Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (10/27/17)

DOJ Tax announced here another FBAR plea.  The defendant is Hyung Kwon Kim, identified as a "Greenwich, Connecticut man" (which I presume means a Greenwich Connecticut resident), and the plea was entered in the ED VA.  I link also the following:

• The criminal information, here, to which the plea was entered
• The Plea Agreement, here.
• The Statement of Facts, here.
• The Docket Entries as of about 1:30 pm 10/27/17, here.

The key excerpts from the press release are:

According to court documents and information provided in court, Hyung Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut.  Around 1998, Kim traveled to Switzerland to identify financial institutions at which to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong.  Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.  In 2004, the value of the funds in Kim’s accounts exceeded $28 million. 

* * * * 

Kim conspired with several bankers, including Dr. Edgar H. Paltzer, to conceal the funds from U.S. authorities.  Paltzer, who was convicted in 2013 in the Southern District of New York for conspiring to defraud the United States, and the other bankers assisted Kim in opening accounts in the names of sham entities organized in Lichtenstein, Panama and the British Virgin Islands.  Paltzer and the other bankers facilitated financial transactions for Kim, so that Kim could use the funds in the United States.  For example, between 2003 and 2004, Kim directed Paltzer and another banker to issue nearly $3 million in checks payable to third parties in the United States for the purchase of a residence in Greenwich, Connecticut.  In 2005, Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million.  Kim and Paltzer communicated about the purchase in a manner that created the appearance that Kim was renting the property from a fictitious owner. 

Between 2000 and 2008, Kim took multiple trips to Zurich, Switzerland and withdrew more than $600,000 in cash during these visits.  He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems.  For example, in 2008, Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler. 

In 2008, during a trip to Zurich, Kim’s banker at Clariden Leu informed Kim that due to ongoing investigations in the United States, Kim could either disclose the accounts to the U.S. government, spend the funds, or move the funds to another institution.  Kim moved the funds into nominee accounts at another bank. In 2011, Kim liquidated the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from the Greenwich jeweler. 

Kim also admitted that from 2000 through 2011, he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.
As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.

Now, just a few comments on the documents linked above.

1. Criminal Information.  This is bare bones -- 2 page to state the crime to which the plea is given.  The plea is to a single count for the reporting year 2008.

2. The Plea Agreement.

a.  The paragraph on the Sentencing Guidelines (par. 5 beginning on pp. 3&4) says:

The Government contends that the applicable Guideline in this matter should be U.S.S.G. § 2S1.3(a)(2), § 2S1.1 , and § 2S1.3(b)(2) because the defendant filed two false FBARs and a false U.S. Individual Income Tax Return, Form 1040, within a 12-month period. However, at the time that the defendant agreed to plead guilty, the Government consistently took the position with similarly situated defendants that the applicable Guideline was U.S.S.G. § 2Tl.1 and § 2TI.4 due to the cross reference in 2Sl.3(c)(1). 

Therefore. in order to ensure that the defendant receives equitable treatment, and in accordance with Federal Rule of Criminal Procedure 11(c)( l)(B), the United States and the defendant will recommend to the Court that the following provisions of the Sentencing Guidelines apply: 

a. The base offense level for this offense is 16 pursuant to U.S.S.G. § 2Tl.l(a)(1) and § 2T4.1(F), because the tax loss exceeded $100,000; 

b. The base offense level is increased by 2 levels pursuant to U.S.S.G. § 2T1.1(b )(2) because the offense involved sophisticated means; and 

c. the parties agree that they are free to argue other provisions of the Sentencing Guidelines not referenced herein or the sentencing factors under 18 U.S.C. § 3553(a).
The United States and the defendant also agree that he has assisted the government in the investigation and prosecution of his own misconduct by timely notifying authorities of his intention to enter a plea of guilty, thereby permitting the government to avoid preparing for trial and permitting the govenunent and the Court to allocate their resources efficiently. If the defendant qualifies for a two-level decrease in offense level pursuant to Sentencing Guidelines § 3El.1(a) and the offense level prior to the operation of that section is 16 or greater, the government agrees to file, pursuant to Sentencing Guidelines § 3E1.1(b), a motion prior to, or at the time of: sentencing for an additional one-level decrease in the defendant's offense level.

b. On the proper Sentencing Guidelines for FBAR violations, see Get in Line Brother #18b - McCarthy Plea Guidelines Sentencing Range Calculations (8/17/09), here, (see "1. Alternative Guidelines Regimes - Monetary Reporting or Tax?"); Another UBS Related Plea Agreement (9/28/09), here (see par. 7); Sentencing Simon (Preliminary and Final) (3/18/11), here (see par. 2.d.);

The Government's statement of its new position in the plea agreement should be noted by criminal tax practitioners.  The Guidelines calculations will now usually produce greater advisory sentencing ranges if the courts decide to sentence under the S.G. 2S1 Guidelines rather than the tax Guidelines.

Addendum 5:00pm:  First, what happens if the sentencing judge, who is supposed to make independent determination of the applicable Guidelines calculations, applies S.G. 2S1 rather than the tax Guidelines?  The Government's largesse in agreeing to the tax Guidelines will mean nothing, and the sentencing judges must use the higher advisory ranges.  Second, even if the S.G. 2S1 Guideline produces higher advisory sentencing ranges, history would indicate that sentencing judges will just exercise their Booker downward discretion just as they regularly did under the tax Guidelines.  Third, the application of higher Guidelines ranges might, however, mitigate how much sentencing judges will exercise their Booker downward authority because the variance will have to be greater to maintain the same sentencing levels as when they sentenced after making the Guidelines advisory calculations under the tax Guidelines.  Fourth, producing the results of prior sentencings (as was done in Warner) may become particularly to play on the concept of sentencing disparities.  Fifth, this development could influence the plea practice.  At one time, the Government's plea deals were either tax felony or FBAR.  (Earlier, the tax felony was often tax perjury (§ 7206(1), but I think now it may be evasion (§ 7201).)  Practitioners and defendants may want to seriously consider the tax felony option if it is offered.

Now, it might be useful to include the discussion of this issue from the current online version of the Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015) [CAVEATS:  (1) I AM THE PRINCIPAL DRAFTSMAN OF CHAPTER 12, TITLED  CRIMINAL PENALTIES AND THE INVESTIGATION FUNCTION; AND (2) THE FOLLOWING EXCERPT WILL BE SUBSTANTIALLY REVISED IN THE NEXT CUMULATIVE SUPPLEMENT BECAUSE OF THE INDICATION OF THE GOVERNMENT'S NEW POSITION]:

¶ 12.05[14][e][v] FBAR violations related to tax non-compliance. 

The FBAR criminal and civil penalty regime has become a critical tool in civil and criminal tax enforcement. For convictions related to tax non-compliance, the calculations are generally made under the tax guidelines. FN1160
     FN1160   This is not self evident from the Chapter 2 provisions. The FBAR violations are sentenced under USSG § 2S1.3(a)(2), which provides a Base Offense Level of 6, unless the level determined under the theft loss table in USSG § 2B1.1 (the theft table) is higher. The calculation under the theft loss table is made as if the improperly reported bank account amount was the theft loss amount. That is a bad result, because, by contrast, the tax loss table is based on the underpaid tax on the income with respect to the account, not the entire amount in the account. But USSG § 2S1.3(b) avoids the reference to the theft table by making the Base Offense Level 6 in most cases where the FBAR involved legal income and only a tax offense was involved. Then USSG § 2S.3(c) makes the calculations under the tax table if the tax table produces an offense level higher than USSG § 2S.3. The tax offense level will usually not be higher than the Part S offense level unless the Part S offense is reduced to 6. So the “holy grail” is to make sure that the Part S offense level is reduced to 6 under USSG. § 2S1.3(b), otherwise the Part B offense level will greatly exceed the Part T offense level and the Part B offense level will apply. We would offer more discussion, except that certain anecdotal evidence from the recent plea agreements to FBAR violations in a tax crime setting suggest that all of the parties — the defendants, the prosecutors, the Probation Office and the courts — seem to assume that Part S refers to Part T rather than Part B. A caveat, though: We know of one exception where the tougher Part B Guidelines were used to produce a much higher Guideline range, but that higher range was mooted by an exceptional downward Booker variance. See United States v. Desai, Dkt. No. CR-11-00846-EJD (ND Cal. 2014 (sentencing transcript dated July 7, 2014). Therefore, anyone representing a person charged with an FBAR violation in a tax setting must reach his own level of comfort on this issue. We should finally caution that this anecdotal evidence may even be a form of dicta, because in these anecdotal plea settings it was clear that the actual Booker sentence would never get above the base level provided in 31 USC § 5322(b) and would not be as prescribed in USSG § 2S1.3 by reference to the theft table. Caution is in order.

c.  The parties agree that the Base Offense level is "16 pursuant to U.S.S.G. § 2Tl.l(a)(1) and§ 2T4.1 (F), because the tax loss exceeded $100,000."  That seems to be an incomplete justification in the sense that a tax loss exceeding $100,000 could be any larger number.  I infer that the reference to F is to both the lower limit ($100,000) and to (G)'s lower limit of $250,000 which moves the BOL to 18.  I would have thought that, given the amounts involved and number of years, the tax loss (actual and intended including relevant conduct for years even outside the statute of limitations) would have been greater than $250,000.

d.  The defendant agrees to restitution in amounts and to victims subject to later determination and that the Court may defer the determination of restitution until after sentence.  On the IRS's right to assess:

If the Court orders the defendant to pay restitution to the IRS for the failure to pay tax, either directly as part of the sentence or as a condition of supervised release, the IRS will use the restitution order as the basis for a civil assessment. See 26 U .S.C. § 6201(a)(4). The defendant does not have the right to challenge the amount of this assessment. See 26 U.S.C. § 6201(a)(4)(C). Neither the existence of a restitution payment schedule nor the defendant's timely payment of restitution according to that schedule will preclude the IRS from administrative collection of the restitution-based assessment, including levy and distraint under 26 U.S.C. § 6331.

e.  The Defendant agrees to an FBAR penalty of "$14.075,862 (fourteen million, seventy-five thousand, eight hundred and sixty-two dollars), equaling 50% of the total assets that the Defendant held in his undeclared accounts in Switzerland on December 31, 2004."

3.  Statement of Facts

a.  Names of persons and entities serving as enablers familiar to readers of this blog and offshore account fans are:  Credit Suisse AG; Bank Leu AG, Credit Suisse subsidiary; Bank Hoffman AG, Credit Suisse subsidiary; Clariden Leu, Credit Suisse subsidiary; UBS AG; Edgar Paltzer, U.S. citizen practicing law in Switzerland; and Stefan Buck, a Swiss private banker.  A number of individuals and entities are identified only by pseudonyms.

b.  The statement of conduct is basically variations on the Swiss bank theme, including the shifting of funds to try to avoid being caught in the U.S. investigations of tax evasion through Swiss banks.