Tuesday, February 28, 2012

Whistleblower Cases and the Criminal Process (2/28/12)

Readers are at least generally familiar with the whistleblower provisions in the Code.  See Section 7263, here.  I have written on them before.  (See the Whistleblower tag below for the blogs on the subject.)  Very briefly, one provision is for a discretionary award.  The other, more potentially lucrative provision, is for a minimum of 15% of taxes, penalties and interest collected, with a discretionary further award between 15% to 30% (with a 30% maximum after the exercise of full discretion).  This latter provision came into the Code in 2006 and, for reasons to be noted, we do not yet have much anecdotal evidence of major awards.

This is not the appropriate place to address the details of that program and the limited anecdotal data (including the annual Whistleblower Office reports), but in a recent meeting, the director of the Whistleblower Office spoke.  A report of his comments is at Jeremiah Coder, IRS Whistleblower Office Implementing Improvements, 2012 TNT 35-13 (2/22/13).  Here are some key parts of that article:
Complaints about how long it takes to close whistleblower cases are unlikely to end anytime soon. Whitlock said the audit process for high-dollar cases takes longer given the complexities of those cases and the opportunities for taxpayers to appeal. While officials originally expected that high-dollar claims awards would be issued within three to five years of claim submission, it now appears that the payout time frame is likely five to seven years, because the IRS cannot pay an award until the underlying tax liability has been collected, he said.
And, as respects the interface of the whistleblower information with the criminal process:
When it becomes clear during the intake process that a case is criminal, the case is passed along to the IRS Criminal Investigation division, Whitlock said, adding that during the audit process, other whistleblower cases can be referred to CI after consultation with a fraud technical adviser. Whether the Justice Department will grant a whistleblower immunity in a criminal probe depends on the individual's role in the noncompliance, he said.
Just a couple of comments:

Saturday, February 25, 2012

Fifth Amendment Act of Production Privilege and Encrypted Data Files (2/25/12)

In In re: Grand Jury Subpoena Duces Tecum Dated March 25, 2011, 670 F.3d 1335 (11th Cir. 2012), here, the Eleventh Circuit decided an important Fifth Amendment case -- whether the compelled witness has a Fifth Amendment privilege as to any "testimony" inherent in the witness' compelled decryption of his hard disk.  This case was not a tax case.  Rather, the underlying crime investigated related to child pornography.  But the implications in  tax cases are apparent, since tax cases often are based on access to computer files.  Indeed, one of the first exercises in the IRS gaining access to computers in criminal tax investigations (whether by search warrant or otherwise) is to image the disks for access and use in the investigation.  Obviously, access and use are impeded by encryption.

Readers will recall that, although there is not normally a Fifth Amendment privilege as to any documents (including computer files) which a witness has voluntarily prepared, the witness being compelled to produce documents has a Fifth Amendment privilege with respect to testimony inherent in the compelled act of producing those documents (or computer files).  This embellishment on the Fifth Amendment is referred to as the Act of Production doctrine that was developed in two important tax cases -- Fisher v. United States, 425 U.S. 391 (1976); and United States v. Hubbell, 530 U.S. 27 (2000).

Not uncommonly, when a witness asserts the Fifth Amendment, the U.S. Attorney will request a district court to grant an immunity order under 18 U.S.C. §§ 6002 and 6003 which grants the compelled witness immunity with respect to any "testimony."  In the context of pre-existing documents or computer files, as involved in the case discussed here, the only testimony is in the act of production.  An immunity order is supposed to be coextensive with the witness' Fifth Amendment privilege.  In the lingo of immunity, that immunity must be derivative use immunity rather than use immunity.  See Kastigar v. United States, 406 U.S. 441(1972).  I offer the following from my book (varied just slightly):
(b) Derivative Use Immunity. 
As we see from the Kastigar discussion later in this section, is conceptualized as co-extensive with the Fifth Amendment privilege.  The Fifth Amendment privilege may be asserted as to testimony that is not only itself incriminating but that might lead to incriminating information.  This type of immunity prevents the prosecutor from using (i) the testimony given and (ii) any leads developed from the testimony. This type of immunity is called “derivative use” immunity, because of the latter feature.  (Immunity offering only use of the testimony given is called use immunity and is more limited than derivative use immunity.)  This type of immunity may be obtained both by statute or by agreement between the witness and the prosecutor. 
Derivative use immunity is sometimes referred to as “use and derivative use immunity” in order to reinforce that it covers use immunity also  I use the shorter form derivative use immunity for it always entails use immunity, to which we now turn. 
(c) Use Immunity. 
From the defendant’s perspective, this is the worst form of immunity and, correspondingly, from the prosecutor’s perspective, the best if immunity has to be given at all.  This form of immunity prohibits use of the testimony given .  It does not prohibit use of leads derived from the testimony.  Because of significant prosecutorial limitations on derivative use immunity, if the prosecutor is inclined to offer immunity at all, it will usually be use immunity.  Statutory immunity is derivative use immunity, so use immunity is available only by agreement with the prosecutor.   
In Grand Jury Subpoena, the district court's order granted only use immunity under the statute.  Therein lay the rub.  The Eleventh Circuit reversed the district court's holding of contempt for disobeying the use immunity order  because the order was for use immunity rather than derivative use immunity.

Thursday, February 23, 2012

Another Plea Involving Offshore Accounts (2/23/12)

DOJ Tax has this press release, here, cryptically reporting a plea by two taxpayers, husband and wife, to two counts of willful failure to file income tax returns (Section 7203).  In relevant part, the press release says:
Additionally, during the years in question, the Palmers maintained funds in an offshore bank account in the name of The Liahona LLC, an entity of which they were the sole members and managers. Due to the income they received during the prosecution years, the Palmers were required to file tax returns, however, they failed to do so.
It is unclear whether Liahona LLC was a domestic or a foreign entity.  I did a Google search and found a several Liahona LLCs in the U.S. Among the items on a Google search for "Liahona LLC" & Palmer was this one:
Nevis trust company turns over client records to the IRS
Angela Palmer · Baron Abboud · Caribeco USA · Charles Sigerseth ... Dunn · Kredit Privee · Liahona LLC · Pamela Ann Ross · Warren Ross Palmer · Wealth ...
I tried to link to the page but it required a subscription.

So, apparently, the tax haven of choice for them was the Island of Nevis.  Not the first time that tiny country has appeared on our radar screen.  According to the Wikiipedia entry, here:

Tuesday, February 21, 2012

Supreme Court Rules Tax Perjury and Aiding & Assisting Are Deportable Aggravated Felonies (2/21/12)

The Supreme Court today decided Kawashima v. Holder, ___ U.S. ___, _132 S. Ct. 1166 (2012), here.

The bottom line is that tax perjury (Section 7206(1)) and aiding and assisting (Section 7206(2)) involving tax loss exceeding $10,000 are aggravated felonies.  I will write more on the decision, probably tomorrow after I have worked through it and the dissents.  Just FYI, the majority opinion is by Justice Thomas.  The minority opinion is by Justice Ginsburg with Justices Breyer and Kagan concurring.

Justice Thomas' majority opinion is straight-forward in its critical holding.  The aggravated felony provision applies if the crime involves "fraud or deceit."  8 U. S. C. §1101(a)(43)(M)(i).  Tax perjury (Section 7206(1)) and aiding and assisting (Section 7206(2)) require deceit as a necessary element of the crimes.  Therefore, this is an aggravated felony.  This is straight-forward application of the statutory text, without any consideration of subtlety or nuance.

Justice Thomas then rejects the arguments the petitioners made to avoid a straight-forward application of the statutes.  He reasons that, although neither of the tax crimes' text uses the term fraud or deceit, they necessarily include deceitful conduct.  (This was the point he made initially, but he essentially elaborates on it.)

Justice Thomas then turns to the petitioners' argument that created the conflict in the circuits.  And this requires some subtlety to resolve either way.  The petitioners' argument is that Congress' inclusion in subjection (ii) of tax evasion as an aggravated felony is meaningless if tax evasion were already covered in (i) by the term "fraud or deceit."  And, if it is not meaningless, petitioners argued, then it can be inferred that, as among tax crimes, Congress intended deportable aggravated felonies to include only tax evasion and not the other lesser tax crimes.

IRS Finalizes Whistleblower Regulations (2/21/12)

Today, the IRS published final regulations addressing certain issues under the whistleblower provision of the Code, Section 7623.  The regulations are here and Section 7623 is here.  Readers will recall that Section 7623 authorizes the IRS to pay awards from collected proceeds for information that results in the collection of tax, penalties and interest.  Subsection (a) is a discretionary award in a suitable amount ("as the IRS deems necessary").  Subsection (b), the provision drawing the most interest, is a mandatory reward of at least 15% scaling up to 30%.  In part relevant to this blog, the new regulations provide (applicable to both subsections) that the:collected proceeds include:

1.  Amounts collected subject to reward do not include criminal fines.

2.  Amounts collected subject to reward do include criminal restitution for tax order by the court.

Tuesday, February 14, 2012

Defraud Conspiracy Implicitly Included in Offense Conspiracy (2/14/12)

Assume that (i) the indictment charges an offense conspiracy for some specific offense of defrauding the Government (let’s say a charge of tax evasion with multiple defendants acting in concert), (ii) a defraud conspiracy is not charged, (iii) the jury convicts, and (iv) on appeal, the offense conspiracy is found wanting.  Can the court of appeals affirm on the basis that, although not explicitly charged, the offense conspiracy charged necessarily includes a defraud conspiracy (assuming that the evidence is sufficient to support a defraud conspiracy had it been charged)?  I would have thought the easy answer is no.  But in an older case, the Eleventh Circuit suggested that the conviction could be affirmed.

For clarity here, the defraud conspiracy can apply to all conspiracies to defraud the United States or agencies thereof.  In a tax context, the defraud conspiracy is a conspiracy to defeat the lawful functioning of the IRS (a scope beyond what one might think of a defraud conspiracy).  In a tax context, the defraud conspiracy is commonly referred to as a Klein conspiracy.

In United States v. Elkins, 885 F.2d 775 (11th Cir. 1989), cert. den. 494 U.S. 1005 (1990), here, a nontax case, the defendants were charged with conspiring to commit wire fraud against the United States, 18 U.S.C. § 1343 but were not charged with a defraud conspiracy.  Based on an intervening Supreme Court case, McNally v. United States, 483 U.S. 350 (1987), the Eleventh Circuit found that specific offense conspiracy charged to have been improper.  Nevertheless, the Court held that, since the specific offense conspiracy charged necessarily included a claim that the defendants had defrauded the Government, the conviction could be sustained as a defraud conspiracy even though a defraud conspiracy had not been charged.  The Court acknowledged that it could not sustain a conviction on a theory not charged in the indictment and submitted to the jury but found, in effect, that the defraud conspiracy charge was implicit in the specific offense charged.  The Court found comfort in the fact that the judge’s instructions to the jury could be read broadly enough to cover a defraud conspiracy, although that apparently was not what the trial judge intended since the only conspiracy charged in the indictment was an offense conspiracy.

Saturday, February 11, 2012

Court holds Application to Court for 18 USC 3292 Foreign Treaty Request Suspension Must be Made Within Statute of Limitations (2/11/12)

In United States v. Csolkovits, 2012 U.S. Dist. LEXIS 14314 (ED MI 2012), here, the defendant was charged with (1) sixteen counts of wire fraud in violation of 18 U.S.C. § 1343, (2) one count of engaging in a monetary transaction in criminally-derived property in violation of 26 U.S.C. § 1957(a), (3) one count of impeding the administration of the Internal Revenue Service ("IRS") laws in violation of 26 U.S.C. § 7212(a), and (4) one count of submitting false documents to the IRS in violation of 18 U.S.C. § 1001.

The indictment was brought more than five years after the underlying conduct for some of the counts alleging crimes with a five year statute of limitations.  The defendant raised a statute of limitations defense.   The defendant had entered a statute tolling agreement for some of the period, so that was not in issue.  What was in issue was whether the Government met the requirements for suspensions of the statutes of limitations in 18 U.S.C. § 3292 which provides for suspension in part here pertinent:
There must be a grand jury investigation.
Incident to the investigation, a request for information must be made to a foreign jurisdiction before the return of an indictment.
That request to the foreign authority must be made within the otherwise applicable statute of limitations.
The Government must apply to the district court.
The tolling period is from the date of the request until the foreign government takes final action on the request.
The tolling period cannot exceed the lesser of (i) three years or (ii) if the final action from the foreign authority is during the otherwise applicable statute of limitations, for more than six months.

Thoughts on the Corporate Audit Lottery (2/11/12)

The audit lottery is a gambit in which taxpayers claim tax benefits to which they are not entitled in the hope that the IRS will never audit the returns or, if audited, the improper benefits will not be discovered.  The audit lottery is simply an attempt to exploit the IRS's limited resources.  The IRS has limited audit coverage.  Most taxpayers are not audited and, when audited, tax benefits may not be reviewed.  The taxpayer wins the audit lottery if the IRS does not discover the improperly claimed benefits.

Taxpayers’ positions exploiting the audit lottery often are criminal in nature.  By criminal I mean that the taxpayer voluntarily violated a known legal duty.  This is often referred to as the Cheek definition of willfulness which is the standard for most tax crimes (e.g., tax evasion in § 7201, tax perjury, in § 7206(1) and aiding and assisting in § 7206(2)).  Taxpayers’ whose conduct is criminal are playing the audit lottery.  Very few of them would engage in that conduct if they knew they would be detected; hence, their conduct is explainable only because the probability of detection is sufficiently low that the risk / reward ration is quite favorable.  For reasons, I describe below, the audit lottery is not limited to criminal misconduct. Taxpayers merely taking super aggressive positions, positions they know are not likely to prevail but are not criminal, may also play the audit lottery.  In either event, both types of taxpayers seek to exploit the IRS’s limited ability to discover, understand and correct their erroneous tax benefit claims.

In this blog, I analyze the audit lottery through the perspective of the criminal tax regime and the civil tax penalty regime.  Both regimes offer penalties for misconduct with respect to claiming improper tax benefits.  The criminal penalty risks can usually be practically eliminated by sophisticated, well advised taxpayers, so that the only penalty risks to playing the audit lottery are the civil penalties.  Perversely, the civil penalties are too low to encourage aggressive taxpayers to forgo the audit lottery.  I therefore focus here on the civil tax penalties.

Friday, February 10, 2012

Swiss Report on International Financial and Tax Matters (2/10/12)

The Swiss Federal Department of Finance has issued its Report on International Financial and Tax Matters 2012, here.  Interesting excerpts are:
Implementation of financial integrity strategy 
International pressure on Switzerland to cooperate more closely in the fight against tax offences has increased further. Switzerland has no desire to oppose initiatives in this sphere, and is continuing to implement the OECD standard for provision of administrative assistance. Switzerland’s existing framework for providing administrative assistance will probably be reviewed at the end of 2012 as part of the second phase of the peer review of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum).  A resolution to the tax problems of the past is also being worked out with the United States. Furthermore, in its efforts to ensure fair tax mechanisms, Switzerland has put forward a credible and efficient alternative to the automatic exchange of information in tax matters. The withholding tax agreements signed with Germany and the United Kingdom are due to be ratified and should enter into force in 2013; similar agreements are likely to be concluded with other nations.
* * * *
3.2.4 United States 
Switzerland has been holding talks with the United States on unresolved tax issues for more than a year. These talks relate to the US investigations into alleged infringements of US tax legislation by Swiss banks and the potential handover of client data. Under Swiss law, client data may be handed over as part of an administrative assistance procedure at federal level, but not directly by a bank. The objective of the negotiations with the US authorities is to find a solution that is compatible with Switzerland’s current legal framework. The cases of the directly affected banks are to be dealt with through requests for administrative assistance: in the case of tax fraud in accordance with the existing double taxation agreement (DTA) of 1996, and in the case of both tax fraud and tax evasion in accordance with the new – but not yet ratified – DTA of 2009. Under the existing DTA, requests for assistance are possible even without the provision of specific names or personal details, as long as an alternative form of identification is supplied. Applications on the basis of specific patterns of behaviour should also be possible under the new DTA without the provision of specific names or personal details. However a decision has yet to be made by Swiss parliament in this respect. At the same time, a global solution is being sought that will apply to the entire Swiss financial centre and thereby put the past to rest.  
Another development geared to the future is the US “Foreign Account Tax Compliance Act” (FATCA), which was passed by Congress in March 2010. This legislation is designed to ensure comprehensive worldwide reporting on US taxpayers who hold bank accounts and assets with financial services providers outside the United States. The US authorities have set out a staggered timeframe for the implementation of this Act  expected to apply from 1 January 2014 onward). 
Given its significant international activity, particularly with the United States, Switzerland will be greatly affected by this legislation. FATCA envisages the imposition of a withholding tax of 30% on all payments of dividends,  interest, sales proceeds, etc. from the United States to a foreign financial institution, irrespective of whether the financial institution in question is accepting payment on behalf of a US taxpayer, another client or indeed itself. To avoid payment of this withholding tax, a financial institution must sign an agreement with the US tax authority (the IRS) in which it accepts comprehensive reporting obligations with respect to all clients who are liable to pay US taxes. This will involve a substantial amount of administrative work. After the Federal Council instructed the FDF to initiate discussions, SIF made it clear to the US authorities during a number of different meetings that the implementation of FATCA had to take account of the concerns of the financial institutions that would be affected. Modalities for a simplified implementation of FATCA will be sounded out within the scope of talks on general financial issues.
Also interesting is the dig they give at the U.S. for having the largest number of corporate vehicles for corrupt assets and banks with hidden corrupt assets.  P. 18 thus says:

Did UBS Turn Over to U.S. Information About Other Swiss Banks? (2/10/12)

We know from the Wegelin indictments that at least some U.S. depositors with UBS fled to Wegelin in the hope of keeping ahead -- and out of sight -- of the U.S.  Those of us who practice in this area know that UBS customers also went to other banks with U.S. footprints -- and thus, it was thought, exposure lesser than UBS.  Wegelin may have been the most aggressive in seeking those accounts.  But there were others.

Recent reports have suggested that UBS may have alerted the U.S. to the Swiss banks into which the U.S. depositor money flowed.  I post some of the articles below and readers try to sort out what UBS did and didn't do, or claims it didn't do. 

I infer, for example, in among  information that UBS did turn over to the U.S. would have been wire transfers out of UBS to other Swiss banks (as well as banks outside Switzerland) and the U.S. would have known of those other Swiss banks that way.  Certainly, in this sense, at least as to the U.S. depositors that UBS disclosed, the U.S. became aware that money was moved to other Swiss banks.
I suspect that UBS is denying that it went beyond providing the account information -- i.e., it did not supply information outside the account information regarding the activities of its fellow Swiss banks and bankers. The U.S. mined a great deal of disclosure about the activities of the other Swiss banks in the voluntary disclosure program which required information about those activities and, in the egregious cases (i.e., the list of 11), the prosecutors have followed through for more detail.

Readers having more information or insight are encouraged to share by comment.


Katharina Bart, BS denies helping U.S. in tax probes of other banks (Reuters 2/9/11), here.

UBS provided US with data about rivals (swissinfo.ch 2/9/11), here.

Wednesday, February 8, 2012

IRS Joins with 5 Other Countries for Information Sharing and FATCA Relief (2/8/12)

Articles on the internet are reporting a major development (or at least major hype) in a new agreement between the U.S. and 5 countries whereby each pledge more tax information sharing between the Governments of information obtained from local banks in their respective countries, with some mitigation of the FATCA rules.

Here are some key quotes from the articles:
In a joint statement, the United States, France, Germany, Italy, Spain and Britain said they wanted “to intensify their cooperation in combating international tax evasion.” In return, Washington has agreed to “reciprocate in collecting and exchanging” information about U.S. accounts held by residents of those countries.
 * * * *
The United States and the five European countries said Wednesday that they would get around the secrecy problem by having financial institutions share data with their own governments, which would then share with Washington.
 * * * *
Treasury said that once these five "FATCA partner" countries finalized the framework, banks in those countries would not have to enter into separate data disclosure agreements with the IRS.
 * * * *
For nations not invited to become "FATCA partners" with the United States, banks and financial institutions in those countries must still cooperate on their own with the IRS.

 * * * *
 Noticeably absent from the new framework were major international banking nations such as Canada, Switzerland and the Netherlands, not to mention tax haven jurisdictions such as Ireland, the Cayman Islands and Bermuda.
 * * * *
U.S. Treasury officials say privately that they hope other countries that have raised objections to Fatca, including Canada, Switzerland, China and Japan, will see the benefits of the approach announced Wednesday and that the agreement is almost certain to expand. They say discussions with other countries are continuing.

Saturday, February 4, 2012

TIGTA Report on IRS Processing of Restitution (2/4/12)

TIGTA has released a report dealing with restitution  in federal tax criminal cases.  See TIGTA, Report 2012-30-012 (1/27/12), titled Procedures Are Needed to Improve the Accounting and Monitoring of Restitution Payments to Prevent Erroneous Refunds, here.

The Report deals with processing issues that have resulted in improper administrative action with respect to restitution.  For background on restitution in criminal tax cases, readers might want to review the relevant portion of my book, here.  See also my blog discussions on restitution by clinking the key word below.

Here are some other comments on the TIGTA report.

1. Restitution, where ordered, is not the same thing as a tax assessment.  In order for the IRS to use the IRS collection tools available for tax assessments, a formal tax assessment is required.  Since tax assessments related to the underlying conduct generally do not precede sentencing for tax crimes, the IRS needs to move promptly to make the assessment so that the IRS administrative procedures are in place.

2. The report does note the 2010 change in the law (discussed in my excerpt) to permit immediate assessment of tax amounts imposed as restitution.  Note that the IRS can still investigate and make supplemental assessments beyond the amount of restitution, provided that the statute of limitations is still open as it often will be after criminal conviction because of the unlimited statute in the case of fraud.  A conviction of a tax crime other than tax evasion is not preclusive of fraud; in that type of case, the IRS must still assert and prove fraud by clear and convincing evidence.  Moreover, even the award of restitution, like the determination of a tax loss for sentencing, is not preclusive of fraud.

Thursday, February 2, 2012

Wegelin Indicted in SDNY with Money Laundering Forfeiture (2/2/12)

Wegelin & Co. has been indicted.  The DOJ Tax press release is here; the indictment is here; and the related forfeiture complaint is here.  (The indictment and forfeiture complaint are provided with the permission of Tax Analysts.) The indictment is a superseding indictment adding Wegelin as a defendant to the prior indictment of three individual bankers affiliated with Wegelin.  See my prior blog, New Swiss Enabler Indictments - Bankers Related to UBS and, Allegedly, Wegelin (1/3/12), here.  The allegations of the prior original indictment are essentially repeated.  Many of those allegations related to Wegelin, identified in the original indictment as Swiss Bank A.  A number of paragraphs with various additional allegations, some interesting and others not so.  The indictment charges a single conspiracy count which alleges a conspiracy to (i) defraud (Klein) and (ii) commit offenses of evasion (7201) and tax perjury (7206(1)). In terms of the indictment, nothing is particularly surprising, although I am sure there will be a lot of comment about it.  For present purposes, I will just quote interesting parts of the press release.  Although alleging long term promotion of U.S. tax evasion through Wegelin, the press release notes particularly Wegelin's attempt to leverage its insularity from the U.S. by hustling UBS U.S. depositors:
In the wake of the IRS investigation, members of Wegelin's senior management affirmatively decided to capture the illegal business that UBS exited. To capitalize on the business opportunity this presented and to increase the assets under management, along with the fees earned from managing those assets, Berlinka, Frei, Keller and others, acting on behalf of Wegelin, told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to U.S. authorities because the bank had a long tradition of secrecy. They also persuaded U.S. taxpayer-clients to transfer assets from UBS to Wegelin by emphasizing, among other things, that unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to U.S. law enforcement pressure. Members of the Swiss bank's senior management approved efforts to capture the clients who were leaving UBS and also participated in some meetings with U.S. taxpayer-clients who were fleeing UBS. In February 2009, UBS entered into a deferred prosecution agreement with the Justice Department on charges of conspiring to defraud the United States by impeding the IRS. As part of the deferred prosecution agreement, UBS paid $780 million in fines, penalties, interest and restitution.
The indictment contains a lot of detail behind that summary.  It is fun reading for those who have the time and interest.

I think some  readers at least might be interested in a recitation of the co-conspirators.  So, here goes; some are pseudonyms as is typical in large conspiracy indictments).

1.  Of course, the individual named defendants previously indicted are named: Berlinker, Frei, and Keller.
2. Client Advisor, a Wegelin person who was team leader for the individual defendants.
3. Managing Parter A, head of the Zurich branch of Wegelin.
4. Executive A, a member of the Wegelin executive committee.
5. Beda Singenberger, an independent asset managers holding Wegelin accounts.  Singenberger has previously surfaced in the Swiss bank debacle.  For prior blogs mentioning Singenberger, see here.
6. Gian Gisler, UBS client advisor.  For previous blogs mentioning Gisler, see here.

Contemporaneously, the Government filed a complaint to forfeit Wegelin assets being held by UBS's U.S. affiliate acting as a correspondent bank.  I find forfeiture the most interesting part of the U.S. juggernaut against Wegelin and, by inference, the remaining recalcitrant Swiss banks (as well as the Swiss Government which serves those banks), because the clear message is that Swiss banks with little apparent U.S. footprint can be reached.  So, I turn to forfeiture..

Court Rejects Claim That Prosecutor Failed to Advise Grand Jury of Boulware Elements (2/2/12)

In United States v. Kasper, 2012 U.S. Dist. LEXIS 8679 (WD NY 2012), here, the defendant argued that, in seeking an indictment for a charge of failure to report constructive distributions, the prosecutor must provide the grand jury proof that the alleged distribution in question met the requirements of Sections 301 and 316.  In Boulware v. United States, 552 U.S. 421 (2008), the Supreme Court said that these sections "govern the tax consequences of constructive distributions made by a corporation to a shareholder with respect to its stock." Id. at 439.  These sections make corporate earnings and profits a condition for a corporate distribution being a dividend.  The Court explained the argument:
Seizing on the Court's statement in Boulware that sections 301 and 316(a) govern the tax consequences of corporate distributions to shareholders, Defendants argue that the prosecutor was required to present the Burgdorf payments to the grand jury to allow it to apply sections 301 and 316 (a) (or ask that those sections be applied for it) to determine, in the first instance, whether any of the corporate distributions Kenneth Kasper received were required to be reported as income. The prosecutor's failure to do so, argue Defendants, is the equivalent of the prosecutor knowingly presenting false and misleading information and instruction to the grand jury.
The defendants were trying to avoid the general rule that the basis for an indictment will generally not be scrutinized, by pushing the inquiry from the basis of the indictment to the alleged misbehavior of the prosecutor.  But the court in Kasper held (quotations marks and case citations omitted):

Wednesday, February 1, 2012

Swiss Government and Swiss Banks Continue to Play Games (2/1/12)

The U.S., exercising its heavy hammer on the Swiss, set a deadline for more disclosures from 11 Swiss banks by January 30, 2011.  The Swiss apparently turned over data purportedly in response to the demand, but the Swiss encrypted the data so that the U.S. is unable to use the data without the encryption key.  The Swiss posture that the encryption key will not be disclosed until the IRS gives something on the unmitigated demands (probably some assurance that Swiss banks and all except the worst individual enablers won't be indicted).

The Swiss banks involved included Credit Suisse, Julius Baer and Basler Kantonalbank.

The transferred data is reported to "between 4 million and 6 million e-mails between Swiss bankers and their U.S. clients, including the names of those involved."  Randall Jackson, Swiss Banks Turn Over Encrypted Data to U.S. Officials, 2012 TNT 21-6 (2/1/12).

This new Swiss gambit of complying but not complying is apparently an attempt to show good faith on their part.  I doubt that compliance without compliance will be perceived by the U.S. as any form of good faith.  In  truth, it appears just a way to stall the process.  If the U.S. was really serious about the 1/30/12 deadline, the deadline has now been passed without any semblance of good faith compliance.  The ball is in the U.S. Court.  I suspect the U.S. knows how to parry that thrust and thrust back (to mix the metaphors).

Oh, we might all shrug, this is just the Swiss being the Swiss.  That is the point.  (In an analogous context, we might just say "Oh, with a shrug, it is just the Somali pirates being Somali pirates," but we take measures when feasible to move them into compliance or make them suffer if they do not.)

2 Taxpayers and their U.S. Lawyer Indicted re Foreign Accounts (2/1/12)

Three individuals -- two U.S. taxpayer clients and their U.S. lawyer -- have been indicted for illegality relating to their tax reporting and FBAR obligations. See DOJ Tax press release here; the indictment is here.

The bullet points are:

Taxpayer Defendants:  Stephen M. Kerr and Michael Quiel
Enabler Defendant:  Christopher M. Rusch (a U.S. lawyer whose website is here, who in addition to enabling allegedly failed to meet his own obligations.

Banks : UBS, "Swiss Bank A" (described as a partnership and one of Switzerland's larged private banks; subsequently identified as Pictet & Cie, here), "Panamanian Bank A"

Other Players:  "Financial Intermediary A," a Swiss investment management firm; "Financial Intermediary B," an independent Swiss wealth management company; "Account Manager," a Swiss national and managing director of Financial Intermediary A and long-time friend of Rusch; Red Rock Investment AG, a nominee Swiss entity for Kerr's benefit; Swiss Fidelity Investment AG, a nominee Swiss entity for Kerr's benefit; Cyril Capital, LLC, a nonminee St. Kitts & Nevis entity for Kerr's benefit; Legacy Asset Management AG, a nominee Swiss entity for Quiel's benefit; Swiss International Trust Company AG, a nominee Swiss entity for Quiel's benefit; Worldnet Corporate Services, S.A., a nominee Panamanian entity with bearer shares controlled by Rusch; and Attorney Trust Corp, A.G., a nominee entity controlled by Rusch.  Not surprisingly, the creation nominee companies is alleged as "Overt Acts" of the conspiracy.

Entities: Yes

Charges:  One count of conspiracy; two counts 7206(1) (tax perjury) for  Kerr and Quiel for the 2007 and 2008 returns; and two  failure to report undeclared accounts on FBARs for Kerr and Quiel.  (The only charge for Rusch is the conspiracy count; it is interesting that Rusch was not charged under the derivative liability provisions for the substantive crimes, such as aiding and abetting them or under Pinkerton liabiltity).