U.S. Seeks to Forfeit Proceeds of Secret Swiss Account; the Enabler Turns on the Client (4/15/14)

David Voreacos, U.S. Seeks to Seize $12 Million in Swiss-Linked Tax Case (Bloomberg 4/8/14), here.  Excerpts:

U.S. prosecutors moved to seize $12.2 million they say was transferred to New York from a secret Swiss account set up by a lawyer who helped Americans hide assets from the Internal Revenue Service. 

In a forfeiture action filed today in Manhattan federal court, the government demanded the money of “Client 1” and the client’s father, who prosecutors said used a “mail and wire scheme to defraud the IRS of taxes due.” The accounts were held at “Bank A” in Zurich and “Bank B” in Switzerland, according to the civil complaint, which doesn’t name the institutions or client.
The government said the accounts were set up by Swiss attorney Edgar Paltzer, who pleaded guilty in New York on Aug. 16, admitting he committed tax fraud for more than a decade. Paltzer is cooperating with prosecutors amid a U.S. crackdown on offshore tax evasion that has targeted Swiss banks, bankers, lawyers and financial advisers. 

* * * * 

Paltzer created sham entities in the British Virgin Islands, Liechtenstein and Panama to hide the true owners of the accounts and visited the client and father in Staten Island, New York, in 2006, according to the complaint. The client and Paltzer also had dinner in Manhattan.

For a posting on Paltzer's plea, see Swiss Lawyer Pleads Guilty to U.S. Tax Crimes (Federal Tax Crimes 8/16/13), here.

Of course, one of the messages here is that those who think their enablers -- whether banks or individuals -- are honorable enough to protect them may be disappointed.

As Shakespeare said in King Henry the Fourth, part 1, Act 2, Scene 2, here, putting the following words into the mouth of Falstaff:  "a plague upon it when thieves cannot be true one to another!"

Addendum 4/15/14 5:00pm:

The Complaint in the case is here.  The action is for against $12,245,646.79 in currency held in an "IRS seized asset account."  The fund (money) is the defendant in the forfeiture action.

The funds were "was previously held in two bank accounts at a bank located in Zurich, Switzerland ("Swiss Bank A")."  The funds were nominally in account name of corporate entities owned by Client 1 and Client 1's father.  The funds were later shifted to Swiss Bank B.  They hid the funds and income from the funds from the IRS.  Edgar Paltzer, a Swiss enabler, helped them hide the funds and income.  The entities included a BVI sham entity, a Lichtenstein sham entity and Panamanian sham entities.  They also purchased real estate in the Bahamas.

Paltzer met with Father and Client 1 in the U.S to discuss Client 1's accounts.

Then:

21. In or about December 2013, the Gossen Account at Swiss Bank A contained approximately  $12,197,491 and the Second Diesel Account at Swiss Bank A contained approximately $37,043. The assets that were held in these two accounts, collectively, constitute the Defendant Currency. In or about February 2014, the Defendant Currency was wired from Swiss Bank A to an I.R.S. seized asset account located in Manhattan, New York.

There is no explanation of precisely how those wire transfers to the IRS seized asset account occurred.

The legal authority for the transfer include:

• 18 USC § 981(a)(1)(A), here.
• 18 USC § 1956(a), here.

The required specified unlawful activity -- commonly called SUA -- is "mail fraud (18 U.S.C. § 1343) and wire fraud (18 U.S.C. § 1343)."  [Note, I think the cited section for mail fraud is an error; mail fraud is 18 USC 1341, here; wire fraud is 18 USC 1343, here.]

In virtually all tax crimes there is some component in which the wires and the mail are involved.  Hence, the Government has the power to deploy mail fraud and wire fraud as SUA to form the basis for a money laundering violation and hence a right to forfeit.  The allegation is:

26. As alleged in this Complaint, Client 1 transferred funds from inside the United States to Switzerland in order to promote Client l's mail and wire scheme to defraud the IRS of taxes due and owning relating to the funds held in Client l's undeclared accounts in Switzerland. By reason of the foregoing, the Defendant Currency is subject to forfeiture pursuant to Title 18, United States Code, Section 98l(a) (1) (A).

I quote the DOJ policies below limiting the use of mail fraud and wire fraud, either as the base charge or as an SUA predicate.  This, of course, is just the civil forfeiture action and not money laundering charges.  But, there is no indication as to why this case was so egregious that civil forfeiture was appropriate.  Or is it a signal to all of those not in the program that they should get in soon.

For the DOJ policies on charging mail or wire fraud in tax cases:

DOJ CRIMINAL TAX MANUAL:  

25.00 Tax Money Laundering - 18 U.S.C.  § 1956(a)(1)(A)(ii), 25.01 Tax Division Policy, here.

25.01 TAX DIVISION POLICY  

 The Tax Division must approve any and all criminal charges that a United States Attorney intends to bring against a defendant in connection with conduct arising under the internal revenue laws, regardless of which criminal statutes the United States Attorney proposes to use in charging the defendant. Conduct arising under the internal revenue laws includes a defendant's submission of documents or information to the IRS. USAM § 6-4.210.  

 Prosecution for money laundering offenses requires Tax Division authorization when (1) the indictment also contains charges for which Tax Division authorization is required, including allegations of a tax fraud (e.g., Klein) conspiracy, or (2) the intent to engage in conduct constituting a violation of 26 U.S.C. § 7201 or 26 U.S.C. § 7206 is the sole or principal purpose of the financial transaction which is the subject of the money laundering count. USAM § 9-105.750.

The Tax Division will not authorize such charges where the effect would merely be to convert routine tax prosecutions into money laundering prosecutions, as the statute was not intended to provide a substitute for traditional Title 18 and Title 26 charges related to tax evasion, filing of false returns, or tax fraud conspiracy. Appropriate tax-related Title 18 and Title 26 charges should be utilized when the evidence so warrants. However, the Tax Division will approve money laundering charges when warranted by the circumstances. See Tax Division Directive Number 128. 

Tax Division authorization is not required when (1) the principal purpose of the financial transaction was to accomplish some other covered purpose, such as carrying on a specified unlawful activity like drug trafficking; (2) the circumstances do not warrant the filing of substantive tax or tax fraud conspiracy charges; and (3) the existence of a secondary tax evasion or false return motivation for the transaction is one that is readily apparent from the nature of the money
laundering transaction itself. USAM § 9-105.750.

Tax Division Directive No. 128, Charging Mail Fraud, Wire Fraud or Bank Fraud Alone or as Predicate offenses in Cases Involving Tax Administration, referred to in the policy is here.

UNITED STATES ATTORNEYS MANUAL

USAM 6-4.210, Tax-Related Mail, Wire, or Bank Fraud, RICO, or Money Laundering Charges, here.

USAM Tax Resource Manual

14. Tax Division Directive No. 128 (supersedes Directive No. 99) Charging Mail Fraud, Wire Fraud or Bank Fraud Alone or as Predicate Offenses in Cases Involving Tax Administration, here.