Sentencing Disparities

I just posted a discussion of the Thorson case here and earlier posted a discussion of the Quellos principals' sentencing here.  For conduct that does not appear dissimilar except that the Quellos' defendants conduct (including relevant conduct) involved far more tax loss, Thorson got 108 months and the Quellos defendants got 50 months.  And, one of the Quellos defendants, like Thorson, was an attorney who failed in his responsibilities as an attorney as fully as did Thorson.  Yet, the sentencing courts imposed incredibly disparate sentences.  While that is certainly possible in a post-Booker world, I am not sure it is to be lauded.  Which, if any of those sentences, are appropriate may depend upon the eye of the beholder, but it does seem to the eye of this beholder that there is some basic unfairness in the existence of that type of disparity.

Addendum 1/30/11 4:26pm:  Let me add this one also, where for a bogus tax shelter, the lawyer got 18 months in prison.  See DOJ Press Release of 1/28/11.

When is Producing False Documents Under Compulsion Obstruction?

In United States v. Thorson, 633 F.3d 312 (4th Cir. 2011), the Court (at least the majority) rejected the defendant's attempt to avoid the sentencing enhancements imposed by the sentencing court. I thought one of defendant's argument was worth commentary here.

The defendant, a lawyer, assisted in a bogus tax shelter.  Key elements of the bogus shelter involved (i) the backdating of documents to make cemetery lots contributed to charity appear as if they had been purchased and held for longer than a year and (ii) the inflation of the values of the donated cemetery lots. Defendant routed his share of the ill-gotten gains through a corporation and created various documents, some backdated, related thereto. In 1998, in response to the IRS "formal request" (presumably an IDR), the defendant produced documents, one of which he prepared after receiving the IDR. Thereafter, a grand jury investigation started and, in response to a grand jury subpoena, the defendant produced that false document and another false document that had been prepared before either the IRS or the grand jury investigation started. Stated otherwise, none of the documents produced in response to the grand jury subpoena were falsified after the date of the grand jury subpoena.

Quellos Principals Sentenced

Yesterday, the United States Attorney's Office for WD WA announced here the sentencing off Jeffrey Greenstein, for CEO of Quellos Group, LLC, and Charles Wilk, head of Quellos' private client group (he was also a tax attorney). They each received 50 months in prison. (I have previously blogged on Quellos here).

Greenstein and Wilk were convicted of crimes involving transactions that never occurred and structures that were never implemented. From the press release:

Greenstein and Wilk did not tell clients, or the attorneys who evaluated the proposals, that the POINT transaction was predicated on a sham. They knew but did not disclose that there was no offshore investment fund, and that no shares of stock were actually purchased and possessed by any offshore investment fund. They knew that the purported offshore investment fund was merely a shell entity with nominee administrators and no assets or employees.

Suspension of Statute of Limitations Period During Request for Foreign Assistance to Obtain Evidence (1/28/11)

18 USC Section § 3292 provides that, if the Government makes an official request to a foreign government to obtain evidence in that country and thereafter applies to a district court for an order to suspend the statute of limitations, upon appropriate proof that the official request was made and that the requested evidence is in the foreign country, the district court "shall suspend the running of the statute of limitations for the offense." The suspension period is from the date of the request to the foreign country until the foreign court or authority takes final action on the request, with a maximum of 3 years.  The DOJ CTM discussion of this provision is at CTM 7.06 (2008 ed.).

In Jenkins v. United States, ___ F.3d ___ (9th Cir. 2011), the Ninth Circuit applied this suspension statute in a straight-forward manner. One key holding is worth noting, even though it is a straight forward application of the statute.

My Lawyer Did Not Advise Me of the Consequences of My Perjuring Myself in My Defense

Clecker v. United States (11th Cir. 2011) (Unpublished) is a good reminder of the dangers of a defendant testifying in a criminal case. Cleckler was charged with "conspiracy to defraud the United States, in violation of 18 U.S.C. §§ 2(b) and 371 (Count 1), and corrupt or forcible interference with the administration of the internal revenue laws, in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2 (Count 2)." The Government presented a number of witnesses and, apparently, Cleckler's counsel advised him that he had the right not take the stand but, given the evidence, he was at high risk if he did not. If he took the stand, the jury verdict would almost certainly turn on his credibility. The jury convicted, apparently because the jury did not find Cleckler credible. At sentencing, the judge found that Clecker perjured himself and imposed the two level obstruction of justice enhancement U.S.S.G. § 3C1.1.

Cleckler sought in a Section 2555 proceeding to vacate the sentence based on ineffective assistance of counsel -- to wit, that his trial attorney had not warned or properly warned Cleckler about the potential consequences of lying as respects exposure to the sentencing enhancement for obstruction. The district court dismissed the claim but issued a certificate of appealability on the issue of "[w]whether the district court erred by denying Cleckler's claim that his attorney failed to advise him of the consequences of testifying on his own behalf at trial." On appeal, the Eleventh Circuit affirmed in an unpublished opinion. While the opinion itself may not be worthy of publication, the circumstances are worthy of practitioners' attention.  A good, quick read.

Fourth Circuit says Factual Uncertainty Is Not Legal Uncertainty for James-Critzer-Mallas Defense (4/25/11)

I have written in other blogs about uncertainty in law and the legal principle, emanating from the seminal decision in James v. United States, 366 U.S. 213 (1961), here, that uncertainty as to the law's commands precludes criminal prosecution. (For my prior blog discussions, see here.)  There are two key Fourth Circuit cases on that issue -- United States v. Critzer, 498 F.2d 1160 (4th Cir. 1974) and United States v. Mallas, 762 F.2d 361 (4th Cir. 1985). The Fourth Circuit recently addressed the issue again in in United States v. Cole, 631 F.3d 146 (4th Cir. 2011). Unfortunately the facts were very bad for the defendant, so it was clear that the Court of Appeals was not inclined to want to help him.

The defendant, a real estate agent, received secret commissions by having the sellers pump up the sales price and remit the amount of the artificially inflated commissions to a corporation he owned. The defendant did not disclose these secret commissions to his partners, the buyers.  The corporation apparently did not report the "commissions" and neither did the defendant who was the actual earner of the commissions. Indeed the defendant did not even file tax returns until he learned that that he was being criminally investigated. He then filed tax returns for the years involved (2001-2003), reporting no taxable income for each year. He did this by characterizing the "commissions" as "assignment fees" which he treated as a sale of capital assets producing short term capital gains against which he applied carry forward losses. The Government did not agree with these shenanigans and indicted. As described by the Court:

A grand jury issued a superseding indictment in September 2008 charging Cole in six counts: three counts for willfully filing false tax returns for tax years 2001, 2002, and 2003, in violation of 26 U.S.C. § 7206(1), and three counts for evading income taxes in the same years in violation of 26 U.S.C. § 7201. The indictment charged that, inter alia, Cole falsely claimed $2 million of ordinary income as capital gains.

From the bare text, one might wonder why the Government was charging both 7206(1) and 7201 for the same three years. Rather than speculate at this time (maybe readers can provide the answer crisply), I just move on to address the issue of uncertainty in the law.

According to the Court, the jury convicted as follows:

In a special verdict form the jury largely adopted the Government's theory of the case, although it declined to find that Cole had fraudulently claimed charitable deductions and business expenses. Ultimately, the jury found Cole guilty on all six counts for willfully mischaracterizing the $2 million as capital gains each year and failing to report the $98,200 in income from the sale of the $1 million note.

Foreign Bank Account Records and the Required Records Exception to the Act of Production Doctrine

For those exposed on foreign accounts (i.e., no FBARs and no income tax reporting), the Government is brandishing a weapon that some taxpayers may not anticipate -- end-runs around the Fifth Amendment that would otherwise apply to avoid incriminating oneself. The end-runs are the "required records" exception to the Fifth Amendment and possibly the "foregone conclusion" exception to a Fifth Amendment act of production claim. I have previously blogged on the foregone conclusion exception here and focus here on the required records exception.

Just for background, there is now no Fifth Amendment privilege for the contents of documents (not even diaries which are, after all, not made under compulsion), but there is a Fifth Amendment privilege under the "act of production" doctrine relating to the testimonial aspects of compulsory production of documents (i.e., identifying documents, acknowledging their existence, etc.). So, the Fifth Amendment privilege is alive and well for compulsory document production in many cases. Hence, the Government needs end-runs such as the required records exception and the foregone conclusion exception.

Corruptly in Obstruction Crimes (Including Tax Obstruction) Really Means Something

In United States v. Doss, 630 F.3d 1181 (9th Cir. 2011), a nontax case, the Ninth Circuit addressed the circuit split over the term "corruptly persuades" in 18 USC 1512(b)(1). Section 1512 is captioned "Tampering with an witness, victim or informant." The crime defined in Section 1512 is not a tax crime, nor is it a crime normally encountered in criminal tax trials. Still, as I have developed in an article, the crime's corruptly element may help define the similar element in the tax obstruction statute, 26 USC Section 7212(a). Both crimes are derived from the concepts in 18 USC Section 1503, the traditional obstruction of justice crime. See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 334-335 (2009)).

Wikileaks Takes Aim at Swiss Bank Secrecy

Wikileaks is reported to be in the process of vetting and publishing some "secret" Swiss bank data.  See the Reuters article here.  As reported, this is not the first time.  The new data has information about "around 2,000 bank clients -- including prominent business people, artists and around 40 politicians -- who have parked their money offshore" -- "probably to avoid tax."  The data comes from 3 financial institutioins, including Julius Baer.

The Hammer is Hammered or Slammered - Tom Delay and the Reliance on Professional "Defense"

I read in the paper yesterday and today about Tom Delay's three year sentence for money laundering and conspiracy. Among other claims (e.g., political persecution), Mr. Delay is reported to have claimed that "Everything I did was covered by accountants and lawyers telling me what I needed to do to stay within the law." See Washington Post Article (at p. 2) here. Readers will recognize this as the reliance on professionals so-called "defense" that raises its head in many tax prosecutions. In tax prosecutions, the Government must prove that the defendant acted willfully (under Cheek, meaning that the defendant intended to violate a known legal duty).  To the extent the defendant relied on professionals, the defendant did not act willfully. In this light, therefore, reliance on professionals is not a defense but rather an element that the Government's proof beyond a reasonable doubt must negate.

One of the problems with the "defense," of course, is that in order to put the issue in play in the trial in chief, the defendant will usually have to take the stand to say that he or she relied. Most defense attorneys in white collar crime cases (of which Mr. Delay's prosecution and tax prosecution are simply subsets) are loath to have their clients take the stand and usually for very good reasons -- the testimony alone may be what nails the coffin and, even worse, if the judge thinks he was laying might be considered some type of obstruction of justice to enhance the sentencing.

Fifth Circuit on the Nature of 7206(1), Commonly Called Tax Perjury

In United States v. Bishop, 629 F.3 462 (5th Cir. 2010), the Fifth Circuit affirmed the defendant's conviction for 3 counts of tax perjury (Section 7206(1)). The panel rejected the defendant's arguments that (1) her trial violated the Sixth Amendment right to speedy trial, (2) that "the trial court violated her constitutional right to present a complete defense by preventing her from arguing that her case was a 'perjury case' rather than a 'tax case;'" and (3) the trial court erred in denying her motion for new trial based on ineffective assistance of counsel.

The Fifth Circuit's panel decision, authored by Judge Garza, addresses the first and the third issues well. Those issues are not unique to criminal tax trials, so I refer the interested reader to the opinion. I address here the third issue -- dealing with the 'perjury case' issue.

For context, section 7206(1) defines the crime as:

Any person who willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter

The panel first sets up the issue as being subject to "plain error" review. Turning to the merits of the defendant's argument under the plain error review standard, the panel says (discussion quoted in full, with parallel citations omitted):

Bishop's allegation of error stems from the district court's ruling preventing her attorney from asking IRS Special Agent Robert Whalen whether this case was "basically a perjury case." The Government objected to the question, and the court sustained the objection, observing, "This is a tax case." Bishop then moved on in her cross-examination. Her counsel took no steps to inform the district court that barring the question potentially violated Bishop's constitutional rights or to clarify the nature of the defense she was pursuing. Her argument on appeal, therefore, must be reviewed for plain error. To establish plain error, Bishop must demonstrate: (1) there was an error; (2) the error is "plain"; and (3) the error affected her substantial rights, was prejudicial and affected the outcome of the district court proceeding. United States v. Olano, 507 U.S. 725, 731-32 (1993). We will correct a plain error only if the error "seriously affects the fairness, integrity or public reputation of judicial proceedings." Id. at 736.

Bishop's argument hinges on a misreading of our discussion of § 7206(1) in State v. Adams, 314 F. App'x 633, 638 (5th Cir. 2009). In that case, we stressed, in obiter dicta, that a § 7206(1) false return case is "a perjury case," unlike, for example, a tax evasion or failure to file case. We interpret those remarks simply to distinguish a charge under § 7206(1) from other types of tax-related charges. We did not hold, nor would it make sense to hold, that false return cases are not "tax cases." n1 Regardless, even if Bishop's characterization of Adams were accurate, she could not show that the district court's ruling affected the outcome of its proceedings, as is required for a reversal based on plain error. The court's lone ruling on her questioning of Whalen did not prospectively prevent her from emphasizing the elements of the Government's case that she considered weakest. Moreover, we see no reason to think that the jury's verdict would have been any different even if she had emphasized those points in the manner she says she would have preferred. Reversal on this point is not warranted.
FOOTNOTE
n1 In fact, later in the opinion, we made clear that Adams was a "tax case." 314 F. App'x at 652 (referring to another case as "also a tax case").

I am not sure exactly what the defendant's attorney hoped to gain strategically by classifying the Section 7206(1) charges as a perjury case.  I do think that counsel was properly entitled to ask that question and argue the point, though.  In my judgment, that is a fair characterization of the Section 7206(1) crime.  Although not admitting that point, the panel rejects the argument under the plain error standard because (i) defendant's counsel 's failed to press the point and (ii) the context, in the panel's mind, showed that error (if there were one) did not influence the jury's verdict.

Perhaps readers can address the issue of whether the defendant was prejudiced by the failure to characterize the case as a perjury case.

Conviction in Foreign Account Plus Case (1/16/11)

There is a recent opinion in United States v. Simon (ND IN No. 3:10-cr-00056) \about which I previously blogger here. The new opinion is here. The new opinion, dated 1/1/11, is short and cryptic -- assuming some familiarity with earlier rulings in the case to understanding the judge's exasperation. The new opinion rejects the defendant's post trial motion for judgment of acquittal and alternative motion for new trial. The Court's opening paragraph under Background, gives the reader an indication of how the court will rule:

A 23-count indictment was handed down in April 2010, charging Mr. Simon with filing false federal income tax returns (Counts 1-4), failing to file foreign bank account reports (FBARs)(Counts 5-8), mail fraud (Counts 9-19), and fraud involving federal financial aid (Counts 20-23). More than seventeen pretrial motions required four hearings, numerous oral rulings [Doc. Nos. 25, 33, 71 and 109], and three detailed written opinions and orders [Doc. Nos. 62, 74 and 100]. Trial began on November 2, 2010. Evidentiary objections were the rule, rather than the exception, during trial, and the court frequently had to restate earlier evidentiary rulings. Mr. Simon seemed to change his theory of defense mid-trial, requiring additional briefing.

The Government dismissed Count 5, and, after trial the jury convicted on all remaining counts except Counts 13, 14 and 16 (mail fraud counts). Not a good day for Mr. Simon.

The issue I previously blogged was the Court's rejection of the claim that the IRS's extension of time for signatories on foreign accounts to file delinquent FBARs by 6/30/11 operated to preclude prosecution for the original delinquencies which, if they occurred with the required willfulness, were criminal acts at the time. In this new opinion, the Court begins its Discussion as follows:

Mr. Simon's renewed motion for judgment of acquittal is premised on arguments previously raised, considered, and rejected.

And, the Court concluded its Discussion with the following:

The court carefully considered Mr. Simon's arguments, has given detailed reasons for rejecting them, and believes that it properly ruled on each of the issues raised. Mr. Simon hasn't presented any authority or identified any error or circumstance that would warrant reconsideration at this stage of the proceedings or a new trial.

Not a good opening or closing discussion for the defendant.

There is not a whole lot in between that I think particularly worthy of note for readers of this blog. The opinion is short so it might be worth scanning by those whose interest is piqued.  I mention the case only because the underlying scheme did involve foreign accounts and foreign entity intrigues and there were FBAR count convictions. The Government has another notch under its belt in this area. But, it is clear from this and the prior opinion that this was not a garden variety foreign account case. The facts underlying the federal financial aid fraud counts makes this case quite an outlier to the cases I have encountered involving foreign accounts. I just wonder whether, if facts had not involved federal financial aid fraud, the dispute between Mr. Simon and the IRS / DOJ Tax (which also had some other predicate intrigues) could not have been resolved short of criminal prosecution.