Further on Investment and Banking Services for U.S. Expats (11/7/14)

A reader pointed me to the following article relevant to the discussion on this blog about the difficult of U.S. ex pats getting banking and investment services.  Frederic Behrens, Why US Brokerage Accounts of American Expats are Being Closed (2015) (THUN Financial Advisors undated), here.  The article goes substantially beyond my expertise, but it does seem to speak knowledgeably on the subject.  I would appreciate readers comments.

The Honorable Jed Rakoff on Why Innocent People Plead Guilty (11/3/14)

Judge Jed Rakoff, a pre-eminent jurist (Wikipedia entry here), has this great article in the New York Review of Books.  Jed S. Rakoff, Why Innocent People Plead Guilty (New York Review of Books 11/20/14 Issue), here.  I would not even attempt to try to summarize Judge Rakoff's powerful development of the thesis presented here.  I can only present some excerpts that, I hope, will encourage practitioners and students to read and fully digest the whole article.

The criminal justice system in the United States today bears little relationship to what the Founding Fathers contemplated, what the movies and television portray, or what the average American believes. 

To the Founding Fathers, the critical element in the system was the jury trial, which served not only as a truth-seeking mechanism and a means of achieving fairness, but also as a shield against tyranny. As Thomas Jefferson famously said, “I consider [trial by jury] as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.” 

* * * *  

In 2013, while 8 percent of all federal criminal charges were dismissed (either because of a mistake in fact or law or because the defendant had decided to cooperate), more than 97 percent of the remainder were resolved through plea bargains, and fewer than 3 percent went to trial. The plea bargains largely determined the sentences imposed.' 

* * * * 

The practice of plea bargaining never really took hold in most other countries, where it was viewed as a kind of “devil’s pact” that allowed guilty defendants to avoid the full force of the law. But in the United States it became commonplace. And while the Supreme Court initially expressed reservations about the system of plea bargaining, eventually the Court came to approve of it, as an exercise in contractual negotiation between independent agents (the prosecutor and the defense counsel) that was helpful in making the system work. Similarly, academics, though somewhat bothered by the reduced role of judges, came to approve of plea bargaining as a system somewhat akin to a regulatory regime. 

* * * *

In addition to mandatory minimums, Congress in 1984 introduced—with bipartisan support—a regime of mandatory sentencing guidelines designed to avoid “irrational” sentencing disparities. Since these guidelines were not as draconian as the mandatory minimum sentences, and since they left judges with some limited discretion, it was not perceived at first how, perhaps even more than mandatory minimums, such a guidelines regime (which was enacted in many states as well) transferred power over sentencing away from judges and into the hands of prosecutors. 

One thing that did become quickly apparent, however, was that these guidelines, along with mandatory minimums, were causing the virtual extinction of jury trials in federal criminal cases. Thus, whereas in 1980, 19 percent of all federal defendants went to trial, by 2000 the number had decreased to less than 6 percent and by 2010 to less than 3 percent, where it has remained ever since. 

The reason for this is that the guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains. In the majority of criminal cases, a defense lawyer only meets her client when or shortly after the client is arrested, so that, at the outset, she is at a considerable informational disadvantage to the prosecutor. If, as is very often the case (despite the constitutional prohibition of “excessive bail”), bail is set so high that the client is detained, the defense lawyer has only modest opportunities, within the limited visiting hours and other arduous restrictions imposed by most jails, to interview her client and find out his version of the facts. 

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. 

IRS and FinCEN Form 8300 and Geographic Targeting Order (11/2/14)

Recently, FinCEN issued a Geographic Targeting Order, here, imposing additional reporting and recordkeeping requirements on a relatively small (but apparently financially active) area of Los Angeles, California.  The order and the cover communication for the order is here.  Key excerpts of the order are:

GEOGRAPHIC TARGETING ORDER 

The Director, Financial Crimes Enforcement Network (FinCEN), U.S. Department of the Treasury, is authorized to issue an order that imposes certain additional reporting and recordkeeping requirements on one or more domestic financial institutions or nonfinancial trades or businesses in a geographic area to carry out the purposes of and prevent evasions of the Bank Secrecy Act. See 31 U.S.C. § 5326(a); 31 C.F.R. § 1010.370; Treasury Order 180-01,  

IT IS HEREBY FOUND that reasonable grounds exist tor concluding that the imposition of the additional reeordkeeping and reporting requirements described in this Geographic Targeting Order ("Order") upon the Covered Businesses described below is necessary to carry out the purposes of and prevent evasions of the Bank Secrecy Act. See 31 U.S.C. § 5326(a); 31 C.F.R. § 1010.370. 

THEREFORE, IT IS ORDERED THAT: 

Part 1 - Definitions. 

** * * 

1.2 ''Covered Business" means the following trades and businesses located in the Covered Geographic Area, including their agents, subsidiaries, and franchisees:
(a) garment and textile stores;
(b) transportation companies;
(c) travel agencies;
(d) perfume stores;
(e) electronic stores (including those that only sell cell phones):
(I) shoe stores;
(g) lingerie stores;
(h) flower/silk flower stores;
(i) beauty supply stores; and
(j) stores bearing "Import" or "Export" in its name. 

1.3 "Covered Geographic Area" means the area in the City of Los Angeles, California, south of East 8th Street, north of East 16th Street, and between Santee Street and South Central Avenue. 

1.4 "Currency" shall have the same meaning as provided in 31 C.F.R. § I 0 I 0.330(c)(I). 

* * * * 

1.10 "Order Period" means the 180-day period beginning, October 9, 2014 and ending the close of business on April 6, 2015. 

Part 2- Special Reporting, Recordkeeping, nnd Customer Identitification Obligations of the Covered Businesses. 

2.1 A. Covered Business which, in the course of a trade or business in which such business is engaged, receives currency in excess of $3,000 in 1 Transaction (or 2 or more related Transactions in a 24-hour period) shall make a report of each such Transaction or Transactions by filing a FinCEN Form 8300. Each such FinCEN Form 8300 must be:
(a) completed in accordance with the terms of this Order and the FinCEN Form 8300 instructions (when such terms conflict, the terms of this Order shall apply): and
(b) e-filed through the Bank Secrecy Act E-filing system. 

* * * * 

2.3 It shall be unlawful for the Covered Business to process, accept, or receive funds for, or otherwise participate in a Transaction that is the subject of this Order unless the Customer conducting the Transaction provides an officer, director, employee, or agent of the Covered Business with identification in one of the following forms:
(a) a driver's license or an identification card issued by a State of the United States, the District of Columbia, or a Territory or Possession of the United States;
(b) a military or military dependent identification card;
(c) a non-resident alien registration card:
(d) a foreign national identity card:
(e) a passport n2/ or
(f) a combination of other unexpired documents, with an individual's name and address, and a photograph.
   n2 Because a passport does not contain an individual's permanent address, when a Customer provides a passport as form of identification, a Covered Business would need to review additional identification that specifies the Customer's address. 

Mizrahi Tefahot Bank U.S. Banker Acquitted (11/2/14)

A  Mizrahi Tefahot Bank Ltd. banker has been acquitted of conspiracy, the only charge against him.  See David Voreacos, Ex-Mizrahi Octogenarian Banker Acquitted at Tax Trial (Bloomberg 11/1/14), here.  Key excerpts:

Prosecutors claimed Baravarian helped clients who opened accounts in Israel, didn’t declare them to the IRS and accessed money through loans from the Los Angeles branch. 

Six taxpayers testified as government witnesses, including three who pleaded guilty and two who avoided prosecution by entering an IRS disclosure program. On cross-examination, all six admitted they didn’t conspire with Baravarian to cheat on their taxes, defense attorney Marc S. Harris said. 

“These taxpayers did what they did on their own, and they didn’t pay taxes on their accounts,” Harris said. “Dr. Baravarian had nothing to do with that. The linchpin of the case was that the loans were fake, and they were a mechanism to access that money. Dr. Baravarian helped people get legitimate loans for legitimate purposes.”

Thanks to Dave Wolf for calling this to my attention.

IRS and Practitioner Comments on the Streamlined NonWillful Certification (11/1/14)

Tax Notes Today has an article summarizing some discussion by an IRS representative and practitioners at the October 30 at the University of San Diego School of Law-Procopio International Tax Law Institute annual conference.  Amanda Athanasiou, IRS Addresses Questions About OVDP and Streamlined Filing, 2014 TNT 212-7 (11/3/14) [no link available].  I offer only one short excerpt that I found particularly interesting and might be interesting to many readers of this blog.

Addressing the concern that the IRS may not accept non-willful certification for taxpayers transitioning from the OVDP to the streamlined program, Price [Daniel Price, supervisory attorney with IRS Chief Counsel] said the Service is concurring with non-willful certification in most of those cases. In the case of assertions that are clearly deficient, Price said the IRS is giving taxpayers another chance by requesting additional information. "We're giving taxpayers and their reps an opportunity for a do-over, but we do expect actual statements of facts," he said. 

Martin R. Press of Gunster, Yoakley & Stewart PA [attorney for Zwerner in the much publicized FBAR penalty case] noted that only U.S. willfulness counts for purposes of the streamlined program. For the most part, he said, what someone does overseas is not a factor, even if a foreign account is willfully unreported in the foreign country of residence. 

"The IRS is taking that seriously for purposes of the streamlined program," Price confirmed. 

However, the IRS has left itself some wiggle room, Press noted. For example, deliberate evasion of foreign residence country income tax is a negative factor.

I thought the comment that most taxpayers certification of nonwillfulness is being accepted and that the IRS is giving taxpayers some opportunity to supplement the information to justify nonwillfulness.  It is not clear to me where the participants ended up on the willful violation of foreign tax law issue.  Perhaps some reader who attended the session could offer their recollection / impression of where that discussion ended up.

Must a Trial Judge Advise a Pro Se Defendant Specifically that He Has a Right to Closing Argument and Ensure a Proper Waiver of the Right (10/31/14)

In United States v. Bell, 2014 U.S. App. LEXIS 20258 (9th Cir. 2014), here, the defendant appealed "from his jury convictions for making false, fictitious, and fraudulent claims to the United States Treasury under 18 U.S.C. § 287, assisting in the filing of false tax returns under 26 U.S.C. § 7206(2), criminal contempt under 18 U.S.C. § 401(3), and mail fraud under 18 U.S.C. § 1341."  The scam underlying his conduct was the tried and untrue Form 1099-OID claim for taxes claimed to have been withheld but, in fact, were not.

At trial, the defendant represented himself pro se.

The criminal proceedings show Bell's consistent refusal to recognize the authority of the district court or to participate in the proceedings, including filing a motion to dismiss styled as a "habeas corpus petition" arguing that his prosecution was illegal because he was not subject to federal tax laws; declaring his "sovereignty as a chief ruler" who was "independent of the Court" and enjoying "sovereign immunity"; declining the offer for an opportunity to give an opening statement; and repeatedly stating that he did not consent to the proceedings and was reserving his rights pursuant to U.C.C. § 1-308. 

At trial, after the district court delivered jury instructions, the government gave its closing argument. The district court did not prompt Bell to make a closing argument, and Bell remained silent. The jury convicted Bell as charged. 

The appeal issue I write on is the one that should be apparent from the bold-faced sentence.  The defendant did not make a closing argument, but the district court did nothing, apparently, to ensure that the defendant knew he had the right to do so.  Of course, a defendant has the right to make a closing argument.  The defendant usually does that through his lawyer who certainly will know of the right without any prompting by the trial judge.  But a pro se defendant may or may not know that and may or may not know the right to to insist upon it.  That was the problem raised on appeal.  Here are selected excerpts of the majority's opinion:

[The defendant] was not precluded from making a closing argument. The district court told all parties just before recess that when proceedings resumed the court would entertain Rule 29 motions and objections to the proposed jury instructions, and then "we are going to have closing arguments." When the government's counsel delivered his closing argument, Bell remained silent. Nothing in Herring or our precedents gives a self-represented defendant a right to be affirmatively and individually advised that he or she has a right to present a closing argument. Rather, these cases held that a court may not prevent a litigant from making a closing argument. Bell's Sixth Amendment right was not violated because he was not precluded from making his closing argument and simply chose to remain silent.

But waivers of important rights -- closing arguments are surely important -- seems to me to require more than mere silence from a pro se defendant.  The earlier fleeting generic reference to closing arguments does not seem to me to be the type of notice required for a pro se defendant.  The Court tried to justify its holding in a footnote as follows:

Concern that IRS CI Resources Are Disprorportionately Allocated to Tax Return Identity Theft Fraud (10/31/14)

Readers will have noticed that I have not spent many words on this blog about identity theft.   Most of the times the term shows up in a blog focused on another issue.   As I have said, identity theft is just a form of relatively garden-variety fraud and theft which is related to tax only because tax forms -- usually claims for refund -- are used to implement the theft.   I picked up the following quote from an article on the 30th annual Tax Controversy Institute in Beverly Hills, California.  William R. Davis, Identity Theft Focus Hindering CI Division, Former Officials Say, 2014 TNT 211-1 (10/31/14) [no link available].  The article noted concerns by the agency and practitioners on IRS CI's devotion of inordinate resources to identity theft because the IRS still must serve effectively its mission to support the overall tax system.

I thought the following excerpt from the article was particularly apropos.

The only thing IRS-related about identity theft is that it involves a tax return, Nathan J. Hochman of Bingham McCutchen LLP said, adding, "Other than that, it's an FBI case."

Update on Pleaded or Pled (10/30/14)

I previously blogged on the choice of pleaded or pled as the past tense of the verb plead.  Is it Pled or Pleaded? (Federal Tax Crimes Blog 1/18/13), here.  Today, I received a daily email from a site called Daily Writing Tips, here.  Today's serving was on "Pleaded vs. Pled."  As I noted in my earlier blog entry, I usually use pled rather than pleaded.  But the choice is a matter of debate among English aficionados and others with anal retention proclivities.  So, I thought I would provide readers some more links that address the issue.  The bottom-line, I take it, is that either usage is correct, at least in the ultimate test of the English language -- common usage and understanding.  Hey, some people insist that it is wrong to split infinitives.  See Wikipedia, here (citing as an example of the dreaded split infinitive, the following from Star Trek: "to boldly go where no man has gone before").

• Daily Writing Tips, Pleaded v. Pled, here.
• Staci Zaretsky, Grammar Pole of the Week: Pleaded v. Pled (Above the Law 12/16/11), here.
• Debra Cassens Weiss, Law Prof Enters the Great Debate: Is It ‘Pleaded’ or ‘Pled’? (ABA Journal 11/22/10), here, with links in the blog entry to Eugene Volokh's discussions.
• Natalie West, When Choosing Pleaded or Pled, Grammar Pitted Against Popular Usage (The Docket July/August 2013), here.

So, I previously pled guilty to using "pled" rather than "pleaded in my writing."  I expect to  be a repeat offender, if offense it be (can't teach an old dog new tricks).

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. 

Bank Leumi Negotiating with New York Banking Regulator About US Tax Evasion Enablement (10/29/14)

Bank Leumi is in the sights of the NY banking regulator who has lowered the boom of offshore bank enablers of tax evasion.  See David Voreacos and Greg Farrel, Bank Leumi Said to Face $300 Million Demand in Tax Case (Bloomberg 10/29/14), here.  Excerpts:

New York’s banking regulator will ask for more than $300 million to settle an investigation into whether Bank Leumi Le-Israel (LUMI) BM helped Americans evade taxes, a person familiar with the matter said.\ 

Benjamin Lawsky, head of the state’s Department of Financial Services, is seeking more than what the bank set aside to resolve a separate criminal investigation by the U.S. Justice Department. In June, Leumi said it allotted 950 million shekels ($254 million) for the federal matter, which would make it the first Israeli bank to settle a tax probe with the U.S. 

* * * * 

Bank Leumi, Israel’s second largest lender by assets, said today it’s in talks with Lawsky’s department on a settlement, according to a filing with the Tel-Aviv Stock Exchange. It’s too early to estimate if an accord may be reached and a final settlement may be “significantly higher” than the provisions it’s already set aside to cover those costs, the bank said. 

* * * * 

Lawsky’s Leverage 

Lawsky, the banking superintendent since 2011, has leverage over Leumi because it holds a New York banking license and he can threaten to revoke it for violations of the law. He has used that power to extract other settlements. 

In August 2012, he struck a $340 million accord with Standard Chartered Plc (STAN) after threatening to pull its license. The London-based bank was accused of evading U.S. sanctions laws by stripping the names of Iranian clients from billions of dollars in wire transfers. Lawsky required the bank to hire an outside monitor to oversee the controls for handling transactions with sanctioned nations. 

Lawsky’s settlement with Credit Suisse also required the bank to hire a monitor. 

* * * * 

Legal Liability 

The bank said in June that it sought to resolve its legal liability for activities on behalf of U.S. taxpayers from 2002 to 2010. Leumi is “working towards a resolution” with the Justice Department “in accordance with the outline and the sum” proposed by the federal agency, according to its statement.

Other Country Envy of FATCA (10/28/14)

A Tax Analysts Blogger, Robert Goulder, reports on other nations' envy of our FATCA law, discussing Colombia in particular.  See Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog 10/24/14), here.

The South American nation of Colombia does not have its own version of FATCA, but its government wishes it did. That's evident from its current tussle with neighbor Panama. The root of the problem between the two nations is FATCA-style reporting of bank data, or the lack thereof. Colombia wants it badly; Panama wants nothing to do with it.

The current disagreement is with Panama, which, on a Latin American scale, is the local Switzerland with a (relatively) thriving financial center.  The result is:

So long as the banking sector is thriving -- and it is -- Panama's government doesn't care whether residents of other countries cheat on their taxes. The banks' position is that all nonresident clientele are free to self-report their interest income and it's not their fault when a Colombian client violates her country's tax laws. Nobody puts a gun the accountholders' heads and forces them to dodge taxes, although Panama's de facto bank secrecy certainly enables that outcome. 

For Colombia in particular,

Colombian law requires taxpayers to fully disclose bank deposit income regardless of where it was earned. But If a Colombian taxpayer failed to report his or her income from a Panamanian bank, the tax authorities would be very unlikely to detect the omission because of Panama’s lack of reporting. For practical purposes, the offshore account would remain a secret known only to the bank and the accountholder. Taxable income is thus concealed from Colombia’s revenue body with minimal risk. 

The result of all this is tax enforcement on the honor system, without the traditional backstops of withholding or reporting. Predictably, noncompliance in Colombia is a massive problem. Officials in Bogotá estimate the revenue loss from nondisclosure of offshore bank income at $2 billion to $7 billion annually. Those are large numbers for a country Colombia's size.

So, Colombia asked Panama to enter a Tax Information Exchange Agreement ("TIEA") which, would be FATCA-like, in requiring the reporting of bank account income for Panamanian accounts owned by Colombians.  Panama, not surprisingly, said "no thanks."

Panama may be relenting in the spat, as the author reports.

The key point is that the world is moving toward more transparency in fiscal affairs.  Over time, something like FATCA will be ubiquitous to require reporting to tax authorities initially in the developed countries but, eventually, very far out in the future, the world.  People who want to rant and rave about FATCA are playing a losing game.  But the focus of much of their angst is really the requirement of worldwide reporting on citizens, particularly those living outside the taxing jurisdiction.  That is a different issue, but so long as the law in the US and elsewhere (including Colombia) have tax on worldwide income, FATCA and inter-country agreements achieving the same effect are required to backstop the tax system.

IRS CI Modifies Its Policy Regarding Forfeitures for Structuring on Bank Deposits for Legal Source Deposits (10/28/14)

An important facet of the criminal tax practice is the money laundering laws, including the reporting requirements for currency transactions.  Among those requirements are the the currency transaction report by financial institutions for deposits of $10,000 or more.  Piece mealing deposits -- often called structuring -- to make each individual deposit less than $10,000 to avoid the reporting requirements can be a crime and can result in forfeitures.  This law and its punitive penalties (meant to be redundant) is designed to support the criminal laws by identifying criminal conduct.  But, persons not involved in criminal conduct can be caught in and violate this provision.  In a recent article, the New York Times raised questions about the IRS's expansive use of the forfeiture power against persons not otherwise involved in criminal activity -- against small business owners and others who, perhaps from ignorance, engage in a pattern that can be viewed as structuring.  See Shaila Dewan, Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required (NYT 10/25/14), here.

In response to the article (or just in advance of it), the IRS announced in a statement, here, to the New York Times as follows:

After a thorough review of our structuring cases over the last year and in order to provide consistency throughout the country (between our field offices and the U.S. attorney offices) regarding our policies, I.R.S.-C.I. will no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (D.F.O.) level. While the act of structuring — whether the funds are from a legal or illegal source — is against the law, I.R.S.-C.I. special agents will use this act as an indicator that further illegal activity may be occurring. This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.'s mission and key priorities. The policy involving seizure and forfeiture in “illegal source” structuring cases will remain the same.

Kudos to the investigative reporter for the New York Times for shining light on this aggressive use of the law by the IRS.  And Kudos to the Institute for Justice, here, mentioned prominently in the article for representing citizens caught in this trap.  Robert Johnson of the Institute for Justice has contributed a blog entry, here, to the Procedurally Taxing Blog,

One question readers my have is how the IRS would learn about structuring -- the pattern of depositing less than $10,000 from which an inference might be made that the activity was to avoid the CTR reporting requirements?  I suspect -- you know where this is going -- that the banks may report most of such activity on Suspicious Activity Reports ("SARs").  See Wikipedia discussion of SARs, here.  In my Federal Tax Crimes book, I describe SARs as follows (footnotes omitted):

Although there is no general duty under American law to report crimes, certain financial institutions (including money services businesses and high cash businesses such as casinos) are required to file with FinCen a report, called a Suspicious Activity Report (“SAR,” but not to be confused with the Special Agent’s Report with the same acronym which we encountered earlier).  This SAR combines features of earlier reports and is in addition to the CTR if required.  The SAR is required if the financial institution “knows, suspects, or has reason to suspect the money was derived from illegal activities” or the transaction was “part of a plan to violate federal laws and financial reporting requirements (structuring).”  The financial institution is not required to investigate or confirm that a crime has been committed. The financial institution is prohibited from telling its customer of the filing of the report, even in response to a subpoena.  The financial institution is protected from liability to the customer.  The IRS may share this SAR with the IRS examination function having civil tax responsibility, but components of the IRS receiving the information are required to keep the information secure to the same extent as if received from a confidential informant.

Australia is Also Flushing Out Its Offshore Tax Avoidance (10/25/14)

I found this article on Australia's efforts to flush out unpaid tax related to offshore accounts, both in the past and in the new reporting regimes such as FATCA-like initiatives in other countries. Georgia Wilkins, Australians confess to stashing $1b in assets offshore (Sydney Morning Herald 10/23/14), here.  Excerpts:

The Tax Office is keeping a close eye on foreign banks as part of its push to stop money being sent offshore by wealthy individuals. 

It comes as Australians flock to declare money in hidden accounts, under an amnesty from criminal convictions running until December.  

Around $180 million in undeclared offshore income has now been recovered as part of the amnesty, the ATO said. A further $1 billion in assets has also been recovered.
ATO assistant commissioner David Allen said Australians were realising that international tax loopholes were closing, with Switzerland now pledging to sign up to the OECD's automatic information sharing agreement. 

"What we'll see in a couple of years is the Swiss will be providing to Australia details of Australians' bank accounts in Switzerland." Mr Allen said.  

"This is really starting to snowball and reinforce the message that there are no more tax havens." 

Around half of the disclosures relate to accounts in Switzerland. Other popular destinations for hiding money overseas were Israel, Liechtenstein, Hong Kong and the UK, the ATO said. 

 * * * * 

"We monitor closely, not just the US but there's a lot of other activity happening with foreign banks in Europe as well," he said.  

In May, Swiss banking giant Credit Suisse was hit with a record $US2.6 billion fine for helping Americans hide money in secret bank accounts in Switzerland.  

The case revealed an elaborate scheme involving a private elevator for clients to access their accounts at the Zurich airport.  

ATO assistant commissioner David Allen said he could not rule out the banks operating similar facilitation schemes for Australians, but that it was watching them, including Credit Suisse, closely.  

"We've got a full idea what they [Credit Suisse] have been doing in the US. We've obviously been doing our own analysis and continuing our engagement with a range of foreign banks," he said.  

"The writing's on the wall for how some of these banks may have behaved in the past."
The ATO has been criticised for allowing deliberate tax evaders to escape proper punishment under the law.  

People who come forward under the arrangement will avoid harsh penalties and are only assessed for the last four years. They are only liable for a maximum shortfall penalty of 10 per cent, and will not be referred for criminal investigation. 

Swiss Category 2 Banks Push Back on DOJ's Draft NPA Agreement (10/24/14)

There are media reports that Swiss Category 2 banks are pushing back on the draft of the model NonProsecution Agreement ("NPA") DOJ offered them.  John Letzing, Swiss Banks Want Changes in Justice Dept. Hidden Account Program (WSJ 10/23/14), here; Kristen A. Parillo, Swiss Banks Slam DOJ's Proposed Non-Prosecution Agreement, 2014 TNT 206-1 (10/24/14) (no link available).  The pushback occurred in a letter from a number of attorneys representing the banks to the DOJ tax.  According to the reports,  28 lawyers representing 73 Swiss banks signed the letter.

According to the Parillo article, the draft NPA requires the Category 2 banks to :

• cooperate fully with the DOJ, the IRS, and any other domestic or foreign law enforcement agency designated by the DOJ regarding all matters related to the conduct described in the NPA;
• assist the DOJ or any designated domestic or foreign law enforcement agency in any investigation, prosecution, or civil proceeding arising out of or related to the conduct covered by the NPA;
• provide testimony as needed to enable the U.S. to use the information and evidence provided by the bank under the NPA; and
• provide the DOJ, upon its request, all information, documents, records, or other tangible evidence not protected by legal privilege or work product regarding matters arising out of or related to the covered conduct.
  The draft NPA also requires the banks to assist the U.S. with the drafting of treaty requests seeking U.S. account information (whether the account is open or closed), and to retain all records relating to its U.S. cross-border business for a period of 10 years from the NPA's termination date. The agreement also describes the circumstances under which the DOJ may determine that a bank has violated the terms of the NPA and may be prosecuted.

I don't have a copy of the letter, but the WSJ reports:

The requested changes included limiting what the Justice Department could do with the information it collected and dropping a requirement that banks also agree to disclose similar information to other foreign authorities.

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In the letter, attorneys representing the banks took issue with a number of aspects of the program, including a provision that participants disclose information related to foreign parent companies or affiliates. The banks also panned a stipulation that they also open their books to other, unspecified foreign legal authorities probing hidden accounts.

For prior coverage of the draft NPA Agreement, see Swiss Category 2 Banks Reportedly Get Draft of NPA Agreement (Federal Tax Crimes Blog 10/11/14; 10/14/14), here.

Addendum 10/24/14 4:00pm:

Blog on the Disqualification of Some Canadian "Snowbirds" from Streamlined Treatment (10/22/14)

Moodys Gartner Tax Law has published a blog entry, here, on the Canadian Snowbird trap in the Streamlined procedures.  The following summary was provided:

The IRS recently released FAQs concerning its amnesty programs for noncompliant taxpayers who want to become compliant with their  U.S. tax filing obligations. The FAQ for the nonresident flavor of the new streamlined amnesty program, SFOP, is particularly troubling for snowbirds (i.e., folks, particularly Canadians) who migrate to the U.S. each year but who have not filed forms 1040 for the three-year period for which tax returns must be filed under streamlined. If these snowbirds spend more than just 35 days (36 in a leap year) in the U.S. during each of these three years, they are ineligible for streamlined and must either use OVDP or file without the protection of an IRS amnesty program to get compliant. Before the FAQ, there was an interpretation of the streamlined procedures' "non-residency requirement" that qualified these nonfiler snowbirds under streamlined using section 911 of the Code. The result is troubling for those affected. 

Follow the link above for the full blog entry.

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.

Offshore Depositor Pleads to Tax Perjury; Banks - UBS, Israeli Bank & Jersey Bank (10/20/14)

DOJ Tax announced, here, that another offshore bank depositor, Menashe Cohen, has pled guilty to one count of tax perjury, Section 7206(1). Key Excerpts

According to court documents, Menashe Cohen, an oriental carpet dealer, and his sister maintained an undeclared bank account at UBS in Switzerland that had a balance of approximately $1.3 million.  Cohen also maintained bank accounts in Israel and in Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy, France.  Although Cohen’s return for tax year 2009 reported that he had a financial interest in a bank account in Jersey, the return failed to report that he had financial interests in the accounts located in Switzerland and Israel.  In addition, Cohen’s return only reported $350 in interest income, when in fact he had received approximately $66,500 in interest income during 2009. 

In total, for tax years 2006 through 2009, Cohen failed to report approximately $170,000 in income earned from offshore bank accounts.  In addition, Cohen filed a false and fraudulent Report of Foreign Bank and Financial Accounts (FBAR) for 2009, wherein Cohen reported he had bank accounts in Israel and Jersey on the FBAR, but failed to report his financial interest in the UBS account in Switzerland. 

* * * *

Cohen faces a statutory potential maximum sentence of three years in prison and a maximum fine of $250,000 at his Jan. 26, 2015, sentencing.  In addition, Cohen has agreed to resolve his civil liability for failing to report his financial interest in the UBS account on a FBAR by paying a 50 percent civil penalty to the IRS based on the high balance of his one-half interest in the account.

JAT Comment:  Straightforward continuation of DOJ Tax's plea requirements.  However, the limitation of the FBAR penalty to his interest in the UBS account.  From the narrative, it would appear that he had FBAR and income tax delinquencies for other accounts in a period that would have been relevant to the prosecution.