Haaretz Article On New DOJ Entity Prosecution Policies and Isreali Banks (12/5/18)

A couple of days ago I wrote on new DOJ entity prosecution policies announced by DAG Rod Rosenstein.  New DOJ Policies for Prosecution of Entities and the Individuals Within Them Most Responsible (Federal Tax Crimes Blog 11/30/18), here.  Following through on that item with respect to offshore banks and their principal individual actors (officers, agents and other individual partners in crime), Haaretz has this article:  Michael Rochvarger, Bad News for Israeli Bankers: The U.S. Has a New Policy on Corporate Crime (Haaretz 12/5/18), here.  In the context of foreign banks and their individual actors that means that, although corporations and other juridical entities, cannot be jailed, individuals can, particularly those who are principal actors in the scheme.  Of course, with respect to principal individual actors for foreign entities (such as Swiss and Isreali banks), effectively prosecuting the principal individual actors can be a problem, but one that is sometimes not surmountable.  For example, Raoul Weil of UBS was extradited to the U.S. and tried, albeit with acquittal.  See On Foreign Enabler Indictments, Sealed Indictments and INTERPOL Red Alerts (Federal Tax Crimes Blog 6/29/16), here.  And, as I noted yesterday, principal individual actors for entities involved with the Panama Papers fiasco were indicted and extradited to the U.S.  Enablers and Taxpayer Related to Panama Papers Disclosures Indicted (Federal Tax Crimes Blog 11/5/18), here.

Here are some excerpts from the Haaretz article (bold-face supplied by JAT):

The main message Rosenstein relayed was that agreements would be difficult to reach unless the executives involved are required to personally pay fines and even be forced to resign if they are still in their jobs. 

“It is important to impose penalties on corporations that engage in misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing,” he said 

But Rosenstein went on to say: “The most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes. So we revised our policy to make clear that absent extrao rdinary circumstances, a corporate resolution should not protect individuals from criminal liability. 

Our revised policy also makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.” 

Among Israeli bankers, the new policy is most relevant to Eldad Fresher, the CEO of Mizrahi since 2013. Before and during the year the alleged tax violations occurred, he was chairman of the bank’s Swiss unit and head of its financial division, responsible for international activities. Dan Lubasch, Mizrahi Switzerland’s CEO since 2011, may also be affected. 

Most of the senior Hapoalim executives connected with the alleged affair have left the bank, but a number of middle managers who remained now find themselves in the Justice Department’s crosshairs. 

Of the three Israeli banks that have been investigated, only Bank Leumi has settled — agreeing to pay a $400 million penalty four years ago. That, however, may not be a good barometer for what Hapoalim will have to pay, on top of the threat that individual executives will also face penalties. 

In August, the Justice Department offered Mizrahi — Israel’s third-largest bank, but much smaller than Leumi and Hapoalim — a settlement that included a $342 million fine. 

Mizrahi rejected it, but also opted to set aside another $116.5 million in its second-quarter financial report, in expectation of a future penalty. Until then, its provisions had amounted to just $162 million. Meantime, the two sides are negotiating. 

At Hapoalim, the provisions connected with the probe have reached $365 million, with total costs, including legal fees, of 2 billion shekels ($540 million). It’s not clear when the bank will settle with U.S. authorities.

German Court Denies U.S. Request for Extradition of Wegelin Banker (12/9/16)

We covered in several blog entries the saga of Raoul Weil, a top UBS banker, who was arrested in Italy on an Interpol Red Notice and extradited to the U.S.    See entries on Weil, here.  Now, we have news that a German court has refused to extradite a Wegelin banker, Roger Keller.  Nate Raymond, Ex-Swiss banker goes home after U.S. loses extradition from Germany (Reuters 12/9/16), here.  All posts on Keller can be viewed here.  Key excerpts from the article on Keller are:

A former Swiss banker who was arrested last year in Germany on U.S. charges that he helped wealthy Americans evade taxes is back in Switzerland after the denial of a request to extradite him to the United States from Germany, his lawyer said on Friday. 

Roger Keller, a onetime client adviser in Zurich at Wegelin & Co, was one of three bankers at the now-defunct Swiss private bank charged in a 2012 indictment in New York federal court for helping U.S. taxpayers hide more than $1.2 billion in assets. 

He was arrested in Germany in February 2015 at the request of the U.S. government, which sought his extradition, and served seven months in jail before being granted bail, said Thomas Green, Keller's U.S. lawyer at the law firm Sidley Austin. 

By German court order, he was officially released on Friday after the U.S. request to extradite him was denied, Green said, though Keller had already been allowed to return to Switzerland a "few days ago."

Denial of extradition just wins that battle.  It does not resolve the U.S. criminal charge against Keller.

And, the statute of limitations is determined by the filing of the charges.  And, as to any other charges, the statute would be suspended by § 6531, here, which provides:  "The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings."

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.

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.

Schumacher, UBS Banker Enabler, Sentenced to Probation Only and Fine (10/10/15)

Hansruedi Schumacher, a former UBS banker, who pled guilty to conspiracy was sentenced to no incarceration or home confinement, to five years probation and to fine of $150,000.  See Davod Voreacos, Ex-UBS Banker Schumacher Avoids Prison in U.S. Tax Investigation (BloombergBusiness 10/6/15), here.  My prior post on Schumacher is Schumacher, UBS and Neue Zürcher Bank Enabler, Pleads Guilty (Federal Tax Crimes Blog 4/7/15), here.

Excerpts from the article are:

“Schumacher’s willingness to come forward and subject himself to U.S. jurisdiction and cooperate, when he had no pressure to do so, cannot be overvalued,” U.S. prosecutor Mark Daly wrote in a Sept. 28 memo to the sentencing judge. He cooperated “at great peril to himself,” exposing himself to prosecution in Switzerland under bank secrecy and economic espionage laws, Daly wrote. 

After testifying at Weil’s trial, Schumacher also helped U.S. prosecutors investigating American taxpayers who hid assets from the Internal Revenue Service, Daly wrote. He is the seventh Swiss banking enabler who was convicted and sentenced. He faced as long as five years in prison. 

Only one of the bankers got prison time, former UBS banker Bradley Birkenfeld, who was a whistle-blower. Three others avoided prosecution by cooperating. 

Schumacher attorney Peter Raben said in a sentencing memo on Sept. 28 that his client could have stayed in Switzerland, where he wouldn’t have been extradited, and lived a “peaceful and anonymous existence among family and friends.” 

Instead, he chose to cooperate, which meant he “risked the scorn of his fellow countrymen for betraying their arrogance; he risked ostracism, for himself and his family; he risked expulsion from the financial marketplace, and the loss of his career,” and he risked prosecution in Switzerland, Raben wrote.

In a TNT article, William Hoke, Former UBS Banker Gets 5 Years' Probation, $150,000 Fine, 2015 TNT 194-5 (10/7/15), link not available, the author adds (internal TNT citation omitted):

  Schumacher's lawyer, Peter Raben, told Tax Analysts that his client was facing a maximum prison sentence of five years and a fine of $250,000. The sentencing guidelines call for a prison term of between 57 and 71 months and a fine of $100,000. Raben said Schumacher will be allowed to serve his probation in Switzerland. 

* * * * 

Raben also cited the requirement of 18 U.S.C. section 3553(a)(6) to "avoid unwarranted disparity among defendants with similar records who have been found guilty of similar conduct." Raben said five defendants in similar circumstances received probation and three were not prosecuted. 

The only other relevant case, which Raben described as an "outlier," is that of Bradley Birkenfeld. The former UBS employee was sentenced in 2009 to 40 months in prison for what Raben described in the motion as Birkenfeld's failure to fully cooperate with the prosecution. Birkenfeld, who is out on parole after serving 31 months, received a whistleblower award of $104 million from the U.S. government for his "exceptional cooperation" with the DOJ.  

Birkenfeld was incredulous about Schumacher's light sentence and what he perceives to be the DOJ's incompetence in pursuing individuals involved in the UBS case. 

"The DOJ fails to realize I took the greatest risks when I was the historic whistleblower and I gave them Hansruedi's name in 2007," Birkenfeld told Tax Analysts. "The DOJ failed to call me to Weil's trial in 2014. I have 104 million reasons why I am credible and they are not."

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.

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.

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.

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:

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:

Sixth Circuit Holds that § 7212(a)'s Omnibus Clause Requires Knowledge of a Pending Proceeding / Action and Intent to Obstruct (12/13/14)

Section 7212(a), here, was derived from Title 18’s obstruction provisions.  The key Title 18 obstruction provision is § 1503, here.  Both of the sections have an Omnibus Clause providing:

18 USC § 1503:

corruptly influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice.

26 USC 7212(a)

corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title.

In United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998), here,  the Sixth Circuit noted that the Omnibus Clause in § 7212(a) and the Omnibus Clause in § 1503 were virtually identical  and thus held that the Supreme Court's interpretation of § 1503 in United States v. Aguilar, 515 U.S. 593 (1995), here, to require that the defendant know of a pending investigation that he intended to obstruct applied to § 7212(a) as well.   Just as this interpretation restricts the application of the same words in the Omnibus Clause of § 1503,  so this interpretation of the same words restricts the application of the words in the Omnibus Clause of § 7212(a).  Subsequently in United States v. Bowman, 173 F.3d 595 (6th Cir. 1999),  here, the Sixth Circuit restricted Kassouf to its facts and applied § 7212(a)’s Omnibus Clause where the defendant, by filing information forms, attempted to trick the IRS into investigating his creditors.  Bowman could be read as a repudiation of Kassouf’s requirement for a pending investigation and thus giving a broader interpretation to § 7212(a)’s Omnibus Clause than to § 1503’s Omnibus Clause.  United States v. Floyd, 740 F.3d 22, 32 n4 (1st Cir. 2014); United States v. Kelly, 564 F. Supp. 2d, 843, 844-45 (N.D. Ill. 2008)}}; and United States v. Willner, 2007 U.S. Dist. LEXIS 75597 (S.D.N.Y. 2007) (finding support in the defraud conspiracy interpretation).

On December 12, 2014, the Sixth Circuit in United States v. Miner, 774 F.3d 336 (6th Cir. 2014), here, held that Bowman did not change the requirement it announced in Kassouf that the conduct must be intended to obstruct an IRS investigation.  Significant to the Court’s decision was its Circuit authority that the first decision trumps a later decision that might be viewed as in conflict.   The Court made much of the point that the Government’s sweeping claims that the Omnibus Clause untethered to a pending proceeding were expressly considered and rejected in Aguilar and Kassouf, the precedential authority in the Sixth Circuit.  The Court concluded:

In summary, post-Kassouf and post-Bowman, a defendant may not be convicted under the omnibus clause unless he is "acting in response to some pending IRS action of which [he is] aware." McBride, 362 F.3d at 372 [United States v. McBride, 362 F.3d 360 (6th Cir. 2004), here] (internal quotation marks omitted). The extension of Bowman that is urged by the government in this case does not represent a path that was unconsidered by Kassouf; it represents the path that was not taken.

Former Rahn & Bodmer Senior V.P. Charged with Conspiracy Related to U.S. Taxpayer Accounts (11/14/14)

The US Attorney for SDNY has announced here the indictment of Martin Dunki, "a former client advisor and Senior Vice President at a Swiss bank headquartered in Zurich, Switzerland ("Swiss Bank No. 1"), for conspiring with U.S. taxpayer-clients and others to hide hundreds of millions of dollars in offshore accounts from the IRS, and to evade U.S. taxes on the income earned in those accounts."  The indictment is here.  The bank is identified in news reports (some linked below) as Rahn & Bodmer.  The key excerpts from the announcement are:

Between 1995 and 2012, DUNKI helped U.S. taxpayers evade taxes and hide hundreds of millions of dollars in undeclared accounts at Swiss Bank No. 1. DUNKI provided this advice and assistance to U.S. taxpayers in his capacity as a client advisor at Swiss Bank No. 1, where DUNKI was employed until early 2012. 

One of DUNKI's co-conspirators was Edgar Paltzer, an attorney based in Zurich, Switzerland, who previously pled guilty in the Southern District of New York for his role in assisting U.S. taxpayers and others to evade taxes. In 1999, DUNKI, Paltzer, and an attorney from Santa Barbara, California ("Attorney 1") began working together in the management of undeclared accounts at Swiss Bank No. 1 for a number of U.S. taxpayers (collectively, the "Dunki/Attorney 1 Clients"). The undeclared assets of the Dunki/Attorney 1 Clients were maintained in accounts held in the names of sham foreign foundations, rather than in the names of the clients individually, to help the clients conceal their ownership of these undeclared accounts from the IRS. Initially, the sham foundations that held the accounts were organized under the laws of Liechtenstein. In December 2008, however, Liechtenstein and the United States signed a Tax Information Exchange Treaty ("TIEA"), under which Liechtenstein agreed to provide the United States with access to certain bank and other information needed to enforce U.S. tax laws. As a result of the TIEA between Liechtenstein and the United States, and to prevent disclosure to the IRS of the undeclared accounts maintained by the Dunki/Attorney 1 Clients, DUNKI and others transferred the undeclared assets of the Dunki/Attorney 1 Clients to new accounts at Swiss Bank No. 1, held by new sham foundations organized under the laws of Panama. Moreover, beginning in August 2009, in response to the investigation of another Swiss bank, UBS AG ("UBS"), for helping U.S. taxpayers maintain undeclared accounts in Switzerland, DUNKI and others helped to further conceal the undeclared accounts of the Dunki/Attorney 1 Clients by using assets in those accounts to purchase gold and other precious metals. The gold and precious metals, which amounted to tens of millions of dollars, were then transferred to escrow accounts opened at Swiss Bank No. 1 and hidden, along with substantial sums of cash, in a vault in Switzerland for the benefit of the Dunki/Attorney 1 Clients. 

In addition to opening, maintaining, and managing undeclared accounts at Swiss Bank No. 1 for the Dunki/Attorney 1 Clients, DUNKI opened, maintained, and managed undeclared accounts at Swiss Bank No. 1 for other U.S. taxpayers. For instance, between 2000 and 2012, DUNKI helped one U.S. taxpayer hide nearly $300 million in assets at Swiss Bank No. 1, in undeclared accounts held in the names of sham Liberian corporations. Further, between 1995 and 2008, DUNKI helped another U.S. taxpayer maintain approximately $70 million in an undeclared account at Swiss Bank No. 1. When DUNKI met with this taxpayer in the United States, the account statements that DUNKI brought with him were deliberately cut off at the top, to omit the account number and the name of Swiss Bank No. 1, because -- as DUNKI himself acknowledged to the taxpayer -- DUNKI had to be careful not to leave a trace when going through U.S. customs. 

DUNKI also helped U.S. taxpayers bring funds back to the United States in ways designed to ensure that U.S. authorities would not discover the existence of the taxpayers' undeclared accounts at Swiss Bank No. 1. For example, on at least one occasion, DUNKI met a U.S. taxpayer in the United States and provided the taxpayer with an envelope containing approximately $10,000 in cash, which represented a cash withdrawal from the taxpayer's undeclared account at Swiss Bank No. 1. On other occasions, DUNKI helped send money from a U.S. taxpayer's undeclared account at Swiss Bank No. 1 to another account in Geneva, Switzerland and, from there, to a diamond dealer in Manhattan. Once the money was received by the diamond dealer, the U.S. taxpayer would pick it up and give the diamond dealer a fraction of the money as a commission. 

* * * 

DUNKI, 66, a Swiss citizen, resides in Switzerland and has not been arrested. DUNKI is charged with one count of conspiracy to defraud the IRS, which carries a maximum sentence of five years in prison. 

JAT Comments:

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.

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.

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. 

I have often said -- I suspect that, in number at least, most readers would say too often -- that Swiss banks are, well, whatever the word was (it changed from time to time, but it was not a term of endearment).  Well, Swiss banks are not alone.  See Ben Protess and Jessica Silver-Greenberg, Prosecutors Wrestling With Wall Street’s Repeat Offenders (NYT DealBook 10/29/14), here.  And U.S. financial institutions also misbehave big-time.  Some of the senior management of all of them or, given prosecution limitations and priorities, a representative sampling of them, should go to jail.  In the U.S.  As perhaps Raoul Weil will, mitigated perhaps by his serving up higher level bank management.

Here are some excerpts:

Prosecutors in Washington and Manhattan have reopened an investigation into Standard Chartered, the big British bank that reached a settlement in 2012 over accusations that it funneled billions of dollars for Iran and other nations blacklisted by the United States, according to the lawyers briefed on the cases. The prosecutors  are questioning whether Standard Chartered, which has a large operation in New York, failed to disclose the extent of its wrongdoing to the government, imperiling the bank’s earlier settlement.
New York State’s banking regulator is also taking a fresh look at old cases, reopening a 2013 settlement with the Bank of Tokyo-Mitsubishi UFJ over accusations that the bank’s New York branch did business with Iran, according to the lawyers who were not authorized to speak publicly. The regulator, Benjamin M. Lawsky, the lawyers said, is negotiating a new settlement deal with the bank that, if finalized, would involve a penalty larger than the $250 million it paid last year. Mr. Lawsky suspects that the bank initially played down the scope of its wrongdoing. 

PricewaterhouseCoopers, the influential consulting firm that advised the Japanese bank on that case, is also under investigation itself, according to the lawyers briefed on the matter. The Manhattan district attorney’s office is examining whether the firm watered down a report about the bank’s dealings with Iran before it was sent to government investigators. 

Those developments — which have not been previously reported — are part of a broader revisiting of settlements with some of the world’s biggest banks, an effort that has focused on foreign banks but could eventually spread to American institutions.
As reported earlier by The New York Times, prosecutors are also threatening to tear up deals with banks like Barclays and UBS that were accused of manipulating interest rates, pointing to evidence that the same banks also manipulated foreign currencies, a violation of the interest rate settlements. The prosecutors and banks have agreed to extend probationary periods that would have otherwise expired this year. 

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 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.

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

Senators Urge Extradition of Indicted Swiss Bank Enablers (3/18/14)

Senators Levin and McCain, key members of the Senate Permanent Subcommittee on Investigations which held a recent hearing on offshore bank tax evasion, has written DOJ to seek extradition from Switzerland of indicted enablers.  The letter is here.

The body of the letter is short, so I quote it in full:

We are writing to urge a change in the current policy of the Department of Justice (DOJ) which, for more than five years, has not sought extradition from Switzerland of a single Swiss national charged with criminal conduct related to aiding and abetting U.S. tax evasion. 

During the hearing held by the U.S. Senate Permanent Subcommittee on Investigations on February 26, 2014, you testified that DOJ has charged 35 bankers and 25 financial advisors with misconduct related to facilitating U.S. tax evasion.  Of those, 6 have been convicted or pled guilty, and the majority of the rest apparently live openly in Switzerland, having avoided trial on their alleged crimes for years.  Yet you also testified that DOJ has not asked Switzerland to extradite any of those defendants, because DOJ believes “the Swiss will not extradite its citizens.”  

The extradition treaty between the United States and Switzerland, however, does not bar the extradition of Swiss nationals who assisted U.S. nationals in the commission of criminal tax evasion, and it is time to test the Swiss government’s professed willingness to cooperate with international tax enforcement efforts and put an end to its nationals participating in criminal tax offenses.  While Article 3 of the U.S.-Swiss treaty provides some discretion to the Swiss government to deny U.S. extradition requests related to tax offenses, that discretion is limited.  The treaty states that it can “not be used to shield from extradition underlying criminal conduct, such as fraud …or falsification of public documents.”  At least some of the charges in the indictments filed against Swiss bankers and intermediaries appear to meet that standard.  Additionally, Article 8, which provides an exception to extradition requests that name a treaty partner’s nationals, is limited to circumstances where “[t]he Requested State [Switzerland] … has jurisdiction to prosecute that person for the acts for which extradition is sought.” Switzerland does not consider tax evasion a crime, and therefore cannot prosecute such cases, which means the Article 8 exception should not apply to U.S. extradition requests to Switzerland for cases related to tax evasion.  

Given that the current treaty does not foreclose the cooperation of the Swiss government in extradition requests for tax cases, we urge DOJ to at least attempt to use the authorities laid out in that treaty.  Even if a request is unsuccessful, it will inform both Switzerland and its citizens that the United States is ready to make full use of available legal tools to stop facilitation of U.S. tax evasion and hold alleged wrongdoers accountable. 

Thank you for your attention to this matter.