Monday, January 18, 2010

Epic Tales - the Government Brief in KPMG Criminal Case and Uncertainty in the Law

The Government's long awaited epic (209 pages to conclusion) brief to the Second Circuit in the KPMG criminal case is now out. Readers of the blog may review and download it here.

There is a lot in the brief. I quickly spotted length and healthy doses of what appears to be both wheat and chaff. I also found many rhetorical flourishes (probably chaff, but making for a good read to grab interest).  I am not yet certain whether the rhetorical flourishes have much substance, but that is beyond my pay grade anyway.

I did find one Government claim in the brief with hyperbole and error. The claim is (pp. 103-104):
Larson concedes that the trial evidence sufficed to demonstrate that he “subjectively did not believe that the BLIPS transaction had a ‘reasonable possibility of profit.’” (Larson Br. 16). He contends, however, that this concession is of no moment — that the jury, instructed as it was on “willfulness,” was nonetheless not entitled to find that he intentionally evaded taxes because his subjective intent to intentionally violate the tax laws was irrelevant. Larson asks this Court to hold that “as a matter of law. . . a defendant cannot intentionally violate a known legal duty if the substance of that duty would have been objectively unclear to a fully informed lawyer or judge at the time.” (Larson Br. 16, 38 emphasis added); see also Pfaff Br. 29-30; Ruble Br. 25-26). According to the defendants, the economic substance doctrine was sufficiently murky at the time of their conduct, objectively speaking, to foreclose willfulness.

Put simply, the defendants argue that the fact that they intentionally broke the law and knew that they were intentionally breaking the law — facts that the jury found beyond a reasonable doubt — are irrelevant, because in 1999 other people might not have known that their conduct was against the law. This breathtaking argument confounds law and common sense. This precise claim has been rejected by this Court and is hence foreclosed.
 I think that Government's claim is just flat out wrong. I have previously discussed this issue both in my book (pertinent portions here) and in some blogs here, so will not repeat the details. I just summarize my claim of hyperbole and error.

In James v. United States, 366 U.S. 213 (1961), here, the Supreme Court held that legal uncertainty -- i.e., actual uncertainty in the state of the law -- is a bar to prosecution for a tax crime which requires willfulness. In James, the defendant had been prosecuted and convicted, meaning that the jury had determined that he had intended to violate a known legal duty. The problem was that he only thought he knew the law he intended to violate. The Supreme Court held that, regardless of his intent to violate the law, the law in question was legal sufficiently uncertain that James could not be convicted regardless of his intent. 

That is pretty much it.  (The summary is heavily dependent upon understanding the intramural dispute among the Justices evidenced in the various opinions in James, so that is the best place to start.)

The Government's only reference to James is on page 109 to the fact that defendants cite the case and some notion that it is "nothing like this case" because it involved ambiguity "from dueling Supreme Court opinions, which were directly in conflict on the specific tax question at issue in that case."  The Government does not explain and I cannot fathom how the principle of James that uncertainty in the law is a legal barrier to prosecution and conviction is a special rule requiring uncertainty caused by the Supreme Court.  The issue is one of certainty in the law such that a citizen can be criminally prosecuted and proper notice to all citizens; that not dependent upon the Supreme Court's failings or timidity.

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