Pretrial Order Excluding Government Evidence in Criminal Tax Case for Offshore Accounts (4/22/18)

In United States v. Doyle, 2018 U.S. Dist. LEXIS 66980 (S.D. N.Y. 2018), here, the defendant had been charged in a superseding indictment for tax obstruction (§ 7212(a)), tax perjury (§ 7206(1)), and conspiracy (18 USC § 371).  The superseding indictment is here; the docket entries as of yesterday are here.  "These charges allege that Defendant and others unlawfully hid Defendant's foreign bank accounts from the IRS from approximately 2003 to 2017."

The Court describes the primary allegations as:

In 2003, Defendant's father died and left her an inheritance of over $4 million. Id. ¶¶ 23-25, 29, 34. The Defendant, who was also executor of her father's estate, made court filings falsely stating under penalty of perjury that the total value of her father's estate was under $1 million when, in fact, it was more than four times that amount. Id. In 2006, the Defendant sought the help of Beda Singenberger, a Swiss citizen who ran a financial advisory firm, to open a Swiss bank account into which the inheritance was deposited. Id. ¶ 34. To conceal the existence of the account, the Defendant and Singenberger established a trust in Lichtenstein named Gestino Stiftung ("Gestino" or "Gestino Foundation") to hold the Swiss bank account in its name. Id. As of December 31, 2008, the account held currency and financial instruments valued at approximately $3,548,380. Id. ¶ 41. In 2010, Gestino re-domiciled from Lichtenstein to Panama. Id. ¶¶ 45, 47. As of December 31, 2016, Gestino maintained assets in various Swiss bank accounts in the amount of at least approximately $3,028,562. Id. ¶ 53. 

The Defendant is alleged to have used this arrangement to unlawfully and fraudulently avoid paying over $1.5 million dollars in United States taxes resulting from the inheritance. For each of the tax years from 2004 through 2009, the Defendant failed to report any income from foreign accounts in her tax filings, and also stated in those filings that she did not have an interest in or signatory or other authority over a financial account in a foreign country (the "Foreign Accounts Question"). Id. ¶ 63.

The motions resolved by the court related to

(i) Tax Return Issue.  The Defendant claimed the Fifth Amendment on her federal income tax returns after she became a target of investigations of her interest in foreign accounts; the issue is whether the tax returns can be admitted in evidence by the Government in support of the tax obstruction and conspiracy charges; and
(ii) Subpoena Litigation Issues.  Represented by Counsel, the Defendant continued to resist the subpoenas, raising, through her then counsel, variations of the Fifth Amendment argument and lack of possession or control of the subpoenaed documents.  The Government asserted the resistance was evidence of unlawful conduct and thus admissible in support of the charge of tax obstruction.  

The Tax Return Issue:

The Court describes the facts succinctly as follows:

from 2004 to 2009, Defendant answered "no" to the Foreign Accounts Question. However, after Defendant received a grand jury subpoena, she did not check either a "yes" or "no" in response to the Foreign Accounts Question on her 2010 through 2015 returns. Rather, she wrote "See Attached Statement" and attached a "Disclosure Statement" stating: "In the context of an on-going federal criminal grand jury investigation being undertaken in the Southern District of New York, under the auspices of the United States Attorney's Office for that District, Lacy D. Doyle hereby asserts her rights and privileges under the Fifth Amendment not to incriminate herself by responding to [the Foreign Accounts Question]." 

The defendant moved "to preclude the Government's use of her answer to the Foreign Accounts Question on her 2010-2015 tax returns in its direct case."

The Government wanted to show that "the defendant never disclosed her foreign accounts to the IRS during that time period." The Government proposed to redact any reference to her assertion of privilege on the return and simply show the foreign account question on Schedule B was blank.

The Court's resolution of the issue:

Update on the Zukerman Indictment - Potential Waivable Conflicts of Interest of Advocate as Witness (5/28/16; 6/21/16)

READERS SHOULD NOTE THE CLARIFICATION BELOW AS OF 6/6/16 AT 3:45 AM.

I recently posted on the Zukerman indictment: Prominent and Very Rich Investor Indicted in SDNY (Federal Tax Crimes Blog 5/24/16), here.  In that posting I have the following paragraph:

3. One of the obstructions charged relates to Zukerman passing false information to IRS Appeals through two attorneys at a Washington Law Firm.  That alone made me curious as to which firm and attorneys were used in the scheme, but I have not been able to find out that information.  And, the Government seems to have gotten access to the communications between Zukerman and the attorneys.  Since I assume that such information and documents were not given to the Government with Zukerman's consent, As the press release indicates, the attorney-client privilege was pierced by the Government pursuant to district court and Second Circuit opinions.  The Second Circuit opinion is  In re Grand Jury Subpoenas Dated March 2, 2015, 628 F. App'x 13 (2d Cir. 2015), here.  I discussed that Second Circuit opinion in a prior blog entry, Second Circuit Affirms Application of Crime-Fraud Exception to the Attorney-Client Privilege (Federal Tax Crimes Blog 10/10/15), here.

The prosecuting AUSA for SDNY, Stanley Okula, has written a letter, here, to the judge requesting a hearing, a so-called Curcio hearing (see United States v. Curcio, 680 F.2d 881 (2d Cir. 1982)).  The request is:

At that conference, the Government will request that the Court address potential conflicts issues relating to the defendant's current counsel, from the law firm of Williams & Connolly. More specifically, we will request that Your Honor conduct a Curcio proceeding, see United States v. Curcio, 680 F.2d 881 (2d Cir. 1982), which requires the Court to address with the defendant directly his desire to proceed with defense counsel who face potential waivable conflicts of interest - here, James Bruton and James Fuller, partners from Williams & Connolly, both of whom currently represent the defendant in this criminal case, and both of whom are potential witnesses against the defendant at any future trial or hearing. Mr. Bruton and Mr. Fuller are potential witnesses as a result of the defendant's use of those attorneys to convey false information to the Internal Revenue Service during a civil audit - offense conduct that is not only described at length in the Superseding Indictment (See Ind. ¶¶ 28-34) but was also the subject of a grand jury ''crime-fraud'' ruling by Judge Caproni that was affirmed by the Second Circuit Court of Appeals. See In re: Grand Jury Subpoenas, 2015 WL 5806060 (2d Cir. 2015) (upholding district court's crime/fraud ruling requiring attorneys for Zukerman to disclose attorney/client  communications that resulted in submission to IRS of tax protest letter that included false facts). 

In sum, we believe that the potential conflict can be waived by the defendant, but only after the Court conducts a proceeding pursuant to Curcio and its progeny. Consistent with the approach we have taken in prior proceedings of this sort, the Government expects to submit to Your Honor by early next week a set of questions that should be asked of the defendant at the Curcio hearing, in order to determine that the defendant understands the nature of the potential conflicts and that he knowingly desires to proceed with his counsel, notwithstanding the potential conflicts.

The letter is cc'd to the following:

James A. Bruton, III, Esq.
David Zinn, Esq.
(Counsel for the Defendant)
Henry Putzel, III, Esq.
(Conflicts Counsel for the Defendant)

Messrs. Bruton and Zinn are with the firm of Williams & Connolly ("W&C"), headquartered in Washington, DC.  I infer from the designation of Mr. Putzel, who is not with W&C, that he is an independent attorney advising Zukerman of the potential conflicts.