Sunday, October 27, 2013

Outlier Foreign Account Conviction Affirmed; Making a Witness Unavailable to the Defense (10/27/13)

I previously reported on the conviction and sentencing of Artistotle "Rick" R. Matsa for a melange of offenses, including an FBAR violation.  See Outlier Conviction for FBAR and Many Other Tax-Related Crimes (Federal Tax Crimes Blog 4/21/12), here; and Outlier Foreign Account Case Sentencing (Federal Tax Crimes Blog 11/3/12), here.  Matsa's conviction has been affirmed on appeal.  United States v. Matsa, 2013 U.S. App. LEXIS 21930 (6th Cir. 2013), here.  The Court opens the nonprecedential opinion as follows:
I. Background 
Matsa was a licensed real-estate broker and lawyer in Ohio. He routinely reported losses or minimal income from his businesses, such that from 1985 to 2006 he paid a total of $107 in federal income tax. His legal troubles began when Chrissoula Matsa, his wife at the time with whom he was undergoing divorce proceedings, tipped off law enforcement to his shady dealings. A subsequent investigation by the federal grand jury revealed a number of dubious practices, including the use of phony trusts to mask personal assets, the failure to report rental income, and the transfer of property (though not actual control) to friends and relatives. During the investigation, Matsa failed to comply fully with the government's subpoena of his records. Based on this conduct, the grand jury indicted Matsa for one count of corrupt interference with administration of the internal revenue laws, 26 U.S.C. § 7212(a); fifteen counts of assisting preparation of false tax returns, 26 U.S.C. § 7206(2); one count of failing to report a foreign bank account, 31 U.S.C. §§ 5314, 5322(b); one count of conspiracy to obstruct justice, 18 U.S.C. § 371; two counts of witness tampering, 18 U.S.C. § 1512(b); one count of making a false statement, 18 U.S.C. § 1001; and one count of obstruction of justice, 18 U.S.C. § 1503(a). The grand jury also indicted Matsa's mother for conspiracy to obstruct justice and tried them together. A jury found Matsa guilty on all counts after a five-week trial, and the court sentenced him to a term of 85 months' imprisonment. This appeal followed.
The Court then rejects his various arguments.  None of them appear to offer anything new or exceptional for readers of this blog so I just outline the arguments rejected and let readers go to the opinion for further review:
II. Removal of Counsel
III. Prosecutorial Misconduct
A. Pretrial Conduct
1. Witness intimidation
2. Obstruction of access to a witness.
3. Threats toward defense counsel.
4. Attorney-client privilege
B. Conduct at Trial
1. Commentary and facial expressions
2. Questioning of Ross Gillespie
C. Cumulative Effect
I will comment briefly on the witness intimidation argument.  The Court describes the argument and its rejection as follows (bold-face is supplied to emphasize a point discussed after the quote):
1. Witness intimidation. Matsa claims the prosecutor acted improperly by accusing several witnesses of lying in their testimony to the grand jury. For example, in questioning one witness before the grand jury, the prosecutor said, "Now you lied to us within ten minutes today." Matsa also alleges that, during the grand jury proceedings, the prosecutor told another witness in the hallway that he planned to "throw swords" and that the witness might not wish to fall on a sword for Matsa. 
Though Matsa claims these actions deprived him of due process by forcing witnesses to conform their testimony to the prosecutor's will, the facts alleged do not state a due process violation. An individual has no constitutional right to present witnesses at a grand jury proceeding, see Williams, 504 U.S. at 51-52, and Matsa did not renew his objection at trial.  Rather, Matsa's claim must be analyzed under the standard established in Bank of Nova Scotia v. United States, 487 U.S. 250 (1988). Under this standard, an indictment should be dismissed for prosecutorial misconduct before the grand jury only "'if it is established that the violation substantially influenced the grand jury's decision to indict,' or if there is 'grave doubt' that the decision to indict was free from the substantial influence of such violations." Id. at 256 (quoting United States v. Mechanik, 475 U.S. 66, 78 (1986)). 
Assuming that the prosecutor's comments were indeed improper, the district court did not abuse its discretion by finding a lack of prejudice. As the parties agree, the comments at issue were made before a predecessor grand jury—not the grand jury that ultimately returned the indictment. Therefore, any violation did not "substantially influence[] the grand jury to indict." Bank of Nova Scotia, 487 U.S. at 256.  n4
   n4 Though it has no bearing on whether the district court's pretrial ruling was correct, several of the witnesses in question testified for the government at Matsa's trial and admitted they lied to the grand jury. Matsa suggests that the witnesses' change of heart might have stemmed from coercion in the grand jury proceedings. However, Matsa did not claim below that the government deprived him of trial witnesses, and the issue on appeal is limited to whether the district court erred by refusing to dismiss the indictment in its pretrial ruling. Matsa did submit a motion for new trial in which he incorporated his pretrial misconduct motion and claimed cumulative prejudicial effect. This argument is addressed in Part III.C below.
This genre of intimidation can occur both within the grand jury room and outside the grand jury as alleged above.  Most commonly it might appear in a proffer session where a key witness -- probably better characterized as a subject or target but called witness now because he is not prosecuted -- is intimidated by the prosecutors. The intimidation can influence the witness to cooperate with the prosecutors, perhaps shaping testimony accordingly, in the prosecutors' juggernaut against the major target of the investigation.  Even if such affirmative cooperation is not achieved  by the intimidation, then a passive form of cooperation is achieved -- the witness is unavailable to the defense for fear of possible prosecution in retaliation.  The prosecutors do not have to give immunity to a witness the defense needs or perceives it needs.  I am not saying this form of intimidation happens often, but criminal defense attorneys know that happens enough to be a matter of concern.  And, it can even be an unintended consequence of trying to shake down the witness for affirmative use of his testimony.


  1. maybe a bit off topic but how does the Corporate America's game of Double Irish
    tax avoidance schemes
    ( as reported today
    get a pass from the IRS's crackdown on questionable tax shelters?

    How is it considered legitimate business transactions if it ends up in a mailbox in Cayman?

    Is it just a matter of time till they finish with the private offshore accounts when they will shift to the corporate field or is there currently a loophole in the system?

    Is the IRS perhaps letting it continue now so that they can eventually get larger assessments and penalties for all these years that the practice went unchecked?

  2. The rules applied to corporations (excluding shell corporations) are far different than those applied to individuals. Many of the largest corporations have billions of dollars of profits earned abroad which are NOT subject to US income tax until brought to the US. Having a foreign subsidiary open an account at a US bank does not count as bringing the funds to the US, so the funds are often physically in the US but have escaped taxation and can be used as collateral by the foreign subsidiary and of course appear in the parent corporation's consolidated balance sheet. There has been lobbying to have a one-time special low tax for bringing these funds to the US.

    I would not hold my breath expecting the IRS to get large assessments from these accounts. In fact, quite the opposite, there has been lobbying from some of these companies to allow these funds to be brought in at a very low tax rate.

  3. In the article, attorney Valentin Landmann is quoted as advising " ... any banker in fear of travelling was to check their status directly with U.S. authorities. "

    Any bets on whether someone at risk of being detained or arrested will be told of this so that he may avoid such consequences by not traveling to the US?

  4. This sort of thing is always portrayed as evil incarnate when it is the mafia who shakes down a witness for the prosecution.

  5. Seeing as Switzerland is home to these people, it's hardly a "Club Fed".

    And as long as the US refuses to ratify the treaty on the International Criminal Court, I don't see the point in complaining that Switzerland won't extradite its own citizens on accusations of tax crimes. War crimes are generally worse than tax crimes.

  6. Bravo Sally. I find that the constant smears of Swiss bankers as being "enablers" who were "aggressive in pushing and peddling specific structures" is the typical US government conditioning through propaganda. It is constantly echoed here. It is amazing how even "professionals" like JAT pick it up without ever thinking about how these blanket presumptions of guilt for entire groups of people, such as Swiss Bankers. What about "Tax Professionals"? Could they all be endited as all being politically partisan Louis Lerners? And, as you imply, what is does CIA torturing say concerning, as Obama loves to say, "this is what America is about"?

  7. It is funny how some people make a big deal about the Swiss refusing to exchange data with the US when the Senate hasn't even ratified the 2009 protocol. It is now over 5 years since it was signed. It shows how dysfunctional Congress is.
    Also, it doesn't take much creativity to anonymously travel in the Schengen Visa countries(basically all of Europe except the UK). Obviously avoid flying or making a reservation at a major hotel under your name(as Weil discovered). Actually, Weil travelled out of Switzerland several times. I'm not sure what was different about his trip to Italy.
    So, rather than Switzerland as Club Fed, it is more like Europe(except the UK) as Club Fed.

  8. Maybe you've noticed that you still have to slow way down at the old borders and they have still kept the old buildings used by the border guards within the Schengen area. (The Benelux countries are a special case, but that pre-dated the Schengen agreement.) That's because once in a while they check still IDs at borders in the Schengen area. Generally this is when they are trying to catch some particular criminal that they expect is going that way. I wouldn't expect that they would do this for a Swiss banker, but if they happened to find him when they were looking for someone else...

    In some, but not all jurisdictions, there is a legal requirement that hotels check identity papers and presumably this is (or can be) reported to the police. Within Germany, some Länder do it (e.g. Bavaria) while others do no (e.g. Hessia). When I've gone to Italy, I've always had to give the hotel receptionist my passport or official ID card the first night. It would be returned to me the next morning. (The first time, parting with my passport freaked me out, but its normal procedure.)

    So my advice to those Swiss bankers who are afraid of being extradited to the US but want to make trip elsewhere would be: 1. find out about local requirements for IDs in hotels and 2. choose a border crossing where you can see if they are stopping cars and don't approach it if they are. And if that's too much stress, remember that Switzerland is Very Pretty. (Swiss bankers on this level won't have the problems that normal people have with Swiss hotel and restaurant prices.)

  9. To expand on Sally's comments, there are also random identity checks (no probable cause required for police to ask someone for ID as the law more or less still is in the US.) I have been asked for my papers on a train in Germany (far from any border; everyone on the train was) entering/leaving Switzerland by train by the Swiss, Germans, Italians and French) and on the street in France. Most of the time only a visual check was conducted (did the photo match my face) but in a couple of cases my name and date of birth were sent by radio to be checked against computer records. Bottom line, Schengen isn't free of ID checks. And though I travel extensively, I am not someone who sticks out; my point is that there are plenty of random ID checks, though the chance of being asked for ID on any one trip is small.


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