More on the Yip Criminal Case - FBARs and other Matters (3/13/10)

I have previously blogged here on the Ninth Circuit's published decision in United States v. Yip, ___ F.3d ___ (9th Cir. 2010). That decision dealt with inclusion of state tax loss in relevant conduct. At the same time as issuing that precedential decision, the Ninth Circuit entered an unpublished decision with limited precedential effect. See United States v. Yip, 2010 U.S. App. LEXIS 4639 (9th Cir. 2010). The unpublished decision cryptically presents its many holdings, but I thought it helpful to present some of them for readers:

In Yip, the defendant appealed from convictions of one count of Klein / defraud conspiray, one count of tax perjury and two counts of failure to file FBARs.

1. The defendant argued that the evidence was insufficient to support his convictions for failure to file FBARs. The Court of Appeals dismissed that claim as follows:

Defendant's accountant, who prepared Defendant's taxes for seven years before the first tax filing at issue here, testified that it was his usual practice to review the foreign account question on Defendant's tax form with him each year. This constituted sufficient evidence for a rational jury to have inferred that Defendant knew of his duty and willfully failed to report the foreign accounts.

Although this holding is too cryptic for meaningful comment, I do note that a return preparer will have an incentive to claim that he or she did cover this question specifically with the taxpayer when, in fact, they may not have actually covered it, at least not as crisply as they imagine it when their own conduct might be under scrutiny.


2. The defendant argued that the Judge had improperly instructed the jury on the Ratzlaf issue. Ratzlaf v. United States, 510 U.S.135 (1994) Many of the readers of this blog know the nuances of Ratzlaf, but for those who do not, I need to set up the context of the argument. Ratzlaf was the Supreme court case involving structuring (piecemealing financial transactions that would otherwise require financial reporting, there the $10,000+ cash deposit reporting requirement). The structuring statute then required that the defendant act willfully. Willfully is a term of art in tax and sometimes in financial crimes which can have several distinct meanings -- indeed, the Supreme Court said on more than one occasion that it’s a word of many meanings. Bryan v. United States, 524 U.S. 184 (1998), citing Spies v. United States, 317 U.S. 492, 497 (1943). In the tax area, the requirement -- sometimes referred to as Cheek willfulness -- is that the defendant have intentionally violated a known legal duty. This is a stricter standard than is often found for criminal laws, where, per the famous slogan, ignorance of the law is not a defense. Ignorance is a defense in crimes requiring willfulness -- at least in those crimes where the willfully requirement is interpreted the same as in tax crimes. In Ratzlaf, the Court interpreted the structuring willfulness requirement the same -- to require that the defendant acted with intent to avoid the reporting requirements and with knowledge that thus avoiding was unlawful. As stated in Ratzlaf, “the Government must prove that the defendant acted with knowledge that his conduct was unlawful.” Ratzlaf v. United States, p. 137. In Ratzlaf, the Government had not proved that the defendant knew that struturing to avoid the reporting requirement was unlawful. The structuring statute was subsequently amended to delete the willfully element, so that the defendant must only act with intent to evade the reporting requirement whether or not he knew such structuring was illegal. In other words, the defendant must know of the law's requirements and act to avoid them, but he does not need to know that avoiding the law's requirements is a unlawful. (OK, I won't go down the rabbit trail you are thinking about.) Despite the change in the structuring statute, Ratzlaf is a case of continuing importance in reporting cases and in tax cases where crimes require willfulness interpreted to require the stronger level of proof that the defendant intentionally violated a known legal duty. The FBAR criminal statute requires that the defendant act willfully, hence Ratzlaf supports the key proposition that the taxpayer must fail to file the FBAR with intent to fail to file and that failing to file is unlawful.  The Ninth Circuit opinion in Yip addresses the taxpayer's Ratzlaf argument as follows (Ratzlaf parallel citations omitted and other case citation omitted):

3. Defendant argues that the jury instruction was defective because it failed to include the knowledge element required by Ratzlaf v. United States, 510 U.S. 135, 149 1994). We review for plain error. The instruction was not erroneous, because it informed the jury that conviction required a finding that Defendant knew that he had a legal duty to report his foreign bank accounts.

I suppose that, from a practical perspective, that is a cryptic and fair holding. I would have liked to see more from the court. But then it is an unpublished decision of little precedential effect except for the defendant involved, and the court was not writing for me.

3. Following through on this line, the Court addressed the defendant's argument that the instruction on the FBAR counts was invalid because it failed to instruct the jury on the willfulness element. The Court reasoned, again cryptically (case citation omitted):

The omission of the mens rea was an error, and an obvious one. However, not every error affects a defendant's substantial rights. This one did not. The jury found that Defendant knew of his duty to file the form. Because the jury found that Defendant willfully filed a 1999 return falsely stating that he had no foreign bank account, it almost certainly would have found that his failure to file the associated Treasury forms in 1998 and 1999, as he knew that he had a duty to do, was also willful.

This seems somewhat circular, but again the court ruled on the basis of the plain error standard.

4. The defendant then raised an actus reus argument. Here is the entire discussion (case citations omitted):

5. Defendant argues that the jury instruction was defective because it failed to include the actus reus for the counts of failure to file a Treasury form reporting his foreign bank accounts in 1998 and 1999. We review for plain error. The omission of the actus reus was an obvious error, but it did not affect Defendant's substantial rights. At trial, Defendant did not dispute his failure to file the forms.

5. This one is just too cryptic to do anything other than cut & paste (case citation omitted):

7. Defendant argues that his sentence of 67 months' imprisonment for conviction of conspiracy to defraud the United States exceeds the statutory maximum sentence of 60 months. 18 U.S.C. § 371. We review for plain error. We hold that the district court plainly erred in sentencing Defendant to a sentence in excess of the statutory maximum. Id. We vacate Defendant's sentence on the conspiracy conviction and remand for resentencing in conformity with 18 U.S.C. § 371.

6. This one's pretty good (I delete only the all case citations and references except Booker):

8. Defendant argues that the district court erred by sentencing him under the 2001 version of the Sentencing Guidelines on counts completed earlier than 2001. We review for plain error. A continuing offense must be sentenced under the Guidelines version in effect at the conclusion of the offense, if a later version is unfavorable to the defendant. n2 However, when a defendant is convicted of both a continuing offense and offenses completed earlier, the earlier offenses must be sentenced under the version in effect when they were completed. Here, the conspiracy count was properly sentenced under the 2001 Guidelines because the last overt acts of the conspiracy occurred after that version took effect. But the district court erred in sentencing Defendant under the 2001 Sentencing Guidelines for the crimes that were completed in earlier years--namely, filing false tax returns and failing to file the Treasury forms. The error was clear and obvious under [omitted cases]. It affected Defendant's substantial rights because the 2001 version of § 2T4.1 resulted in a lengthier sentence than the range recommended by the earlier version. Sentencing Defendant to a term of imprisonment longer than that recommended by a proper application of the Guidelines seriously affects the fairness of judicial proceedings. We vacate Defendant's sentence on Counts 4 through 7, and 9 through 11. We remand to the district court for resentencing under the proper versions of the Guidelines.

n2 We note that there is some uncertainty as to whether the Ex Post Facto Clause is implicated by the advisory use of the Sentencing Guidelines after United States v. Booker, 543 U.S. 220 (2005). We need not and do not decide whether Booker is irreconcilable with our [other case] holdings, because neither of the parties before us so contends.

7. The Court clearly got this one right (case citations omitted):

13. Defendant argues that the district court erred by increasing his offense level under the § 2T1.1(b)(2) enhancement for the use of sophisticated means. Defendant's use of foreign bank accounts to hide his unreported income and the creation of several sham loans to conceal his crimes were not necessary for the commission of the crimes. These activities were sufficiently complex to support application of the enhancement under all relevant versions of the Sentencing Guidelines. U.S.S.G. § 2T1.1 cmt. n.4. The district court properly imposed the sentencing enhancement.

8. I don't think there is enough information provided to figure out what this is about other than the Government's improper claim of work product privilege (case citations omitted, except for Hickman).

16. Defendant argues that the district court erred in ruling that the government had provided the information requested by Defendant. We review for clear error. The district court clearly erred because the government claimed work-product privilege for the material. However, the outcome would have been the same even had the district court recognized that the government had not provided the material, because no exception from the privilege applied. Hickman v. Taylor, 329 U.S. 495 (1947). Thus, the error was harmless.