Sealing an Indictment Pending Arrest in Tax Cases (7/3/14)

I just saw this interesting case involving a lawyer indicted for tax obstruction, Section 7212(a).  The case is United States v. McBride, 2014 U.S. Dist. LEXIS 89455 (D. MA 2014), here.  The count of the indictment, Section 7212(a), is here.  This specific tax count does not play an important role, other than background, in the following discussion of the sealing of the indictment pending the defendant's arrest.

Briefly, the facts are that the defendant is a disbarred attorney who, the Government alleged did some bad things, much of which were not necessarily tax crimes but were other crimes and skullduggery.  The defendant had known for a long time that he was under criminal investigation and his life otherwise seems to have been falling apart.  So, the Government requested that the indictment be sealed until he was arrested, in order to avoid giving him that information that might cause him to flee.  The Magistrate Judge sealed the indictment.  The defendant was arrested, and the indictment was unsealed.  The issue in the case is whether the Government had properly justified its request to seal the indictment.  The defendant complained about the sealing, and moved to dismiss the indictment.  The Court denied the motion to dismiss.  I offer by cut and paste the entire Discussion in the Memorandum and Order (I supply the bold-faced to draw readers attention to certain portions).

McBride argues that the government violated Rule 6(e)(4) when it moved to seal the indictment without asserting that he posed a  risk of flight or providing any other justification. Further, McBride claims that his arrest constituted an "unreasonable seizure" of his person in violation of the Fourth Amendment and Fed. R. Crim. P. 9 because the warrant was not "properly supported" by a risk of flight. According to McBride, the remedy for these violations is dismissal of the indictment. The government states it requested that the indictment be sealed to secure custody of the defendant. 

Rule 6(e)(4) states: "The magistrate judge to whom an indictment is returned may direct that the indictment be kept secret until the defendant is in custody or has been released pending trial." Fed. R. Crim. P. 6(e)(4). The First Circuit has held that "Rule 6(e) rests on the premise that criminal defendants not yet in custody may elude arrest upon learning of their indictment. . . . [T]he government need not articulate its reasons for requesting that an indictment be sealed, so long as its request is based on a ground set forth in Rule 6(e)." United States v. Balsam, 203 F.3d 72, 81 (1st Cir. 2000). Risk of flight is not the only basis for sealing an indictment. For example, sealing an indictment to protect a key prosecution witness qualifies as a "legitimate prosecutorial objective". Id. 

McBride argues that there is no evidence he posed a risk of flight, pointing out that his whereabouts are well known and he has attended proceedings regularly in Bankruptcy Court. He points out that he has no passport, and has extensive family ties here. The government does not concede that there was no risk of flight, noting: "The government was aware of information about McBride that reasonably raised concerns about a potential risk of flight, including the following: McBride had been disbarred in 2005 after decades of practice; he had filed for bankruptcy in 2009; he had recently lost both of his multi-million dollar homes in Marblehead and Edgartown; he had concealed from his bankruptcy trustee his efforts to fraudulently re-finance his Edgartown property; he had engaged in fraud, fabricated documents, forged signatures, and recorded fraudulent documents at two registries of deeds; and he had recently admitted to sufficient facts on multiple state charges involving identity fraud, credit card fraud and practicing law while disbarred."

The Government essentially relies on evidence that Defendant committed a crime to support the position that he posed a risk of flight. While the weight of the evidence is certainly relevant to risk of flight, it is not necessarily dispositive, particularly here where there are such extensive community and family ties. At the hearing, the government vociferously and alternatively argued that white collar defendants should not be treated differently from defendants charged with street crime. While true, this argument does not defeat the basic principle that an indictment should not be sealed routinely without a legitimate prosecutorial objective. 

Even though the evidence does not support a risk of flight in the circumstances of this case, the error is a non-constitutional one. There is no case-law that suggests that dismissal of an indictment is the appropriate sanction for an unwarranted sealing. The Supreme Court has held that violations of at least some of the Federal Rules of Criminal Procedure, including Rule 6(e), are subject to harmless error review under Rule 52(a). Bank of Nova Scotia v. United States, 487 U.S. 250, 256, 258 (1988) (applying harmless error review where prosecutors violated Fed. R. Crim. P. 6(e) and 6(d) by failing to maintain the secrecy of grand jury proceedings and allowing improper appearances before the grand jury). While neither the Supreme Court nor the First Circuit has addressed harmless error review in the context of an improperly sealed indictment, the First Circuit has routinely applied harmless error review where defendants alleged other defects involving indictments. See, e.g., United States v. Mojica-Baez, 229 F.3d 292, 311 (1st Cir. 2000) (applying harmless error review to prosecutors' "failure to include an element in an indictment that otherwise provided the defendants with fair notice of the charges against them"); United States v. Yefsky, 994 F.2d 885, 892-93 (1st Cir. 1993) (applying harmless error review where an indictment failed to include sufficient facts to notify the defendant of the charges against him, in violation of Fed. R. Crim. P. 7(c)(1)). 

Only the Tenth Circuit has squarely addressed whether harmless error review may be applied to an allegation that an indictment was improperly sealed, holding that an improperly sealed indictment should be dismissed if the sealing resulted in non-harmless error which "substantially affect[ed] the defendant's ability to defend against the indictment." United States v. Thompson, 287 F.3d 1244, 1247, 1253-1255 (10th Cir. 2002) (dismissing an indictment based on a harmless error analysis after the government conceded it was sealed for an improper purpose, and the defendant "innocently destroyed relevant documents" during the 11-month period the indictment was under seal). 

Some courts in this district have dismissed indictments that were improperly sealed because the statute of limitations on the underlying offenses expired while the indictment was under seal. "[A]n improperly sealed indictment does not toll the statute of limitations." United States v. Upton, 339 F. Supp. 2d 190, 194 (D. Mass. 2004); United States v. Maroun, 699 F. Supp. 5, 6-7 (D. Mass. 1988) (dismissing the indictment because the sealing order was based on an implicit false representation); United States v. Cosolito, 488 F. Supp. 531, 535, 537 (D. Mass. 1980)(dismissing the indictment on the ground that the government's request to seal the indictment because publicly filing the document would compromise an ongoing undercover investigation lacked a factual basis). 

The closest analogue to the McBride's case is United States v. Gigante, 436 F. Supp. 2d 647 (S.D.N.Y. 2006), in which the court found that the defendant, charged with tax evasion, posed no risk of flight since his whereabouts were never unknown, he "was well aware . . . that he was being investigated," had been in "frequent contact" with the government through counsel, had offered to meet with the government several times, and had "asked that he be allowed to surrender if he were indicted." Id. at 657. The magistrate in Gigante granted requests to seal "multiple, successive indictments" over a period of two years, during which the statutes of limitations had expired on the offenses at issue. Id. at 660. Because the court found that the prosecutors could not have been motivated to seal the indictment due to flight risk, the court "conclude[d] that the indictments were sealed only because the Government sought to toll the statute of limitations while pursuing a related investigation," which is not "a legitimate prosecutorial reason" to seal. Id. at 657-58. The indictment in Gigante was ultimately dismissed because the statute of limitations had expired. Id. at 654-55, 660. ("If the Government is unable to justify the sealing of the indictment, the expiration of the limitations period prior to unsealing would result in dismissal of the indictment. . ."). 

Here the indictment was unsealed immediately after the defendant was arrested. There is no evidence that the sealing substantially affected defendant's rights under the applicable statute of limitations or his ability to defend himself. Accordingly, even though the sealing was improper, it was harmless error. 

The government's request for an arrest warrant, rather than a summons, also does not merit dismissal. Rule 9 states, "The court must issue a warrant — or at the government's request, a summons — for each defendant named in an indictment or named in an information if one or more affidavits accompanying the information establish probable cause to believe that an offense has been committed and that the defendant committed it." Fed. R. Crim. P. 9. The defendant's argument seems to be that by requesting an arrest warrant rather than a summons when he posed no risk of flight, the government violated both Rule 9 and the Fourth Amendment's prohibition of "unreasonable seizures" of the person. However, the law requires only that the warrant is supported by probable cause. Here, the indictment itself was sufficient to establish probable cause. See generally Kalina v. Fletcher, 522 U.S. 118, 129 (1997) (holding that the Fourth Amendment's probable cause requirement "may be satisfied by an indictment returned by a grand jury").

By way of background for sealed cases, I offer the following from a study under the auspices of the Federal Judicial Center, Sealed Cases in Federal Courts, pp. 17-18 (October 23, 2009), here:

An indictment is sometimes filed under seal and kept sealed until the defendant appears. The indictment is kept sealed so as to not tip off the defendant. In some districts, indictments are initially sealed as a matter of course. Once the defendant has appeared, the indictment can be unsealed. If the defendant cooperates with the government’s prosecution of others, who may be defendants in the same case or defendants in cases with other case numbers, then the case may remain sealed because of cooperation. Sometimes an indictment remains sealed after the defendant appears because no one thought to unseal it.
In a multi-defendant case, it is possible to seal the prosecution against one defendant while the prosecution against another defendant is not sealed. For this project, only cases sealed as to all defendants were counted as sealed cases. In a few of these, the court kept the case sealed until all defendants appeared, which presumably would require either the explicit or implicit consent of those defendants who did appear.
Sometimes the government asks the court to dismiss a sealed indictment against a defendant who has not yet appeared. Perhaps the government has decided not to prosecute the defendant after all, or the government has decided to prosecute the defendant with a different indictment or in a different jurisdiction. In a few cases, the sealed indictment was transferred. It is not clear whether such indictments should remain sealed permanently.

The following is my discussion from my Federal Tax Crimes Book immediately after the foregoing quote from the Federal Judicial Center Publication (footnotes omitted):

Sealed indictments are troubling.  Sealed indictments are not consistent with the fundamental concept that justice and the proceedings in the justice process are and should be open.  Sealed indictments impair the fundamental imperative of a statute of limitations for a crime, a concept that most would consider includes both the actual indictment and notice to the defendant.  Furthermore, depending upon the length of delay before being unsealed, sealed indictments impair the right to speedy trial, a right that is both statutory and based on fundamental notions of due process, and a defendant’s ability to defend charges that could be stale.  The general parameters for sealed indictment law and practices are (this may be more of a best practices list): 

1. In requesting the sealed indictment, the prosecutors should state the reason for sealing so that the judge considering the request, usually a Magistrate Judge, can consider the need for sealing.  (Practice in some districts may be a bit lax on this, however.) 

2. The judge should order indictments sealed only where exigent circumstances demand secrecy and only for so long as those exigent circumstances continue to exist. 

3. Sealed indictments, if brought within the applicable statute of limitations, are timely. However, if unsealed after the statute of limitations has expired or even after a substantial period of time has expired, the prosecutors should be required to explain the exigencies that required sealing during the period of sealing.  The indictment should be dismissed if the defendant can show prejudice not justified by the need for sealing the indictment. 

As noted above, the most common articulated reason for sealing is the need to avoid tipping off one or more of the defendants who might otherwise become a fugitive.  If indeed the defendant is a fugitive, of course, the statute of limitations is tolled, so the filing under seal is not needed to obtain a statute of limitations benefit. 

The potential for sealed indictments is a looming presence in one of the broadest criminal initiatives the Government has undertaken recently – U.S. taxpayers’ use of offshore financial accounts to hide taxable income.  Many of the U.S. taxpayers and their enablers (such as Swiss bankers) reside abroad or are frequently abroad.  Some of the U.S. taxpayers have feared that, if they did not join the offshore voluntary compliance programs (in seriatim iterations), the Government might obtain enough information to indict, obtain a sealed indictment and pick them up when they go through customs upon re-entering the U.S.  The enablers cannot join the offshore voluntary compliance program.  Their solution is to avoid coming to the U.S. or, otherwise, doing some type of traditional voluntary disclosure where they can serve up enough skullduggery by other persons (e.g., bank clients or other enablers) that the IRS / DOJ may give them a pass.

Finally, the foregoing covers principally the sealing of the indictment.  The second issue in McBride related to the issuance of an arrest warrant rather than a summons.  Since, in tax cases, there has usually been interaction between the local AUSA and the defendant's attorney and the defendant's attorney will know the indictment is in the offing, the defendant should negotiate for a summons for the defendant's appearance rather than an arrest.  There was a time in white collar crime cases (the larger category of which tax crimes are a subset) that arrests with public "perp walks" for reporters to photograph the handcuffed defendant were felt to be important to law enforcement.   Usually, in tax cases, where there is no risk of flight or other reason to seal, the arrest and the perp walk can be avoided, but the defendant's lawyer should have that discussion with the AUSA.