Pretrial Skirmishing in Weil - the Coplan Issue of Improper Expansion of the Defraud / Klein Conspiracy (10/21/14)

As readers know, Raoul Weil, a former high ranking UBS official in charge of its U.S. tax evasion shenanigans, is being tried for tax conspiracy. United States v. Weil (SD FL No. 08-60322-CR-COHN). (See also blog entry links below.)  Before trial, Weil sought dismissal on the basis asserted the issue asserted in United States v. Coplan, et al., 703 F.3d 46 (2d Cir. 11/29/12), here.  That issue is whether the formulation of the defraud conspiracy in Hammerschmidt v. United States, 265 U.S. 182 (1924) more broadly than the scope of the word "defraud" meant at common law and thus means in other criminal statutes improperly expands the scope of the defraud conspiracy.  See the links to the Coplan issue below.  As expanded, the application in the tax context is generally referred to as a Klein conspiracy, after the leading case employing the expanded definition in a tax setting, United States v. Klein, 247 F.2d 908 (2d Cir. 1957).

In a short order, here, the Weil Court denied Weil's motion to dismiss because it was untimely and, in any event, fails on the merits of the motion.  The critical excerpts from the Court's short order are:

However, a review of the Motion demonstrates that it also fails on its merits. Weil was indicted under 18 U.S.C. § 371, which prohibits conspiracies to defraud the United States and its agencies. Indictment ¶¶ 11–13. Weil contends that the common-law definition of "defraud" is to "deprive[] another of property rights by dishonest means." Motion at 2 (quoting United States v. Coplan, 703 F.3d 46, 59 (2d Cir. 2012), cert. denied, 134 S. Ct. 71 (2013)). Weil notes that the Government does not allege that he deprived the IRS of property rights by dishonest means, and thus he is not accused of having conspired to defraud the IRS in the traditional sense. "Instead, the Indictment relies on a judicially and specially crafted definition of 'defraud' that includes 'interfer[ing] with or obstruct[ing] one of the [U.S. government's] lawful . . . functions by deceit, craft or trickery, or at least by means that are dishonest.'" Id. (quoting United States v. Klein, 247 F.2d 908, 916 (2d Cir. 1957)). This specific theory of fraud against the United States and its agencies—involving not the deprivation of property but instead the obstruction of governmental functions—has come to be known as the "Klein conspiracy." See United States v. Adkinson, 158 F.3d 1147, 1154–55 (11th Cir. 1998). 

Weil argues that the Klein conspiracy violates a prohibition on judge-made, common-law crimes. Weil also argues that any ambiguity in the text of section 371 should be interpreted in favor of defendants under the rule of lenity, and the broad interpretation of the term "defraud" that gives life to the Klein conspiracy violates this rule. Motion at 4. Finally, Weil argues that recent Supreme Court precedent rejecting a broad interpretation of honest-services fraud robs the Klein conspiracy of any remaining viability. Id. at 2–3 (citing Skilling v. United States, 561 U.S. 358 (2010)).\ 

In the Motion, Weil leans heavily upon the Second Circuit's criticisms of the Klein conspiracy in Coplan, 703 F.3d 46, to support his argument that the theory must fail as a judge-made basis for criminal liability without a foundation in the text of the criminal statutes. But in Coplan, the Second Circuit ultimately held that the Klein conspiracy was firmly entrenched in the Supreme Court's and the Second Circuit's precedents, and remained viable notwithstanding the Supreme Court's recent decision in Skilling. 703 F.3d at 61–62. Shortly thereafter, the Supreme Court declined to hear an appeal from the Second Circuit's decision. Coplan, 134 S. Ct. 71. 

Like the Second Circuit, the Eleventh Circuit has recognized the Klein conspiracy as a basis for criminal liability subsequent to the Supreme Court's holding in Skilling. See United States v. Kottwitz, 614 F.3d 1241, 1264–66 (11th Cir.), modified on other grounds, 627 F.3d 1383 (11th Cir. 2010). Therefore, though Weil may have a non-frivolous argument for the rejection of the Klein conspiracy, this Court agrees with the holding of the Second Circuit in Coplan: "such arguments are properly directed to a higher authority." 703 F.3d at 62. It is accordingly 

ORDERED AND ADJUDGED that Defendant Raoul Weil's Motion to Dismiss Indictment Pursuant to Federal Rule of Criminal Procedure 12(b)(3)(B) for Failing to State an Offense [DE 148] is DENIED both as untimely and on its merits. 

For further background on the order, Weil's motion is here and the Government's response is here (the attachment to the Government's response (the brief in opposition to certiorari in Coplan, is here).

Blog Entries on the Weil Prosecution

• Raoul Weil Has First U.S. Court Appearance (Federal Tax Crimes Blog 12/17/13), here.
• Raoul Weil Pleads Not Guilty: Thoughts and Speculations (Federal Tax Crimes Blog 1/8/14), here.
• Raoul Weil Trial Begins Next Week; Some Items for the Run-Up (Federal Tax Crimes Blog 10/9/14), here.

Blog Entries on the Coplan Issue

• Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.
• Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here.

Raoul Weil Found Not Guilty (11/3/14; 11/6/14)

This news just flashed into my in-box.  I will post more as I get it (see below).  This is twice in just a few days that a banker has been found not guilty.

For all Federal Tax Crimes blogs on Weil, click here.

Addendum 11/4/14 8:00 am:

Susannah Nesmith and David Voreacos, Ex-UBS Executive Weil Acquitted of U.S. Tax Conspiracy (Bloomberg 11/3/14), here.  Excerpts (with bold face added by JAT):

The federal jury in Fort Lauderdale, Florida, reached its verdict after deliberating about 90 minutes yesterday. Weil, 54, was indicted in 2008 on a charge of conspiring to help as many as 17,000 U.S. taxpayers hide $20 billion from the IRS. Weil was arrested last year in Bologna, Italy, and waived extradition. Weil, who didn’t testify, had faced five years in prison. 

* * * * 

“The verdict shows you the difficulty of going after senior management who can at times blame the bank’s customers and lower-level employees for the bank’s mistakes,” Nathan Hochman, a former assistant attorney general who oversaw the Justice Department’s tax division, said in a phone interview. “It’s difficult to prove a historical case beyond a reasonable doubt when the government heavily relies on witnesses who have received very favorable treatment.” 

* * * * 

Prosecutors argued that Weil knew that UBS used sham corporate structures to help U.S. clients hide their identities from the IRS, and its bankers used cloak-and-dagger methods to deliver them cash and account statements. 

“This conspiracy lasted for years and years, all done to conceal this business and hide these clients,” Mark Daly, a Justice Department trial attorney, said yesterday in summarizing a case that began Oct. 14. “It’s a pyramid. At the top, you’ve got the senior executives who have the power to either grow or shut down this business.” 

* * * * 

Menchel [Weil's lawyer] argued in his summation that prosecutors failed to prove that Weil was part of a single conspiracy involving taxpayers. He also said that Weil was unaware of the activities of a group of bankers below him. 

Weil and Reliance on Counsel / Good Faith Defense (11/7/14)

In my earlier blog, I noted:

3.  Since Weil did not testify, I wonder how exactly Weil's attorney got in the evidence that Weil had been advised by lawyers that the business was not illegal.  Note that Weil's attorney made the argument to the jury, so presumably there was some factual predicate in the record.  This is a variation of the good faith defense -- which is really not a defense but an attack on whether the Government has proved the level of mes rea required for the crime.  In most Title 26 tax crimes, that level of mens rea is willfulness -- voluntary, intentional violation of a known legal duty.  For the conspiracy charge, that level of mens rea is certainly required if the conspiracy charged is an offense conspiracy to commit a Title 26 tax crime requiring willfulness and, I would argue, something like that even with the defraud / Klein conspiracy.  I have discussed the of "good faith" and "reliance on professionals in my Federal Tax Crimes book.  The relevant excerpts from the book (as updated) are "good faith," here, and "reliance on professionals," here.

In the jury instructions, the Court advised the jury (boldface supplied by JAT):

It is further part of Mr. Weil's defense that this misconduct was in direct violation of UBS' policies and rules, including the U.S. Country Papers, and was done without Mr. Weil's knowledge or approval.  

This misconduct was not reported to Mr. Weil and was concealed by those who committed the misconduct. 

It is further a part of Mr. Weil's defense that Mr. Weil was also advised by lawyers for UBS that the existence of the U.S. cross-border business, including the non-W-9 business, was agreed to by the IRS and permitted by the QI Agreement and U.S. Tax Law. 

Lawyers and subordinates also advised Mr. Weil that the U.S. cross-border business, including the non-W-9 business, was operated in a way that was compliant with the QI Agreement and U.S. Tax Law. 

Now, evidence that the defendant in good faith followed the advice of counsel would be inconsistent with the element of willfulness. 

Willfulness has not been proved if the defendant, before acting, made a full and complete good faith report of all material facts to an attorney he considered competent, received the attorney's advice as to the specific course of conduct that was followed and reasonably relied upon that advice in good faith.

Although, it is clear from reading the context that the Court was simply stating Weil's reliance on professional defense argument, I think the bold faced items could be misconstrued as the Court stating the truth of the matters in those sentences.  Read those sentences on their own, and the conclusion is inevitable.  Of course, context matters, but who knows how a jury might have perceived these statements.

Moreover, focus on the requirements in the last paragraph of the defense that the defendant have made made full disclosure and reasonably relied on the advise.  I ask again how the evidence established those elements of the defense if the defendant did not testify.  I do understand that there may have been documents indicating that lawyers were involved and may have even rendered some opinions that some conduct -- not really specified -- was legal.  But that would not seem to fit the requirements for the defense.

In any event, and finally on this subject, from the reports I have read, the jury may have failed to convict because the Government's case was deficient to pin willfulness or knowing conduct of conspiracy on Weil, wholly independently of his good faith.  That is a fine line, I know, but perhaps that is what happened.

Ex Top UBS Banker Arrested; Likely to be Extradited (10/21/13)

Raoul Weil, a fugitive from U.S. justice [Wikipedia entry here], was arrested in Italy.  See Guy Dinmore and Daniel Schäfer, Former UBS banker faces US extradition (Financial Times 10/21/13), here.  Excerpts:

A prominent Swiss asset manager is facing extradition to the US after being arrested while holidaying in Italy on charges he helped American clients with $20bn of assets to evade US taxes during his previous job at UBS. 

Police in Bologna said Raoul Weil was arrested early on Saturday after he registered at a hotel and his name appeared on a police list of international arrest warrants. Mr Weil was transferred to Bologna’s prison where the next step would be for the US authorities to request his extradition, police said. 

Under Swiss laws, a suspect has to consent to an extradition, making it all but impossible for foreign authorities to succeed with such a request. Under Italian law, however, Mr Weil could be extradited within weeks or months, according to a US official following the case.

Tax Notes Today has the following article:  Kristen A. Parillo and Andrew Velarde, Fugitive Swiss Banker Wanted by U.S. Arrested in Italy, 2013 TNT 204-3 (10/22/13).  Excerpts:\

Weil was indicted by the DOJ in 2008 for conspiring to defraud the United States by helping U.S. clients conceal taxable assets. The indictment alleged that Weil and others conspired between 2002 and 2007 to help about 17,000 Americans conceal about $20 billion in assets in Swiss bank accounts. In January 2009 Judge James Cohn of the U.S. District Court for the Southern District of Florida signed an order declaring Weil a fugitive after he failed to surrender himself to U.S. authorities. (Prior coverage 2009 TNT 10-7: News Stories.) 

Bryan C. Skarlatos of Kostelanetz & Fink LLP told Tax Analysts that the latest development highlights the DOJ's long reach. "Swiss banks, bankers, and other professionals who claim to have no connection to the U.S. still have real risks because the U.S. can and will indict them on charges of conspiring to help U.S. citizens evade U.S. tax," he said. 

Not only do Swiss banks face the prospect of paying stiff fines and potentially going out of business, but the individual bankers or professionals are effectively imprisoned in Switzerland for fear of being picked up on an international arrest warrant, Skarlatos said. "The lesson here is that the DOJ does have real leverage in forcing banks and bankers to comply with U.S. demands for information," he said, adding that this is why so many Swiss banks are considering making a voluntary disclosure to the United States under the recently announced DOJ settlement program for Swiss banks.  

* * * * 

Weil likely doesn't have a lot of settlement options given that the UBS probe is completed and other UBS bankers entered into plea deals with the DOJ, [Peter D.] Hardy said. "Perhaps there are some individuals out there that he can provide information on, but at this point I wouldn't be surprised if we saw a trial," he said. "And based on the indictment, he'd be looking at significant jail time.

Attorneys quoted in the foregoing excerpts are Bryan C. Skarlatos, here, and Peter D. Hardy, here.

JAT Comments:

Raoul Weil Pleads Not Guilty: Thoughts and Speculations (1/8/14)

Raoul Weil, the top UBS banker, pled not guilty yesterday.  See Zachary Fagenson, UPDATE 2-Ex-UBS banker pleads not guilty in major tax fraud case (Reuters 1/7/14), here.  For prior blogs on Weil, see the list at the end of this blog.

The not guilty plea is a routine step in a criminal case.  So there really is nothing eventful in Weil's plea itself.  A plea deal is often agreed to or finalized after the initial not guilty plea, and the defendant will still qualify for hte sentencing benefits of accepting responsibility provided it is not immediately before trial after all the preparation work has been done.

The article, however, does report some speculations from Bradley Birkenfeld's lawyer on his whistleblower claim that the government may be "negotiating a 'sweetheart deal'" with Weil in order to keep him from implicating prominent former UBS account holders.  This claim is made on the lawyer's web site under an entry titled Federal Court Hearing Scheduled for UBS Tax Fraud Kingpin Raoul Weil (Whistleblowers Protection Blog 1/6/13), here.  The source of the lawyer's claim is obviously Birkenfeld, who worked for Weil at UBS.

I can't speak to whether the lawyer's claim is true.  I am skeptical.  If the Government wanted to keep things quiet , the Government would not have obtained his indictment and then pursued his extradition.  This smacks of a conspiracy theory with scant but speculations on thin threads.

I do note at least the possibility that Weil could be a whistleblower and claim some gargantuan award.  Of course, his central role in the tax underpayments involved would likely disqualify him from a whistleblower award.  See Section 7623(b)(3), here.

Tax Notes Today has an article offering skeptical comments on the lawyer's claim.  Stephanie Soong Johnston, Former UBS Banker Pleads Not Guilty to Tax Fraud Conspiracy Charges, 2014 TNT 5-2 (1/8/14).  Peter Hardy, a well-known criminal tax lawyer (bio here), expresses his doubts as well.  From the article:

 "He may or may not know embarrassing details, but generally speaking, the DOJ wants to prosecute, when appropriate, the elite, not to make sweetheart deals to protect them," Hardy told Tax Analysts. "The government is going to want him to enter into a guilty plea and cooperate."

According to Hardy, it is unusual that Weil faces only one count of conspiracy because economic crime cases, including tax fraud, usually include multiple counts. Because the general statute of limitations for tax crimes is six years and the last overt act the indictment references is in 2006, the government may not be able to add any additional charges, he said.

Raoul Weil Has First U.S. Court Appearance (12/17/13)

For most readers of this blog, this is probably old news by now.  So, I will just link to one of the articles.
David Adams, Florida judge grants $10.5 million bail for ex-UBS banker (Reuters 12/16/13)., here.

Key points from the article are:

1. Weil waived extradition.
2. Through his lawyer, Weil asserts his innocence and intent to enter a not guilty plea.
3. Weil was released to stay with friends in New Jersey " after putting up the bond, which included $9 million in a personal surety by Weil, $500,000 from the New Jersey family and the other $1 million a corporate surety bond signed with a bail bondsman."  He is on electronic surveillance and did surrender his passport.
4. Weil oversaw $4 trillion in assets at UBS, Marcu said. "He rose from being a bit of a technocrat and demonstrated that he could run a bigger business.""
5. Although Weil's lawyer denied that Weil is in negotiations with the prosecutors "at this time" (seemingly meaning right then, but not in the past or in the future) the article reports on speculations about Weil getting a sweetheart deal that will effectively buy his silence on the Swiss banking / tax evasion sins of prominent U.S. political figures.  From my experience, speculations should be viewed skeptically.  There will be time enough to react to real facts as they develop.

Raoul Weil Trial Begins Next Week; Some Items for the Run-Up (10/9/14)

Raoul Weil, former head of UBS' bank activities including forays into U.S. tax evasion (see Wikipedia entry here), is scheduled for criminal trial next week in Florida.  So, I picked up some items from the internet.

• Joint Statement of the Case, here.
• Ama Sarfo, Ex-UBS Exec Says Swiss Reports Belong In Tax Evasion Trial (Law 360 10/7/14), here.  Discusses move to introduce certain reports by the Swiss Federal Banking Commission and the Swiss Financial Market Supervisory Authority which, allegedly, pin the blame subordinates for UBS' U.S. skullduggery as to U.S. taxes.  The following are quotes from the article: 

He believes that Swiss authorities conducted a more thorough investigation into the tax evasion matter than the U.S. Department of Justice, which he says did relatively little sleuthing outside of multiple interviews conducted with one witness, former UBS senior banker Martin Liechti, who was held for four months and released with a nonprosecution agreement after he implicated Weil, according to Weil's motion.  

“The defense is not seeking to admit the reports in order to prove a 'malicious or vindictive' prosecution, as the government now claims,” he says. “It is Mr. Weil’s position that the U.S. government indicted Mr. Weil prematurely. ... The [Swiss Federal Banking Commission] reviewed the evidence available, evidence not available to Mr. Weil except through this motion, and concluded that it was 'not comprehensible' why he was indicted.”

• Ex-banker heads to Florida to testify in Weil case (swissinfo.ch 10/8/14), here.
• Joshua Franklin, UBS faces fine of up to $6.3 billion in French tax probe: paper (Reuters 10/3/14), here.  Suggests to me the question of whether UBS got off way too light for its U.S. tax skullduggery.

Weil, former UBS Exec and Former Fugitive, Set for Preliminary Hearing Today (12/16/13)

Raymond Weil, the former head of UBS's global wealth management business, who was a fugitive from justice until recently is expected cooperate with DOJ Tax incident to his extradition to the U.S.  See David Voreacos, Ex-UBS Banker Weil Seen Cooperating With Prosecutors (Bloomberg 12/16/13), here.  Key excerpts:

Weil, 54, is set to make an initial appearance today in federal court in Fort Lauderdale, Florida, where he was indicted in October 2008 and later declared a fugitive. His lawyer has said he is innocent. Weil hasn’t entered a plea in the case.

Weil is the highest-ranking banker among about 100 people charged since 2008 by the U.S. in a crackdown on offshore tax evasion. About three dozen foreign bankers, lawyers and advisers were charged. Most are at large. Tax lawyers not involved in the case said they expect Weil to plead guilty, cooperate with prosecutors, and seek leniency at sentencing. 

* * * * 

‘Less Useful’ 

“The window for his cooperation has shrunk and shrunk and shrunk as the U.S. government has gathered huge amounts of information from UBS and from taxpayers through the Offshore Voluntary Disclosure Program,” said Hochman of Bingham McCutchen LLP in Santa Monica, California. “What may have been useful five years ago is certainly a lot less useful today.” 

Still, Weil’s “only choice is to win at trial or turn over information that the U.S. government doesn’t have,” he said.

Prosecuting Corporate Employees and Officers, with Focus on Swiss Banks (1/15/16)

I have previously blogged on Professor Brandon Garrett (UVA Law) who have carved out an academic niche on how the Government deals with corporate crime, particularly large corporate crime (the too big to jail group).  See e.g., Judge Jed Rakoff Reviews Brandon Garrett's Book on Too Big to Jail: How Prosecutors Compromise with Corporations (Federal Tax Crimes Blog 2/10/15), here.  At the risk of oversimplifying his arguments, I summarize them in part relevant to this blog entry:  When the Government goes after corporate misconduct, it too often focuses only on the corporation in terms of criminal sanctions and not the individuals, particularly those higher up the chain, who committed the underlying conduct.  Corporations cannot go to jail; individuals can. Prosecuting and convicting individuals in addition to corporations could, he thinks, provide more front-end incentive for individuals to forego illegal conduct within the corporations.  However, as fans of tax crimes know at least anecdotally, it is hard to convict higher level corporate officers for conduct that their underlings actually commit.  The poster child example is the acquittal of Raoul Weil, a high-level UBS banker who "remoted" himself from the dirty work of actually servicing U.S. taxpayers seeking to evade U.S. tax.  See e.g., Raoul Weil Found Not Guilty (Federal Tax Crimes 11/3/14; 11/6/14), here.

One might turn a common phrase and say that lifeless, breathless, unthinking, unfeeling corporations do not commit crimes; people do.  Still in our jurisprudence, corporations can commit crimes.  They just can't be jailed.  To the extent that actual incarceration incentivizes people to avoid misconduct, people should be jailed.  In September of 2015, DOJ announced a new policy of more aggressively pursuing people for misconduct in corporations.  See the DAG memo here and my blog entry, New DOJ Policy on Prosecuting Individuals Beyond Corporate Crime (Federal Tax Crimes Blog 9/10/15), here.

Professor Garrett has a new article that updates in summary fashion his research.  The Year Banks Finally Paid (Slate 1/13/16), here.  The following are excerpts:

Nevertheless, we need to keep asking whether this strategy of chasing dollars rather than changing practices and prosecuting executives makes any sense. In the past decade, data I have collected show that federal prosecutors have set new records each year in corporate fines. For all their success and zeal, however, it’s not clear that fines alone are stopping bad actors on Wall Street. 

* * * * 

A remarkable number of banks, 80 of them, finalized cases with federal prosecutors. Most were Swiss banks that settled out of court as part of a DOJ Tax Division program designed to incentivize them to come clean or face the music. Next year we will see still more cases with less-cooperative Swiss banks that won’t get such lenient deals. More mammoth bank cases lumber along in the courts; last spring, several major banks, including Wall Street giants JPMorgan Chase and Citicorp, agreed to plead guilty in cases relating to foreign-exchange currency manipulation. Those cases have not resulted in sentencing yet, but when they do, prosecutors will rake in $5 billion more in fines. 

* * * * 

Banks pay the fines, but bankers don’t usually do any time. I have found that among the 66 cases of financial institutions that received deferred or nonprosecution agreements from federal prosecutors from 2001 to 2014, only 23 of them—33 percent—had any employees prosecuted. 

Now, I don't have Professor Garrett's expertise and have not spent enough time on his marvelous web site at UVA Law, here, but I thought I would add some thoughts from my even narrower niche of the universe in which he teaches -- the offshore account and enabler activities.

The Charge to the Jury on the Defraud / Klein Conspiracy in the Weil Case (12/8/14)

I write today on the single charge made in the Weil case -- the charge for the defraud conspiracy (also known as a Klein conspiracy, from United States v. Klein, 247 F.2d 908 (2d Cir. 1957), cert. denied 355 U.S. 924 (1958).  John A. Townsend, Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?, 9 HOUS. BUS. & TAX L.J. 260 (2009) Article available here; Appendix to article available here (discussing, among other things, the Klein conspiracy).

Weil was head of UBS's wealth management business which included the services rendered to U.S. taxpayers for which UBS entered a deferred prosecution agreement with DOJ, paid $780 million and undertook other obligations.  Some UBS employees and related enablers have been charged with and convicted of conspiracy.  So there would seem to be some evidence of a conspiracy -- or perhaps more than one conspiracy -- involving UBS personnel.  The question, as I see it, presented in Weil was how far up the executive chain the conspiracy went.  Conspiracy cases often have indicted and unindicted co-conspirators.  In the closing argument, the Government attorney claimed as follows:

The Defendant can be found guilty only if all of the facts are proved -- if the Government proves beyond a reasonable doubt that it has met the elements. First -- and these are before you, and the judge read them to you -- two or more people in some way agreed to try to accomplish a shared unlawful plan.

Who are those people? The Government submits they are Mr. Weil, the defendant, Marcel Rohner, the former CEO, Peter Kurer, the former general counsel, Martin Liechti, who testified before you, Michel Guignard, client advisers like Gadola and Marti, outside enablers, Beda Singenberger and Matthias Rickenbach, the clients themselves, Mr. Goldberg, Mr. McCarthy and Mr. Stedman.

Some, but not all of those named, have been indicted and some have pled.  So the scope of the conspiracy alleged was very broad, but the ultimate object of the conspiracy was to assist the U.S. taxpayers evade U.S. tax.  As the Court instructed the jury:

He is on trial only for a conspiracy to defraud the Internal Revenue Service by assisting U.S. clients to evade their income tax obligations.

[JAT Note:  As stated, this could be viewed as an offense conspiracy, but it was charged as a defraud / Klein conspiracy; I won't get into that now, but the differences between an offense conspiracy and a defraud / Klein conspiracy are covered in my article cited above,]

The following are the conspiracy charges given to the jury (bold-faced supplied by JAT):

 Now, Count 1 in the indictment charges that the defendant knowingly and willfully conspired to defraud the Internal Revenue Service of the U.S. Department of Treasury. The indictment charges that it was an object of the conspiracy that the defendant and other alleged co-conspirators acted to increase the profits of UBS by providing unlicensed and unregistered banking services and investment advice in the United States and by other acts intended to conceal from the Internal Revenue Service the identities of the bank's U.S. clients who willfully evaded their income tax obligations by, among other things, filing false income tax returns and failing to disclose the existence of their UBS accounts to the Internal Revenue Service. 

Please note that the defendant is not charged with a substantive violation of the tax laws. 

Now, it is a federal crime for anyone to conspire or agree with someone else to defraud the United States or any of its agencies.  

To defraud the United States means to cheat the Government out of property or money or to interfere with any of its lawful Governmental functions by deceit, craft or trickery.  

A conspiracy is an agreement by two or more persons to commit an unlawful act. In other words, it is a kind of partnership for criminal purposes. Every member of the conspiracy becomes the agent or partner of every other member. 

The Government does not have to prove that all the people named in the indictment were members of the plan or that those who were members made any kind of formal agreement.

Superseding Indictment for Wegelin Individual Enablers to Add Tax Obstruction Count to Tax Conspiracy Count (2/21/15)

A superseding indictment has been filed in United States v. Berlinka, Frei & Keller (SDNY S 12 Cr. 02 (JSR)).  For discussion of the original indictment, see New Swiss Enabler Indictments - Bankers Related to UBS and, Allegedly, Wegelin (Federal Tax Crimes Blog 1/3/12), here.  The superseding indictment continues the original offense and defraud / Klein conspiracy charge and adds one charge each against the three defendants.  One of the defendants, Keller, was recently arrested in Germany.  See Wegelin Banker Arrested in Germany on U.S. Charges (Federal Tax Crimes Blog 2/6/15), here, so this apparently was the time to expand the scope of the indictment..

The additional charge against each defendant is the substantive crime of tax obstruction, Section 7212(a), here.  The charge is under what is called Section 7212(a)'s Omnibus Clause.  Tax obstruction has been called a one-person Klein conspiracy (which is also charged against each of the defendants).  So, I thought I would discuss the new tax obstruction charge as it relates to the conspiracy charge.

The guts of the conspiracy charge is:

STATUTORY ALLEGATIONS 

138. From at least in or about 2002 up through and including in or about 2011, in the Southern District of New York and elsewhere, MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with Wegelin, Managing Partner A, Executive A, Client Advisor A, Beda Singenberger, Gian Gisler, Clients A through JJ, and others known and unknown, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to defraud the United States of America and an agency thereof, to wit, the IRS, and to commit offenses against the United States, to wit, violations of Title 26, United States Code, Sections 7206(1) and 7201. 

139. It was a part and an object of the conspiracy that MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with others known and unknown, willfully and knowingly would and did defraud the United States of America and the IRS for the purpose of impeding, impairing, obstructing, and defeating the lawful governmental functions of the IRS in the ascertainment, computation, assessment, and collection of revenue, to wit, federal income taxes. 

140. It was further a part and an object of the conspiracy that various U.S. taxpayer-clients of MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with others known and unknown, willfully and knowingly would and did make and subscribe returns, statements, and other documents, which contained and were verified by written declarations that they were made under the penalties of perjury, and which these U.S. taxpayer-clients, together with others known and unknown, did not believe to be true and correct as to every material matter, in violation of Title 26, United States Code, Section 7206(1). 

141. It was further a part and an object of the conspiracy that MICHAEL BERLINKA, URS FREI, and ROGER KELLER, the defendants, together with others known and unknown, willfully and knowingly would and did attempt to evade and defeat a substantial part of the income tax due and owing to the United States by certain of Wegelin's U.S. taxpayer clients, in violation of Title 26, United States Code, Section 7201.

DOJ Tax Budget Request - The Criminal Parts #5 - Combatting Offshore Tax Schemes

More on the DOJ Tax Budget Request

[*15]

Combating Offshore Tax Schemes

The Tax Division continues to play a lead role in investigations and prosecutions involving the use of foreign tax havens. Increased technical sophistication of financial instruments and the widespread use of the internet have made it easy to instantly move money in and out of the United States, around the world, irrespective of national borders. Using tax havens facilitates evasion of U.S. taxes and the commission of related financial crimes.

Offshore tax schemes are often difficult to detect and prosecute, so the IRS has allocated resources to target taxpayers who engage in offshore activity for the purpose of underreporting income. Income tax evaders and other criminals use banks located in countries that have strict bank secrecy laws and that will not, or cannot, provide assistance to investigators for the United States. Sophisticated criminals may also use non-traditional tax haven countries, such as Latvia. Despite these difficulties, the Division has been successful in prosecuting these tax cheats.

[*16]

In February 2009, in United States v. UBS AG (S.D. Fla.), UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement, admitting guilt on charges of conspiring to defraud the United States by impeding the IRS. As part of the agreement, UBS, based on an order by the Swiss Financial Markets Supervisory Authority, agreed to immediately provide the United States with the identities of, and account information for, certain United States customers of UBS’s cross-border business. Under the agreement, UBS also will expeditiously exit the business of providing banking services to United States customers with undeclared accounts and will pay $780 million in fines, penalties, interest, and restitution.

The Division has also obtained the return of indictments and convictions of individuals associated with offshore schemes. For example, in August, 2009, in United States v. Bradley Birkenfeld, et. al., (S.D. Fla.), Birkenfeld, a former UBS banker, was sentenced to 40 months in prison following his June 2008 guilty plea to conspiring with an American billionaire real estate developer, Swiss bankers, and his co-defendant, Mario Staggl, to help the developer evade paying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein. In his plea Birkenfeld admitted that between 2001 and 2006, while employed as a director in the private banking division of Swiss bank UBS, he routinely traveled to and had contacts within the United States to help wealthy Americans conceal their ownership in assets held offshore and evade paying taxes on the income generated from those assets. In November, 2008, in United States v. Raoul Weil (S.D. Fla.), an indictment was returned charging Weil with conspiracy to defraud the United States and the IRS. Weil was allegedly the senior UBS executive in charge of the wealth management business and private banking, who supervised unlawful cross-border activities carried out by bankers and their managers that helped wealthy Americans conceal their income and assets from the IRS. In January 2009, the District Court declared Weil to be a fugitive.

The Division has begun the prosecution of UBS clients, using information obtained through the deferred prosecution agreement. For example, in June 2009, in United States v. Steven M. Rubinstein (S.D. Fla.), Rubinstein, an accountant for an international company, pleaded guilty to filing a false tax return for 2004 that failed to report he had a financial account at UBS in Switzerland and failed to report the income he earned on the accounts. In April 2009, in United States v. Robert Moran (S.D. Fla.), Moran pleaded guilty to filing a false income tax return. Moran concealed more than $3 million in assets in a secret bank account at UBS. In July 2009, in United States v. Jeffrey P. Chernick (S.D. Fla.), Chernick, another UBS client from Stanfordville, N.Y., pleaded guilty to charges of filing a false tax return.

The prosecution of UBS clients has included cases all over the country. In August 2009, in United States v. John McCarthy (C.D. Cali.), McCarthy, a UBS client, agreed to plead guilty to one count of wilfully failing to file a Foreign Bank and Financial Accounts report (FBAR). In September 2009, in United States v. Jorgen Homann, (D.N.J.) Jorgen Homann, of Saddle River, New Jersey, pleaded guilty to failure to file a Report of Foreign Bank or Financial Accounts. Homann accepted responsibility for concealing more than $5 million in Swiss bank accounts. On October 5, 2009, in United States v. Roberto Cittadini, (W.D. Wash.) Roberto Cittadini, of Bellevue, Washington, pleaded guilty to one count of filing a false tax return. Cittadini concealed nearly $2 million in Swiss bank accounts.

Article on Swiss Enabler Fugitives Avoiding U.S. Indictments (12/26/14)

Giles Broom and David Voreacos, Swiss Bankers in Limbo After U.S. Jury Clears Ex-UBS Manager (12/22/14), here.  Excerpts:

Twenty-five offshore bankers, lawyers and advisers have yet to answer U.S. Justice Department charges that they helped Americans evade taxes. Most live in Switzerland, where they remain off-limits to U.S. prosecutors because the country doesn’t extradite people for tax crimes. If they cross the border into another country, they risk arrest, and the U.S. charges have no expiration date. 

* * * * 

Weil’s compatriots were cheered by his court victory, with Geneva financial newspaper L’Agefi calling him a “national hero” of “remarkable courage.” His success may tempt others to take their chances with a jury or to plead guilty and help prosecutors in bids for leniency. 

They include former employees of Switzerland’s top three wealth managers -- UBS, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) Just 10 days after Weil’s acquittal, Martin Dunki, a 66-year-old retired client adviser at Zurich-based Rahn & Bodmer Banquiers, a private bank established in 1750, was indicted on a charge of conspiring to help Americans hide hundreds of millions of dollars in offshore accounts. 

* * * * 

Making Deals 

“Client advisers who committed egregious offenses are probably trying to cooperate and strike a deal with the Justice Department,” Patel said. “Bankers fear coming to the U.S. because the DOJ can detain them on arrival pending trial. Therefore, walking around freely in Switzerland may be a more appealing option, even if the charges remain unresolved.” 

Stefan Buck, who was Bank Frey & Co.’s head of private banking, was indicted last year in New York. His lawyer filed a motion seeking bail without Buck’s first having to appear in a New York courtroom. Buck ultimately “wishes to leave the ‘safe haven’ of Switzerland to appear in a U.S. court to clear his name,” the filing said. Prosecutors oppose his bail motion, which is pending. 

Josef Dorig, who founded a Swiss trust company after working 36 years at Credit Suisse, pleaded guilty in April, admitting he created phony structures to help clients cheat the IRS. Dorig, 72, cooperated with U.S. prosecutors and is slated for sentencing Jan. 16 in federal court in Alexandria, Virginia. 

Probation Sought

In a pre-sentencing memorandum filed with the court, his lawyers said he deserves probation because he accepted responsibility and was not extraditable from Switzerland.
“Mr. Dorig had absolutely no incentive to voluntarily enter the United States to answer the charges against him or cooperate with the government,” his lawyers wrote. “He easily could have stayed in Switzerland and lived the rest of his life peacefully and happily in his homeland. But he did not.” 

The U.S. probe has benefited from voluntary disclosures by at least 45,000 taxpayers and more than 100 Swiss banks seeking to reduce penalties through non-prosecution agreements. Information passed to U.S. authorities contains thousands of employee names, according to Douglas Hornung, a Geneva-based lawyer who represents Swiss financial workers. 

“Weil’s acquittal was far from good news for bank employees lower down the food chain,” Hornung [Douglas Hornung, a Geneva-based attorney] said. “After losing face in court in November, U.S. prosecutors will redouble their efforts to pursue smaller fish.”

JAT Comments:

Around the Net on Offshore Accounts While Otherwise Unproductive (3/20/14)

This will aggregate some of the information I  picked up today in my automated Google searches of the web.

Item #1

A PR Newswire loudly [loudly is my web euphemism for hyperbolically] announced the following:  New Website to Assist Millions of Taxpayers with Undisclosed, Offshore Accounts (3/20/14), here.  I think this is an advertisement to attract those alleged millions and their resources to his coffers.  (I hope he has a good database and staff skills to handle the influx.)  The announcement includes the following:

For those US taxpayers in this precarious position they need expert advice and decisive action to pre-empt imposition of civil tax fraud and criminal tax evasion civil and criminal penalties, which may include: wire fraud, mail fraud, money laundering, failure to file FBAR forms (now known as FinCen Form 1114). Total penalties may be millions of dollars with jail sentences imposed for a maximum of over 80 years for all tax-related felonies.

This is, of course, fear mongering.  The real world is different.  Check out the spreadsheet here which indicates far less -- even minuscule sentences -- in the real world compared to this promo piece.  That does not mean that taxpayer do not face substantial downsides from the behavior, of course.

Item #2

A Wall Street Journal article addresses the expat  issue:  Nearly One-Third of Expats Confused by U.S. Tax Filing Requirements, here.

I don't subscribe to the WSJ because it is a business iteration of Fox News Network (which I like because of the blondes but I won't pay for that anymore because of the WSJ/blonde biases do not match my biases).  So, if you want to read that article, you will have to be a subscriber.  But, if I can speculate about the contents, are they really saying the 2/3's + of expats are not confused and that, therefore, they commit tax fraud when they don't report foreign income (including financial account income) and file FBARs.  WSJ being a Republican rag, I doubt that they intended to infer that because, I suspect, that data set includes a significant number in the "base" to which WSJ pitches its goods.  Really, what they might want to rag on is the IRS and Obama as being responsible for anything inappropriate by anybody anywhere, including expats.

Item #3

Article Tallying Results on U.S. Prosecution of Offshore Account Enablers (12/23/14)

Bloomberg has this article on prosecution of enablers:  David Voreacos, Offshore Tax Crimes Scorecard: Bankers, Lawyers, Advisers (Bloomberg 12/22/14), here.  The article has specifics on the enablers involved.  The article starts with:

The U.S. Justice Department has a mixed record of success in prosecuting offshore bankers, lawyers and advisers accused of helping U.S. taxpayers cheat on their taxes. 

Since 2008, the U.S. has charged 38 people, including bankers from Switzerland’s three top wealth managers -- UBS Group AG, Credit Suisse Group AG and Julius Baer Group Ltd. 

On Nov. 3, federal jurors in Fort Lauderdale, Florida, acquitted Raoul Weil, the former head of wealth management for UBS, who was accused of conspiring to help thousands of U.S. clients use Swiss banking secrecy to evade taxes. Weil was the highest-ranking bank executive charged by the U.S. 

Of the 38, 25 have yet to answer the charges in court, and most live in Switzerland. Seven pleaded guilty, two were convicted at trial, two await trial and two were acquitted, including Weil. Here are the cases:

Article Questioning Effectiveness of U.S. Swiss Bank Initiatives for Past Misdeeds (5/22/15)

The Economist has an article questioning the U.S.'s claimed success for the U.S. offshore account initiatives from UBS forward.  America the not so brave (The Economist 5/23/15), here.

An excerpt:

But the American government has been nowhere near as energetic and effective as it claims. It has been slow to chase tax evaders exposed by data leakers; it has failed to follow promising leads on some of the biggest fish; it has pulled punches with the biggest banks, for fear of destabilising markets; it botched the most prominent prosecution of a Swiss banker to date; and it has treated whistleblowers shoddily.

The article recounts relatively better success by France.

Another excerpt commenting no the Government's claimed success rate:

But that number is misleading because prosecutors only tend to bring cases when the odds of winning are high. Some of their victories have been questionable, such as the case of a 79-year-old who inherited her husband’s Swiss account. She faced six years in jail despite having come forward to confess to $670,000 of unpaid tax. Bemoaning prosecutors’ heavy-handedness, the judge gave her a few seconds of probation and urged her to seek a pardon. 

The biggest case of all—against Raoul Weil, UBS’s global head of private banking—was an embarrassing failure. Mr Weil was extradited to America in 2013 after being arrested in Italy. The main prosecution witness at his trial last November was Martin Liechti, UBS’s former private-banking head in the Americas, who testified that his erstwhile boss was aware as far back as 2002 that thousands of the bank’s accounts did not comply with American tax laws. Defence lawyers accused Mr Liechti, whom the government had promised not to prosecute if he helped in other cases, of lying to save his skin. The prosecution was widely criticised; the jury acquitted Mr Weil after barely an hour of deliberations.

The article also discusses claims of whistleblowers Brad Birkenfeld and Hervé Falciani that suggest that the U.S. is not actively following important leads.  The article then concludes:

Some wonder if America’s punch-pulling might have had something to do with the long tentacles of Swiss banks. They have certainly spent large sums raising their profile in Washington, DC. Credit Suisse, HSBC and UBS have spent $91m since 2002 on lobbying and political contributions in America, according to the Centre for Responsive Politics (see chart). 

Moreover, numerous officials and political figures have close past or present ties to the banks—including the president himself. Mr Obama has a well-publicised friendship with Robert Wolf, who ran UBS’s American operations until 2012. The IRS’s chief counsel, William Wilkins, is a former lobbyist for the Swiss Bankers Association. Eric Holder, the recently departed attorney-general, represented UBS when he worked in a private legal practice; for that reason, he avoided any involvement in the DoJ’s probe of the bank. (The revolving door spins the other way, too: prosecutors often move into private practice on leaving government, working with tax-challenged banks and companies.) 

Officials dismiss any suggestion that such links have affected the government’s response. The DoJ “makes its decisions based on law-enforcement considerations and nothing else,” says Kathryn Keneally, the former head of its tax division.

Another former official argues that America’s efforts to curb tax evasion have been effective, if you consider that the aim is not necessarily to maximise convictions but to scare those hiding money to come forward. The IRS’s voluntary-compliance programme is deemed a success, having brought in $7 billion in back-taxes and penalties from 50,000 individuals. But it is controversial because it allows for anonymous payment and no admission of guilt. 

America’s tax investigators continue to focus mainly on Switzerland, even as the returns on their efforts diminish. The 100-bank programme is bogged down, with only three banks having settled with the DoJ when most were expected to have done so by now. 

One obvious way to make the crackdown more effective would be to broaden it to tax havens that have so far been given an easy ride. Law firms in Panama, for instance, are giant incorporators of shell entities used by tax evaders, and the country has been slow to sign bilateral deals to exchange information on taxes. If federal prosecutors do eventually train their sights on such places, their experience with Switzerland has provided plenty of mistakes from which to learn.

Switzerland as Club Fed for Swiss Enablers of U.S. Tax Crimes (10/24/13)

Following through on the arrest and detention of Raoul Weil (see Ex Top UBS Banker Arrested; Likely to be Extradited (10/21/13), here), Reuters has an interesting article on the effect of the U.S. criminal initiative against Swiss enablers of U.S. tax cheats.  See Michael Shields and Katharina Bart, Arrest chills Swiss bankers' travel plans (Reuters 10/23/13), here.  Some excerpts are:

Seeing one of their select number hauled in handcuffs before a foreign court may prompt Swiss bankers to call their lawyers before they ring travel agents to book a winter break. 

* * * * 

"Maybe we'll all be taking our vacations in Ticino and Graubuenden," one senior private banker told Reuters, making light of concerns among his peers about travelling abroad by talking up the charms of Switzerland's picturesque mountains. 

* * * * 

It is unclear why Weil, 54, chose to cross the border, five years after he was publicly indicted by U.S. prosecutors. Switzerland does not extradite its own citizens in cases of tax fraud. But Italy, which acted on an Interpol warrant, has given the United States six weeks to seek Weil's transfer for trial. 

* * * * 

It is unclear how many Swiss risk arrest. Some may be the subject of U.S. indictments not made public. The U.S. Justice Department did not answer a request for the figures. Martin Naville, chief executive of the Swiss-American Chamber of Commerce in Zurich, thinks the number may be in the low dozens. 

Yet, he says, hundreds more have curbed their itineraries, avoiding setting foot on U.S. territory if not others, for fear of being caught up in the Justice Department's dragnet. 

"I would say there are 1,000 people who are currently not travelling to the United States because they are afraid," said Naville, whose forum maintains close ties to both Swiss and American business leaders and senior bankers. 

* * * * 

Naville said Swiss bank staff who had had few dealings with U.S. clients probably had little to fear. "But," he added, "If you have somebody who had 200 of those clients, had been very aggressive in pushing and peddling specific structures in overseas dominions and everything, that person is at risk."

Switzerland's Quixotic Efforts to Close the Barn Door After the Horse Has Left the Barn (1/16/14)

Switzerland is reportedly investigating at least one Swiss banker -- Renzo Gadola -- ensnared in the U.S. criminal initiative who is cooperating with the U.S.  See Rachel Bade, Switzerland probing banker who is helping U.S. tax investigations (Politico 1/14/14), here.  Excerpts:

Switzerland is taking a new tack to protect its prized banking secrecy — one that could undermine the efforts of U.S. tax authorities to snag tax evaders stashing funds offshore. 

The country, which bars citizens from dishing banking secrets to foreign governments, is probing former Swiss banker Renzo Gadola for spilling the beans on wealthy Americans with hidden bank accounts, according to the Office of the Attorney General of Switzerland. 

It marks the first public admission by Switzerland that it is probing one of its own for helping U.S. offshore tax efforts. The Swiss contend they’re merely upholding their privacy laws, but some say the investigation sends a message to bankers: Keep quiet or else. 

* * * * 

Still, the Gadola probe comes at a critical time, with the U.S. prosecuting another former Swiss banker, Raoul Weil, Gadola’s former boss at UBS. 

* * * * 

Although some lawyers expect Weil to eventually make a deal with U.S. authorities, the Gadola investigation could complicate such a decision. 

* * * * 

Disclosure of client data and business secrets is a crime in Switzerland punishable by up to three years in prison. At the same time, U.S. prosecutors almost demand such information if bankers want to avoid jail time. 

After being captured in 2010, Gadola provided a trove of secrets to the Justice Department, including details on former colleagues and schemes UBS used to avoid U.S. detection. He even participated in secretly recorded phone calls with American clients, according to court records.
Several whistleblowers are now wanted in Switzerland, mostly on charges of stealing documents, including HSBC Geneva tech employee Hervé Falciani, passed data to France, and Heinrich Kieber, a former LGT Bank of Liechtenstein employee, who received millions of euros from the Germans for similar activity.

Schumacher, UBS and Neue Zürcher Bank Enabler, Pleads Guilty (4/7/15)

As expected, Hansruedi Schumacher yesterday pled guilty to one count of defraud / Klein conspiracy.  See Susannah Nesmith and David Voreacos, Ex-UBS Banker Schumacher Pleads Guilty in U.S. Tax Probe (Bloomberg 4/6/15), here.  Schumacher testified as a Government witness in the unsuccessful trial of Raoul Weil.  See Raoul Weil Found Not Guilty (Federal Tax Crimes Blog 11/3/14; 11/6/14), here.

The plea agreement is here.  In the plea agreement, the parties agreed that "the appropriate disposition of this case is, and agree to recommend jointly, that the Court impose a sentence of a term of probation of five (5) years."  That disposition is consistent with the sentences of Andreas Bachmann and Josef Dörig, Swiss enablers sentenced recently.  See Swiss Bank Enablers Get Unsupervised Probation and Relatively Light Fines (Federal Tax Crimes Blog 3/30/15), here.

Last night in the Tax Fraud and Money Laundering class, we covered sentencing.  Within that subject, we covered how plea agreements address sentencing matters, in getting to the "appropriate disposition."  The plea agreement thus addresses the key sentencing calculation factors as follows (with my comments in brackets):

2. The United States and the defendant jointly agree that the appropriate disposition of this case is, and agree to recommend jointly, that the Court impose a sentence of a term of probation of five (5) years.In accordance with Rule 11(c)(1)(B) of the Federal Rules of Criminal Procedure, the United States and the defendant will recommend to the Court that the following provisions of the Sentencing Guidelines apply:

A. Base Offense Level: 26 (U.S.S.G. §§ 2T1.1(a), 2T1.4.1(K)) [Note that the tax loss indicated by the base offense level is between $7,000,000 and $20,000,000.]

B. Sophisticated Means: 2 (U.S.S.G. § 2T1.1(b))(2))

C. Acceptance of Responsibility: - 3 (U.S.S.G. § 3E1.1(a) and (b))

D . Total Offense Level: 25 [The Sentencing range per the Tax Table is 57-71 months.]

3. The parties respectfully submit that they will be making a joint recommendation, pursuant to 18 U.S.C. § 3553(a) and U.S.S.G. § 5K1.1, [Substantial Assistance Departure] that the defendant be sentenced as follows;

A. That the defendant be placed on probation for a period of five years;

B. That the defendant pay a fine of $150,000;

C. That, in addition to the standard terms and conditions of probation, the Defendant be required to (i) abide by all terms and conditions of Paragraph 5, infra, concerning his duty to cooperate under this Plea Agreement, and (ii), to facilitate that cooperation, the defendant be required to return to the United States as requested as part of his requirements under Paragraph 5, infra;

D . That based upon the nature of the tax loss and liabilities in this case, which were personal to each taxpayer, as opposed to the defendant, an order of restitution not be imposed.

On Foreign Enabler Indictments, Sealed Indictments and INTERPOL Red Alerts (6/29/16)

I am told that a number of Swiss bankers and other enablers during the heyday of their U.S. tax games (up to the UBS resolution in 2009 and even beyond that who tried to continue the scam) now fear to leave Switzerland.  Those that have already been indicted will be concerned because of what happened to Raoul Weil, the indicted Swiss banker who ventured out of Switzerland after indictment and was arrested in Italy on an Interpol red notice and was detained and extradited to the U.S. for trial.  (Weil was tried and acquitted.)  So, certainly, those whose indictments have been publicly announced have a choice of trying to resolve their indictment or taking risk should they leave Switzerland.

But,  those who have not been publicly indicted should also be concerned.  The U.S. can have sealed indictments -- and my speculation is that there are some sealed indictments out there for Swiss enablers (bankers and otherwise).  The U.S. can have INTERPOL issue a Red Notice (an INTERPOL device  "identifying and locating these persons with a view to their arrest and extradition or similar lawful action").  With sealed indictments, the enablers may not have a reason to suspect that the U.S. has requested a Red Notice.  See e.g., USAO MD FL press release of 8/31/15, here, stating that there was a sealed indictment and arrest based upon an INTERPOL Red Notice); Jeremy Evans & Andrewas Stargard, Executives Beware: The Long-Arm of the U.S. Government Strikes Again (Paul Hastings Client Alert April 2014) (reporting an extradition in antitrust case, noting that the procedure "likely followed" was the one in an earlier case "using Pisciotti’s sealed indictment to obtain an Interpol red notice, effectively an international arrest warrant" and further noting that "a sealed indictment may leave the [foreign] executive ignorant of any potential risk [of travel]."); and Steven F. Cherry, Leon B. Greenfield, Kurt G. Kastorf, Department of Justice’s First Antitrust Extradition Highlights the Danger of Foreign Travel for Executives Under Investigation (ABA Business Law Today April 2014) (reporting on the same incident).

And, this is not just a Swiss enabler concern.  DOJ has noised for a long time that it is looking beyond Switzerland.

Readers might be interested in the U.S. Attorney Manual provision on Interpol Red Notices, here.  The provsion is short so I quote it in full:

611. Interpol Red Notices 

An Interpol Red Notice is the closest instrument to an international arrest warrant in use today. Interpol (the International Criminal Police Organization) circulates notices to member countries listing persons who are wanted for extradition. The names of persons listed in the notices are placed on lookout lists (e.g., NCIC or its foreign counterpart). When a person whose name is listed comes to the attention of the police abroad, the country that sought the listing is notified through Interpol and can request either his provisional arrest (if there is urgency) or can file a formal request for extradition. 

Please be aware that if a Red Notice is issued, the prosecutor's office is obligated to do whatever work is required to produce the necessary extradition documents within the time limits prescribed by the controlling extradition treaty whenever and wherever the fugitive is arrested. Further, the prosecutor's office is obliged to pay the expenses pursuant to the controlling treaty. Those expenses, which can be quite high, will typically include the costs of translating the extradition documents and may include the costs of hiring local counsel to represent the United States. Further, these obligations, which remain until the fugitive is arrested or the Red Notice is withdrawn, may result in prosecutors who have succeeded the Assistant United States Attorney who originally requested the Red Notice having to prepare the documents and arrange for payment of hefty fees years after the fugitive originally fled from the United States. Therefore, it is important for prosecutors to make certain that the case is significant enough to warrant placing their offices under such a burden in deciding whether or not to request issuance of a Red Notice.

For more on INTERPOL Red Alerts, see:

• INTERPOL Web Site on "Notice," here.
• Wikipedia on Interpol Notice, here.

For More on Sealed Indictments

• Sealed Indictments - A Primer (Federal Tax Crimes Blog 7/11/12; revised 6/19/16), here.
• Sealing an Indictment Pending Arrest in Tax Cases (Federal Tax Crimes Blog 7/3/14), here.