Friday, June 26, 2015

Another Swiss Bank Enters NPA Under US DOJ Swiss Bank Program (6/26/15)

DOJ just announced here another Swiss Bank NPA resolution under the DOJ program for Swiss banks.  The Swiss bank is Ersparniskasse Schaffhausen AG (EKS).  The penalty is $2.066 million.  Here are key excerpts (emphasis supplied by JAT):
EKS was founded in 1817 and is wholly owned by a Swiss charitable foundation.  It is headquartered in the city and canton of Schaffhausen, Switzerland.  EKS opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the Internal Revenue Service (IRS) or the U.S. Department of the Treasury as required by U.S. law. 
From 2004 through 2011, EKS accepted referrals of U.S. persons as new clients from an external asset manager who, until 2009, resided in the United States and conducted some of his business through a corporation organized under the laws of the United States.  The majority of the accounts that came to EKS as a result of these referrals were held in the names of non-U.S. entities that were beneficially owned by U.S. persons.  
In May 2008, with the knowledge and approval of EKS management, the external asset manager and an EKS relationship manager visited five U.S. cities to meet with U.S. clients and attorneys who had the potential to refer new clients.  Topics discussed during their meetings included the “crisis” involving Swiss bank UBS AG, client satisfaction with EKS, the performance of client accounts at EKS and the “asset protection” benefits of EKS. 
Until 2009, EKS opened numbered accounts for U.S. persons, including code-name or pseudonym accounts, upon request.  Upon opening this type of account, an EKS employee would  enter the accountholder’s name in a physical register rather than in the bank’s electronic records system.  This action limited the number of EKS personnel who knew the client’s identity.  Holders of these accounts could also provide documents to EKS using only their code names or numbers as their authorized signatures.  
EKS provided all of its clients, including U.S. persons, with the option to request that EKS retain all mail related to a client’s financial accounts in exchange for a standard service fee.  EKS understood that providing such hold-mail agreements upon request could allow U.S. persons to keep evidence of their EKS accounts outside of the United States and thus assist them in concealing assets and income from the IRS.   
EKS also accepted IRS Forms W-8BEN for U.S.-related accounts held in the names of non-U.S. entities, such as foreign corporations, trusts or foundations.  Because Swiss law required EKS to identify the true beneficial owners of the entities on a document called a Form A, EKS knew that these accounts were beneficially owned by U.S. persons.  Nonetheless, EKS accepted Forms W-8BEN that it knew falsely stated that the entities were the beneficial owners of the accounts.  
EKS was aware of the 2009 IRS Offshore Voluntary Disclosure Program for U.S. persons.  Despite knowing of that program and knowing or having reason to know that some of its U.S. clients had likely not declared their EKS accounts to the IRS, EKS made no effort to encourage its U.S. clients to disclose their accounts through that program.
During 2009, consultants reported to EKS, among other things, that EKS had increased risks because of its relationship with the external asset manager; that it was only a matter of time until small banks came into contact with U.S. authorities; and that there was a latent risk that previous revenues from EKS’s “U.S. strategy” could be seized or corresponding fines imposed.  According to minutes of a 2009 meeting of the EKS board of directors, an EKS executive stated, among other things, that “there is practically no risk if U.S. customers travel to Switzerland and a customer account is handled locally,” and that he had been informed that Swiss bank Wegelin & Co. was going to keep its previous U.S. customers. 
In October 2009, the EKS board of directors voted to continue the account relationships with clients of the external asset manager, including his U.S. clients, under certain conditions, including that his business be relocated to Switzerland.  The board also voted to “have the option of entering into new cross-border business relationships.” 
Since Aug. 1, 2008, EKS provided private banking services for 90 U.S.-related accounts with approximately $65 million in assets.  Thirty-seven of these accounts were opened after Aug. 1, 2008.  EKS will pay a penalty of $2.066 million.

Rand Paul and Expatriates to Sue IRS and Treasury Over FBAR and FATCA (6/26/15)

The Isaac Brock Society announces the "stop the presses news"  that Rand Paul and six other plaintiffs, expatriates, will sue the IRS and the Treasury Department to have the court declare the FBAR and FATCA unconstitutional.  Rand Paul to sue US Treasury and IRS over IGA’s (The Isaac Brock Society 6/24/15), here; see also Kristen A. Parillo, Rand Paul Joins Suit Challenging FATCA, FBAR, 2015 TNT 123-8 (6/26/15) [link not available].  The TNT article says:
According to Bopp, Paul will claim he was denied his constitutional right under Article II, section 2, of the Constitution to vote on the intergovernmental agreements implementing FATCA. Treasury has been treating the IGAs as executive agreements that don't require the Senate's advice and consent. Paul is a leading critic of FATCA and has introduced legislation (S. 663 2015 TNT 53-38: Proposed Legislation) to repeal FATCA's reporting and withholding provisions, as well as other reporting requirements and related penalties regarding foreign financial assets. (Related release 2015 TNT 50-95: Congressional News Releases.) 
Bopp said the other plaintiffs will claim that the FATCA and FBAR provisions violate the Fourth Amendment ban on unreasonable search and seizure because they require the collection and reporting of confidential financial information without probable cause or a warrant. They will also claim that the imposition of what Bopp called draconian fines violates the Eighth Amendment ban on cruel and unusual punishment.
The distinction between executive agreements which do not require Senate advice and consent and treaties has recently flared up over the Iran negotiations.  See e.g., Treaties vs. Executive Agreements: When Does Congress Get a Vote? (WSJ Washington Wire 3/10/15), here; for a more scholarly presentation see Glenn S. Kurtz and Jeffrey S. Peake, Treaties and Executive Agreements: A History (from Treaty Politics and the Rise of Executive Agreements: International Commitments in a System of Shared Powers (U Mich Press 2008), here.)

There will likely be a web site that will aggregate and update news related to this adventure, so I will try to post the link to that web site when I learn of it.  Readers are invited to post the web site in comments and I will lift the link up to the main blog.

It is not clear the relationship that this new adventure has to Rand Paul's campaign to become President of the U.S.  See the web site here and the Wikipedia entry here.

By the way, there is one issue that may get fleshed out in the case if it gets past the threshold motions to dismiss.  The claim has been made in many comments on this blog that expatriates are unable to obtain normal banking services as a result of the combination of DOJ's initiatives and FATCA.  The Issaac Brock article says:
The other plaintiffs in the suit Mr. Paul has joined say they have been denied banking and financial services in the foreign countries where they live and work. The foreign banks don’t want to be burdened with the expense and paperwork to comply with FATCA and therefore simply refuse to accept Americans as clients.
The case might present a forum where those claims can be tested to see whether they are anecdotal or systemic affecting large numbers of expatriates.

Wednesday, June 24, 2015

Julius Baer Reserves $350 Million for U.S. Tax Investigation (6/24/15)

Julius Baer, one of the approximately 14 Swiss Category 1 banks (those under criminal investigation and thus ineligible for Category 2) has created financial reserves for cost of resolving U.S. criminal investigation.  See Julius Baer's media release here.  Key excerpts:
Today, Julius Baer has announced its decision to take a preliminary provision of USD 350 million for its eventual settlement with the U.S. Department of Justice (DOJ) regarding its legacy U.S. cross-border business.\\ 
Zurich, 23 June 2015 – The decision to take a preliminary provision at this time is the result of Julius Baer’s recent discussions with the DOJ regarding its eventual, comprehensive and final settlement of the DOJ’s investigation of Julius Baer’s legacy U.S. cross-border business. These settlement discussions have now sufficiently advanced to enable Julius Baer to make a preliminary assessment of a probable and approximate amount required to reach a settlement with the DOJ.  
* * * *  
Noting that estimates are by their nature based on judgment, currently available information and a variety of other factors, the amount of the provision reflects Julius Baer’s existing understanding and the present state of the preliminary discussions with the DOJ regarding the amount of an eventual settlement and may be subject to change. Whilst there is no defined timetable for a final settlement, Julius Baer continues to work towards closing this regrettable legacy issue as soon as possible.
In a news report, the following points were made (Katharina Bart,  UPDATE 1-Julius Baer to take $350 mln charge as end to U.S. tax probe nears (Reuters 6/23/15), here.)

  • "The provision is far less than what most analysts had expected, with some estimates as high as 850 million Swiss francs ($909 million)."  
  • "Asked whether Julius Baer would plead guilty to criminal charges like larger rival Credit Suisse did last May, a spokesman for the bank said U.S. officials had not requested it to do so."

Saturday, June 20, 2015

Financial Institution Statistics (6/20/15)

Financial Institution Summary

Treaty Requests

John Doe Summonses

Criminal Matters

   Criminal (incl Investigations and Prosecutions)

   Guilty Plea


   Deferred Prosecution Agreement ("DPA")

   NonProsecution Agreement ("NPA")

IRS Financial Institution List (OVDP Offshore Penalty Bump to 50%) *

Total Costs (Fines, Restitution, Other Penalties, etc.)

US DOJ Swiss Bank Program
Number Resolved
Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *
   U.S. / Swiss Bank Initiative Category 2 **
   U.S. / Swiss Bank Initiative Category 3

   U.S. / Swiss Bank Initiative Category 4

Swiss Bank Program Results


* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.

** DOJ says original total was 106 but that it expects about 80 to complete the process.

These are my statistics as of today.  They are not complete in certain respects.  For example, the number of Swiss banks joining the US DOJ Swiss Bank Program includes just the banks I have identified.  The Number Resolved should be consistent with DOJ Tax press releases.  DOJ Tax has said that 106 originally joined as Category 2 banks and about 80 will complete the process. 

Friday, June 19, 2015

Two More Swiss Banks Enter NPAs under US DOJ Swiss Bank Program (6/18/15)

DOJ Tax announces, here, two more resolutions under the program for Bank Linth LLB AG (Bank Linth) and Bank Sparhafen Zurich AG (BSZ),  The key excerpts are (bold-face added by JAT):
Bank Linth, one of the largest regional banks in Eastern Switzerland, was founded in 1848.  It is headquartered in Uznach, Switzerland, which is approximately 35 miles southeast of Zurich.  Bank Linth provided private banking and asset management services to U.S. taxpayers through private bankers based in Switzerland.  It opened, serviced and profited from accounts for U.S. clients with the knowledge that many were likely not complying with their tax obligations. 
Bank Linth’s cross-border banking business aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts.  Bank Linth provided this assistance to U.S. clients in a variety of ways, including the following: 
  •  Opening and maintaining accounts in the names of sham entities;
  • Providing U.S. taxpayers with numbered accounts that hid the taxpayers’ identities;
  • Facilitating U.S. taxpayers’ withdrawal of cash from undeclared accounts; and
  • Agreeing to hold bank statements and other mail relating to accounts rather than sending them to U.S. taxpayers in the United States.
On several occasions, Bank Linth opened accounts for U.S. taxpayers through an external asset manager, and one of these accounts was opened in the name of a sham foundation.  In that instance, Bank Linth knowingly accepted and included in account records forms provided by the directors of the sham foundation that falsely represented the ownership of the assets in the account for U.S. federal income tax purposes. 
In accordance with the terms of the Swiss Bank Program, Bank Linth described in detail the structure of its banking business, including its management and supervisory structure, and provided the names of management and legal and compliance officials.  Bank Linth further provided detailed and specific information related to its illegal U.S. cross-border business, including the bank’s misconduct, policies that contributed to that misconduct and the names of the relationship managers overseeing the bank’s U.S.-related business.  Bank Linth also obtained affidavits from bank employees regarding the bank’s conduct and related matters. 
Since Aug. 1, 2008, Bank Linth held 126 U.S.-related accounts, with over $102 million in assets.  Bank Linth will pay a penalty of $4.15 million. 
BSZ was founded in 1850 and has its sole office in Zurich.  BSZ knew that U.S. persons had a duty under U.S. law to report their income to the Internal Revenue Service (IRS) and to pay taxes on that income, including all income earned in accounts that BSZ maintained in Switzerland.  Despite this knowledge, BSZ opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the IRS or the U.S. Treasury, as required by U.S. law.

Thursday, June 18, 2015

SDNY District Court Denies Statute of Limitations and Venue Motion for Offshore Account Defendant (6/18/15)

In United States v. Canale, 2015 U.S. Dist. LEXIS 78619 (SDNY 2015), here, the defendant, Peter Canale, is charged with a defraud / Klein conspiracy and an offense conspiracy (both in one count). See 18 USC § 371, here.  These counts relate to foreign bank accounts with the use of sham entities.  See also my prior blog on this indictment:  Another UBS/Wegelin Related Indictment in SDNY (Federal Tax Crimes Blog 11/19/14), here.  In addition, Peter Canale's brother previously pled guilty to an FBAR and tax perjury violation for offshore accounts.  See U.S. Taxpayer Pleads to FBAR and Tax Perjury Violation (3/14/13), here.  Finally, see the USAO announcement of the indictment, here, which notes that Peter is alleged to have conspired with his brother, Michael, among others.

In the opinion, the court denies Peter Canale's request for dismissal on statute of limitations grounds and for change of venue to the state of Kentucky where he resides.  Michael Canale, a co-conspirator, resided in Jupiter, Florida and was charged and pled in SDNY.

The court's resolution of the issues are fairly routine.  The bullet points are:

1. The conspiracy charge is for a continuing offense so long any co-conspirator commits an act in furtherance of the charged conspiracy.  Here, there were acts in furtherance of the charged conspiracy well within the statute of limitations.

2. Venue is proper in any district where acts in furtherance of the charged conspiracy occurred.  Here, the indictment alleges several acts in SDNY.  Those acts were "part and parcel of the charged conspiracy."  The court does go through the so-called Platt factors (Platt v. Minnesota Min. & Mfg. Co., 376 U.S. 240, 243-44 (1964)), here, finding that, although a Kentucky forum might be more convenient for the defendant, the defendant is not unduly prejudiced by trial in SDNY.

A key takeaway is the scope of the choices that the Government has for venue in conspiracy cases.   I doubt that any conspiracy includes planning to limit a prosecutor's venue choices, but still conspirators should put this on the check list in planning the conspiracy.

The Government did not arbitrarily pick the SDNY venue in this particular case.  The bank involved was Wegelin.  Wegelin was investigated, charged and convicted in SDNY.  Moreover, some of the Wegelin related parties -- Beda Singenberger and Hans Thomann -- were investigated and charged in SDNY.

Wednesday, June 17, 2015

Fifth Circuit Speaks on Deliberate Ignorance (6/17/15)

In United States v. Kuhrt, ___ F.3d ___, 2015 U.S. App. LEXIS 9438 (5th Cir. Tex. 2015), here, the Fifth Circuit spoke most recently on deliberate ignorance.  (Note that the concept goes by various names, such as willful ignorance, conscious avoidance, etc.; early on, I used the key word conscious avoidance and have continued to use that term as the link term at the bottom of the blog entry.)  The defendant was convicted for nontax crimes requiring knowledge -- "for wire fraud and conspiracy to commit wire fraud, in violation of 18 U.S.C.S. §§ 1343 and 1349" which are here and here.  The trial court gave the jury the standard Fifth Circuit deliberate ignorance instruction which is (from the Fifth Circuit Pattern Jury Instructions (2001 ed.), par. 1.37, "Knowingly" - To Act, pp. 50-51, here) as follows:
[You may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.]
The Note elaborates
 With regard to the deliberate ignorance instruction and the appropriate occasions for its submission, see United States v. Peterson, 244 F.3d 385 (5th Cir.), petition for cert. filed (U.S. June 5, 2001) (No. 00-10428); United States v. Sharpe, 193 F.3d 852 (5th Cir. 1999), cert. denied, 120 S.Ct. 1202 (2000); United States v. Moreno, 185 F.3d 465 (5th Cir. 1999), cert. denied, 120 S.Ct. 835 (2000); United States v. Threadgill, 172 F.3d 357 (5th Cir.), cert. denied, 120 S.Ct. 172 (1999); United States v. Lara-Velasquez, 919 F.2d 946 (5th Cir. 1990). The bracketed material should be used sparingly–only when the facts and statute under which the defendant is being prosecuted justify it. See United States v. Chen, 913 F.2d 183 (5th Cir. 1990). If a deliberate ignorance instruction is
given, a “balancing” instruction should be considered upon request of defendant. See United States v. Farfan-Carreon, 935 F.2d 678 (5th Cir. 1991).  
The deliberate ignorance instruction “does not lessen the government’s burden to show, beyond a reasonable doubt, that the knowledge elements of the crimes have been satisfied.” United States v. Reveles, 190 F.3d 678, 686 (5th Cir. 1999).  
A judge is cautioned that, in instructing on a statute which punishes “otherwise innocent conduct,” the knowledge requirement applies to each element. United States v. Ahmad, 101 F.3d 386, 390 (5th Cir. 1996), reh’g and suggestion for reh’g en banc denied, 108 F.3d 335 (5th Cir. 1997). 
When a deliberate ignorance instruction is appropriate only with respect to one of a group of co-defendants, the Fifth Circuit has approved the giving of the instruction accompanied by a statement that the instruction may not apply to all of the defendants. United States v. Reissig, 186 F.3d 617 (5th Cir. 1999), cert. denied, 120 S.Ct 832 (2000).
 Here is the full discussion of the topic from the Kuhrt decision:

On Ignorance - Deliberate or Otherwise (6/17/15)

I have written a lot about the mens rea concept that goes by various monikers such as deliberate ignorance, willful blindness, conscious avoidance etc. Today, I was reading a blog entry on the Volokh Conspiracy (I suppose that is an admission against interest) that deals with the large topic of Ignorance Studies.  Ilya Somin, Everything you ever wanted to know about ignorance, but were afraid to ask – the “Routledge International Handbook of Ignorance Studies” (Volokh Conspiracy 6/16/15), here.  The Amazon link for the book is here.

The facets of ignorance are too great to cover here (and, in any event, I am ignorant of most of those facets).  But I will focus on the portion of the blog entry that deals with some variation of the concept of deliberate ignorance.  Professor Somin starts by knowing that it is a large compendium on multiple facets of ignorance by many authors who, I suppose, make some claim to not be ignorant on the subjects they discuss.  Professor Somin then says:
My own contribution to the volume deals with the phenomenon of rational ignorance – situations where people make rational choices to forego acquiring knowledge that is potentially available to them. My previous work on rational ignorance focuses primarily on voter ignorance, which I argue is often dangerous. But in the Handbook chapter, I emphasize that in many situations, rational ignorance is actually beneficial. If people always learned the maximum possible amount of knowledge, they would pass up opportunities to use the same resources for more valuable purposes. Still, the chapter also emphasizes how rational ignorance can be harmful in situations where individually rational behavior can lead to bad collective outcomes. For example, it is often rational for individual for voters to be ignorant about politics; but an entire electorate of mostly ignorant voters can be a real menace. The chapter also explains why rational behavior (including rational ignorance) isn’t necessarily morally right, and how rational ignorance differs from irrational ignorance and what I call “inadvertent” ignorance.
Readers might want to review the Supreme Court decision in Global-Tech Appliances, Inc. v. SEB S.A., ___ U.S. ___, 131 S. Ct. 2060 (2011), Court slip opinion here and casetext opinion here.  Global-Tech is discussed in many blogs since the decision, but here is my blog entry on the decision: Global-Tech in Supreme Court Speaks on Willful Blindness (Federal Tax Crimes Blog 6/2/11), here.  For all blogs on the subject, click on the link below for Conscious Avoidance (which is the term I use on this blog for the concept going by the various names noted above.

Keep in mind that Global-Tech was a civil case but did discuss the used of deliberate ignorance in a criminal setting.  And, even in the civil setting discussed, it did not have the heightened level of mens rea applicable in tax and related crimes -- intentional violation of a known legal duty, which requires that the defendant know the duty (i.e., know the law) and intend to violate the law.

Which reminds me of one of the sayings of Will Rogers:  "You know everybody is ignorant, only on different subjects."

Wednesday, June 10, 2015

The Vatican Signs On To FATCA (6/10/15)

Rosie Scammell, Vatican and the U.S. sign historic agreement to go after tax evaders (Washington Post 6/10/15), here.
 The United States on Wednesday signed an agreement with the Vatican to trace American taxpayers hiding assets within the walls of the city-state, the latest step in the Holy See’s push for greater financial transparency. 
The deal sees the Vatican become the latest of approximately 62 countries to sign on to the U.S. Foreign Account Tax Compliance Act, a 2010 law that allows financial information to be directly reported to authorities in the U.S.  
It applies only to U.S. citizens and permanent residents, not organizations, and aims to identify people who are not annually declaring all of their foreign assets to the U.S. Internal Revenue Service. 
The information the Holy See is due to hand over under the law should have already been sent to the IRS by individuals, some of whom have already been warned of the new agreement. 
U.S. officials would not say how many American individuals hold money at the Vatican, but the number is believed to be rather small, perhaps in the dozens, according to the Vatican Insider.
Readers might alsoconsider this from Pope Paul's EVANGELII GAUDIUM, here (emphasis supplied by JAT):
No to the new idolatry of money 
55. One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person! We have created new idols. The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption. 
56. While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.

Deustche Bank's Offices Raided in Investigation of Tax Shelter Behavior; Echoes of Compaq Bullshit Tax Shelter (6/10/15)

This news item of a German authority raid on Deutsche Bank's headquarters involved potential behavior that sounds familiar.  Jenny Strasburg, Deutsche Bank Headquarters Raided in Tax-Fraud Probe (WSJ 6/9/15), here; see also Mihret Yohannes and Kaja Whitehouse, Deutsche Bank headquarters raided in probe (USA Today 6/9/15), here, From the WSJ article.
People close to the investigation said prosecutors were examining what role Deutsche Bank and its clients played in controversial “dividend arbitrage” trades that have been used by a wide range of financial firms and investors to reduce taxes on stock dividends by taking advantage of loopholes in European tax law. 
The German prosecutors have been focused on a type of dividend-arbitrage strategy known as “cum/ex,” which were done using dividend-paying shares, the people said. The strategy has been employed using shares issued by companies in Germany, Austria and a handful of other countries. Other legal battles have played out, including in Switzerland, tied to tax refunds paid by their governments stemming from dividend-tax trades. 
* * * * 
The term “cum/ex” refers to the timing of the transactions around dividend payments, when the market value of the shares declines after the dividend is no longer factored into the price. 
In past years, investment firms and banks used the carefully coordinated cum/ex trades to claim rebates on withholding-tax payments despite not having actually paid such taxes in the first place, according to market participants, lawyers and others familiar with the trades. 
* * * * 
The market for German cum/ex trades largely died off in 2011, when tax authorities closed loopholes and exchange officials fine-tuned how they handled certain transactions, making the trades less-profitable. Cum/ex trades continued on a smaller scale in other countries, but have subsided, market participants say. 
Deutsche Bank was among a number of active cum/ex market participants for several years and employed some traders who went on to start funds specializing in the trades, according to traders and brokers familiar with the transactions and trading documents reviewed by the Journal. The bank provided financing for some clients to carry out the strategy, including with asset-management firms that catered to wealthy individuals, the market participants said. 
Other European and global banks were also active in cum/ex trades, helped by close relationships with wealthy European investors and fund managers geographically located to take advantage of quirks in tax rules. A Deutsche Bank spokesman didn’t comment on the bank’s past cum/ex activity. 
German prosecutors and tax authorities have been pursuing a yearslong investigation of cum/ex trades, alleging that firms fraudulently obtained hundreds of millions of dollars’ worth of tax benefits. German authorities have sought help from other European governments, including in the U.K., to gather information about specific trades and clients, the Journal reported last year.
This sounds like a variation of the bullshit tax shelter involved in  Compaq Computer Corp. v. Commissioner, 277 F.3d 778 (5th Cir. 2001), here; and IES Industries, Inc. v. United States, 253 F.3d 350 (8th Cir. 2001), here. The courts in those cases blessed the bullshit tax shelters. Here, however, is what the Federal Circuit recently said about those holdings in Salem Financial, Inc. v. United States, ___ F.3d ___ (2015), here:

Swiss Proposal for Further Due Diligence on Untaxed Deposits by Foreigners (6/10/15)

Catherine Bosley, Swiss Government Wants Banks’ Extra Care to Avoid Untaxed Money (Swissinfo 6/5/15), here.  Key excerpts (emphasis supplied by JAT):
Switzerland’s government wants banks to toughen up checks to avoid accepting untaxed assets, possibly including a refusal to do business with a client who can’t show the money has been regularized. 
For clients from countries that aren’t covered by automatic exchange of information agreements, banks will need to conduct risk-based checks, the government said on Friday in a message to parliament. Lawmakers were asked to stiffen the current anti- money-laundering law. 
“As part of the measures to achieve a tax-compliant financial center, the new due-diligence requirements should prevent the inflow of untaxed assets to Switzerland,” the government said in a statement. “The details of the risk-based assessment will be established by the supervisory authorities and the recognized self-regulatory organization.” 
Switzerland has taken several steps to rid itself of its image as a haven for untaxed assets, including negotiating a pact allowing the automatic exchange of tax information of bank- account holders with the European Union. The accord would effectively end banking secrecy for citizens of EU countries with offshore accounts in Switzerland. Parliament will debate changing Swiss domestic law to allow the automatic exchange of information this autumn, the government said. 
* * * * 
According to the Swiss government’s proposal, which parliament will need to vote upon, banks wouldn’t be allowed to accept new clients if they suspect their money is untaxed. Should a fresh deposit by an existing client raise red flags, the bank must check up on the clients’ entire assets and -- should it have doubts -- request the client demonstrate his or her tax compliance. If the client cannot do so and or hasn’t entered into the process of regularizing the money, the bank must dissolve the business relationship, the government said. 
“The business relationship will not be terminated in cases where it is not possible for the client to provide proof of tax compliance or to regularize the tax situation without running the risk of unreasonable adverse effects,” it also said. 
The stepped up due diligence requirements would not apply to foreigners living in Switzerland and also not to U.S. citizens, who are covered under the U.S. Fatca law designed to clamp down on tax evasion.
I would make comments about the bold-faced items, but most readers can already anticipate my comments, so I will forego them.

Two More Banks Achieve NPAs Under DOJ Swiss Bank Program (6/10/15)

DOJ Tax announces here that two Swiss Banks --  Société Générale Private Banking (Suisse) SA (SGPB-Suisse) and Berner Kantonalbank AG (BEKB) -- have resolved their issues with an NPA under the DOJ Swiss Bank Program.  The press release provides links to the NPAs and Statements of Fact.  The key excerpts from the press release are (bold face supplied by JAT): 
SGPB-Suisse has had a presence in Switzerland since 1926, and had a U.S.-licensed representative office in Miami from the early 1990s until it closed on Aug. 26, 2013.  SGPB-Suisse opened and maintained accounts for accountholders who had U.S. tax reporting obligations, and was aware that U.S. taxpayers had a legal duty to report to the Internal Revenue Service (IRS) and pay taxes on all of their income, including income earned in SGPB-Suisse accounts.  SGPB-Suisse knew that it was likely that certain U.S. taxpayers who maintained accounts at the bank were not complying with their U.S. income tax obligations. 
SGPB-Suisse’s U.S. cross-border banking business aided and assisted some U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income the clients held in their accounts from the IRS.  SGBP-Suisse used a variety of means to assist U.S. clients in hiding their assets and income, including opening and maintaining accounts for U.S. taxpayers in the name of non-U.S. entities, including sham entities, thereby assisting such U.S. taxpayers in concealing their beneficial ownership of the accounts.  Such entities included Panama and British Virgin Island corporations, as well as Liechtenstein foundations.  In two instances, an SGPB-Suisse employee acted as a director of entities that had U.S. taxpayers as beneficial owners.  In another instance, upon the death of the beneficial owner of an entity, the heirs opened accounts held by sham entities at SGPB-Suisse to receive their shares of the assets from the entity account.
SGPB-Suisse further provided numbered accounts, allowing the accountholder to replace his or her identity with a code name or number on documents sent to the client, and held statements and other mail at its offices in Switzerland, rather than sending them to the U.S. taxpayers in the United States.  In addition to these services, SGPB-Suisse: 
• Processed requests from U.S. taxpayers for cash or gold withdrawals so as not to trigger any transaction reporting requireents; 
• Processed requests from U.S. taxpayers to transfer funds from U.S.-related accounts at SGPB-Suisse to accounts at subsidiaries in Lugano, Switzerland, and the Bahamas; 
• Opened accounts for U.S. taxpayers who had left UBS when the department was investigating that bank; 
• Processed requests from U.S. taxpayers to transfer assets from accounts being closed to other SGPB-Suisse accounts held by non-U.S. relatives and/or friends; and 
• Followed instructions from U.S. beneficial owners to transfer assets to corprate and individual accounts at other banks in Switzerland, Hong Kong, Israel, Lebanon, Liechtenstein and Cyprus.

Tuesday, June 9, 2015

Second Circuit Awards David Parse, a Daugerdas Related Defendant, for Juror Misconduct (6/9/15)

The Second Circuit yesterday reversed Judge Pauley's denial of a new trial for David Parse for juror misconduct.  See United States v. Parse, ___ F.3d ___, 2015 U.S. App. LEXIS 9492 (2d Cir. 2015), here.  Readers may recall that Parse was a co-defendant with Daugerdas et al. in the major bullshit -- aka fraudulent -- tax shelter prosecution in the Southern District of New York. Most of the defendants were convicted in the first trial, but a major incident of juror misconduct soon surfaced.  The incident has been recounted elsewhere and is laid out in great detail in this Second Circuit decision.  The trial judge, Judge Pauley, gave all convicted defendants except Parse a new trial.  He denied Parse a new trial because of certain perceived footfaults by Parse's lawyers related to when they should have had sufficient knowledge of the potential juror misconduct that they should have brought it to the trial judge's attention.  In my prior postings on the denial of relief to Parse, I acknowledge that Judge Pauley is a good judge, but concluded that he got this one wrong.  See Daugerdas and Others, But Not All, Get New Trial (Federal Tax Crimes Blog 6/4/12; revised 6/22/12), here; Daugerdas Defendant Whose Conviction Was Not Dismissed Claims Ineffective Assistance of Counsel (8/7/12), here; Daugerdas Defendant Loses Ineffective Counsel Claim (Federal Tax Crimes Blog 1/11/13), here; and USA SDNY Announces Sentencing of Daugerdas Related Defendant (Federal Tax Crimes Blog 3/23/13), here.

The Second Circuit concluded that something was amiss as well and reversed for a new trial on the ground that the lawyer's conduct did not waive the juror prejudice to Parse.  The Court determined that the trial judge's conclusion to the contrary was clearly erroneous.  The opinion is long, but a great read.

I like the opening of the concurring opinion by Judge Straub which captures the majority's holding and states his difference:
David Parse is entitled to a new trial. I write separately because I believe he is entitled to a new trial whether or not his attorneys knew of the juror misconduct in this case. 
The circumstances presented by this appeal are extraordinary. As the majority put it, this is a case in which one of the empaneled jurors, Catherine Conrad, 
aligned herself with the government, lied pervasively in voir dire for the purpose of avoiding dismissal for cause, believed prior to the presentation of any evidence that the defendants were "'crooks,'" and expressly mentioned Parse as a target of her efforts to persuade the other jurors to convict. 
Maj. Op. at 56. Where, as here, there is an uncontroverted finding by the District Court that a juror who rendered verdict was actually biased and, indeed, perjured herself in order to ensure that she was seated on the jury, a defendant cannot waive his right to a new trial. Therefore, I join in all but Part II.A of the majority's opinion. As to that section, I concur only in the result. n1
   n1 I am not persuaded by the majority's conclusion that the District Court clearly erred in finding that Parse's attorneys knew that Conrad had lied during voir dire. See Maj. Op. at 43-54. The District Court was in the best position to assess Trzaskoma's credibility, and the record does not demonstrate that the District Court's factual determinations were clearly erroneous. See United States v. McLean, 287 F.3d 127, 133 (2d Cir. 2002) ("We give a district court's findings as to the credibility of witnesses 'strong deference.'"). Nevertheless, because I believe Parse could not have waived his right to an impartial jury even if his attorneys knew of the juror's misconduct, I find it unnecessary to address the issue.

Finally, there is the juror's interesting comment that Parse could not have been prejudiced by her staying on the jury even if she lied to stay on.  She was an incorrigible liar and frequently on the wrong side of the law and ethics and kept that from the parties and the judge.  Her notion was that her sordid past would / should be good for an obviously guilty defendant, so what's his complaint?

I am sure that, had she been truthful in voir dire, the Government would have moved to strike and, I suspect the judge would have dismissed.  But, it would be interesting to hear from my defense counsel witnesses whether they would have move to strike this juror had she been truthful.  As it turned out, she was perhaps the strongest juror for the Government's case, obviously star struck by the prosecutors.

Saturday, June 6, 2015

Tax Notes Today Report of DOJ Tax Comments at NYU Tax Controversy Forum (6/6/15)

Tax Notes Today has a summary of comments made by Government officials at NYU's Tax Controversy Forum in New York. Nathan Richman, Officials Provide Insight Into Swiss Bank Program Penalties, 2015 TNT 109-5 (6/8/15), no link available.

Key summaries of the points I think readers in this forum might be interested in are:

1.  Nanette Davis, a DOJ Tax senior litigation counsel, offered some details of the US DOJ Program for Swiss Banks were discussed.  In order to mitigate the bank's penalty, the bank must show that the accounts are "not-undeclared."  The bank's word as to U.S. compliance is checked against available sources such as OVDP submissions, etc.  This process has "led to some of the banks adjusting their interpretation of Swiss bank secrecy laws, liberalizing their definition of what they can disclose so as to mitigate the penalties."

2. Caroline Ciarolo, DOJ Tax AAAG, said that she expects the Category 2 banks to have their matters completed by the end of 2015.

3.  Davis said that enablers will be "targets."

4.  Davis said that DOJ Tax "is comparing records from the Swiss bank program with streamlined program certifications of non-willfulness and will prosecute those taxpayers it can prove were actually willful."

5.  Davis cautioned taxpayers about quiet disclosures, with the threat that additional enforcement action may follow because (i) the DOJ program is helping identify quiet disclosures and (ii) "the patterns of late returns and FBARs are clear in the data."  The data refererenced in that quote is apparently the data in the IRS records when entering the filing of delinquent or amended income tax returns and delinquent FBARs.

6.  Ciraolo advised that DOJ Tax is increasing criminal enforcement for employment tax issues related to trust fund tax.  Ciraolo singled out for comment employers who failed to pay over the withheld tax and then, on their personal returns, claim the withheld tax credit.

JAT Comment:  Because of all the publicity about Swiss banks' misbehavior, it is not clear whether similar juggernauts will be pursued against banks in other tax jurisdictions whose conduct was equally egregious.

Friday, June 5, 2015

Article on Structuring to Avoid Bank Currency Reporting Requirements (6/5/15)

The New York Time's Upshot has an interesting article on CTRs and withdrawing cash from a bank.  Josh Barrol, When It's a Crime to Withdraw Money From Your Bank (6/5/15), here.  The article is inspired by the Denny Hastert episode.  See Former House Speaker Indicted for Structuring and Lying to Federal Agents (Federal Tax Crimes Blog 5/29/15; 6/3/15), here.  The article is targeted to the lay reader.  A key excerpt:
To be clear: It’s not illegal simply to take $8,000 out of the bank repeatedly. 
“The criminal provisions there do have strong mens rea (criminal intent) requirements: The government has the burden to prove that the defendant knew about the reporting requirement and intended to evade it,” said Jim Copland, who directs the Center for Legal Policy at the Manhattan Institute, a right-of-center think tank. “So this is quite unlike many of the regulatory crimes that can ensnare the unsophisticated.”
A good read.

The Open Plea And Ineffective Assistance of Counsel (6/5/15)

In United States v. Wilson, 2015 U.S. Dist. LEXIS 70679 (E.D. Cal. May 29, 2015), here, the defendant was initially charged "with multiple counts arising out of his operation of a Ponzi scheme known as CIC Investment Fund."  The defendant "pled guilty to one count of wire fraud (Count 14) and one count of making and subscribing a false income tax return (Count 31) pursuant to a written plea agreement."   The defendant "was sentenced 236 months imprisonment in the custody of the U.S. Bureau of Prisons as to the wire fraud charge and 36 months imprisonment on the false tax return charge with those sentences to run concurrently,"  The defendant appealed.  The Court of Appeals remanded for resentencing.  On remand, after additional findings, the sentencing court "re-imposed the same sentence that had originally been imposed, including the 236-month prison term."  The defendant again appealed.  The Court of Appeals affirmed the sentence.  Later, while serving his time, the defendant filed this action under 18 USC § 2255, here, alleging ineffective assistance of counsel.  Since, the defendant was the moving party in the § 2255 collateral review case, the court refers to him as movant and I shall also in the balance of the discussion of the case.  The movant's claim was then heard by a Magistrate Judge who entered the order in this case.

The movant's claim is that in advising defendant to sign the plea agreement resulting in his conviction and incarceration, the trial counsel had rendered ineffective assistance of counsel, thus requiring overturning his conviction.  The claim is that, despite the Guidelines' calculations contained in the plea agreement movant was offered (151-188 months), his counsel in the case in chief had assured him that the Guidelines calculations were "immaterial" and that he would be sentenced to "'three to five years' 'regardless of how the guidelines are calculated.'"  Based on this advice and related erroneous Guidelines advice, movant entered an "open plea" -- just a plea to all counts without any stipulation as to the Guidelines calculations.  The related advice was:
Movant also alleges that his trial counsel gave him "grossly incompetent" advice about the applicability of the Sentencing Guidelines to his case. According to movant, this incompetent advice included inaccurate assertions that: (1) the government would have to prove that movant was a registered investment advisor in order to increase the offense level for "Abuse of Position of Trust or Use of Special Skill" under USSG § 3B1.3; (2) the increase in the offense level based upon "sophisticated means" set forth in USSG § 2B1.1(b) (10) would not apply to movant; (3) the increase in the offense level for being a "leader/organizer" set forth in USSG § 3B1.1(c) was not applicable to movant unless other people were indicted; (4) movant would be sentenced "regardless of how the probation officer scores the guidelines" and "regardless of what the Sentencing Guidelines say;" and (5) movant would "come out as a criminal history [category] three," even though his criminal background actually "mandated a criminal history category IV." (ECF No. 188 at 14, 18.) n1 Movant contends that his trial counsel's erroneous advice in these areas made it impossible for him to make an intelligent decision as to whether to enter an "open" plea of guilty, and caused him to reject the government's first, more favorable, plea offer and to plead "open with no protection." (ECF No. 200 at 10, 25.) 
In sum, movant claims that his retained trial counsel induced him to plead guilty with: (1) false promises and guarantees, both to him and to his family, that he would receive a sentence in the 3-5 year range; (2) threats to withdraw from the case if he was not paid additional fees; (3) a "threat" that movant should not mention any promises made by counsel about his sentence to the trial judge; and (4) erroneous legal advice about the Sentencing Guidelines and the applicability of certain guideline provisions, described above. (Id. at 16, 18-19.) Movant argues,[b]ased on [counsel's] threat to quit my case, his faulty explanation of how the sentencing guidelines worked, his misguided legal advice that the enhancements (sophisticated means, abuse of trust, organizer) did not apply (openly misstating the law on particular enhancements), his mischaracterization of Judge Karlton and his view of the sentencing guidelines, his erroneous guidance of my criminal history category, and his directing me to reject the Government's plea offer . . . to sign an open plea in order to receive a sentence of three (3) to five (5) years, I was coerced, pressured, and deceived into relinquishing my trial rights, rejecting the government's plea offer, and entering an open plea.
The claim of ineffective assistance of counsel after conviction is not uncommon.  Many convicted defendants think it is worth a shot.

The movant offered some nominal proof that the claims were made, including affidavits of he and family members and some alleged transcripts of telephone conversations.  The magistrate judge thought that the claims were sufficient to warrant a hearing and appointed the Federal Defender to represent the movant.

I thought I would digress for a bit on the "open plea."  Actually, an open plea can mean various things.  Most commonly, I think it means where a defendant and  the prosecutor simply cannot reach a plea agreement, as in Wilson.  If the guilty defendant then wants avoid trial, he must without a plea agreement.  Such a plea will usually assure the defendant of the acceptance of responsibility 2 level reduction, but may forego the additional 1 level reduction which requires  that the Government make the motion.  S.G. §3E1.1.Acceptance of Responsibility, here.  Without a plea agreement, the Government will likely not drop counts, so the defendant must plead to all counts.  In many tax cases, the number of counts will not affect sentencing, so if all the defendant achieves from reaching a plea agreement with the Government is the dropping of counts, the sentence may not be affected at all.  (Indeed, with a plea dropping counts in tax cases, a not uncommon statement in the PSR is that the sentencing calculations are recommended sentencing range are not affected by the dropping of counts.)  So, except for the 1-level AOR reduction, the defendant may not actually lose anything material by doing an open plea to all charged counts rather than reaching a plea agreement that only reduces the number of counts.  But, the defendant will not gain anything by doing an open plea as opposed to a plea agreement.  And a plea agreement can often include favorable agreements as to other sentencing factors.

Tax Notes Today Article on Swiss Bank Category 2 Issues (6/5/15)

Tax Notes Today has this article:  William Hoke, Swiss Banks Avoid Fines by Persuading Clients to Disclose, 2015 TNT 108-3 (6/5/15), no link available.  The key points of the article are:

1. Some practitioners question whether banks joining Category 2 really had U.S. criminal exposure.  One, Milan Patel of Anaford AG, noted that the banks were "pressured by FINMA [the Swiss Financial Market Supervisory Authority], which was under pressure by the U.S., and also by the legal advisers, who had an economic interest in scaring banks into the program."  He would have advised "half of them not to join the program."  [It is not clear whether he would have advised half of all Swiss banks not to join or whether he wold have advised half of the Swiss banks who did join not to join.]

2.  A key feature of the program is that the seemingly steep penalties for Category 2 banks can be mitigated to the extent that the banks encouraged their U.S. depositors to disclose their accounts to the U.S.  As a result of that mitigation, the nine NPAs announced to date have lower actual penalties than the nominal rate.   The actual rates "expressed as a percentage of the maximum value of U.S.-related accounts, that start as low as 0.03 percent and go as high as 12.6 percent."  [My stats show 10 NPAs, and I don't know what the difference in number is.]

3.  By contrast, the penalties (including fines, etc.) paid by the banks resolving their cases outside the program (such as UBS and Credit Suisse) show comparable percentages of 2.9% (UBS, exclusive of amount paid to SEC), 12% (Credit Suisse, exclusive of regulatory fines), 6.17% (Wegelin), and 7% (Liechtensteinische Landesbank AG).  However, the article noted that strict comparison of the percentages may not be fair.  The banks resolving their cases outside the program got resolutions more onerous than NPAs (i.e., they got DPAs or convictions).

4.  The article notes the huge compliance costs for for BSI SA which paid a penalty of $211 million.  See Swiss Bank BSI SA Is First to Get NonProsecution Agreement; Pays $211 Million (Federal Tax Crimes Blog 3/31/15), here.  Its reported legal and audit fees for joining the program were $38.6 million.  Those costs apparently paid off to BSI in mitigating the penalty that would otherwise have applied.

5.  One practitioner, Thierry Boitelle of Bonnard Lawson, is quoted as saying that the real purpose of the program was "not to hit too hard on the banks but to get as many people as possible into the OVDP and to retrieve a maximum of information on the evasion, facilitators, intermediaries, and leavers."

6. The article describes how the information about DOJ's focus on leaver lists maintained by Swiss banks.  It quotes Patel as saying that, instead of asking for all U.S. leavers other than those the bank establishes have entered into U.S. tax compliance, DOJ is apparently asking for a smaller subset based on certain parameters (presumably such as amount and other characteristics to support the group requests).  He says "The DOJ is cherry-picking a much smaller number, and it's not clear why."

7.  The article states the figure previously published that perhaps 80 banks will complete the Category 2 requirements, which means that 26 banks will not complete and thus could be at risk of "further investigation."

Thursday, June 4, 2015

Offshore Financial Institution and Enabler Statistics - Rough Draft (6/4/15)

This is a tabular presentation of some statistics from the Financial Institution worksheet (part of larger spreadsheet) I am working on (these will be expanded and refined, but I am just offering now for feedback; plus I have just learned how to do a table in this blog):


Treaty Requests

John Doe Summonses

Criminal Matters

   Criminal (incl investigations and prosecutions)

   Guilty Plea


   Deferred Prosecution Agreement ("DPA")

   NonProsecution Agreement ("NPA")

US DOJ Swiss Bank Program
Total Costs
   U.S. / Swiss Bank Program Category 1
   U.S. / Swiss Bank Program Category 2
Swiss Bank Program Results