CI Stats on Criminal Tax Enforcement, FBAR Sentencing and Deportation (3/8/13)

A recent Tax Notes Today article -- Shamik Trivedi, CI Official Touts Filing Season Enforcement, Tax Crime Enforcement Rate, 2013 TNT 42-19 (3/4/13) -- covers some criminal tax subjects.  The following are the ones that caught my attention:

In 2012, CI initiated more than 5,100 criminal cases and made more than 3,700 prosecution recommendations, Haynes said. It also saw a 93 percent conviction rate and an 81.5 percent imprisonment rate after conviction, Haynes said. That imprisonment rate is important, said Edward Cronin, CI division counsel/associate chief counsel. "Straight probation is less than 20 percent. I really think that's a historically important moment," he said.  

* * * * 

Under section 5K1.1 of the sentencing guidelines, substantial assistance to authorities can reduce a defendant's potential sentence. The sentencing guidelines for crimes related to foreign bank account reporting default to the tax guidelines if the punishment would be greater, said Mark E. Matthews of Caplin & Drysdale. The Title 31 FBAR sentencing guidelines focus on the high balance of the unreported foreign account, he said.  

Convictions for Title 26 tax losses greater than $10,000 can result in deportation for noncitizens, Matthews said. But the Justice Department has offered most offshore account defendants the choice of being sentenced under Title 31 or Title 26 guidelines, he said. Although Title 31 sentences are longer, the risk of deportation disappears, he said. That can be important for green card holders facing expulsion from the United States, he said. 

JAT Comments:

Get in Line Brother #18b - McCarthy Plea Guidelines Sentencing Range Calculations (8/17/09)

I continue my discussion of the McCarthy UBS related plea. All installments of this discussion may be reviewed here. This blog discusses the Sentencing Guidelines calculations which, under Booker, must be considered although not mandatory.

1. Alternative Guidelines Regimes - Monetary Reporting or Tax?

a. The Monetary Reporting Calculations. The starting point under Chapter Two is Part S, §2S1.3. Following the pattern of Chapter Two, this section provides a Base Offense Level and adjustments for Specific Offense Characteristics. The Base Offense Level is determined under §2S1.3(a)(2) providing for a level of 6 plus the additional levels from §2B1.1 dealing with theft loss but using the "value of the funds" instead of the loss. In the case of the FBAR, the value of the funds would be the amount reportable on the FBAR -- i.e., the highest amount in the account during the year. The calculation is made for the year of conviction and all relevant conduct (a Guidelines concept that basically includes related activity whether charged or uncharged, convicted or acquitted or even outside the criminal statute of limitations). So, presumably, since McCarthy admitted willful failure to file FBARs for multiple years, the aggregate for all years for all foreign accounts would be used for the §2B1.1 calculation. The plea documents do not provide the information from which the Base Offense Level calculation can be made. With the inclusion of all years, however, the Base Offense Level might get up pretty high. After determination of the Base Offense Level, §2S1.3 provides Specific Offense Characteristics for adjustments to the Base Offense Level. The relevant Characteristics is §2S1.3(b)(2) which, in pertinent part, provides a 2 level increase if the conviction offense was “part of a pattern of unlawful activity involving more than $100,000 in a 12-month period.” I believe that that calculation will include FBAR reporting amount for the offense year of conviction and the years for which the FBAR willful failure to file was admitted even though not charged. Possibly also, it might include income tax loss (i.e., the tax loss stipulation (discussed below) and the agreement to a civil fraud penalty should suffice to be a tax loss admission under the preponderance of evidence standard for sentencing purposes). So, I think that a two level increase would apply if the amounts involved more than $100,000 as they almost certainly did for the FBAR violations. (Note if those nonconviction items were omitted from the calculation as not constituting a pattern of unlawful activity, McCarthy might qualify for a reduction of the offense level to 6. § 2S1(b)(3).) As noted, I cannot provide the calculations for the offense level because the plea documents do not provide the amounts that would permit calculation of the Base Offense Level.

b. The Tax Crimes Calculations. Notwithstanding the foregoing, if the tax crimes calculations would produce a higher offense level, then the tax crimes calculations apply. § 2S1.3(c). The pertinent tax crime calculations are made under Chapter Two, Part T, and specifically under § 2T1.1. The plea agreement assumes that the tax crimes calculations will be the applicable calculations. See e.g., the agreement as to tax loss in plea par. 12 specifically referencing §2S1.3(c). As often occurs in tax pleas, the parties try to pre-empt the sentencing factors, including tax loss, in the plea agreement. The parties stipulated to a tax loss ($200,000 - $400,000) which produces a Base Offense Level of 18 and then stipulated a Specific Offense Characteristic of “sophisticated means” requiring a 2 level increase. See §2T1.1(a) and (b). So the offense level coming out of Chapter 2 is 20. The parties then provide for the standard acceptance of responsibility reduction (2 if the offense level is 15 or less and 3 if, as indicated here, more than 15), so the indicated offense level is 17 considering only these matters. The plea agreement suggests that the offense level of 17 is what the parties contemplate / hope for. (See e.g., defendants’ waiver of appeal right so long the Court determines an offense level of 17 or below.) Level 17 indicates a Guidelines range of 24-30 months with a criminal history of I. Of course, the parties stipulations as to the factors are not binding upon the probation office or the sentencing court, but (i) it looks like 24-30 months is the Guidelines range the parties expect and, if the court sentences within the indicated range, it is common in tax cases to go to the lower end of the range and (ii) the court might even vary below the range upon a strong showing.

2. The Tax Loss Agreement.

I noted above that the parties stipulated the tax loss in order to derive the Base Offense Level under the tax Guidelines. Let's take a closer look at the stipulation:

a. Tax Loss: The relevant actual, probable, or intended tax loss under Section 2Tl.l of the Sentencing Guidelines resulting from the offense committed in this case and all relevant conduct is the tax loss associated with funds deposited into the COGS Eenterprises Ltd. (COGS) account at UBS AG that was disclosed to the U. S. Government pursuant to the Deferred Prosecution Agreement with UES AG, plus the tax loss on the net income earned on those funds for the years 2003 through 2007. The parties agree that the tax loss is more than $200,000, but less than $400,000 (exclusive of interest and penalties) for an Offense Level of 18 . See U.S. S. G. §§ 2S1.3(c), 2T1. 1, and 2T4. 1 (G).

The tax loss agreement is curious because it limits the tax loss to tax attributable to the UBS account disclosed to the U.S. Government pursuant to the DPA. Why would it not at least include all similar tax loss for all foreign accounts. The statement of facts states that money was transferred into "UBS Accounts" (plural) and that defendant was discouraged from transferring money out of his "UBS Swiss bank accounts" (plural). Further, the statement of facts states that those transfers came from a Caymans bank account that defendant controlled. (In the next sentence, the statement refers to a UBS Caymans banking relationship, but the UBS identifier is missing from the statement as to the source of the transferred funds.) So why does the agreement attempt to limit the tax loss just to that related to the one UBS account? The plea agreement does not address that question.

More on New DOJ Tax Position on FBAR Sentencing Guidelines (11/9/17)

At the 34th Annual National Institute on Criminal Tax Fraud in Las Vegas, a senior DOJ Tax CES attorney, Mark Daly, discussed DOJ Tax's new policy to seek sentencing under the Part 2S Guidelines rather than under the Part 2T Guidelines.  See DOJ Announces Major New Shift in Criminal Sentencing in Offshore Tax Matters (JD Supra 12/8/17), here.

I had previously discussed that shift in Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (Federal Tax Crimes Blog 10/27/17), here.  The JD Supra article provides more detail on the consequences of that shift.

First, since the SG § 2S1.3 Guideline range is based on the value of the offshore account rather than the tax loss associated with the account, the dollar amount and resulting Guideline range is likely to be multiples of the Guideline range that would have been calculated under 2T1.1.  The JD Supra article says:

Daly gave the example of his United States v. Kim case in the Eastern District of Virginia, where the Part 2T tax loss was on the order of $150,000, but the Part 2S1.3 value was $28 million. Depending upon the circumstances, that could be a ten-fold increase in the sentence. In Kim, the DOJ asserted that Part 2S1.3 was the correct guideline, but due to a prior agreement with the defendant, the DOJ would in that case agree to sentencing based on Part 2T. Daly stated that the DOJ intended its language asserting that Part 2S1.3 was the correct guideline as a warning to the defense bar in other such cases.

In addition, the JD Supra article says:

The second problem is that Part 2S1.3 allows for a 2-level enhancement where a defendant has also been convicted of an offense under subchapter II of chapter 53 of title 31–which includes filing a false or misleading FBAR. Because an FBAR must be filed each year along with the tax return, the DOJ will now seek to add charges under title 31 chapter 53 to obtain a 2-level enhancement at sentencing.

To trace this through the Guidelines, SG § 2S1.3(b)(2) provides:

(2)       If the defendant (A) was convicted of an offense under subchapter II of chapter 53 of title 31, United States Code; and (B) committed the offense as part of a pattern of unlawful activity involving more than $100,000 in a 12-month period, increase by 2 levels.

Application Note 3 says:

3.      Enhancement for Pattern of Unlawful Activity.—For purposes of subsection (b)(2), "pattern of unlawful activity" means at least two separate occasions of unlawful activity involving a total amount of more than $100,000 in a 12-month period, without regard to whether any such occasion occurred during the course of the offense or resulted in a conviction for the conduct that occurred on that occasion.

The inference of the article is that if the contemporaneous filing of the false FBAR or failure to file the FBAR occurs at the same time that the tax return willfully failing to report the income is filed, this two level enhancement will automatically apply.

The question is whether, in any event, courts will continue the pattern of Booker downward variances consistent with the level of sentencing under Booker variances when they applied the tax Guidelines.  I would expect criminal defense attorneys to submit detailed charts or spreadsheets showing the pattern of sentencing in the past and urging that the sentences be consistent with that pattern.  That was done in the Warner case, apparently to good effect, and I am sure in other cases as well.  I expect that to occur in the future.  I am not sure how the Courts will react to the Government's Eureka moment as to the appropriate Guidelines calculation.  I suspect that Courts will continue to apply Booker variances, and that, at the end of the day, even if the § 2S1.3 Guidelines are applied, the final Booker sentence will be the roughly same as the Booker sentence would have been had the tax Guidelines applied.  That is just my speculation.

And, I expect that, if available, a Government offer as to a plea deal for either a tax crime (evasion or tax perjury) or FBAR crime, a defendant should seriously consider the tax crime.

The article reports that Daly said that DOJ Tax policy guidance on the new position would be "forthcoming."

Offshore Account Defendant Sentence with Court Accepting Government's New Position on Guidelines Calculations (1/25/18)

DOJ Tax announced here the sentence for Hyung Kwon Kim for an FBAR violation.  (Note that the announcement identifies the defendant as Huong rather than Hyong, but Hyong appears to be a misspelling of his first name per the underlying documents.)  I previously blogged on Kim's guilty plea.  Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (Federal Tax Crimes Blog 10/27/17), here.

The key numbers are exceptional.  The amount of the unreported or underreported accounts is over $28 million.  The FBAR penalty is over $14 million.  The sentence is only 6 months. 

Key excerpts are:

According to documents and other information provided in court, Hyong Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut.  Kim, a sophisticated business executive who ran family businesses with operations in the United States and internationally, inherited tens of millions of dollars that he stashed in secret accounts at Credit Suisse, its subsidiaries, and another Swiss bank.  Kim deliberately violated the U.S. bank secrecy laws by failing to report his foreign financial accounts to the Treasury Department.  U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file a Report of Foreign Bank and Financial Accounts, commonly known as an FBAR, disclosing the account. 

Kim conspired with a host of foreign enablers, including Dr. Edgar H. Paltzer, his Swiss attorney who pleaded guilty in 2013 in the Southern District of New York, and bankers to conceal his assets and income in Swiss accounts held in his own name, the name of a relative, and in the names of sham corporate entities.  Kim schemed with Paltzer and his bankers to structure financial transactions in a manner that allowed him to utilize the funds in the United States, while concealing his ownership and control of the offshore funds.  For example, Kim had checks issued to third parties in the United States in order to purchase a luxury home in Greenwich, Connecticut, a waterfront vacation retreat in Chatham, Massachusetts, and jewelry adorned with multi-carat diamonds, emeralds, and rubies.  In order to conceal his ownership of the vacation home, Kim and Paltzer created a sham entity to hold title to the home.  Kim and Paltzer acted as if Kim rented the home from a fictitious owner. 

In 2008, as Credit Suisse closed accounts held in the names of sham entities owned by persons residing in the United States, Kim refused to bring his assets to the United States.  Instead, he transferred his assets to another Swiss bank.  Kim send coded messages from the United States to his Swiss banker in order to maintain control of his account. 

Kim ultimately brought his assets to the United States by paying a Swiss jeweler millions of dollars for a ring with a 13.9 carat sapphire and three loose diamonds totaling 13 carats.

The described pattern of conduct is not particularly exceptional.

What is exceptional about the plea and the sentencing is the Government's announcement in the plea and resulting publicity that it had changed the position on the applicable Sentencing Guideline.  Historically, for FBAR violations related to income tax evasion, the DOJ had recommended and most cases had been sentenced under the tax guidelines which calibrated the additions to the Base Offense level based on the tax evaded.  In the Kim plea, DOJ Tax announced that the Guidelines would be under SG § 2S1.3 and the incremental offense levels under the theft guideline in SG § 2B1.1.  I discussed this in the blog on the plea agreement linked above and in a subsequent blog where the change in position was discussed at a tax conference.  More on New DOJ Tax Position on FBAR Sentencing Guidelines (11/9/17), here.  Notwithstanding this change of position, DOJ Tax agreed in the plea agreement that it would urge the application of the tax guidelines from fairness to this defendant.  I noted, however, that the Probation Office and Judge are not bound by this aspect of the agreement.  Indeed, one would think that the judge has to apply the right guidelines even if the parties agreed otherwise.  But, let's see.

Sentencing Guidelines Analysis for FBAR Convictions (10/31/17)

A couple of days ago, I posted a blog entry about an FBAR plea where, in the plea agreement, the Government stated that it had changed its position on Sentencing Guidelines calculations for FBAR convictions related to tax crimes.  Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (10/27/17), here.  The plea agreement states as follows:

The Government contends that the applicable Guideline in this matter should be U.S.S.G. § 2S1.3(a)(2), § 2S1.1 , and § 2S1.3(b)(2) because the defendant filed two false FBARs and a false U.S. Individual Income Tax Return, Form 1040, within a 12-month period. However, at the time that the defendant agreed to plead guilty, the Government consistently took the position with similarly situated defendants that the applicable Guideline was U.S.S.G. § 2Tl.1 and § 2TI.4 due to the cross reference in 2Sl.3(c)(1).

I thought it would be good for me and perhaps the readers of this blog to step through the Guidelines on for FBAR convictions in the context of tax crimes to follow the detail behind the Government's change in position.  I will be dealing with the Sentencing Guidelines which, as of today, are the 2016 Guidelines.  New versions of the Guidelines are issued every year to incorporate changes.  Usually, most of the Guidelines are carried forward, with changes only to some of them.  The changes can be important.  I expected that there would be new Guidelines effective November 1, 2017, but could not find any posted on the United States Sentencing Commission web site and some indications that the 2017 Guidelines may not be adopted until later than November 1, 2017.  So, I decided to post this entry referring to the 2016 Guidelines.  Based on the changes that are being considered, I do not think there will be any change in the 2017 Guidelines from the provisions I refer to in the 2016 Guidelines.  When the 2017 Guidelines come out, I will review them and make any corrections that may be appropriate to this blog entry.

Before offering my analysis, I caveat that I limit the scope of the analysis to FBAR violations where the only other potential criminal conduct relates to tax crimes -- i.e., the use by U.S. taxpayers of offshore accounts to evade U.S. tax and the FBAR violations (usually failure to file the FBAR) were committed to hide the tax violations.  (Thus, for example, the recent Manafort and Gates indictments being prosecuted by Special Counsel Mueller, here, alleged counts for FBAR violations and a defraud / Klein tax conspiracy along with other contextual counts (such as money laundering) that would preclude the application of this analysis to the FBAR counts.)

Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (10/27/17)

DOJ Tax announced here another FBAR plea.  The defendant is Hyung Kwon Kim, identified as a "Greenwich, Connecticut man" (which I presume means a Greenwich Connecticut resident), and the plea was entered in the ED VA.  I link also the following:

• The criminal information, here, to which the plea was entered
• The Plea Agreement, here.
• The Statement of Facts, here.
• The Docket Entries as of about 1:30 pm 10/27/17, here.

The key excerpts from the press release are:

According to court documents and information provided in court, Hyung Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut.  Around 1998, Kim traveled to Switzerland to identify financial institutions at which to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong.  Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.  In 2004, the value of the funds in Kim’s accounts exceeded $28 million. 

* * * * 

Kim conspired with several bankers, including Dr. Edgar H. Paltzer, to conceal the funds from U.S. authorities.  Paltzer, who was convicted in 2013 in the Southern District of New York for conspiring to defraud the United States, and the other bankers assisted Kim in opening accounts in the names of sham entities organized in Lichtenstein, Panama and the British Virgin Islands.  Paltzer and the other bankers facilitated financial transactions for Kim, so that Kim could use the funds in the United States.  For example, between 2003 and 2004, Kim directed Paltzer and another banker to issue nearly $3 million in checks payable to third parties in the United States for the purchase of a residence in Greenwich, Connecticut.  In 2005, Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million.  Kim and Paltzer communicated about the purchase in a manner that created the appearance that Kim was renting the property from a fictitious owner. 

Between 2000 and 2008, Kim took multiple trips to Zurich, Switzerland and withdrew more than $600,000 in cash during these visits.  He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems.  For example, in 2008, Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler. 

In 2008, during a trip to Zurich, Kim’s banker at Clariden Leu informed Kim that due to ongoing investigations in the United States, Kim could either disclose the accounts to the U.S. government, spend the funds, or move the funds to another institution.  Kim moved the funds into nominee accounts at another bank. In 2011, Kim liquidated the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from the Greenwich jeweler. 

Kim also admitted that from 2000 through 2011, he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.
As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.

Now, just a few comments on the documents linked above.

Third Circuit Affirms Sentence for Tax Obstruction (§ 7212(a)) Under the Obstruction Guidelines (8/22/16)

The Third Circuit's recently unpublished opinion in United States v. Celluci, 2016 U.S. App. LEXIS 14958 (3d Cir. 2016), here, serves as a reminder of some hiccups in the normal application of the Guidelines for tax sentencing.  There, the taxpayer pled to wire fraud (§ 1343) and tax obstruction (§ 1343).  For sentencing, the counts were grouped under SG § 3D1.3.and sentenced under the tax obstruction Guideline.  Now, normally that would mean that the taxpayer's calculations would be made under the evasion Guideline in SG § 2T1.1.  But, as an "obstruction" crime, Guidelines Appendix A (Statutory Index) provides that the Guideline calculation for the omnibus clause tax obstruction may be made under either SG 2J1.2, Obstruction of Justice, or SG 2T1.1.  Based on the taxpayer's conduct in the two grouped crimes, the sentencing court determined that the Obstruction of Justice Guideline was more appropriate.

Taxpayer complained on appeal.  The Court of Appeals affirmed.  The reasoning for the affirmance is short, so I quote (footnote omitted):

The Statutory Index provides that for a conviction under the omnibus clause of § 7212(a), either U.S.S.G. § 2J1.2 (Obstruction of Justice) or § 2T1.1 (Tax Evasion) may be appropriate.3 U.S.S.G. App. A. Where, as here, the Statutory Index "specifies more than one offense guideline for a particular statute, the court must 'determine which of the referenced guideline sections is most appropriate for the offense conduct charged in the count of which the defendant was convicted.'" Aquino, 555 F.3d at 127 (quoting U.S.S.G. § 1B1.2 cmt. n. 1). 

In determining which of two or more guidelines is "most appropriate," U.S.S.G. § 1B1.2 cmt. n. 1, we consider only the conduct charged in the relevant count of the indictment. See U.S.S.G. § 1B1.2(a); Boney, 769 F.3d at 160; Aquino, 555 F.3d at 129. The indictment here charges that, as part of its efforts to collect back taxes from OLR, the IRS sent CPA a Notice of Levy that directed CPA to submit payments due to OLR to the IRS instead. Cellucci then "endeavor[ed] to obstruct and impede the due administration of the internal revenue laws" by creating a false Release of Levy and transmitting it to CPA, so that CPA would believe it was no longer obligated to submit payment to the IRS and would instead send the payment to OLR. App. 18. 

Section 2J1.2, the obstruction of justice guideline, addresses various offenses, including "obstructing a civil or administrative proceeding." U.S.S.G. § 2J1.2 cmt. n. 2. In the context of a prosecution under § 7212(a), an IRS "action" or "proceeding" has been defined as "some step [by the IRS] to investigate a particular taxpayer beyond routine administrative procedures such as those required to accept and process tax filings in the ordinary course." United States v. Miner, 774 F.3d 336, 346 (6th Cir. 2014). The IRS's efforts to collect back taxes from OLR, which included sending the Notice of Levy to CPA, involved more than routine administrative procedures, and thus are appropriately viewed as a "proceeding." Because Cellucci's criminal scheme—an effort to re-direct the payment from CPA to her business, rather than the IRS—directly interfered with that proceeding, the District Court appropriately relied on § 2J1.2 in calculating her sentence. 

Sentencing Simon (Preliminary and Final) (3/18/11)

Note to Readers:  This blog initially discussed only the opinion on Preliminary Sentencing Findings.  I have since obtained the subsequent sentencing opinion.  I accordingly ad a link to the sentencing opinion and a short discussion of it at the end of this blog.

PRELIMINARY SENTENCING OPINION 3/14/11

Only 3 defendants have been tried recently amidst the Government's juggernaut against foreign bank accounts. All were convicted. I have previously discussed here, 2 of those defendants, father and son, who were convicted and sentenced to 40 months each. I want to talk today about the other whose prosecution, technically, did not arise from that juggernaut, but who was tried for foreign bank account violations during the ongoing juggernaut. He is James A. Simon whom I have discussed before here.

Mr. Simons' prosecution apparently arose from an investigated that predated the UBS brouhaha from whence the flurry of criminal charges arose. He had a number of criminal issues beyond just failing to report and pay tax on income stashed in foreign banks and filing the required FBAR. He did not plead and was convicted of multiple counts as will be noted.

Manafort Plea Documents and Comments (9/24/18)

I have just returned from a foreign trip and have had the opportunity to review the Manafort plea documents.  Those documents are:  (i) the plea agreement, here; (ii) the Statement of Offenses and Other Acts, here; and (iii) the Superseding Criminal Information, here.

Some comments:

1.  The plea agreement (par. 1) requires that Manafort plead to two conspiracy offenses. The first conspiracy offense (Count One) is the type commonly required in major tax crimes conspiracy cases.  Readers will recall that the conspiracy statute describes two types of conspiracy -- an offense conspiracy and a defraud conspiracy (commonly called in tax cases a Klein conspiracy).  See 18 USC 371, here ("either to commit any offense against the United States, or to defraud the United States, or any agency thereof").  The Superseding Criminal Information to which Manafort pled as required by the plea agreement is for both the offense conspiracy (naming the offenses) and a defraud conspiracy, stating the defraud conspiracy first (see Count One, par. 61, "knowingly and intentionally conspired to defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental functions of a government agency, namely the Department of Justice and the Department of the Treasury.")  Technically, I think (but have not updated my thoughts on this), the Government might have charged the offense and defraud conspiracies separately, but I have not seen that in tax cases where both were pled, particularly where both offenses are within the same range of conduct.  In many tax cases, only one of the two types of conspiracies is charged even where the indictment could have included both types.  For further nuance, given the Sentencing Guidelines keying the recommended sentence to tax loss and including relevant conduct tax loss, not charging any crime within the scope off the defendant's conduct may not affect the actual calculations.

2.  Manafort agrees not to appeal the conviction verdicts in the ED VA case (plea agreement par. 1), and the Government agrees not to retry to counts on which the jury hung in the ED VA case.

3.  The convictions in the ED VA case will be sentenced separately.  I have written on sentencing issues in the ED VA case:  See Paul Manafort Verdict - On Relevant Conduct (Federal Tax Crimes Blog 8/21/18), here.  I suspect that, at some level, the sentences will be coordinated so that, between them, they reach an appropriate sentence based on Manafort's overall conduct.  I note in this regard that all of the counts would have been charged in the DC case except that some crimes required venue in ED VA rather that DC and Manafort refused to waive venue so that all could proceed in a single indictment.  If there had been a single case, the sentencing judge in that case would have been able to insure a sentence based on the overall conduct without any potential differences that might be introduced by having two judges sentencing for various pieces of the conduct.  Importantly, in respect to venue, the Government can pursue the ED VA counts on which the jury hung in DC because, in paragraph 3 of the plea agreement, Manafort agrees to waive venue as to those charges in ED VA should he violate the agreement.  (I suppose that is to permit the Government to have only one more trial rather than two if he violates the plea agreement, but I also wonder whether the Government just did not want to re-try the hung counts before Judge Ellis (see The Manafort Trial - Judging the Judge's Conduct (Federal Tax Crimes Blog 8/17/18), here).)

Additional Pleas to Offshore Account Tax Crimes (1/18/17)

DOJ Tax announces, here, the plea to three U.S. offshore account holders.  The banks are the usual suspects -- UBS, Credit Suisse, Bank Leumi and others -- in Switzerland and Israel.  Each of the three related persons -- Dan Farhad Kalili, David Ramin Kalili and David Shahrokh Azarian -- pled to one count of failure to file FBARs, a five year felony.  Sentencing is later.

The key excerpts are:

Beginning in May 1996, and continuing through at least 2009, Dan Kalili opened and maintained several undeclared offshore bank accounts at Credit Suisse Group (Credit Suisse) in Switzerland. He also opened and maintained several undeclared offshore bank accounts from at least 1998 through 2008 at UBS AG (UBS) in Switzerland. Similarly, David Kalili opened and maintained several undeclared accounts at Credit Suisse in Switzerland, from February 1999 through at least 2009, and at UBS in Switzerland, from October 1993 through at least 2008. Dan and David Kalili also maintained joint undeclared Swiss bank accounts at both UBS and Credit Suisse beginning in 2003 and 2004, respectively. Meanwhile, Azarian opened and maintained several of his own undeclared accounts at Credit Suisse in Switzerland from May 1994 through at least 2009, and at UBS in Switzerland from April 1997 through at least 2008. 

In July 2006, Dan Kalili, with the assistance of Beda Singenberger (Singenberger), a Swiss citizen who owned and operated a financial advisory firm called Sinco Truehand AG, opened an undeclared account at UBS in the name of the Colsa Foundation, an entity established under the laws of Liechtenstein. Singenberger was indicted in the Southern District of New York on July 21, 2011, for conspiring to defraud the United States, evade U.S. income taxes, and file false U.S. tax returns. Singenberger remains a fugitive. As of May 2008, the Colsa Foundation account at UBS held approximately $4,927,500 in assets. 

Each of the defendants took affirmative steps to prevent their assets in UBS and Credit Suisse from being discovered. Dan Kalili opened an undeclared account at Swiss Bank A in the name of the Colsa Foundation and in May 2008, transferred his assets from the UBS Colsa Foundation account to Swiss Bank A. He later made partial disclosure of the Swiss Bank A Colsa account on his individual income tax returns. In 2009, Dan Kalili opened undeclared accounts at Israeli Bank A and at Bank Leumi, both in Israel. In June 2009, he closed the joint undeclared account at Credit Suisse he held with David Kalili, as well as his own undeclared account, and transferred the funds. Shortly before its closure, the undeclared joint account of Dan and David Kalili at Credit Suisse held approximately $2,561,508 in assets. As of December 2009, Dan Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,569,973, and his undeclared account at Bank Leumi held assets valued at approximately $2,497,931.

Similarly, in August 2008, David Kalili opened an undeclared account at Israeli Bank A in Israel, into which he transferred funds from his UBS accounts. He later partially declared the Israeli Bank A account on his individual income tax returns. As of August 2009, David Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,369,489. 

In August 2008, Azarian, also opened an undeclared account at Israeli Bank A in Israel, and in May 2009, he closed his undeclared account held at Credit Suisse and transferred the funds to Israeli Bank A. Azarian later partially declared this Israeli Bank A account on his individual income tax returns. At the time of its closure, Azarian’s undeclared account at Credit Suisse held assets valued at approximately $1,903,214. 

For each year from 2006 through 2009, Dan Kalili, David Kalili, and Azarian, as U.S. citizens, were required, but willfully failed, to report their ownership and control over foreign bank accounts through the timely filing of FBARs with the IRS disclosing their signatory or other authority over the various undeclared accounts held at UBS, Credit Suisse, Israeli Bank A, and Bank Leumi, each having an aggregate value of more than $10,000 during each of these years. 

* * * *  

* * * In addition [to the criminal exposure], each defendant agreed to pay a civil penalty for willfully failing to file FBARs. Dan Kalili agreed to pay a civil penalty of $2,674,329, David Kalili agreed to pay a civil penalty of $1,325,121 and Azarian agreed to pay a civil penalty of $951,607.

The civil penalty is the willful FBAR penalty, which is 50% of the high amount in the accounts.

The plea agreements and docket entries for each defendant are here:

• Dan Kalili docket entries, here.
• Dan Kalili plea agreement, here.
• David Kalili docket entries, here.
• David Kalili plea agreement, here.
• Azarian docket entries, here.
• Azaraian plea agreement, here.

Tenth Circuit Case on Sentencing Guidelines Tax Loss as Object of the Offense (7/3/16)

In United States v. Sing, 2016 U.S. App. LEXIS 12110 (10th Cir. 2016), unpublished, here, the Tenth Circuit affirmed an appeal questioning the calculation of the tax loss, the principal driver of the Sentencing Guidelines for tax crimes.  SG § 2.1.1(c)(1), here, provides:

(1)       If the offense involved tax evasion or a fraudulent or false return, statement, or other document, the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).

The Background provides:

Background:  This guideline relies most heavily on the amount of loss that was the object of the offense. Tax offenses, in and of themselves, are serious offenses; however, a greater tax loss is obviously more harmful to the treasury and more serious than a smaller one with otherwise similar characteristics. Furthermore, as the potential benefit from the offense increases, the sanction necessary to deter also increases.

The key concept in the foregoing is the "object of the offense."  The guidelines use the term "object of the offense" in other nontax provisions.  E.g., § 2P1.2 ("If the object of the offense was the distribution of a controlled substance")  Further, the Guidelines use the term object in apparent reference to object of the offense.  E.g., 2S1.1 Commentary ¶ 3(c) ("sole object of that conspiracy).  (It is interesting, in this regard, that the other major financial crime provision, §2B1.1, here, dealing with larceny, embezzlement, other forms of theft, etc., uses the simpler concept of "loss" rather "loss that was the object of the offense.")

In any event, the Tenth Circuit seemed to be troubled enough to comment on its view that the formulation in the tax guideline -- "loss that was the object of the offense" -- did not fit neatly into the Model Penal Code ("MPC") provisions of mens rea.  The Tenth Circuit said:

Ms. Sing and Mr. Timmerman argue that the district court's tax loss estimate is fatally flawed and that this error infected the whole of the sentencing process. It's not entirely clear from the text of § 2T1.1(c)(1) what mens rea the government must prove with respect to a tax loss. Rather than employing [4]  the standard and rigorous mens rea categories discussed in the Model Penal Code or much of contemporary criminal law, the guidelines say the government must show the loss amount was the "object of the [defendants'] offense (i.e., the loss that would have resulted had the offense been successfully completed)." And you might well wonder whether, translated into the more helpful heuristics of the Model Penal Code, this means the government must show the defendant intended, knew of, or perhaps was recklessly indifferent to or negligent about the amount of loss the government would have suffered "had the offense been successfully completed." But, as the defendants concede, they, the government, and the district court in this case have all proceeded on the assumption that to qualify as the "object of the offense" the loss in question must have been intended. See United States v. Manatau, 647 F.3d 1048, 1048 (10th Cir. 2011). And that much, they say, the government failed to prove in this case.

So, the Tenth Circuit raised the concern but did not develop the issue or resolve it.  Although the comment is somewhat cryptic, I have tried to develop it as best I could.  Bottom-line, thought, I agree that the intended loss is the concept.

The Court does not cite the provision in the MPC to which it refers.  I will provide here some background  to the MPC and the apparent provision to which the Tenth Circuit referred.

The MPC is a model code developed by the American Law Institute "to stimulate and assist legislatures in making an effort to update and standardize the penal law of the United States of America."  See Wikipedia entry on Model Penal Code, here.  The MPC offers some fundamental concepts, including, in § 2.02, the General Requirements of Culpability.  See the reprinting by Professor Vernelia R. Randall, here.  In relevant part, the "Minimum Requirements of Culpability" for a criminal offense is that the person "acted purposely, knowingly, recklessly or negligently, as the law may require, with respect to each material element of the offense."  MPC § 2.02(1).  Each of the types of culpability are further defined in MPC § 202(1).  The Sentencing Guidelines term "object of the offense" seems to be an intent concept, as the parties agreed in Sing and thus fit within the concepts of "purposely" and "knowingly" in the MPC.  Hence, the sentencing court and the parties agreement that intent was required for the tax loss in the object of the conspiracy resolved any issue as to the concept in the Sentencing Guidelines.

In this regard, since the reference is to the object of the offense, like the offense conspiracy, it probably imports the mens rea element of the offense (including relevant conduct).  Tax crimes are specific intent crimes.  See Cheek v. United States, 498 U.S. 192 (1991) (the statutory element of willfulness in most Title 26 tax crimes requires specific intent to violate a known legal duty).  Hence, the mens rea element seems to be the same as the underlying offense -- the Cheek willfulness.

Another concept defined in the MPC for some types of culpability is "recklessly."  See MPC § 2.02(c).  A question presented by the Cheek willfulness element is whether willful blindness (or a related concept of reckless conduct) is a nonstatutory expansion of the specific intent concept in the "willfully" element for tax crimes or, instead, merely permits a jury to infer the specific intent from finding conduct that might be characterized as reckless.  I will just link below some of the blogs in which I discuss the issue.

• Willful Blindness / Conscious Avoidance and Crimes Requiring Intent to Violate a Known Legal Duty (Federal Tax Crimes Blog 7/21/14), here, discussing the concepts in the criminal context.
• More on Recklessness as Cheek Willfulness (Including for FBAR Civil Penalty) or Willful Blindness (Federal Tax Crimes Blog 7/22/14), here, discussing the concepts in the civil willfulness context.

Another UBS Client Pleads (11/15/11)

Lothar Hoess has plead to a single count of FBAR violation.  The plea agreement is here, and the information is here.

Here are the key bullet points, followed by comments:

Taxpayer: Lothar Hoess
Bank : UBS AG
Entities: Yes
Guilt: By Plea Agreement
Count:  1 FBAR Count covering 4 years (2005-2008)
Maximum incarceration period:  60 months.
Tax Loss:  ? (unknown, but the payment of tax, penalties and interest is $2,044,029)
FBAR Penalty: $1,372,774 (50% of the indicated highest balance).
Guidelines calculations:  Final Indicated Offense Level: 19 (see discussion below)
Court: NH
Judge: Steven J. McAuliffe

Sentencing Guideline Calculations and comments:

Anesthesiologist Sentenced for Tax Perjury (1/16/20)

DOJ Tax announced today the sentencing of a Pennsylvania anesthesiologist, James G. Allen, Jr. To 30 months in prison.  See Pennsylvania Anesthesiologist Sentenced to Prison for Tax Fraud (1/16/20), here.

The key excerpts are:

A Pennsylvania anesthesiologist was sentenced to 30 months in prison today for filing a false income tax return, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. 

From 2010 through 2018, James G. Allen Jr., 54, filed and caused the filing with the Internal Revenue Service (IRS) of sixteen false tax returns for himself and his wife.  On these tax returns, Allen did not report more than $3 million in income that the pair earned as anesthesiologists.  In addition to filing false tax returns, Allen took steps to conceal the couple’s assets and income from the IRS, including depositing money in an offshore bank account held in the Bailiwick of Jersey, wiring money to Columbia to purchase a house, purchasing cryptocurrency and gold, and registering a vehicle in the name of a purported church. In total, Allen caused a tax loss of more than $900,000 to the United States. 

In addition to the term of imprisonment, U.S. District Judge Arthur J. Schwab ordered Allen to serve a one year term of supervised release and pay restitution to the IRS in the amount of $ 1,084,658.52.  

JAT Comments:

Tax Obstruction Conviction Permits Inclusion in Tax Loss of Penalties and Interest (3/12/16)

I previously reported on the criminal tax appeal by Rex Black who was convicted of tax obstruction, § 7212(a), here.  Seventh Circuit Reverses Sentence for Improper Calculation of Advisory Guidelines Range (8/21/15), here.  The Seventh Circuit opinion discussed in that blog entry covered several issues, one of which I questioned.  That issue was whether the conviction for obstructing the collection of tax could include penalties and interest within the scope of the financial harm Black intended to inflict on the IRS by his obstructive acts.  The Seventh Circuit held that the calculation could not.  The Government filed for rehearing on that issue.  On March 7, 2016, the Seventh Circuit granted the rehearing, changed its mind on that issue, and produced a new opinion which it substituted for the old one.  See United States v. Black, ___ F.3d ___ (7th Cir.), here.

Here is the complete discussion:

In its order, the district court stated "[t]he loss Black intended the IRS to suffer had Black's offense been successfully completed included the loss of the penalties and interest Black owed the IRS, as well as the taxes he owed." It included a footnote in its order that stated, 

Even though Black's criminal statute of conviction was 26 U.S.C. § 7212(a) not [ §§ ] 7201 or 7203, the evidence at trial established beyond a reasonable doubt that the object of Black's criminal conduct in committing the offenses . . . was to defraud the IRS by willfully failing to pay and willfully evading his payment of his debt obligations to the IRS, which included the penalties and interest, as well as the taxes that Black owed to the IRS. 

The district court included penalties and interest in the tax loss calculation and did so because Black's conduct was similar to conduct criminalized by § 7201 and § 7203. 

Black argues that the tax loss calculation under U.S.S.G. § 2T1.1 should not include penalties and interest as part of the tax loss calculation. He specifically argues that penalties and interest should not be included in the tax loss calculation because he was not charged or convicted of willful evasion under 26 U.S.C. § 7201 or willful failure to pay under § 7203. 

The government argues that the issue of whether Black's tax loss calculation included penalties and interest is not properly before the court because the district court based the tax loss amount on the face value of the fraudulent checks, not the amount of taxes Black owed. As stated above, the face value of the checks was not the correct tax loss. Moreover, the record establishes that the district court included penalties and interest in its tax loss calculation. 

The general rule is that the tax loss calculation "does not include interest or penalties." U.S.S.G. § 2T1.1 cmt. n.1. There is a narrow exception to this general rule for "willful evasion of payment cases under 26 U.S.C. § 7201 and willful failure to pay cases under 26 U.S.C. § 7203." Id. To determine whether penalties and interest should be included in the tax loss calculation, we must determine to which types of cases the exception applies. 

Relying on U.S.S.G. § 1B1.3 cmt. n.6 and United States v. Thomas, 635 F.3d 13 (1st Cir. 2011), the government argues that U.S.S.G. § 2T1.1 cmt. n.1 does not limit the inclusion of penalties and interest to defendants convicted of willful evasion of payment under § 7201 or willful failure to pay under § 7203. It further argues that penalties and interest should be included in the tax loss calculation "in any case where defendant's conduct -- offense, relevant, or stipulated, as admitted in a plea agreement, proven at trial, or established by a preponderance of the evidence at sentencing -- constituted willful evasion of payment, as defined by 26 U.S.C. § 7201, or willful failure to pay, as defined by 26 U.S.C. § 7203."

Questions About New DOJ Tax Policy on FBAR Sentencing Guidelines (12/11/17)

I recently posted on the new DOJ Tax position as to the Sentencing Guidelines calculations for FBAR crimes.  See More on New DOJ Tax Position on FBAR Sentencing Guidelines (Federal Tax Crimes Blog 11/9/17), here; and Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (Federal Tax Crimes Blog 10/27/17), here.  I am preparing an  update for the next supplement of FBAR plea Guidelines in my chapter 12, titled Criminal Penalties and the Investigation Function, in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015).  I have hit upon some issues for which I don't know the answers.

Assume that the taxpayer had an FBAR violation for 4 years -- years 01 - 04 -- involving unreported account of $1,000,000 in each of the 4 years.  The taxpayer also had a tax loss in each of the 4 years related to the account of $13,333 per year resulting from the omission of $40,000 interest income per year (aggregating $53,333 tax loss for all 4 years).  The taxpayer pleads to a one year FBAR count for year 04.

Under SG § 2S1.3(a), the Base Offense Level is 6 plus the incrementing levels in the Theft Loss table in § 2B1.1.  The question is whether the 3 years to which the taxpayer did not plead (i.e., years 01 - 03 at amounts of $1,000,000 in each year) is relevant conduct that must be considered in applying the table in § 2B1.1?  If so, the number for the table is $4,000,000 (including 01 - 04) and the Base Offense Level is 24.  If not, the number for the table is $1,000,000 (only 01, the year of conviction) and the Base Offense level is 20.

The nonconviction years (Years 01 - 03) seem to fit the requirements for relevant conduct in § 1B1.3.  Relevant conduct includes:

(2)       solely with respect to offenses of a character for which §3D1.2(d) would require grouping of multiple counts, all acts and omissions described in subdivisions (1)(A) and (1)(B) above that were part of the same course of conduct or common scheme or plan as the offense of conviction.

I won't work through the grouping rules, but I am sure that they would require grouping.  (For example, if the count of the plea had been to tax evasion, the tax loss in the nonconviction years 01 - 03 would be included as relevant conduct.)

So, it looks like the nonconviction years would be relevant conduct for the conviction year and the FBAR amounts would be included in the § 2B1.1 calculation.

This raises the second question.  Are the tax loss amounts relevant conduct for the FBAR violation?

And the third question.  If the plea had been to a tax violation (e.g., single year tax evasion), would the Base Offense Level under § 2T1.1 include the FBAR violations?  If so, how would they be considered (the tables increment on different bases, thus like comparing apples to oranges).

I would appreciate hearing from anyone knows the answers or has any thoughts as to these questions.  Please let me know either  by comment or by email to jack@tjtaxlaw.com.

In this regard, the JD Supra article said that DOJ Tax would be issuing some type of guidance soon, so we may have to await that.

Another UBS Related Plea Agreement (9/28/09)

Juergen Homann pled guilty. The DOJ press release is here. The key points are:

1. The plea agreement is to one count of willful failure to file the FBAR in violation of 31 U. S. C. §§ 5314 and 5322(a). This is a 5 year count.

2. The defendant is relieved of criminal prosecution for tax crimes related to his UBS accounts. For my students, I offer some nuance on this. Normally, one U.S. Attorney's office (USAO) cannot bind other USAOs, but this agreement joins DOJ Tax as a contracting party. DOJ Tax must approve tax and tax related crimes. Thus, as a practical matter, this binds the DOJ (which includes all USAOs). Nice. But, in true cautionary fashion, the agreement later provides that the agreement is limited only the USAO for DNJ and "cannot bind other federal, state or local authorities." The Government will, however, "bring this agreement to the attention of other prosecuting offices, if requested to do so."

3. The judge may order restitution. Note that the plea is to a nontax crime. Restitution is not allowed for a tax crime unless contractually agreed to in the plea agreement or imposed as a condition to some sentencing benefit. The other parts of the agreement suggest that the "victim" -- the United States -- may be paid before sentencing, so restitution may not be a practical issue.

4. The Government retains the right to bring appropriate sentencing factors to the sentencing court (subject to the stipulated sentencing factors discussed below). The form of this agreement is:

Rights of the Offices Regarding Sentencing
Except as otherwise provided in this agreement, the Offices reserves its right to take any position with respect to the appropriate sentence to be imposed on Juergen Homann by the sentencing judge, to correct any misstatements relating to the sentencing proceedings, and to provide the sentencing judge and the United States Probation Office all law and information relevant to sentencing, favorable or otherwise. In addition, the Offices may inform the sentencing judge and the United States Probation Office of: (1) this agreement; and (2) the full nature and extent of Juergen Homann's activities and relevant conduct with respect to this case.

5. As noted, the parties stipulate as to certain sentencing factors, but the Government reserves the right to avoid any stipulation that it subsequently determines to be untrue. Furthermore, the stipulations do not prevent the Government from responding to questions from the Court or correcting misinformation provided to the Court.

The Giffen Plea -- The Cost of Justice (8/18/10)

James H. Giffen, the target of an extensive FCPA investigation and indictment (including two superseders), recently resolved at least criminal woes -- at least some of them -- through a plea agreement. I write on that plea agreement because the plea is to a tax count and it raises some interesting issues. The plea agreement and the information with the count of conviction pursuant to the plea are here and here. First I will just provide a summary of the plea agreement and then raise the issues that interest me.

Giffen pleads to the one information count charging "willfully failing to supply information regarding foreign bank accounts, in violation of Title 26, United States Code, Section 7203" for the year 1996. The reference is to the foreign account question on Schedule B of the 1996 return. Section 7203 is a misdemeanor with a maximum incarceration period of one year and, according to the plea agreement, a maximum fine of $25,000. Giffen waives the statute of limitations for the charge to which he pleads. That statute of limitations expired normally six years after the date he filed the return (approximately March 27, 1997, according to the information).

Offshore Account Related Plea After Quiet Disclosure (4/4/2020)

On April 3, 2020, DOJ Tax issued this press release:  Lake Worth Businessman Pleads Guilty to Evading Taxes on Millions in Income, Stashing Funds in Secret Accounts Around the World, here.

The key excerpts are (with bold face supplied by JAT to highlight the taxpayer’s attempt to hide the ball through a false quiet disclosure):

A Lake Worth, Florida, businessman pleaded guilty today to tax evasion and willful failure to file a Report of Foreign Bank or Financial Account * * * *. 

According to court documents and statements made in court, Dusko Bruer owned and operated a company that bought U.S.-made agricultural machinery and parts and sold them throughout the world. Beginning in 2003, the company did not pay Bruer a salary. Instead, Bruer used millions of dollars from the company’s bank accounts to pay his personal expenses, make investments abroad, and make transfers to an employee and his family. From 2007 through 2011, Bruer transferred over $5.8 million of the company’s profits to foreign financial accounts. Bruer used the company’s profits to buy a yacht, purchase a waterfront home for his girlfriend and himself, purchase a home for an employee, and buy real property in Serbia. Between 2007 and 2014, Bruer failed to report more than $7.7 million in income and did not pay taxes of more than $2.7 million that were due to the United States. 

Although Bruer’s company had a number of employees and reaped millions of dollars in profits, Bruer never filed a corporate tax return for the company nor did the company ever pay taxes on its income. Bruer also never filed employment tax returns during those years reporting wages that the company paid to its employees nor did the company withhold and pay over payroll taxes. 

From 2007 through 2015, Bruer maintained financial accounts in Croatia, Germany, Serbia, and Switzerland. He did not report his ownership of the accounts to the Financial Crime Enforcement Network (FinCEN) by filing a Report of Foreign Bank or Financial Account (FBAR), despite knowing he had an obligation to do so. In 2010, an account he held at a subsidiary of Credit Suisse AG in Zurich, Switzerland reached a year-end high value of $6,177,586. Bruer used the assets in his foreign accounts for personal use, including the purchase of a yacht for $1,350,000 and a 3,200 square foot home in Lake Worth, Florida, with 100 feet of waterfront frontage for approximately $1,650,000. 

From 1999 to 2014, Bruer never filed a personal tax return nor did he pay tax on his income. In 2015, Credit Suisse closed his account in Switzerland and advised him to enter the IRS’s Offshore Voluntary Disclosure Program (OVDP), by which taxpayers could avoid criminal prosecution by making a voluntary disclosure directly to IRS-Criminal Investigation, filing six years of delinquent or amended income tax returns, as well as delinquent or amended FBARs, paying back taxes, interest, and certain penalties on the six tax years in the disclosure period, and paying a penalty on the highest aggregate account balance of their noncompliant offshore assets. Bruer did not enter into the OVDP because he determined that the cost would be too high. Instead, Bruer made a “quiet” disclosure that involved filing several delinquent tax returns with the IRS, not flagging the returns in anyway or paying the taxes, penalties and interest that would be paid in OVDP. 

The returns Bruer filed as part of his “quiet” disclosure were false because they disclosed only the funds he held in the Credit Suisse account and not the funds he held in the accounts in Croatia, Germany, Serbia, nor did they report the income he earned from his company.

I offer the following:

• The information, here.
• The Plea Agreement, here.
• The Factual Agreement, here.
• The CourtListener Docket Entries, here.

JAT Comments:

California Plastic Surgeon Sentenced to One Year and One Day for FBAR Violation (9/14/18)

DOJ announced here another sentence related to offshore accounts.  Marc Edward Mani, a prominent Beverly Hills plastic surgeon, was sentenced for one plea count of FBAR violation.  I previously reported his plea:  Another Plea Agreement for Offshore Account (7/29/17; 7/30/17), here.  I also offer the following documents:

• The Government's Sentencing Memo, here.
• The Defendant's Sentencing Memo, here.
• The Government's Supplemental Memo re Restitution, here.
• The Judgment, here.

Excerpts from the sentencing press release:

Mani pleaded guilty In July 2017 to one count of failing to file a foreign bank and financial account report (FBAR) for the 2013 tax year. When he pleaded guilty, Mani admitted failing to file FBARs with the Treasury Department for both the 2012 and 2013 tax years. He also admitted that he failed to report on his federal income tax returns the vast majority of the approximately $1.28 million in foreign income he earned in Dubai for the years 2012, 2013 and 2014. 

          Mani began to travel to Dubai in 2011 to perform plastic surgery for a foreign medical center. Mani’s accountant, who was aware that Mani was earning foreign income, informed him that he would be required to report to U.S. authorities any foreign bank accounts under his control. In 2012, Mani opened an account with a Dubai-based bank and began depositing income he earned from abroad into this account. He liquidated the account in 2013, when it held more than $400,000 in foreign currency.

JAT Comments:

1.  The Governments Sentencing Recommendation.

Based on a tax loss based on the tax sentencing guidelines of 13 after a 2-level reduction for 5K1.1 substantial assistance.  The indicated range for the sentence at the 13 level is 12-18 months.  The Government recommended a sentence of 14 months.  The Government summarizes its key support for the recommended sentence as follows:

To Group or Not to Group Under the Guidelines (1/7/16)

United States v. Doxie, 2016 U.S. App. LEXIS 5 (11th Cir. 2016), here, that deals with the Sentencing Guidelines' concept of grouping.  First, the facts relevant to this discussion.

The defendant defrauded his employer by submitting fictitious invoices for which the employer periodically mailed checks to company of $642,196.  In addition, the defendant charged the employer for false work-related expenses aggregating $287,466.33.  He did not report the income on his tax returns for 2008-2011, underpaying taxes in those years by $299,750.  For this misconduct, he "pled guilty to 21 counts of mail fraud for the false invoices (Counts 1 to 21), 41 counts of wire fraud for the false credit card charges (Counts 22 to 62), and 4 counts of filing a false tax return for the four tax years (Counts 63 to 66)."  Each of the mail and wire fraud counts carries a 20 year maximum sentence.  So, the maximum incarceration time for the fraud charges by stacking the counts would be 3,720 months.  18 USC § 1341, here, and § 1343, here.  The tax charges are tax perjury with a 3 year maximum incarceration (§ 7206(1), here), so the 4 counts would add another 144 months maximum.  The aggregate maximum sentence would thus be 3,864 months, well over 322 years.

Readers know that, where the counts of conviction are only for tax crimes, the major factor in the sentencing is the tax loss.  See S.G.  § 2T1.1(a)(1), here, and the tax loss table, here.  The nuance is that multiple counts of conviction for tax and tax related crimes (e.g., the defraud / Klein conspiracy under 18 USC 371, here), the tax loss is aggregated (including tax loss for relevant conduct outside the counts of conviction) and the calculation made accordingly.  Accordingly, for the initial Base Offense Level calculations in § 2T1.1(a)(1), it makes no difference whether there are multiple counts of conviction.  The counts of conviction are principally relevant in determining the maximum period that can be imposed if the guidelines calculation exceeds that maximum.

Chapter Three of the Guidelines contains adjustments that must be considered.  Part D deals with multiple counts of conviction.  As noted above, multiple counts are not considered in a pure tax case in calculating the Base Offense Level.  Where the counts of conviction are solely tax and tax-related, multiple counts of conviction do not require any adjustment to the calculations.  However, where there are multiple counts of conviction included unrelated offenses, there may be an adjustment.

To follow the Guidelines, the Court "groups" the counts of conviction into "distinct Groups of Closely Related Counts," determines the Guidelines calculations for each group and then makes adjustment if there is more than one Group.  In the example I just posited for only tax and tax-related crimes, there is only one Group, hence there is no further adjustment under Part D.  But, in cases illustrated by Doxie, there may be more than one Group -- (i) the nontax financial crime with sentencing calculations under S.G. § 2B1.1(a)(1) and § 2B1.1(b)(1)(I), here, and (ii) the tax crime with calculations under § 2T1.1(a)(1).  In such cases, if the Guidelines for only one of the Groups were considered, there would be no consideration of the convictions in the other Group.  The purposes of Part D are two-fold:  First, by grouping related counts of conviction, prevent the prosecutor from affecting the sentence by inflating the number of charges for a common pattern of conduct.  Second, to provide some level for incremental punishment by increases in the offense level that then increases the guidelines ranges under the sentencing table.

Now, let's turn to Doxie.  The key question in Doxie was whether there really were two groups to permit some level of incremental consideration under the grouping rules:  I cut and paste the key parts of the Court's resolution of the issue:.