Thursday, November 26, 2020

Comisky Article on Tax Evasion and Money Laundering (11/26/20)

Readers of this blog will likely be interested in a recent practice point offering from the ABA Tax Section, Ian M. Comisky, May Tax Evasion Be Charged as a Money Laundering Offense? The Times Are A-Changing (ABA Tax Times 8/25/20), here.  (To access the document ABA or Tax Section membership may be required.)  Comisky (bio here) is a long-time practitioner and commentator on the interface of tax crimes and money-laundering.

Here are some paragraphs introductory and one more (from the already short offering) to tease the interest (footnotes omitted):

Tax evasion has never been a predicate offense for a money laundering charge in the United States. The government, however, has employed mail and wire fraud offenses to charge money laundering arising out of a tax crime. This article reviews the basics of U.S. money laundering laws, the use of mail and wire fraud crimes to transform tax offenses into money laundering, and recent developments worthy of discussion.

The basic U.S. money laundering laws are contained in Title 18 of the U.S. Code: section 1956 (laundering of monetary instruments, referred to herein as the primary money laundering statute) and section 1957 (engaging in monetary transactions in property derived from specified unlawful activity). The primary money laundering statute involves one who engages in a financial transaction knowing that the property represents the proceeds of some form of unlawful activity, which, in turn, involves the proceeds of a specified unlawful activity (SUA) with certain types of knowledge or intent. There is a tax intent money laundering provision contained within the primary money laundering statute, but the defendant must engage in a transaction with SUA proceeds (taxes are not an SUA), and then engage in conduct that violates one of the two primary U.S. criminal tax provisions. Historically, the government would encounter a defendant who engaged in a different type of illegal activity (e.g., securities fraud, which is an SUA) and then later transferred the proceeds from that activity in a way that evaded taxes with those proceeds. In those circumstances, a tax intent money laundering offense could be charged.

There are two other provisions of the primary money laundering statute where money is represented to be from illegal activity: one involving what is known as international money laundering and a “sting provision.” Noteworthy, the international money laundering provision does not require the use of proceeds from a prior offense but only the transfer of funds with an intent to promote an SUA. A violation of the money laundering statute is a twenty-year felony and permits forfeiture of property involved in or representing the proceeds of the offense.

For purposes of this discussion, the statute references SUAs that are defined by way of a combination of predicate offenses listed in the money laundering statute itself and offenses listed in the Racketeering Influenced and Corrupt Organizations Act (RICO). Despite there being well over two hundred and fifty SUAs, what is notable is what is absent: any violation of the Internal Revenue laws dealing with tax offenses. Although a tax offense is not a direct predicate for money laundering, both mail fraud and wire fraud are listed as SUAs. Because the use of the mails or the use of the wires is likely to occur in connection with the filing of a tax return, tax evasion could, in theory, create a mail or wire fraud violation that is itself a predicate for a violation of the money laundering laws.

* * * *

It is of concern, nonetheless, that the government has begun charging money laundering for what is nothing more than a traditional tax offense accomplished in part via wire fraud. The government certainly has sufficient statutory tools under the Internal Revenue Code for charging a conspiracy to defraud and failing to file FBARs that do not require the use of the U.S. wire fraud statute. The money laundering charges, as noted, permit the forfeiture of all property involved in or traceable to the offense and the advisory sentencing guidelines are more severe for money laundering than for tax offenses.

JAT Comments:

1. I recently blogged the indictment of Robert T. Brockman for tax crimes (conspiracy and evasion), FBAR violations, wire fraud (an SUA), money laundering, tax money laundering, and international concealment money laundering, and evidence tampering and destruction.  See One Big Fish Indicted and Lesser Big Fish Achieves NPA for Cooperation (Federal Tax Crimes Blog 10/16/20), here.  As best I can see from the allegations in the indictment, the schemes alleged started with offshore tax shenanigans in the 1980s, but morphed into more serious financial crimes supporting the money laundering charges beyond garden variety offshore tax evasion. 

2. Many, perhaps most, offshore account and entity tax evasion almost certainly would permit a prosecutor to could cobble together allegations and counts that support money laundering.  As Comisky notes in the article, the historic practice, reflected in the DOJ Tax Criminal Tax Manual in Tax Division Directive No. 128 (Oct. 2004), here, is to not approve wire or bank fraud charges or RICO or money laundering charges based on wire or bank fraud.  The Tax Division will approve such charges “when unusual circumstances warrant.”  Basically, the memorandum reasoned that the more serious charges cannot be used “to convert routine tax prosecutions into RICO or money laundering cases.”

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