Monday, January 21, 2019

Ex UBS Banker Who Sold Client Data to Germany Convicted of Money Laundering and Acquitted of Bank Secrecy Violation (1/21/19)

A former Swiss Banker has been convicted and sentenced to 40 months in prison for money laundering charges but was acquitted of bank secrecy violations.  I give some of the detail that I think interesting in the excerpts of the articles below.

  • John Miller, Ex-Swiss banker convicted for selling secret tax data to Germany (Federal Tax Crimes Blog 1/21/19), here.  Excerpts:
Rene S., as the 45-year-old ex-banker was called during court proceedings, was sentenced to 40 months in prison and must pay fines and court costs totaling more than 125,000 Swiss francs ($125,300) after being found guilty of charges that included spying and money laundering. 
Rene S., who according to court documents has moved to a small town in Germany just across the Rhine River from Switzerland, did not attend the proceedings in Bellinzona this month. 
He was acquitted of breaking Swiss banking secrecy laws. It was not immediately clear whether Switzerland would seek his extradition, with Swiss officials in Berne saying such a decision would come only after the appeals process had been exhausted and the judgment finalised. 
* * * * 
Prosecutors said that between 2005 and 2012, when Rene S. worked for UBS, he illegally collected data about Germans with accounts at the bank and sold the information for 1.15 million euros ($1.31 million) to tax authorities in North Rhine-Westphalia who were seeking to root out tax dodgers. 
* * * * 
Lawyers for UBS, which paid some $300 million in 2014 to settle claims it helped wealthy Germans evade taxes, had contended during the trial that its former employee’s actions had undermined Switzerland as a financial center. 
* * * * 
A decade ago, Germans were believed to be hiding about 150 billion francs in secret accounts in Switzerland and Liechtenstein. 
But thousands began declaring their assets after North Rhine-Westphalia, with the federal government’s blessing, started buying covertly collected data. 
North Rhine-Westphalia has spent some 17.9 million euros since 2010 on data that helped it recover nearly 7 billion euros ($7.97 billion) in tax revenue. 
In turn, Switzerland fought to protect its banking secrecy laws by prosecuting several people, including Rene S., in separate cases where it accused them of illegally handing over documents.
The dispute has included several twists, including the Swiss filing criminal charges in 2012 against three German tax collectors, accusing them of buying account information from informants. 
And in 2017, Germany arrested a Swiss man they accused of spying on North Rhine-Westphalia's tax authority, forcing Switzerland's spy agency to defend its practices against friendly neighboring countries. The accused Swiss spy got a suspended prison term.
  • Ex-UBS Worker Guilty of Money Laundering in Data Theft Case (SWI swissinfo.ch 1/21/19), here.  Excerpts:

Thursday, January 17, 2019

Reminder of Key Differences Between Civil Fraud Penalties (1/1719)

I picked up an offering, with a good reminder for Tax Crimes enthusiasts, from Procedurally Taxing Blog's regular reporting of Tax Court designated orders.  Samantha Galvin (Guest Blogger), The Tax Court’s Tenacious Stance on 280E: Designated Orders 12/17/2018 – 12/21/2018 (Procedurally Taxing Blog 1/17/19), here.

First a reminder on what the Designated Order category is.  The following is from the current working draft of my Federal Tax Procedure book that will be published in August 2019; it appears after discussing the usual Tax Court opinions, T.C.'s and T.C.M.'s (footnotes omitted):
Another Tax Court case document of potential importance is designated simply “Order.”  A court may resolve disputed issues by some type of order – either oral (such as bench opinions or written – in any number of ways short of what is formally designated as an opinion.  The “Orders” are available on the Tax Court’s web site in a searchable database, with a subset of orders published daily as “Designated Orders.” The designation status is determined by the judge issuing the order, presumably because the judge feels that there is something in the order that should be called to the attention of practitioners.  Although the Tax Court Rules say that Orders, including Designated Orders, are not precedential, sometimes, the Designated Orders offer practitioners insight into particular Judge’s thinking on substantive and procedural issues.
Now turning to the Designated Order (Durand v. Commissioner (T.C. Dkt., 16273-17 Order dated 12/18/18), here, in the Procedurally Taxing Blog, rather than recreate the wheel, I just cut and paste the discussion in the blog (although the order itself is almost as short so readers might just want to click the link to the order above):
Docket No. 16273-17, Roger H. Durand, II, v. CIR (here)
In a win for petitioner and lesson for respondent, the Court highlights the difference between a section 6663 penalty and a section 6651(f) penalty in this designated order.
This case was already tried in October of 2018 and the parties are in the process of preparing post-trial briefs. The Court addresses IRS’s motion to leave to amend its answer to conform to proof. Petitioner objects.
Petitioner is a reverend who did not timely file for several years beginning in 2006, but eventually filed all years in 2014 and 2015. The IRS issued a notice of deficiency which included a 75% fraud penalty for each tax year under section 6663. Petitioner petitioned the Court, and respondent answered detailing the allegations of fraud and praying that the 6663 penalties be approved.
Neither the deficiency notice nor respondent’s answer referenced the section 6651(f), the “fraudulent failure to file” penalty, but now the IRS wants to amend its answer to include the section 6651(f) penalty – after the trial has taken place and the case has been submitted.
Petitioner argues that different timeframes govern the analysis of whether the penalties should apply and respondent tries to minimize this argument, but the Court sides with petitioner. The Court implies that respondent may not understand the difference between a 6663 and 6651(f) penalty and cites its analysis Mohamed v. Commissioner, T.C. Memo. 2013-255, on this issue.
Section 6663 authorizes a penalty for filing a fraudulent return, and section 6651(f) authorizes a penalty for fraudulently failing to file a return.
Section 6663 can only be imposed if a return is filed, and on that return the taxpayer fraudulently misrepresents the amount of tax due. Under section 6663 the fraud occurs when a return is actually filed, not when it is due.
Section 6651(f) is imposed when a taxpayer deliberately fails to file a return to conceal the existence of income in order to evade tax. Under Section 6651(f) the fraud occurs when a return is due, not when it is actually filed.
The taxpayer’s intent at the appropriate times (date return was due and date of actual filing) is critical to determining if each penalty should be imposed. Because the trial has concluded and the IRS failed to include a section 6651(f) penalty, the reverend never had the opportunity to present facts about his intent at the time the returns were due, which is when the 6651(f) fraud would have occurred, so the Court denies respondent’s motion. 
JAT Comment:  Note that the civil fraud determination is important not only for these penalties but for the unlimited statute of limitations under § 6501(c)(1).  Of course, if no return has been filed, there is an unlimited statute of limitations under § 6501(c)(3).

Court Dismisses 7 of 8 Counts Because of a Tolling Agreement Ambiguity (1/17/19)

In United States v. Brattain, 2019 U.S. Dist. LEXIS 6494 (E.D. Mich. 2019), here, the defendant was charged in the superseding indictment, here, for with 7 counts of aiding and assisting, § 7206(2), and 1 count of the defraud / Klein conspiracy.  The Court dismissed the 7 counts of aiding and assisting because the tolling agreement, drafted by the Government, was ambiguous as to whether it covered aiding and assisting and therefore, since tolling agreements are construed against the drafter, it did not cover aiding and assisting.

The tolling agreement provided in relevant part that (i) the U.S. Attorney was prepared to seek an indictment alleging  "that defendant made or subscribed a false tax return in violation of Title 26, United States Code, Section 7206;" and (ii) that Brattain "agree[s] that the running of the statute of limitations applicable to the offenses described above will be tolled ..."

Tax crimes enthusiasts should spot the problem immediately.  The text refers to § 7206(1) (which I refer to as tax perjury) but the code section cited in the tolling agreement is § 7206 without limiting to § 7206(1), the provision for making or subscribing a false return.  The Government indicted for § 7206(2), which is for aiding and assisting of a false return.  That made the tolling agreement ambiguous.  Hence, the tolling agreement did not cover the charges and those counts are dismissed.

For those with access to Court Listener (free), the opinion docket entries are here where the superseding indictment and the opinion may be downloaded.

JAT Comments:

1.  The tolling agreement also covered allegations of FBAR violations -- failure "to report foreign bank and financial accounts in violation of Title 31, United States Code, Sections 5314 and 5322."  The superseding indictment does not cover those charges.  There is no indication why those charges are omitted.

2.  The dismissal of the 7 aiding and assisting counts leaves the sole count of the defraud / Klein conspiracy.

3.  The allegations in the complaint generally and particularly in the defraud / Klein conspiracy count seem to me to be fairly skinny.  There are no allegations about who the defendant is or as to venue.  More importantly, the overt acts are presented crisply, and included the filing of original and amended returns for some years.  In a conspiracy count, particularly for a defraud / Klein conspiracy, the allegations will give paint a detailed and damning picture of the overall conspiracy.  The picture is presented in a statement of the manner and means and the overt acts.  In the Brattain superseding indictment the indictment alleges the overt acts without manner and means allegations.

4.  If Brattain is convicted on the conspiracy count, his maximum sentencing exposure is 5 years which will likely be more than ample to cover his Guidelines sentence.  In this regard, the dismissed counts are likely related to the conspiracy and would be relevant conduct, the tax loss from which would be included in Brattain's guidelines calculations.  Hence, his Guidelines sentencing range would be the same as if he were convicted of all relevant conduct crimes (including the dismissed counts, counts beyond the statute of limitations).  The dismissal of the 7 counts will only help if the sentencing judge considers that dismissal favorably to the defendant in a Booker variance.

Tuesday, January 15, 2019

Two Cases Involving Marinello (1/15/18)

I report here on two Marinello related developments.

1.  In United States v. Adams (D. D.C. No. 15-44 (JEB) Dkt. 94), here, the district court vacated Adams' (called Heru-Bey in the opinion) conviction for tax obstruction, § 7212(a).  The case was at the district court level because the Court of Appeals remanded the case sua sponte after the Government conceded that "the jury instructions — which did not contain the nexus requirement or detail the nature of the requisite IRS proceeding — were error, and that error was plain at the time of appellate consideration.” (Cleaned up.)  In its opinion, the district court (Judge Boasberg) found that there was there was error, the error was plain, the error affected Adams substantial rights, and Adams had been prejudiced.  The Court accordingly vacated the conviction and permitted "the Government to retry the case if it so elects."

Some comments:

a.  Somewhat echoing Judge Kozinski's analysis in United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993) (answering no to the question "whether conspiring to make the government's job harder is, without more, a federal crime"?), it reasons that the Government's claim for nexus was overbroad and said:
Again, Marinello does not countenance such a broad understanding of § 7212. See 138 S. Ct. at 1107. The Court there specifically rejected as overbroad the argument the Government now presses — namely, it reasoned that § 7212 is “not . . . a ‘catchall’ for every violation that interferes with what the Government describes as the ‘continuous, ubiquitous, and universally known’ administration of the Internal Revenue Code.” Id. (citation omitted).
b.  The Court also poked the Government because it has declined a special instruction that might have solved the issue:
The Court notes, finally, that the Government declined a special unanimity instruction at trial. See 5 Tr. at 84. That is, it did not ask that the jury, to find Defendant guilty, be instructed that it must be unanimous as to which one or more of the Government’s three theories of obstruction was the basis. As a result, even were one of these theories valid, there would be no way for this Court to know that the jury meant to convict on that one and not the invalid others.
2.  In United States v. Flynn,  (D. Minn. 2018 No. 16-347 ADM/KMM), here, the Court denied Flynn's motion to withdraw his guilty plea to a defraud/Klein conspiracy count and a tax perjury count.  Among Flynn's arguments was that the Second Superseding Indictment to which he pled did not properly state a conspiracy to defraud because of the decision in Marinello v. United States, __ U.S. ___, 138 S. Ct. 1101 (2018).  The following is the pertinent portion of the opinion:

Thursday, January 10, 2019

Tax Crimes History -- The Fail of Vice-President Spiro Agnew and the Role of Tax Crimes (1/10/18)

I listened to this podcast covering a moment history where the President and Vice-President were each under separate unrelated criminal investigations.  This focuses on the Vice-President.  Everybody knows about the outcome of the President -- resignation and pardon by his sucdessor, Gerald Ford (I do summarize the key background below).  For most of us, if we know VP Spiro Agnew at all, it is as a footnote and most of us (like one famous Supreme Court Justice at least claimed) don't read footnotes.  We ought to.  Sometimes.  Terry Gross and her guests lift this footnote and brings it to general public attention because it is relevant to today.  Bad Behavior By People In High Office': Rachel Maddow On The Lessons Of Spiro Agnew (NPR Fresh Air 1/9/19), here.

And, not only is it history, there is a federal tax crime involved which is the excuse for this posting.

The Fresh Air presentation is a good summary podcast (43 minutes) of a larges podcast series called Bagman, here, a Rachel Maddow presentation (without blatant political rhetoric).  Bagman is a 6 episode series.  I listen to the larger series next on my daily walks, but I can highly recommend the Fresh Air presentation because Terry Gross is a good guide to get to the essentials in a single podcast of 43 minutes.  Many of you may not want to go into the details after the Fresh Air presentation.

But, I will give my own shorter summary of this event and its historic setting - Watergate (Wikipedia here).

The Watergate break-in had occurred.  It looked like some hacks of no consequence breaking into the Democratic National Committee headquarters.  But, as the facts dribbled out, it turned out to be a political operation orchestrated from the White House.  The ripples from that were slow to start.  But built to a crescendo that eventually led to President Nixon's resignation.  But before getting there, there was a grand jury investigation.  Some persons (including the infamous John Dean) pled guilty.  The grand jury indicted former White House aides, including Presidential top level assistants Haldeman and Ehrlichman, and the Attorney General, John Mitchell.  Nixon appointed Elliot Richardson to replace Mitchell as Attorney General.  Richardson then named Archibald Cox as special counsel to investigate the Watergate scandal.

The Senate Watergate Committee then uncovered Nixon's taping of Oval Office conversations.  Cox, as special counsel, was keenly interested in the tapes and issued a subpoena.  Nixon refused to produce and fought all the way to the Supreme Court.  The Supreme Court ordered him to produce.  Nixon ordered Cox to drop the subpoena.  Cox refused.  On October 20, 1973, Nixon ordered Richardson to fire Cox in order to stop the compulsion of the subpoena.  Richardson refused and resigned.  Nixon then ordered the next in line, the Deputy Attorney General, William Ruckelshaus, to fire Cox.  Ruckelshaus refused and resigned.  Nixon then ordered the next in line, Solicitor General Robert Bork (yes, that Robert Bork), to fire Cox.  Bork fired Cox.  That culminating event, happening on a weekend and now enshrined in history as the Saturday Night Massacre, shocked the country and led to Nixon's resignation.

A few days before the Saturday Night Massacre, the Vice-President, Spiro Agnew resigned and immediately thereafter pled nolo contender to a single tax crime.  A nolo contendere plea is sometimes accepted by courts for defendants who will take the punishment but do not want to formally admit that they committed the crime(s).  Agnew could have been indicted for a slew of other crimes, all unrelated to Watergate and stretching back to corruption before he was VP (but continuing while he was VP).  Because of the crisis the country was in, Richardson agreed (over the objection of the federal prosecutors involved) to permit Agnew to plead nolo contendere to a single count of tax evasion with an agreement that he would serve no time and be sentenced only to three years of unsupervised vacation.

The podcast discusses the events leading to the Spiro resignation and plea of nolo contendere to tax evasion in the midst of the Watergate crisis sweeping over Nixon's administration that would soon lead to Nixon's resignation.

Richardson and the prosecutors had to deal with such issues as to (i) whether a sitting VP could be indicted (sound familiar) and (ii) whether, since the evidence of mass corruption by Agnew seemed so strong, should DOJ insist on some jail time either by plea or after indictment and conviction or, on the other hand, was it important to the country to get his resignation which required the sweet deal nolo contendere plea.

I highly recommend the Fresh Air offering.  After listening to the full podcast series, I may offer more.

JAT Comments:

Tuesday, January 8, 2019

On Restitution, Jury Factfinding and Original Meaning (1/8/19)

Restitution is a common feature in criminal tax convictions.  Although statutory restitution excludes the Title 26 tax crimes, restitution is allowed for the ubiquitous Klein conspiracy (the defraud conspiracy under 18 U.S.C. 371).  And, where statutory restitution is not available, DOJ Tax commonly requires contractual restitution in plea agreements.  I provide materials on restitution in tax cases at the end of this blog entry.

Today, I write two justices dissent to denial of certiorari yesterday in Hester v. United States (Sup. Ct. No. 17-9082), here.  The dissenting justices were Gorsuch, who drafted the dissent, and Sotomayor, who joined the dissent.  The dissent felt that the full court should consider whether a jury must determine restitution.  Current practice is that the judge determines restitution (unless the restitution is contracted by the parties).  Here are key excerpts (cleaned up except for key cases):
If you’re charged with a crime, the Sixth Amendment guarantees you the right to a jury trial. From this, it follows that the prosecutor must prove to a jury all of the facts legally necessary to support your term of incarceration. Apprendi v. New Jersey, 530 U. S. 466 (2000). Neither  is this rule limited to prison time. If a court orders you to pay a fine to the government, a jury must also find all the facts necessary to justify that punishment too. Southern Union Co. v. United States, 567 U. S. 343 (2012). 
But what if instead the court orders you to pay restitution to victims? Must a jury find all the facts needed to justify a restitution order as well? That’s the question presented in this case.  
* * * * 
[T]he government argues that the Sixth Amendment doesn’t apply to restitution orders because the amount of restitution is dictated only by the extent of the victim’s loss and thus has no “statutory maximum.”  But the government’s argument misunderstands the teaching of our cases.  We’ve used the term “statutory maximum” to refer to the harshest sentence the law allows a court to impose based on facts a jury has found or the defendant has admitted.  Blakely v. Washington, 542 U.S. 296, 303 (2004).  In that sense, the statutory maximum for restitution is usually zero, because a court can’t award any restitution without finding additional facts about the victim’s loss.  And just as a jury must find any facts necessary to authorize a steeper prison sentence or fine, it would seem to follow that a jury must find any facts necessary to support a (nonzero) restitution order. 
The government is not without a backup argument, but it appears to bear problems of its own.  The government suggests that the Sixth Amendment doesn’t apply to restitution orders because restitution isn’t a criminal penalty, only a civil remedy that compensates victims for their economic losses.  But the Sixth Amendment’s jury trial right expressly applies “[i]n all criminal prosecutions,” and the government concedes that restitution is imposed as part of a defendant’s criminal conviction.  Federal statutes, too, describe restitution as a “penalty” imposed on the defendant as part of his criminal sentence, as do our cases.  Besides, if restitution really fell beyond the reach of the Sixth Amendment’s protections in criminal prosecutions, we would then have to consider the Seventh Amendment and its independent protection of the right to a jury trial in civil cases. 
If the government’s arguments appear less than convincing, maybe it’s because they’re difficult to reconcile with the Constitution’s original meaning.  The Sixth Amendment was understood as preserving the historical role of the jury at common law.  And as long ago as the time of Henry VIII, an English statute entitling victims to the restitution of stolen goods allowed courts to order the return only of those goods mentioned in the indictment and found stolen by a jury.  In America, too, courts held that in prosecutions for larceny, the jury usually had to find the value of the stolen property before restitution to the victim could be ordered.   And it’s hard to see why the right to a jury trial should mean less to the people today than it did to those at the time of the Sixth and Seventh Amendments’ adoption.
Doug Berman's Sentencing Law and Policy Blog, Purported SCOTUS originalists and liberals, showing yet again that they are faint-hearted, refuse to consider extending jury trial rights to restitution punishments (1/7/19), here, has this to say after describing Gorsuch's dissent as "this lovely little opinion"):
So why does the jury trial still mean less to the people today facing restitution punishments than it did to those at the time of the Sixth and Seventh Amendments’ adoption?  The only answer I can provide is hinted in the title of post.  Supposed SCOTUS originalists like Chief Justice Roberts and Justices Thomas and Kavanaugh apparently do not want to here follow originalist principles to what would appear to be their logical conclusion.  Supposed SCOTUS liberals like Justices Ginsburg and Kagan do not want to here protect a certain type of right of a certain type of criminal defendant. (Justice Sotomayor, who never shrinks from following constitutional rights wherever she thinks they must extend, joined Justice Gorsuch's dissent here). 
Although Berman does not discuss it, I think Justice Alito's concurring opinion, here, is also worthy of note.  It is short and I quote it all:
The argument that the Sixth Amendment, as originally understood, requires a jury to find the facts supporting an order of restitution depends upon the proposition that the Sixth Amendment requires a jury to find the facts on which a sentence of imprisonment is based. That latter proposition is supported by decisions of this Court, see United States v. Booker, 543 U. S. 220, 230–232 (2005); Apprendi v. New Jersey, 530 U. S. 466, 478 (2000), but it represents a questionable interpretation of the original meaning of the Sixth Amendment, Gall v. United States, 552 U. S. 38, 64–66 (2007) (ALITO, J., dissenting). Unless the Court is willing to reconsider that interpretation, fidelity to original meaning counsels against further extension of these suspect precedents
JAT Further Offerings:

Friday, January 4, 2019

Ninth Circuit Rejects Spousal Testimonial Privilege for Foreign Bank Records (1/4/18)

In In re Grand Jury Subpoena, Dated March 21, 2018 (9th Cir. 12/28/18) (unpublished), here, the Court affirmed a district court order of contempt for compelling the wife of a grand jury target to produce records of her foreign bank activity for the years 2011 through 2016.  She asserted that the spousal testimonial privilege protects her from compelled production of the documents.  The district court rejected her claim of spousal testimonial privilege and held her in contempt for her continuing refusal to produce.  The Ninth Circuit held that the spousal testimonial privilege was not applicable.

The Ninth Circuit's analysis is contained in one paragraph with one footnote, so I just cut and paste them.
Doe asserts that the spousal testimonial privilege protects her from producing documents responsive to the subpoena because the grand jury is currently investigating possible federal tax crimes committed by her husband. n1  For the spousal testimonial privilege to apply, “the anticipated testimony ‘[must] in fact be adverse’ to the nonwitness spouse.” United States v. Van Cauwenberghe, 827 F.2d 424, 431 (9th Cir. 1987) (citation omitted); see also United States v. Fomichev, 899 F.3d 766, 771 (9th Cir. 2018) (“[T]he witness-spouse alone has a privilege to refuse to testify adversely.”) (emphasis added) (citation omitted). Here, “the testimonial aspect of [Doe’s] response to a subpoena duces tecum does nothing more than establish the existence, authenticity, and custody” of any responsive foreign bank account records. United States v. Hubbell, 530 U.S. 27, 40–41 (2000). Because this bare testimonial aspect of Doe’s act of production does not itself adversely affect her husband’s case, Doe is not relieved of her obligation to produce foreign bank account records over which she has care, custody, or control.
   n1 Although Doe also raised claims of privilege under the Fifth Amendment, and the marital communications privilege, before the district court, these arguments were not raised on appeal and are therefore waived. Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“[O]n appeal, arguments not raised by a party in its opening brief are deemed waived.”). 
JAT Comments: