Wednesday, August 18, 2010

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).

Giffen further agrees to relinquish his claims in certain foreign accounts that apparently have (or had when frozen) at least approximately $84 million. The United States has agreed to use those funds to benefit the citizens of Kazakhstan.

In return, the USAO SDNY, the DOJ Criminal Division Fraud Section and DOJ Tax Division promise not to prosecute for certain crimes. The scope of this promise is not perfectly clear to me (maybe I should have parsed it more), but DOJ Tax's promise is:

with respect to tax offenses, the Tax Division, Department of Justice for failing to supply information regarding foreign bank accounts, in violation of Title 26, United States Code, Section 7203 as charged in Count One of the Information, or for the offenses charged in the second superseding Indictment.
The parties agree to the sentencing factors as follows: (i) no tax loss, so a base offense level of 6; (ii) acceptance of responsibility for a downward adjustment of 2; (iii) no criminal history points; (iv) a resulting sentencing range of 0 to 6 months; (v) no upward or downward departure is warranted; and (vi) defendant may request a sentence outside the range (meaning lower than the range, apparently designed to protect against a higher Guidelines range calculation than the parties press in their plea agreement).

And, of course, Giffen waives his right to appeal, including for any rights regarding Brady or Giglio information not provided by the Government, "other than information establishing the factual innocence of the defendant."

My comments:

1. As I parse DOJ Tax's promise not to prosecute (quoted above), since Giffen is pleading only to one count for 1996, other years may be charged in DOJ Tax's discretion. (Caveat, I have not been able to locate a copy of the second superseding indictment, so don't know what, if any, crimes are charged there and therefore within the scope of DOJ Tax's promise not to prosecute; for purposes of the present comments, I assume that no other tax crimes were charged there.) Of course, the statute of limitations might well have run on other years, since presumably Giffen cleaned up his act once the long-running criminal investigation started; if he did not, perhaps there will be another shoe to fall.

2. DOJ Tax's agreement to a misdemeanor plea is curious. The agreement that there is no tax loss means that DOJ Tax had little prosecutable interest in charging a tax crime. But, of course, it was a handy way to slap this defendant on the wrist for other perceived crimes and achieve the desired disposition of the loot. Also, one has to wonder whether Giffen also failed to answer the question in other years, but then if no tax loss were involved in any other years, multiple year counts of conviction probably would not produce a greater Guidelines sentence.

3. Usually, when someone answers the Schedule B foreign financial account question untruthfully, the person does not file the required FBAR. Did Giffen file the required FBAR?

4. Which brings us to relevant conduct. The plea agreement does not mention relevant conduct. If Giffen had a pattern of answering the Schedule B question untruthfully in other years (even those outside the normal criminal statute of limitations) any tax loss associated in those noncharged years could be included in calculating the base offense level. The parties are not offering up that information, but perhaps the Probation Office or the sentencing judge will inquire (curious minds want to know). Regardless, of course, his incarceration period is capped at 1 year for the sole misdemeanor count of conviction.

5. As to the tax loss, it is hard to imagine on the amounts of money involved that there would be no tax loss somewhere (like Ronald Reagan's anecdote that, with so much shit in the room, there must be a pony in the room somewhere). Indeed, this brings us back to the curious plea to a crime that was beyond the statute of limitations. Perhaps similar conduct (including even failure to file the FBARs) occurred in other years (even years within the statute of limitations without a waiver) but that was the only year in which there was no tax loss which the parties might smoke past the sentencing process. A cynic might suspect that they were very careful to find and pick a year in which there was no tax loss so that potential relevant conduct might get lost in the shuffle.

6. A related question that is too complicated to address is whether the failure to file the FBAR which is criminal conduct that usually accompanies the lie on Schedule B regarding no foreign bank accounts is relevant conduct, perhaps even requiring calculation of the Guideline range under some other section of the Guidelines. (E.g., SG 2S1 discussed here). Again, of course, the 1 year count of conviction still sets the cap.

7. The plea agreement states that the maximum fine is $25,000. That, of course, is what Section 7203 says. But, as I read 18 U.S.C. § 3571 (the Criminal Fine Enforcement Act of 1984 (P.L. 98-596) (“CFEA”)), Section 7203 is a Class A misdemeanor for which Section 3571(b)(5) imposes a fine up to $100,000.  This is a picky point for someone with Giffen's resources.

8. Finally, of course, for all of the ordinary clients caught in the Government's foreign bank criminal prosecution juggernaut (juggernaut is perhaps an extravagant word because of the actual limited scope of the criminal prosecutions), they don't have the big bucks to leave on the table to get just a slap on the wrist. They go down much harder than Giffen whose underlying real conduct may have been far more corrosive to our "civilized" society. Why does not the Government allow other citizens to buy their way out (or at least down in terms of sentencing risk) by giving up a significant amount of their resources? (Of course, then such bought justice would mean that the full brunt of the consequences of crime are borne by the poor (probably a positive correlation there anyway) or, as respects the Giffen lesson, the poorer; but that goes full circle to the question of why Giffen appears to have bought his way out or down and why DOJ Tax would permit it prosecution priorities to appear to be skewed in this way.)

Update 8/18/10:  A reader just called to my attention a Main Justice titled Exclusive: Giffen Case Bogged Down by Clashes Over Classified Information and Diplomatic Debates which sheds considerable light on the dynamics leading to the plea.

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