Friday, May 23, 2014

Credit Suisse Criminal Venue in EDVA; More on Venue in Tax Cases (5/23/14)

There is a good article in NYT's DealBook on how the Credit Suisse criminal investigation and prosecution ended up in the United States District Court for the Eastern District of Virginia ("EDVA"). Ben Protess, From Virginia, Chasing Down Credit Suisse (NYT DealBook 5/23/14), here.

This is a good write up on how the USA EDVA snared the Credit Suisse investigtion and brought it across the goal line.  Why EDVA?  That is a good question.  The article offers insight into the answer to the question.

Federal prosecutors have a lot of power over where to locate prosecutions.  The word for placing the prosecution of a federal crime is venue.  Venue has constitutional dimensions.  I offer at the end of this blog, a cut and paste of some portions of my Federal Tax Crimes book discussing venue.  Suffice it to say for now that, for tax prosecutions alleging a conspiracy (either offense or defraud), the conspiracy will often directly or indirectly touch a lot of federal districts that could thereby serve as sufficient nexus for venue for the prosecution.

The big tax shelter prosecutions of the mid-to-late 2000s were brought in SDNY.  A lot of people with their substantial presence outside SDNY and less than strong connections with SDNY in terms of the crimes alleged were herded into the prosecution in SDNY simply because some conduct of the alleged conspiracies occurred in SDNY.

Readers will recall that much of the visible criminal prosecution activity regarding Swiss banks and Swiss bank enablers has been in SDNY.  The Wegelin actions were in SDNY.  And, I understand that USAO SDNY is conducting some other Swiss bank criminal investigations.

So, it appears at this time, for the Swiss banks, SDNY and EDVA are the centers of activity.

Here is the cut and paste (footnotes omitted):


The Constitution requires that trials be held in the “State and district wherein the crime shall have been committed.”  U.S. Constitution, Sixth Amendment; see also U.S. Constitution Art. III, §2, cl. 3 (“The trial of all Crimes . . . shall be held in the State where the said Crimes shall have been committed.”); and FRCrP 18 (“Unless a statute or these rules permit otherwise, the government must prosecute an offense in a district where the offense was committed.”).  The focus in each instance is where the crime was committed. 
Where the crime was committed will be apparent in most cases, but in some cases it might not be apparent.  The following is a summary of the analysis a court will undertake: 
If the federal statute defining an offense does not indicate explicitly where Congress believes the criminal act is committed, the locus delecti must be determined from the nature of the crime alleged and the location of the act or acts constituting it.  The test for venue is best described as a substantial contacts rule that takes into account a number of factors -- the site of the defendant's acts, the elements and nature of the crime, the locus of the effect of the criminal conduct, and the suitability of each district for accurate fact-finding.  
Offenses “begun in one district and completed in another, or committed in more than one district” may be tried in any district in which the “offense was begun, continued, or completed.”  18 U.S.C. § 3237(a).  “The prosecution must show, by a preponderance of the evidence, that some part of the crime was committed within the district of prosecution.”  This phenomenon of venue-creating material acts in multiple districts is often referred to as continuing offenses. 
To illustrate the continuing offense concept, consider a false statement to an IRS agent in a face-to-face interview.  False statement is a crime under 18 U.S.C. § 1001.  The false statement is committed most obviously at the location of the false statement.  If, however, that false statement is given in a context where it will be passed to and used by Government investigators in another district, then venue can lie in that district as well. 
In the case of conspiracies, all conspirators may be tried in any district in which the conspiracy was formed or an overt act in furtherance of the conspiracy occurs.  An overt act otherwise outside the criminal statute of limitations is sufficient to confer venue. 
II. Venue in Tax Cases. 
A. Tax Crimes. 
Most of the tax crimes and related crimes that we have studied are continuing offenses allowing venue in each district in which a material act occurs.  For example, in the case of tax evasion by the filing of a return or tax perjury with respect to a filed return, venue may be where the return was prepared, signed, mailed or filed.  A fraudulent return prepared, mailed and signed in Houston and sent to the Austin Service Center for filing creates venue in the Southern District of Texas (the district for Houston) and in the Western Distict of Texas (the district for Austin).  However, if a taxpayer is charged outside his or her district of residence, the taxpayer may elect to be tried in his or her district of residence if the charge is (a) failure to file under § 7203 or (b) evasion (§ 7201), tax perjury (§ 7206(1)) or aiding and assisting (§ 7206(2)) and venue elsewhere is based solely on a mailing to the IRS. 
The foregoing assumes perhaps the simplest fact pattern.  However, consider that tax evasion requires attempts to evade that may occur in more than one district.  Venue would be appropriate in any of those districts.  Consider the following from a case in which a noted sports figure had no material contact with the district of indictment other than the fact that he received cash in that district and the Government alleged that he received the cash with an intent then to evade tax by not reporting the cash on his return. 
Because an “attempt to evade” tax can occur over time and in more than one judicial district, a violation of § 7201 is a “continuing offense” within the meaning of 18 U.S.C. § 3237(a).  Courts have found venue for § 7201 offenses to be proper in any district where an affirmative act constituting an “attempt to evade” was begun, continued or completed. To establish an “attempt to evade,” the Government must show that the defendant engaged in some affirmative act with a tax evasion motive.  
In cases where venue was premised on acts other than those connected to the preparation, signing, mailing or filing of the tax return at issue, courts have turned for guidance to the Supreme Court's analysis in Spies v. United States, 317 U.S. 492 (1943) to determine whether the defendant engaged in an affirmative act constituting an “attempt to evade.”  In Spies, the Supreme Court stated that the affirmative act requirement should be read broadly: “Congress did not define or limit the methods by which a willful attempt to defeat or evade might be accomplished and perhaps did not define lest its efforts to do so result in some unexpected limitation.”  Spies, 317 U.S. at 499. The Court provided examples of conduct from which an “attempt to evade” could be inferred: 
By way of illustration, and not by way of limitation, we would think affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or  documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal. If the tax-evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime.  
Spies, 317 U.S. at 499. 
Applying Spies, the District Court found venue, reasoning: 
When the receipt of cash is coupled with the intent to evade tax,  Goldschmidt's distinction between inherently deceptive, Spies-qualifying conduct and Strawberry's allegedly benign conduct [just receiving cash] has considerably less force.  In fact, courts have recognized that otherwise legal activities can constitute an “attempt to evade,” if they are performed with the intent to evade tax.  See United States v. Jungles, 903 F.2d 468, 474 (7th Cir. 1990) (“act of entering into . . . 'independent contractor agreement,' even though a lawful activity in-and-of-itself, can serve as an 'affirmative act' supporting a conviction under § 7201 if it is done with the intent to evade income tax.”); United States v. Beall, 970 F.2d 343, 346-47 (7th Cir. 1992) (“although there was no direct evidence that [defendant] used [the Mid-America Commodity and Barter Association (“MACBA”)] to conceal his income from the IRS, . . . it was reasonable for the jury to infer that one purpose of [defendant's] assignment of wages to MACBA was to evade paying income taxes.”), cert. denied, 113 S. Ct. 1291, 122 L. Ed. 2d 683 (1993). 
This Court finds no reason to distinguish the receipt of cash with the intent to evade tax from what these other courts have found to be Spies-qualifying conduct. Accordingly, this Court finds that the Government's allegations that Strawberry's attempt to evade tax by means including the receipt of cash in the Southern District sufficiently allege an affirmative act of attempted evasion within the meaning of Spies, and thus, venue. 
Venue in the case of failure to file a return is the judicial district where the omission occurred.  Although the failure to file may be technically viewed as occurring at the place of filing (e.g., the Service Center in the case of a tax return), venue is proper in the district of the defendant’s residence.  Indeed, if the IRS were to attempt any venue other than the district of the defendant’s residence at the time of the offense, the defendant has an absolute right to transfer venue to his district of residence at the time of the offense. 
Venue in related crimes (such as false statements under 18 U.S.C. § 1001) can be had in any district where a material component of the false statement was made. 
In addition, FRCrP Rule 21(b) provides the court the authority, upon the defendant’s motion, to transfer to another district “[f]or the convenience of parties and witnesses, and in the interests of justice.”  Factors relevant to this decision include usual “equitable” factors: defendant’s location, witnesses location, location of documents and records, and docket considerations in the respective districts. 
Where venue is solely based on where the return or other document was filed, a defendant may move the case for trial to the district where he or she resided at the time of the offense. 
For further materials on venue, I refer you to the CTM which discusses the major tax crimes and, for most of them, has a discussion as a subheading of the proper venue for those tax crimes.
A good resource for further consideration of and research of venue is the CTM, Section 6, here.

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