Lee Sheppard on UBS, Swiss Evasion and Money Laundering

Lee Sheppard has an article in Tax Notes Today titled Dear Former Tax Evasion Services Customer, 125 Tax Notes 174 (Oct. 12, 2009) and 2009 TNT 195-3 (10/13/09). After she gets off on Roman Polanski, some of her key and pungent comments are:

1. Swiss bankers are feeling a bit like Polanski these days, afraid to travel anywhere U.S. prosecutors might get them. Like Polanski, Swiss bankers just want to be left alone.

2. Among the names that the Swiss have already turned over and are in the IRS line of fire

appears to contain at least one household name. Speculation about the criteria for selection, which are still secret, ran to factors like account size and attempts to conceal ownership through phony entities. Fame, apparently, is also a selection factor.

3. "Swiss banks' customers were wined and dined, literally, and doted on by bankers, but are now being tossed aside." (JAT Note: Sound reminiscent of the KPMG fiasco?)

4. In addressing whether Swiss banks other than UBS are in the line of fire, she comments: "Weren't all the Swiss banks basically selling tax evasion services?"

5. Ms. Sheppared then turns to money laundering. Of course, the Government has not charged money laundering in the offshore bank cases (yet), but Ms. Sheppard notes that they might. She cites the Yusuf case (United States v. Yusuf, 536 F.3d 178 (3d Cir. 2008), cert denied 129 S. Ct. 2764 (2009)) I previously discussed here which uses mail fraud in a state tax setting as the predicate act for money laundering. As practitioners and students know, almost every instance of tax evasion involves some potential act of mail or wire fraud, both predicate crimes for money laundering. Her discussion of this issue follows:

The argument that prevailed in Yusuf is a stretch. It is not clear that this money laundering argument had been cleared with the Tax Division of the Justice Department. Justice is generally reluctant to stretch the money laundering rules to cover tax evasion, given the long-standing reluctance of Congress to make tax evasion a predicate offense to money laundering. So it is not as though Justice would bootstrap tax charges into money laundering using the Yusuf argument.

That long-standing congressional reluctance will change if Senate Finance Committee ranking minority member Chuck Grassley, R-Iowa, has anything to say about it. Grassley has told MoneyLaundering.com that he and Sen. Patrick J. Leahy, D-Vt., plan to reintroduce the rejected provision of S. 386, the Fraud Enforcement and Recovery Act of 2009, that would make tax evasion a predicate act to money laundering (MoneyLaundering.com, Sept. 29, 2009). (For the bill, see Doc 2009-3092 [PDF] or 2009 TNT 28-25 .)

Transferring funds with the intent to engage in conduct constituting a violation of the criminal tax fraud statutes (section 7201 or section 7206) would become a crime. Hence a taxpayer would be guilty of money laundering if a bank helped him make a transfer of funds to assist tax evasion.

If a prosecutor had evidence of intent to evade tax, then that transfer would suffice to charge the taxpayer with money laundering. There would be no need to wait for a customer to file a tax return. There would be no arguments about what constituted the proceeds of the crime. Moreover, the bank that made the transfer could potentially be charged with aiding and abetting money laundering.