AG
MediBank AG
Mercantil Bank (Schweiz) AG
Migros Bank AG (Migros)
Nidwaldner Kantonalbank (NKB)
PBZ Verwaltungs AG
Piquet Galland & Cie SA
PKB Privatbank AG
PostFinance AG
Privatbank Bellerive AG
Privatbank Reichmuth & Co.
Privatbank Von Graffenried AG
Rothschild Bank AG, Zurich
SB Saanen Bank AG
Schaffhauser Kantonalbank (SHKB)
Schroder & Co. Bank AG
Scobag Privatbank AG
Société Générale Private Banking (Lugano-Svizzera)
Société Générale Private Banking (Suisse) SA (SGPB-Suisse)
St. Galler Kantonalbank AG (SGKB)
Standard Chartered Bank (Switzerland) SA, en liquidation
Union Bancaire Privée, UBP SA
Vadian Bank
Valiant Bank AG
Zuger Kantonalbank
The foregoing banks (and related banks) are or will be included on the IRS financial institution list requiring 50% OVDP Miscellaneous Offshore Penalties for U.S. depositors joining OVDP after any bank they used in the 8 year period.

Addendum to Swiss Bank List of Banks Obtaining NPAs (1/30/16):

A reader advised me by email that an entity on the list as originally posted, Finacor SA, is an asset manager rather than a bank qualified under the terms of the DOJ Swiss Bank Program.  That is correct and thus makes my number of banks in the program 1 too many.  So the corrected number is 80 banks achieving NPAs.  In an address yesterday at an ABA Tax Section meeting in Los Angeles, Carline Ciraolo, the Acting Assistant Attorney General, said:
For those who are counting, in the last 10 months, the department executed 78 agreements with 80 banks and imposed more than $1.3 billion in Swiss Bank Program penalties. 
The department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm, reflecting the department's willingness to reach fair and appropriate resolutions with entities that come forward in a timely manner, disclose all relevant information regarding their illegal activities and cooperate fully and completely, including naming the individuals engaged in criminal conduct.
As to Finacor, I included it in ithe original listing because, as I noted in my blog entry, Swiss Asset Manager Settles Up with DOJ Tax (Federal Tax Crimes Blog 10/6/15), here, and the related DOJ press release, here, Finacor had attempted to join under Category 2 but was determined not to be a bank and thus technically disqualified.  Still, the agreement reached with Finacor seems to have paralleled the Category 2 agreements.  Thus the press release says:
[T]he firm is required under today’s agreement to fully comply with the obligations imposed under the terms of that program [Swiss Bank Program].
Hence, in my spreadsheet, I put it under category 2 even though not technically Category 2 and listed it as an asset manager rather than a bank.  However, in aggregating the number of Swiss banks, I only filtered for NPAs and Category 2, thus including Finacor in the aggregate Category 2 number and, in producing the list above, I only filtered by the same criteria, thus including Finacor in the list as originally posted.  I have now revised the filter to also only include banks in the Category 2 aggregate numbers and lists (thus excluding Finacor, an asset manager).  Future postings of the results therefore should be accurate, but I have gone back to only the last blog entry for the final Category 2 resolution to change the aggregate number to 80.  I apologize for wrongly listing Finacor.

Swiss Banks indicating or indicated that they would join as Category 2 but who did not join:

Wednesday, January 27, 2016

Final Swiss Bank Achieves NPA Under Swiss Bank Program (1/25/16)

DOJ Tax announced here the final Category 2 resolution in its Swiss Bank Program, here, as follows:

HSZH Verwaltungs AG
$49.757 million

The press release opens with DOJ Tax touting the results achieved under the program (emphasis supplied by JAT):
The Department of Justice announced today that it reached its final non-prosecution agreement under Category 2 of the Swiss Bank Program, with HSZH Verwaltungs AG (HSZH).  The department has executed agreements with 80 banks since March 30, 2015, when it announced the first Swiss Bank Program non-prosecution agreement with BSI SA.  The department has imposed a total of more than $1.36 billion in Swiss Bank penalties, including more than $49 million in penalties from HSZH.  Every bank in the program, including HSZH, is required to cooperate in any related criminal or civil proceedings, and that cooperation continues through 2016 and beyond.
* * * * 
“The department’s Swiss Bank Program has been a successful, innovative effort to get the financial institutions that facilitated fraud on the American tax system to come forward with information about their wrongdoing – and to ensure that they are held responsible for it,” said Acting Associate Attorney General Stuart F. Delery.  “As we have seen over the last year, Swiss banks are paying an appropriate penalty for their misconduct, and the information and continuing cooperation we have required the banks to provide in order to participate in the program is allowing us to systematically attack offshore tax avoidance schemes.” 
“The completion of the agreements under Category 2 of the Swiss Bank Program represents a substantial milestone in the department’s ongoing efforts to combat offshore tax evasion, and we remain committed to holding financial institutions, professionals and individual taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.  “Using the flood of information flowing from various sources, the department is investigating this criminal conduct, referring appropriate matters to the Internal Revenue Service for civil enforcement and pursuing leads in jurisdictions well beyond Switzerland.  Individuals and entities engaged in offshore tax evasion are well advised to come forward now, because the window to get to us before we get to you is rapidly closing.”
As to HSZH, the history is presented as follows:
HSZH, the final bank to reach a non-prosecution agreement under Category 2 of the Swiss Bank Program, was previously known as Hyposwiss Privatbank AG.  HSZH was founded in 1889 in Solothurn, Switzerland.  In 1988, Schweizerische Bankgesellschaft AG, which was later merged into UBS AG, acquired the bank and renamed it Hyposwiss Privatbank AG.  Hyposwiss Privatbank AG increasingly focused on private banking activities, servicing both domestic and international clients, and at all times, HSZH solely operated on Swiss territory.  In 2002, the bank was acquired from UBS by St. Galler Kantonalbank (SGKB), the state-owned cantonal bank of St. Gallen.  In 2014, HSZH unwound its residual banking operations under the supervision of FINMA, the Swiss banking regulator.  On Jan. 6, 2014, and in connection with the wind-down, the bank changed its name to HSZH Verwaltungs AG.  HSZH returned its banking license, and FINMA released HSZH from its supervision on Nov. 27, 2014. 
The bank will be added to the IRS's Foreign Financial Institutions or Facilitators, here.  As indicated in the last quoted paragraph, accountholders in the listed banks joining OVDP after one of their banks are listed will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

The updated statistics are:

US DOJ Swiss Bank Program
Number Resolved
Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *
   U.S. / Swiss Bank Initiative Category 2 **
   U.S. / Swiss Bank Initiative Category 3

   U.S. / Swiss Bank Initiative Category 4

Swiss Bank Program Results


* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.

** DOJ says original total was 106 but that it expects about 80 to complete the process.

* As revised on 1/30/16 to exclude Finacor S.A., an asset manager, which attempted to join the program under Category 2 but, since not a bank, was determined to be ineligible but achieved an NPA under the Category 2 terms.

More on the U.S. as the World's Tax Haven (1/27/16; 1/29/16)

On the theme of U.S. laws offering tax haven opportunities for foreign persons, Jesse Drucker reports on one instance of an offshore bank, Rothschild & Co., setting up shop in the U.S. to promote the business.  Jesse Drucker, The World’s Favorite New Tax Haven Is the United States (BloombergBusiness 1/17/16), here.  [Please see note at end of this blog entry for a correction I made on 1/29/16 to this opening statement.]

Excerpts from the opening:
Last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how the world’s wealthy elite can avoid paying taxes. 
His message was clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments. 
Some are calling it the new Switzerland. 
After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.
Other key tidbits:
Rokahr and other advisers said there is a legitimate need for secrecy. Confidential accounts that hide wealth, whether in the U.S., Switzerland, or elsewhere, protect against kidnappings or extortion in their owners’ home countries. The rich also often feel safer parking their money in the U.S. rather than some other location perceived as less-sure.
“I do not hear anybody saying, ‘I want to avoid taxes,’ ” Rokahr said. “These are people who are legitimately concerned with their own health and welfare.” 
No one expects offshore havens to disappear anytime soon. Swiss banks still hold about $1.9 trillion in assets not reported by account holders in their home countries, according to Gabriel Zucman, an economics professor at the University of California at Berkeley. Nor is it clear how many of the almost 100 countries and other jurisdictions that have signed on will actually enforce the new disclosure standards, issued by the Organisation for Economic Co-operation and Development, a government-funded international policy group. 
There’s nothing illegal about banks luring foreigners to put money in the U.S. with promises of confidentiality as long as they are not intentionally helping to evade taxes abroad. Still, the U.S. is one of the few places left where advisers are actively promoting accounts that will remain secret from overseas authorities.

Monday, January 25, 2016

One More Swiss Bank Achieves NPA Under Swiss Bank Program (1/25/16)

On January 25, 2015, DOJ announced, here, that 1 more bank has entered an NPA under the DOJ program for Swiss banks, here.

Leodan Privatbank AG

The banks will be added to the IRS's Foreign Financial Institutions or Facilitators, here.  As indicated in the last quoted paragraph, accountholders in the listed banks joining OVDP after one of their banks are listed will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

Here are the updated statistics for the Swiss Bank Program:

US DOJ Swiss Bank Program
Number Resolved
Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *
   U.S. / Swiss Bank Initiative Category 2 **
   U.S. / Swiss Bank Initiative Category 3

   U.S. / Swiss Bank Initiative Category 4

Swiss Bank Program Results


* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.

** DOJ says original total was 106 but that it expects about 80 to complete the process.

Saturday, January 23, 2016

More on Transparency for Entities Acquiring Valuable Real Estate in Some U.S. Markets (1/23/16)

I recently reported on a common complaint against the U.S. which insists on more transparency from foreign countries but has some gaps in its transparency for foreign countries with respect to hiding ownership of real estate.  One Step in Attacking Lack of Transparency in U.S. (1/13/16), here.  Foreigners have been able to use entities to hide the true ownership of valuable real estate, particularly in such attractive destinations as New York.  In that blog, I noted that the U.S. is now attempting to require information about the true owners and, of course, the next step is making the information available to foreign countries.

Tax Notes Today, has a very good article on the issue in considerable more depth.  William Hoke, Reporting Rule Might Deflect Some Criticism of U.S. as Tax Haven, 2016 TNT 15-3 (1/25/16), no link available.  I recommend that those with a subscription to TNT or the sister publications in which it is printed read the article.  Some key points from the article that I thought interesting are:

1. There is criticism of the U.S. failure to join CRS, which was inspired by FATCA, but may operate to require more transparency in some cases.  Two quotes from the article:
J. Richard Harvey of Villanova University said that by implementing FATCA, the United States paved the way for more international reporting of financial assets, such as through the CRS. "Thus, it is somewhat ironic and disappointing that the U.S. has failed to fully participate in CRS," Harvey said. "Such failure could make it more difficult for the U.S. to successfully implement FATCA to the extent [that] other countries decide to not provide certain information with the U.S." 
* * * *  
Andres Knobel of the Tax Justice Network said that while more than 70 jurisdictions have signed the multilateral competent authority agreement on the automatic exchange of financial account information under the CRS, a number of requirements regarding underlying treaties, national legislation, and confidentiality must also be met before the transfer of information can begin. Knobel likened the process to the Tinder online dating service. Automatic exchange of information "will take place only among jurisdictions that meet all the requirements . . . and that choose each other," he said.
That reminds me of the illusory contract illustration used by Hardy Dillard, former dean of UVA Law School, way back when I went there.  He illustrated the illusory contract of the boyfriend trying to bend the girlfriend to his intentions by promising that "I'll marry you if I choose to."  That, of course, was from a different era, with such illusory promises probably not necessary any more.

2.  Regarding the new initiative reported above to require ownership information for entities acquiring real estate:

Friday, January 22, 2016

Notice to Readers: Irrelevant and Political or Anti-IRS Comments Will Not Be Approved (1/22/16; 1/28/16)

I have in the past routinely approved most irrelevant and political and anti-IRS comments to blog entries.  Today, I received another and my tolerance for such comments has worn thin.  I post below the comment that has provoked my reaction. 

I remind readers that this is a federal tax crimes blog.  It is not a political blog or tax policy blog or any other kind of blog except federal tax crimes.  Hence, I will no longer approve comments that are not relevant to the blog entry and that present more political argument or anti-IRS argument than analysis of the law relevant to federal tax crimes issues.

For those of you who want to make political comments or anti-IRS, I recommend that you find another blog which welcomes those comments.  For example, you might try the Tax Prof Blog, here, where Professor Paul Caron posts each day one entry labeled The IRS Scandal, Day xxx (the entry today is The IRS Scandal, Day 988).  Each day you will find a posting and, so long as you want to make political or anti IRS comments, he seems more than willing to post such comments on his blog.

Thus, for readers who may be inclined to want to make these comments, please note that henceforth they will not be approved for publication on the Federal Tax Crimes Blog.

Here is the comment provoking this response.
Breaking News: The IRS rabbit hole of corruption goes even deeper. 
There are several very annoying things about the IRS in this article but this quote I find very revealing: 
Despite a court order to preserve documents, the IRS wiped the hard drive of an important IRS official, Mr. Samuel Maruca. Controversially, Mr. Maruca helped the IRS hire Quinn Emanuel, an outside law firm tasked with pursuing Microsoft. Hiring outsiders at over $1,000 an hour (!) angered Senate Finance Committee Chairman Orrin Hatch, who wrote a letter to the IRS complaining about strange deal and the $2.2 million fee. 
So once again we have an internal IRS cover up of their own wilful criminality.  Any honest person working at the IRS must realize that this it has turned into a political crime racket, and that's probably why so many rats are jumping ship.   
Compare this to how the IRS hounds  law abiding Swiss wealth advisers who were merely following Swiss law and the QI agreements in the course of doing their jobs.  Even worse for these honest Swiss citizens, the IRS is going to pay $1000/hr lawyers from crony political law firms to extract the IRS's pound of flesh.... for following the laws of the country they are citizens of and live in. 
For US tax payers this is even worse news on the heals of the latest bill that allows the IRS to outsource its tax collection.  We know these firms will be crony political K-street tax collectors providing campaign kickbacks to the Democratic party.  And we know that these extra costs will be paid for by the US tax donkeys through higher fees and penalties.   
But even worse, we know that this 2-way street of corruption will be used by the Clinton machine to guarantee that anyone running against Hillary will be fighting the IRS too.  That is certainly is one formidable wall of corruption.
Addendum 1/28/16 6:15pm:

Other blogs have posted on this blog and offered their readers opportunities to comment..

  • Maple Sandbox, here.
  • Isaac Brock Society, here.

Wednesday, January 20, 2016

Should Proof of No Tax Evaded Be Admissible as Defense in Crime Not Requiring Tax Evaded as an Element (1/20/16)

Tax evasion, § 7201, here, requires proof of a tax evaded as an element of the crime.  Other prominent tax crimes do not require proof of tax evaded as an element of the crime. E.g., tax perjury, § 7206(1), here, and tax obstruction, § 7212(a), here.  But, a tax evaded is at the heart of most tax crimes, even when not an element of the crime, because of the Sentencing Guidelines which key the principal punishments -- incarceration and fines -- to the tax evaded.  See e.g., John A. Townsend, Tax Evaded in the Federal Tax Crimes Sentencing Process and Beyond, 59 Vill. L. Rev. 599 (2014), here.

The question sometimes presented is whether the presence or absence of tax evaded is an issue that can be presented to the jury in a trial for a crime not requiring a tax evaded as an element of the crime.  Obviously, from the Government's perspective informing the jury that taxes were evaded is important to supply the motive for the conduct that requires willfulness as an element or, as with tax obstruction, corrupt action as an element.  I suspect that most courts would routinely admit the Government's evidence of tax evaded.  But the defendant might try to admit evidence that no taxes were evaded in the case in chief in order to make conviction less palatable to the jury and as mitigating or disproving other elements of the crime -- e.g., the ubiquitous willfulness requirement for tax crimes and corruptly element of § 7212(a)?

In United States v. Giambalvo,  810 F.3d 1086 (8th Cir. 2016), here, the defendant was convicted of one count of tax obstruction, § 7212(a), and eight counts of tax perjury, § 7206(1).  As previously noted, tax evaded is not an element of either crime.  In the case in chief, the defendant called as an expert an H&R Block accountant to testify that, based on her review, the defendant owed no tax.  (That evidence would clearly be appropriate at the sentencing phase where tax loss is the primary driver for the Sentencing Guidelines calculations.)  The district court excluded the proffered testimony.  On appeal, defendant raised the issue.  The Court of Appeals resolved the issue as follows:
Prior to trial, Giambalvo notified the government of his intent to call H&R Block accountant Claudia Bradshaw as an expert witness. Bradshaw would testify that, based on her preparation of Giambalvo's tax returns dated May 31, 2014, for the tax years at issue in the case, Giambalvo did not owe any taxes on January 26, 2011. According to Bradshaw's proposed testimony, Giambalvo would have been due a substantial tax refund had he filed proper and timely federal income tax returns. The government moved in limine to exclude evidence of Giambalvo's tax returns and tax-loss data prepared and filed post indictment. 
The district court granted the government's motion in limine during a pretrial motion hearing, concluding that "the suddenly filed tax returns under the established law clearly doesn't come in" because these tax returns were filed "[m]ore than ten years later, more than three and a half years after the indictment [was] issued." As a result, the court found the probative value of such returns "minimal," but the prejudice to be "great." According to the court, under § 7206(1), "the amount of tax loss isn't probative" to whether Giambalvo's misstatements could have hindered the IRS in carrying out its "functions as to verification or the accuracy of the return or unrelated tax return." The court concluded that the parties would not "get into tax loss" because "[a]ll we are looking at is whether [Giambalvo] made misstatements on his tax returns at the time he made the returns, because it is a perjury related statute. It is irrelevant whether or not there was a tax deficiency."

Friday, January 15, 2016

Prosecuting Corporate Employees and Officers, with Focus on Swiss Banks (1/15/16)

I have previously blogged on Professor Brandon Garrett (UVA Law) who have carved out an academic niche on how the Government deals with corporate crime, particularly large corporate crime (the too big to jail group).  See e.g., Judge Jed Rakoff Reviews Brandon Garrett's Book on Too Big to Jail: How Prosecutors Compromise with Corporations (Federal Tax Crimes Blog 2/10/15), here.  At the risk of oversimplifying his arguments, I summarize them in part relevant to this blog entry:  When the Government goes after corporate misconduct, it too often focuses only on the corporation in terms of criminal sanctions and not the individuals, particularly those higher up the chain, who committed the underlying conduct.  Corporations cannot go to jail; individuals can. Prosecuting and convicting individuals in addition to corporations could, he thinks, provide more front-end incentive for individuals to forego illegal conduct within the corporations.  However, as fans of tax crimes know at least anecdotally, it is hard to convict higher level corporate officers for conduct that their underlings actually commit.  The poster child example is the acquittal of Raoul Weil, a high-level UBS banker who "remoted" himself from the dirty work of actually servicing U.S. taxpayers seeking to evade U.S. tax.  See e.g., Raoul Weil Found Not Guilty (Federal Tax Crimes 11/3/14; 11/6/14), here.

One might turn a common phrase and say that lifeless, breathless, unthinking, unfeeling corporations do not commit crimes; people do.  Still in our jurisprudence, corporations can commit crimes.  They just can't be jailed.  To the extent that actual incarceration incentivizes people to avoid misconduct, people should be jailed.  In September of 2015, DOJ announced a new policy of more aggressively pursuing people for misconduct in corporations.  See the DAG memo here and my blog entry, New DOJ Policy on Prosecuting Individuals Beyond Corporate Crime (Federal Tax Crimes Blog 9/10/15), here.

Professor Garrett has a new article that updates in summary fashion his research.  The Year Banks Finally Paid (Slate 1/13/16), here.  The following are excerpts:
Nevertheless, we need to keep asking whether this strategy of chasing dollars rather than changing practices and prosecuting executives makes any sense. In the past decade, data I have collected show that federal prosecutors have set new records each year in corporate fines. For all their success and zeal, however, it’s not clear that fines alone are stopping bad actors on Wall Street. 
* * * * 
A remarkable number of banks, 80 of them, finalized cases with federal prosecutors. Most were Swiss banks that settled out of court as part of a DOJ Tax Division program designed to incentivize them to come clean or face the music. Next year we will see still more cases with less-cooperative Swiss banks that won’t get such lenient deals. More mammoth bank cases lumber along in the courts; last spring, several major banks, including Wall Street giants JPMorgan Chase and Citicorp, agreed to plead guilty in cases relating to foreign-exchange currency manipulation. Those cases have not resulted in sentencing yet, but when they do, prosecutors will rake in $5 billion more in fines. 
* * * * 
Banks pay the fines, but bankers don’t usually do any time. I have found that among the 66 cases of financial institutions that received deferred or nonprosecution agreements from federal prosecutors from 2001 to 2014, only 23 of them—33 percent—had any employees prosecuted. 
Now, I don't have Professor Garrett's expertise and have not spent enough time on his marvelous web site at UVA Law, here, but I thought I would add some thoughts from my even narrower niche of the universe in which he teaches -- the offshore account and enabler activities.

Procedurally Taxing Discusses President's State of the Union Comment on Offshore Accounts (1/15/16)

Leslie Book, professor at Villanova and blogger at Procedurally Taxing, has this review of tax issues in the President's State of the Union address.  State of the Union: Tax Administration a Small But Important Part of the Speech (Procedurally Taxing 1/15/15), here.  In part here relevant, he discusses the President's comment:  It’s sure not the average family watching tonight that avoids paying taxes through offshore accounts."  Book then launches the following discussion (excerpts only):

Offshore Evasion 
* * * * 
I recently read an interesting article on offshore evasion by Professor Cass Sunstein in the New York Review of Books, called Parking the Big Money. The article reviewed Professor Gabriel Zucman’s The Hidden Wealth of Nations: The Scourge of Tax Havens as well as a film called The Price We Pay. Zucman’s book takes a crack at putting a price tag on offshore evasion, using an approach that compares the world’s liabilities to the world’s assets, noting that “as far back as statistics go, there is a ‘hole’; if we look at the world balance sheet, more financial assets are recorded as liabilities than as assets, as if planet Earth were in part held by Mars.” 
Sunstein continues:\ 
In 2015, for example, the nations of the world reported $2 trillion as mutual fund holdings in Luxembourg; this is the total of recorded liabilities. But Luxembourg’s own statisticians calculated that worldwide, $3.5 trillion in mutual fund holdings were kept in Luxembourg; that is the total of recorded assets. What happened to the missing $1.5 trillion? In global statistics, that amount had no owners. For Zucman’s purposes, the anomaly is a revealing one: the amount by which assets exceed liabilities is a measure of wealth hidden in offshore accounts. 
Using some detective skills, Zucman estimates that the effects of offshore evasion are severe, with the cost annually at $200 billion in lost revenues, with the US out about $35 billion.  Zucman’s proposal to address the problem is a far-reaching international registry of ownership, though he is a big fan of our own FATCA and that law’s requirement that foreign banks identify their US clients and disclose them to the IRS. 
At around the same time I read the Sunstein review, I also received via email a report by the American Citizens Abroad that was based on a survey it and researchers at the University of Nevada Reno conducted on Americans abroad.  The survey revealed how overseas Americans believe FATCA should be reformed to address some of its negative consequences. Those consequences include some overseas financial institutions no longer dealing with Americans and among those that still do, higher costs of doing business. 
FATCA, as Sunstein notes, is a blunt tool and to the Americans abroad who are complying or who are small fish, the law imposes heavy costs.  But as the State of the Union reflects, there should be little sympathy for Americans who stash cash and the like in tax havens. Given the extent of the problem that Zucman via Sunstein lays out, I suspect that FATCA will not be going away soon though there are proposals that minimize costs without giving away too much in terms of the law’s effort to bring accounts into the sunshine. 
The issue is politicized. FATCA and the IRS for that matter have been part of the presidential campaign, with Senator Paul for example suing to stop FATCA (see a post in Forbes by Robert Goulder discussing that unusual approach) and Senator Cruz noting that recent laws have contributed to the “weaponization” of the IRS leading to his calls to abolish the agency.

Thursday, January 14, 2016

Court Sustains Use of Regular Summons to Appraiser Investigated Even Though Third Party Taxpayers May be Identified (1/14/16)

In Clower v. United States, 2015 U.S. Dist. LEXIS 174254 (N.D. Ga. Dec. 17, 2015), here, the IRS issued a summons to Jim R. Clower, an appraiser, for "documents including, among other things, appraisal work files, documents reflecting customers for whom he prepared appraisals, and correspondence related to appraisals completed for the purpose of valuating real property for conservation or historical easements."  Those who observe the tax scene will recognize that there is a lot of abuse of overvaluation of conservation and historical easements for purposes of claiming charitable deductions.  And, the fatal flaw in many promoted tax schemes/shelters have for many years been grossly inflated valuations.  I infer that the IRS suspected Clower of doing multiple valuations that might require investigation for the possible assertion of penalties against Clower.  See § 6695(a),  Substantial and gross valuation misstatements attributable to incorrect appraisals, here.  The summons in question was clearly addressed to Clower with respect to his potential liability.  The summons was thus a regular IRS summons.

Should Clower respond to the summons, however, he would likely identify the clients for whom he had given appraisals.  In such cases, the IRS may not otherwise know who many of those clients were.  Presumably, the IRS already knew of at least one such client because the IRS had Clower's name.  Normally, if multiple potential taxpayers of an IRS investigation are unknown but identifiable through some common participant in an aggressive scheme (such as shelter promoters or even foreign banks), the IRS can issue a John Doe Summons ("JDS") to that common participant.  See § 7609(f), here.  The JDS requires court approval.  It is far less convenient for agents than issuing a regular summons where the regular summons could produce the same information.  That is apparently what happened in Clower.  The IRS issued the summons to Clower with respect to his potential liability and would thereby discover the identities of taxpayers using his services.  So this overlap of the regular summons and the JDS creates some tension, particularly if the IRS were to use the regular summons to avoid the hassle of the JDS.  As we say in the Saltzman & Book, Tax Practice & Procedure ¶ 12.05[4][b][v] John Doe Summons.(online, viewed 1/14/16) [footnotes in brackets, with links to the cited cases added by JAT]:
The Service sometimes finds that the John Doe Summons procedures slow it down. The Service must first convince DOJ Tax that it is worth seeking the district court's approval of the John Doe Summons. DOJ Tax must gear up and present the matter to an often skeptical and almost always overworked District Court who must play devil's advocate to the government's ex parte application for the summons. Obviously, the Service would much prefer to use its regular administrative summons, which has no such cumbersome steps. 
In United States v. Tiffany Fine Arts, Inc. [469 US 310 (1985), here], the Supreme Court blessed the Service's use of the regular administrative summons rather than the John Doe Summons where the target of the summons was a shelter promoter. The administrative summons was issued with the promoter identified as the taxpayer being investigated, but the information and documents sought could also identify otherwise unknown shelter investors who dealt with the promoter. The Service could then open investigations of the shelter investors. The Supreme Court blessed that gambit and refused to require the John Doe Summons procedure. 
After Tiffany Fine Arts, the Service saw an escape from the annoyances of the John Doe Summons procedures — simply find a reason to audit the third party with information or documents identifying otherwise unidentified taxpayers that arguably were relevant to a tax investigation of the third party. Tiffany Fine Arts says that will work. However, where the allegation of investigation of the third party is merely pretextual to get information about unidentified taxpayers with whom the third party dealt, courts are open to quashing the general administrative summons, thus relegating the Service to the John Doe Summons procedure.[United States v. Gertner, 65 F3d 963 (1st Cir. 1995), here]

Fifth Circuit Reverses Sentencing Court on Conditions of Restitution and Prohibition of Employment (1/14/16)

In United States v. Thody, 2016 U.S. App. LEXIS 298 (5th Cir. 2016) (unpublished), here, the defendant (Thody) was convicted of "multiple counts of tax evasion."  The Fifth Circuit panel holdings seem fairly routine, which is why the decision is unpublished.  Nevertheless, I offer some comments on the opinion.

First, although not further addressed in the opinion, the Court makes this factual statement:
Thody believed he was a "sovereign citizen" not subject to federal law. He therefore believed that the Internal Revenue Code did not require him to pay taxes. 
Did the Court really mean what it said?  Specifically, since a bona fide belief that a defendant does not owe tax is a complete defense to a crime requiring willfulness, as tax evasion surely does, the Court stated a complete defense for Thody.  See Cheek v. United States, 498 U.S. 192, 201 (1991). The Court could have said that Thody claimed that he did not believe the the Internal Revenue Code did not require him to pay tax, but that the jury did not accept that claim and therefore he acted willfully.  But, that is not what the Court said in the quote.  Maybe that is implicit, so maybe I am just too picky.

OK, moving on.

Second, the opinion holds that the sentencing court can stack sentences (make them run consecutively) to achieve the appropriate sentence, whether in the Guidelines range or outside it (here by variance upward, as noted below).  In the case, the court imposed a 90 month sentence comprised of two 45 month sentences for counts one and two (tax evasion counts with aggregate sentences of 60 months each).

Third, the Court reversed the sentencing court's imposition of restitution for the tax crimes convictions.  Restitution is not available for Title 26 convictions except as a condition of some benefit offered the defendant, such as supervised release.  The court remanded to have the district court determine whether to impose restitution as a condition of supervised release.

Fourth, the Court reversed the sentencing court prohibition "from contracting with the Government as a condition of his supervised release."  Although contracting with the Government produced the income involved in the case, the condition here did not meet the criteria as follows (footnote omitted):

Wednesday, January 13, 2016

Updated FAQs for SFOP and SDOP Streamlined Processes (1/13/16)

The IRS has updated the FAQs for the Streamlined Domestic and Streamlined Foreign Offshore Procedures.  The are here:  SFOP FAQs, here, and SDOP FAQs, here.  Both were last reviewed and updated on 1/7/16.

My review indicates that the important items are:

1.  More detail on what the IRS expects from the narrative supporting the certification of nonwillfulness.  (SFOP FAQ 6; SDOP FAQ 13.)  In some cases, the IRS was getting narratives that did not contain enough detail to support the taxpayers' certifcations of nonwillfulness.  Most practitioners regularly working in this area already knew that the narrative had to have sufficient details -- not just conclusory allegations -- to support the certification.  So, for those practitioners, I am not sure that the new FAQs add to what they already knew and implemented in making submissions.  But other practitioners may find the new FAQs helpful, and certainly taxpayers going through the process without representation will get a sense of what the IRS will need to process the certifications.  In sum, the narrative must include "the whole story including favorable and unfavorable facts."  (Bold face supplied by JAT.)  The process is one of persuasion from the facts -- favorable and unfavorable -- and that's where a practitioner regularly engaged in the art of persuasion may be able to add value in the submission.  Also, a tip given to me by an IRS person working in the area -- larger or multiple foreign accounts usually require more explanation than smaller or fewer accounts.  Thus, for example, a single $200,000 account owned directly rather than through an entity would likely not require as much detail supporting the certification as would accounts aggregating $10,000,000 owned by foreign entities.

2.  Process for handling joint returns requiring amendment where the other spouse may not participate by signing the amended returns or joint certification.  (SFOP FAQ 7; SDOP FAQ 14.)  The spouse participating in SFOP and SDOP may submit amended returns with only his or her signature (and not the nonparticipating spouse's signature) if the amended return reports additional tax due.  The submission should explain the inability to obtain the other spouse's signature with a prominent reference to the FAQ in issue.  The IRS will routinely request that the other spouse's signature be obtained, but if the other spouse still will not sign, the participating taxpayer notifies the IRS of this.  However, if the amended return indicates a refund for the year, this procedure is not available.

One Step in Attacking Lack of Transparency in U.S. (1/13/16)

A complaint sometimes made on the comments to blog entries on this blog is that the U.S. attacks tax havens (particularly those that permit U.S. persons to hide money in financial institutions or through trusts, corporations or other entities) while the U.S. permits lack of transparency for foreign persons bringing money into the U.S.  See e.g., Financial Secrecy in the U.S. - A NonTax Example Illustrating the Law Enforcement Problem (11/7/15), here.  The New York Times today has this article:  Louise Story, U.S. Will Track Secret Buyers of Luxury Real Estate (NYT 1/13/16), here.

Of course, there is transparency in U.S. financial institutions because of know your customer rules.  But other forms of wealth, particularly U.S. real estate can be effective ways to hide wealth, ill-gotten or otherwise, from foreign tax administrators and collectors, as well as foreign and U.S. law enforcement with respect to money laundering and other illegal activity.  This is an attempt to address that issue, in part.

Key excerpts from todays NYT article:
Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties. 
The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities. 
It is the first time the federal government has required real estate companies to disclose names behind all-cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers. 
The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.

Thursday, January 7, 2016

Hawaii Businessman Sentenced to 46 Months (1/7/16)

I have written before on the conviction of Hawaii businessman, Albert S.N. Hee.  See After Guilty Verdict, District Court Denies Motions for Dismissal and New Trial in Tax Crimes Case (Federal Tax Crimes Blog 11/13 /15; 11/15/15), here, and Court Holds that Civil Agent Did Not Continue Investigation Too Long and Even If Deceptive Did Not Prejudice Defendant (Federal Tax Crimes Blog 5/2/15), here.  As I noted in one of the blogs, the jury convicted Hee of one count of tax obstruction, § 7212(a), here, and 6 counts of tax perjury, § 7206(1), here.

DOJ Tax has announced here his sentencing to 46 months in prison.  The actual sentence served will be subject to mitigation under the good time credit (about 15%).

It is not clear what the guidelines calculation was.  It is interesting that, based on a rough and ready guidelines calculation assuming restitution equal to the tax loss (the primary driver of the guidelines calculations), the Base Offense Level would be 18 and, even with some adjustments, it is not likely the offense level for applying the sentencing table was in excess of 23.  An offense level of 23 has a sentencing range of 46-57 months.  So, it is possible that the judge could have given a bottom of the range guidelines sentence.  (Readers will note that there is considerable uncertainty in this calculation, particularly the assumption that the restitution amount equaled the tax loss used in the calculations, and thus the conclusion.)

It is interesting to note that, had he pled rather than go to trial, he could have certainly pled to only one or two felony counts and, assuming 23 was his final offense level as speculated in the prior paragraph, with the acceptance of responsibility 3-level downward adjustment, his offense level would have been 30 with an indicated guidelines range of 33-41 and with a good shot at a Booker downward variance.  (The variance too is speculation but a good acceptance of responsibility often sets the judge up to make a downward variance in tax convictions; again speculating, a plea might have result in a sentence less than half that given after trial.)

The links guidelines tables are:  §2T4.1.Tax Table, here, and 5A Sentencing Table here.

To Group or Not to Group Under the Guidelines (1/7/16)

United States v. Doxie, 2016 U.S. App. LEXIS 5 (11th Cir. 2016), here, that deals with the Sentencing Guidelines' concept of grouping.  First, the facts relevant to this discussion.

The defendant defrauded his employer by submitting fictitious invoices for which the employer periodically mailed checks to company of $642,196.  In addition, the defendant charged the employer for false work-related expenses aggregating $287,466.33.  He did not report the income on his tax returns for 2008-2011, underpaying taxes in those years by $299,750.  For this misconduct, he "pled guilty to 21 counts of mail fraud for the false invoices (Counts 1 to 21), 41 counts of wire fraud for the false credit card charges (Counts 22 to 62), and 4 counts of filing a false tax return for the four tax years (Counts 63 to 66)."  Each of the mail and wire fraud counts carries a 20 year maximum sentence.  So, the maximum incarceration time for the fraud charges by stacking the counts would be 3,720 months.  18 USC § 1341, here, and § 1343, here.  The tax charges are tax perjury with a 3 year maximum incarceration (§ 7206(1), here), so the 4 counts would add another 144 months maximum.  The aggregate maximum sentence would thus be 3,864 months, well over 322 years.

Readers know that, where the counts of conviction are only for tax crimes, the major factor in the sentencing is the tax loss.  See S.G.  § 2T1.1(a)(1), here, and the tax loss table, here.  The nuance is that multiple counts of conviction for tax and tax related crimes (e.g., the defraud / Klein conspiracy under 18 USC 371, here), the tax loss is aggregated (including tax loss for relevant conduct outside the counts of conviction) and the calculation made accordingly.  Accordingly, for the initial Base Offense Level calculations in § 2T1.1(a)(1), it makes no difference whether there are multiple counts of conviction.  The counts of conviction are principally relevant in determining the maximum period that can be imposed if the guidelines calculation exceeds that maximum.

Chapter Three of the Guidelines contains adjustments that must be considered.  Part D deals with multiple counts of conviction.  As noted above, multiple counts are not considered in a pure tax case in calculating the Base Offense Level.  Where the counts of conviction are solely tax and tax-related, multiple counts of conviction do not require any adjustment to the calculations.  However, where there are multiple counts of conviction included unrelated offenses, there may be an adjustment.

To follow the Guidelines, the Court "groups" the counts of conviction into "distinct Groups of Closely Related Counts," determines the Guidelines calculations for each group and then makes adjustment if there is more than one Group.  In the example I just posited for only tax and tax-related crimes, there is only one Group, hence there is no further adjustment under Part D.  But, in cases illustrated by Doxie, there may be more than one Group -- (i) the nontax financial crime with sentencing calculations under S.G. § 2B1.1(a)(1) and § 2B1.1(b)(1)(I), here, and (ii) the tax crime with calculations under § 2T1.1(a)(1).  In such cases, if the Guidelines for only one of the Groups were considered, there would be no consideration of the convictions in the other Group.  The purposes of Part D are two-fold:  First, by grouping related counts of conviction, prevent the prosecutor from affecting the sentence by inflating the number of charges for a common pattern of conduct.  Second, to provide some level for incremental punishment by increases in the offense level that then increases the guidelines ranges under the sentencing table.

Now, let's turn to Doxie.  The key question in Doxie was whether there really were two groups to permit some level of incremental consideration under the grouping rules:  I cut and paste the key parts of the Court's resolution of the issue:.

Government Asserts Wylys' Fraud in Bankruptcy Court (1/7/16)

Sam Wyly, about whom I have written before, here, is back in the news today over his offshore tax gambits.  See Lisa Maria Garza, Texas tycoon Wyly engaged in massive tax fraud, IRS tells court (Reuters 1/6/16), here.  This iteration of the dispute over taxes, penalties and interest alleged to exceed $3 billion is in bankruptcy court in the Northern District of Texas where the formerly fabulously wealthy Wylys seek mitigation of the tax liabilities claimed by the IRS.  Federal tax procedure enthusiasts will know that sometimes interesting and complex tax issues are resolved in the bankruptcy court.  The article the lawyers high level summary of the case as follows:
Texas tycoon Sam Wyly engaged in "lies, deception and fraud" in a years-long scheme to dodge taxes on $1.1 billion held in offshore trusts, a lawyer for the Internal Revenue Service said on Wednesday. 
The IRS made those claims at the start of a trial in federal bankruptcy court in Dallas in which the agency is seeking $3.22 billion in back taxes, penalties and interest from Wyly and the widow of his late brother Charles, Caroline Wyly. 
Cynthia Messersmith, a U.S. Justice Department lawyer representing the IRS, said the Wylys had since 1992 used offshore trusts to avoid paying taxes on $1.1 billion in proceeds while exercising stock options and warrants of four companies on whose boards the brothers sat. 
"This is a case of lies, deception and fraud," she said. "This is not about tax avoidance but rather tax evasion."
Don Lan, the Wylys' lawyer, countered that the family "left the details to their advisers," relying on lawyers who vetted the offshore system and advised them on their taxes. 
Regarding Sam Wyly, Lan said: "He's a brilliant man, but he's not a tax guy."
The emphasis on the lie as the central issue in a white collar crime case is a theme I have discussed before in various blogs, here.  The case as presented is the civil analog to a criminal case.  Tax criminal trials, like white collar criminal trials generally, are about "lying, cheating and stealing."  See e.g., the FBI's web page on white collar crime, here:
Lying, cheating, and stealing. 
That’s white-collar crime in a nutshell. The term—reportedly coined in 1939—is now synonymous with the full range of frauds committed by business and government professionals.
As to the fraud and fraud-like issues, the Government will try the case like a white collar crime case, as indicated by the reports of the opening arguments at trial and the Government's pretrial brief (linked and quoted below).

So, I thought I would present the issues as framed by the parties in their pretrial briefs (Wylys 132 pages, here, and Government 156 pages, here).  I do not have time to scour these lengthy tomes for any nuggest buried therein, but perhaps readers with an interest can make comments on the nuggets they fined.  The issues as framed are:

Wednesday, January 6, 2016

One More Swiss Bank Achieves NPA Under Swiss Bank Program (1/6/16)

On December 31, 2015, DOJ announced, here, that 1 more bank has entered an NPA under the DOJ program for Swiss banks, her

Union Bancaire Privée, UBP SA
$187.767 million

The banks will be added to the IRS's Foreign Financial Institutions or Facilitators, here.  As indicated in the last quoted paragraph, accountholders in the listed banks joining OVDP after one of their banks are listed will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

Here are the updated statistics for the Swiss Bank Program:

US DOJ Swiss Bank Program
Number Resolved
Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *
   U.S. / Swiss Bank Initiative Category 2 **
   U.S. / Swiss Bank Initiative Category 3

   U.S. / Swiss Bank Initiative Category 4

Swiss Bank Program Results


* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.

** DOJ says original total was 106 but that it expects about 80 to complete the process.