The Court, Judge Pauley of SDNY, recounts the relevant facts as follows:
More specifically, after reviewing translations of the Liechtenstein Documents, the Government discovered that Subject E was identified as a beneficiary of the Subject E Foundation (the "Foundation"), n1 an allegedly sham foundation organized in Liechtenstein that maintained several foreign bank accounts and had, on several occasions, transferred tens of thousands of dollars directly to Subject E. (Mot. at 13.) The Government also unearthed documents signed by Subject E indicating that she was the "beneficial owner" of the Foundation (Lenow Decl. Ex. DD at 15), possessed all of its assets (Lenow Decl. Ex. DD at 10), and had authorized changes to the listed beneficiaries (Lenow Decl. Ex. DD at 7). Finally, the Liechtenstein Documents provided information regarding several of the Foundation's foreign accounts, each of which held in excess of several million. (Lenow Decl. Ex. DD at 94, 165, 178.)
n1 The Foundation was organized as a "stiftung," a legal entity akin to a trust under the laws of Liechtenstein. Stiftungs have been used regularly by U.S. taxpayers to conceal bank accounts overseas. Financial advisors and/or legal advisors are appointed and directed to act on behalf of the stiftungs for the benefit of the taxpayers. (Mot. at 6.) In essence, by holding bank accounts in its own name, the stiftung conceals any connection between taxpayers and their foreign assets.
While many of the Liechtenstein Documents were responsive to the 2010 Subpoena, Subject E had produced none of them. Based on the discrepancy between Subject E's bare production of three pages and the mass of materials comprising the Liechtenstein Documents, the Government concluded that she failed to comply with the 2010 Subpoena. Additionally, the Government contends that Subject E failed to produce records relating to other foreign accounts—records from a supposed joint account at Credit Suisse that Subject E shared with her former husband, and additional records from the previously referenced HSBC France account. (See Mot. at 23-24.)The Government moved for additional contempt sanctions.
The Court's opinion addresses the following defenses asserted by Subject E:
1. What does it mean to be in "care, custody or control" for the compulsion of the subpoena?
The Court holds that the subpoena and its compulsion subject to contempt covers documents that the compelled party (Subject E here) has the legal right or practical ability to obtain. Subject E complained about the Government not paying for the bank costs of producing some of the documents. The Court was not sympathetic. The Court also required her to try to get records for an account in which she had a power of attorney that had been revoked in 2008. The Court also rejected a strained ex post facto argument based on a change in the definition of "financial interest." As to the Liechtenstein Foundation (a stiftung) documents, the Court said:
Because she is functionally the beneficiary of a bank account maintained by the Foundation, she "necessarily has access to  essential information as the bank's name, the maximum amount held in the account each year, and the account number"—in other words, "required records" sought by the 2010 Subpoena. Doe, 741 F.3d at 349. Although her designation does "not explicitly state that [she] had the authority to receive [Foundation] account documents, the ability to receive such documents is an essential part of being able to instruct the entity." Greenfield, 831 F.3d 106, 119 (2d Cir. 2016).For a category of "other accounts" the Court said:
While the underlying motion principally identifies three accounts, it also alludes to other accounts from which Subject E may be required to obtain records pursuant to the 2010 Subpoena. (See Mot. at 23 (referring to an account that it "understands to be different" from the other accounts maintained at HSBC France), 24 ("documents written in French from another foreign bank"); see also Lenow Decl. Exs. JJ, KK-T).) The Government knows only as much as the Liechtenstein Documents disclose, and it is incumbent upon Subject E to make a good faith effort, consistent with this Opinion and Order, to produce any "required records" that fall within the ambit of the 2010 Subpoena. See In re Grand Jury Subpoena Dated Feb. 2, 2012, 908 F. Supp. 2d 348, 351 (E.D.N.Y. 2012) ("Grand Jury Subpoena Feb. 2, 2012") ("Although the government attached to its motion to compel a selection of documents from one foreign bank account . . . those documents are hardly (on their face) co-extensive with the scope of the Subpoena."). That effort would include, as the Government suggests in its Reply, directing Beda Singenberger—the financial advisor who formed the Foundation and served as its director—to "provide her with the requested records for" the Foundation. (Government's Reply in Support of Motion for Additional Contempt Sanctions and Motion for Order to Compel Compliance ("Reply") at 15.) It may be that those accounts principally identified by the Government in its motion are the only ones that Subject E must produce. But "it is self-evident that the government would have no way of ensuring that all such records from all foreign bank accounts . . . have been uncovered." Grand Jury Subpoena Feb. 2, 2012, 908 F. Supp. 2d at 351. Only Subject E knows with certainty. Because this Court finds that Subject E's 2014 production fell far short of her obligation to produce records in her "care, custody, or control," Subject E violated the Compulsion Order. Accordingly, this Court directs her to locate and produce all foreign bank account records responsive to the 2010 Subpoena that she has the legal authority or practical ability to obtain.
Finally, Subject E points out the irony of the current situation in that the Government seeks records which it has already obtained from foreign banks. (Opp. at 2, 10.) But "the fact that the government has some of [Subject E's] foreign bank records clearly does not preclude it from seeking all such relevant foreign bank records." Grand Jury Subpoena Feb. 2, 2012, 908 F. Supp. 2d at 351; see also United States v. Dionisio, 410 U.S. 1, 13 (1973) ("The grand jury may well find it desirable to call numerous witnesses in the course of an investigation. It does not follow that each witness may resist a subpoena on the ground that too many witnesses have been called.").2. Interference with the Defendant's Rights in the Criminal Case.
On this issue, the Court said:
Subject E separately argues that enforcement of the grand jury subpoena, concurrent with a pending indictment against her, would "catastrophically harm" her rights at trial in the criminal action. (Opp. at 29.) She claims that the issues in this contempt proceeding are more appropriate for resolution in the pending criminal action. (See Opp. at 29.) Subject E's argument, in view of the grand jury's continuing investigation and her non-compliance under the 2010 Subpoena, is unavailing.
As a general matter, a grand jury's wide-ranging investigative power "does not end when it indicts a defendant. Instead, a post-indictment action is permitted to identify or investigate other individuals involved in criminal schemes or to prepare superseding indictments against persons already charged." United States v. Meregildo, 876 F. Supp. 2d 445, 448-49 (S.D.N.Y. 2012). But "it is improper to utilize a grand jury for the sole or dominating purpose of preparing an already pending indictment for trial." United States v. Bin Laden, 116 F. Supp. 2d 489, 491-92 (S.D.N.Y. 2000). Subject E bears the burden of rebutting the "presumption of regularity [that] attaches to grand jury proceedings" and must demonstrate that "the Government's use of the grand jury was improperly motivated." Bin Laden, 116 F. Supp. 2d at 492. Put another way, "absent some indicative sequence of events demonstrating an irregularity, a court has to take at face value the Government's word that the dominant purpose of the grand jury proceedings is proper." United States v. Raphael, 786 F. Supp. 355, 358 (S.D.N.Y. 1992).
Here, Subject E has failed to offer any sequence of events demonstrating irregularity to rebut the presumption that continued use of a grand jury subpoena, even after an indictment, is improper. Although more than six years elapsed since service of the 2010 Subpoena, the Government's conduct has not been irregular. A significant portion of that interval was devoted to litigating the question of whether Subject E was exempt by reason of the act of production privilege from responding to the 2010 Subpoena. Following issuance of the Compulsion Order and the Contempt Order, Subject E located and produced two responsive documents. And the Government [*22] had to wait for production of the Liechtenstein Documents to piece together its current view that she had not fully complied with her obligations. (Tr. at 10:19-21 ("What I'd say is just that there is some delay. I believe it was several years before Li[e]chtenstein turned over documents to us."), 13:21-14:1 ("it's only when we saw all these data points together and received these documents in December of 2015 . . . and then early 2016 at my office . . . when we realized there was just a wholesale failure to comply . . .").)
While the Government filed an indictment approximately one month after moving for additional sanctions in this proceeding, that does not mean the grand jury must conclude its investigation if there are other objectives to pursue. Nor does that excuse Subject E from her obligation to fully comply with the 2010 Subpoena especially where there is a judicial finding that she violated the Compulsion Order.
The Government maintains that it is continuing the grand jury investigation on several grounds, including (1) investigating Subject E for potential violations of other federal statutes that have not been charged in the pending criminal action; (2) investigating other individuals who have not yet been indicted; and (3) investigating Subject E's potential violations of the federal laws charged in the Indictment but for uncharged periods (i.e., from 2013 through the present). (Reply at 3.) Subject E's argument that the fruits of the 2010 Subpoena will be used for trial preparation is further undermined by the fact that it was issued six years before her indictment. (Reply at 3.) Any evidence acquired at any point during the enforcement of the 2010 Subpoena—in 2010 when it was first issued, in 2014 when Subject E completed her production, or any point thereafter—would have been used in the same manner by the Government then as it would today.
Finally, the threat that any incriminating evidence obtained by the grand jury pending the indictment will be used against Subject E in violation of her Fifth and Sixth Amendment rights (Opp. at 31) is mitigated by this Court's holding in the Compulsion Order. This Court narrowed the universe of documents to "required records" which, by their very nature, bear no independent communicative element and therefore do not present the risk of self-incrimination under the Fifth Amendment. n5 In re Two Grand Jury Subpoenae Duces Tecum Dated Aug. 21, 1985, 793 F.2d 69, 73 (2d Cir. 1986) ("The rationale behind the ["required records"] exception . . . [in part is that] the record-holder 'admits' little in the way of control or authentication by producing them.").THE RELATED CRIMINAL CASE
n5 It is unclear what Sixth Amendment issues are implicated by the continued use of the grand jury during the indictment period.
The Court does not identify the related criminal case. I am told that the related criminal case is United States v. Doyle (SDNY No. 16 Cr. 506 (ALC)). The indictment is here and the USA SDNY press release is here. My blog entry on the indictment is Another Offshore Account Indictment (Federal Tax Crimes Blog 7/30/16), here.
According to the docket entries two of the same lawyers are involved in both cases. The docket sheet for the grand jury subpoena case is here and for the criminal case is here.
The docket entries show that the Government has requested a Curcio hearing about a potential conflict of interest and related issues regarding the attorneys representing Ms. Lacy in the criminal case. I attach the hearing request here and Lacy's response to the hearing request here. Much of the detail of the case is laid out in these documents. I may add something about the details later. The key excerpt from the Government's letter is (p. 4):
The defendant may be able to assert an advice-of-counsel defense with respect to some of the conduct at issue if defense counsel provided advice to the defendant concerning the ongoing legality of the defendant’s actions between 2010 and 2012. Specifically, it is possible that the defendant could argue that even if she violated the law during that time period by continuing to use the Gestino Stiftung to shield the existence and location of the Swiss bank accounts holding the secret inheritance from the IRS, it was based on a good faith and honest reliance on advice of her counsel. See, e.g., United States v. Evangelista, 122 F.3d 112, 117 (2d Cir. 1997) (discussing advice-of-counsel defense in the context of a criminal tax matter). Such a defense might, if presented by Mr. Leibman, make him an “unsworn witness,” as discussed below. It could also create a potential conflict to the extent there was a difference in understanding between Lacy Doyle and Mr. Leibman regarding what information she provided him and what advice Mr. Leibman provided her.