FRE 404( b) Order on Motion in Limine for Charges under § 7214(a)(5) & (7) (4/30/16)

This posting will be for students and new practitioners.  Most experienced practitioners will have encountered the key FRE 404(b), here, issue before.

In United States v. English, 2016 U.S. Dist. LEXIS 54352 (ED 2016), the Court ruled on the Government's Motion in :imine involving, in part, FRE 404(b).  A motion in limine is a pre-trial motion filed to address some matter, usually evidentiary, that is expected to arise during the trial and that may efficiently be handled prior to trial.  I have stated the case name as United States v. English, which is the style of the key Order on Motion in Limine that I discuss here.  The indictment, however, stated her name as Kimberly Brown-English.  I don't know why the subsequent Order uses only English, but for convenience I refer to her as English here as did the Order rather than Brown-English.

First I will offer some background.

The relevant documents are:

1. Docket Entries through 4/29/16, here.
2. Indictment filed 10/9/14, here.
3. Government's Motion in Limine, here.
4. Defendant's Opposition to Government's Motion in Limine, here.
5. Government's Reply to Defendant's Opposition to Government's Motion in Limine, here.
6. Order on Government's Motion in Limine, here.

The defendant, Kimberly English (English), was charged with six counts of violating § 7214(a)(5) & (7), here, which provides in relevant part:

26 U.S. Code § 7214 - Offenses by officers and employees of the United States
(a) Unlawful acts of revenue officers or agents. Any officer or employee of the United States acting in connection with any revenue law of the United States—
* * * *
(5) who knowingly makes opportunity for any person to defraud the United States, or
* * * *
(7) who makes or signs any fraudulent entry in any book, or makes or signs any fraudulent certificate, return, or statement, * * * *
shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both. The court may in its discretion award out of the fine so imposed an amount, not in excess of one-half thereof, for the use of the informer, if any, who shall be ascertained by the judgment of the court. The court also shall render judgment against the said officer or employee for the amount of damages sustained in favor of the party injured, to be collected by execution.

According to the indictment, English was an employee of the IRS.  During the relevant period,

her primary duty was to provide assistance to taxpayers throughout the United States that were under IRS examination by educating taxpayers on tax laws and helping them resolve IRS examination issues. To hold the position, defendant KIMBERLY BROWN-ENGLISH was required to complete training courses that included, among other topics, the Earned Income Credit, Child Tax Credits, claimed dependents, and filing status (e.g., status as Head of Household).

An Interesting CDP Case with Foreign Bank Aspects (4/29/16)

The Tax Court (Judge Cohen) yesterday decided Brown v. Commissioner, T.C. Memo. 2016-82, here.  It is a jeopardy assessment and collection due process case.  The taxpayer (the husband) "is a life insurance salesman with a high-net worth clientele."  The IRS issued notices of deficiency for a number of years, the taxpayer petitioned the Tax Court for redetermination.  The Court the said (bold-face supplied by JAT):

Pursuant to settlements made by the parties on May 4, 2012, the IRS subsequently calculated petitioners’ total tax liability, including penalties and interest, at approximately $33.5 million for the years in issue (2003 was not included as there remained an outstanding issue for trial). 

Prompted by the amount of petitioners’ liability and IRS-determined factors such as petitioner’s foreign bank accounts in tax haven jurisdictions, his concealment of assets through nominees, and his having listed petitioners’ personal residence for sale at $17.7 million, the IRS decided to make a jeopardy assessment regarding the years in issue.

After the jeopardy assessment, the taxpayer started a collection due process (CDP) proceeding.  The taxpayer then offered to make full payment under a long-term complex arrangement described as follows.

After granting petitioners an extension to provide their proposal by December 9, 2013, the settlement officer received a 300-plus-page document on December 12, 2013, which presented a payment arrangement alternative to the collection actions. The first five pages of the proposal outlined how the arrangement would work, as follows in part:
Typically, a policy is purchased from the elderly person at a discount from the death benefit (thus, giving the elderly person the opportunity to spend or invest the cash during their lifetime) and then packaged by the purchaser into a portfolio of such policies. The portfolio can then be sold on the open market to investors. 

A typical portfolio consists of approximately 10 policies with an aggregate death benefit of approximately $50 million. The average age of the insured individuals is typically around 82 years, with an average life expectancy of about 8 years. (Obviously, some of the insured individuals will die in less than 8 years and some will live [*8] longer than 8 years.) An investor who purchases a portfolio of policies can either take a risk as to the mortality rate of the insured individuals, or the investor can purchase insurance, known as Mortality Protection Insurance Coverage (“MPIC”), which will insure that 75% of the forecasted death benefit will be paid out in each of the first 15 years of the MPIC coverage.  

The cost to acquire a $100 million portfolio is around $10 million and the cost of the MPIC coverage on such a portfolio is around $2 million. Bank financing from a bank in Germany, North Channel Bank, is available to cover half of those costs. In addition, the bank financing will also cover 100% of the premiums that will be due on the policies.

Praises for My Cousin Vinny as a Teaching Tool for Law Students and Young Lawyers (4/28/16)

In December 2015, I finished many years of teaching at the University of Houston Law School.  My courses for most of that time were Tax Procedure and Tax Fraud and Money Laundering (Tax Crimes for short).  In those courses, I recommended to those interested in doing serious trial work that they watch the movie My Cousin Vinny several times.  There are some interesting trial techniques.  Even when exaggerated, they make important points.  For that reason, I have sometimes referred to My Cousin Vinny in blog entries.  (The collected blog entries mentioning the movie are here.)

I was thus quite interested to see this article:  Nick Vedala, New Jersey’s US attorney praises accuracy of 'My Cousin Vinny’ (Philly.com 4/28/16), here.  One good excerpt is:

Fishman specifically referenced a scene from the movie in which Pesci’s character questions a witness who says he saw the murder in question occur. In that scene, the argument comes down to the preparation of grits, with Pesci uttering the famous line, “Are we to believe that boiling water soaks into a grit faster in your kitchen than anywhere else on the face of the Earth?” 

“I have taught trial techniques for 15 years using that because his cross [examination] is terrific," Fishman said. “Go back and watch it and see. It’s over the top, it’s outrageous, but the way he does it is great.”

JAT Note: Great cross-examination from a random fact Pesci aka Vinny learned earlier in the movie.  And while on grits, there is a saying in the South that a day without grits is a day wasted.  Taking that expression to heart, I enjoyed grits for dinner last night at the Old Ivy Inn (actually the menu item was shrimp and grits, but I got the chef to make the grits far removed from the shrimp; very good.)  And, this morning, Irene made me grits.  Good living here in Charlottesville.

Two Participants in BullShit Tax Shelter Sue the Government for Colluding to Protect the Promoter (EY) from the Participants (4/28/16; 5/15/16)

On 5/15/16, I added a link at the bottom of this blog entry to an excellent discussion of the case in the Procedurally Taxing Blog.

Two former Sprint Executives who participated in a bullshit tax shelter are suing the IRS for aiding and abetting EY's breach of conflict of interest with respect to their investment in the shelters and the fallout from their investment in the shelters.  The complaint is here.

The gravamen of the claims are:

1. EY was the outside auditor for Sprint, a public corporation.

2. The plaintiffs were executives of Sprint.

3. The plaintiffs on their own initiative and with no compulsion from or even knowledge of Sprint invested in abusive tax shelters that EY promoted to executives such as them.  EY may also have designed or participated in the design of the shelters, but that is not alleged and is probably irrelevant.

4. The IRS discovered EY's promotion of the shelters.  The IRS conducted a civil penalty examination of EY as a result of which EY made penalty payments to the IRS.  EY negotiated with the IRS and the IRS collusively agreed to not mention in the press release that the payment was for a penalty.

5. The two were apparently aware of the settlement payment but, because of the IRS's collusion with EY in not describing the payment as a penalty, the plaintiffs did not know it was a penalty.

6.  The IRS began a civil audit of the investors in these shelters.  The plaintiffs were included.  EY represented the plaintiffs in the audits.  Apparently, EY failed to disclose to the plaintiffs that the civil investigation and settlement created a potential conflict of interest with the plaintiffs whose IRS audits EY was handling.  Further, the IRS knew EY was representing plaintiffs at the same time that it was conducting an audit of plaintiffs.  The IRS should have prevented that conflict.  (Paragrpah 54 of the complaint, however, indicates that the audit was of a partnership rather than the partners; not clear that the allegations are consistent.)

7.  Sprint's Board got wind of this somehow and the potential for a conflict of interest between EY and the plaintiffs at the same time that EY was auditing Sprint's financials.  That put Sprint in a bind, requiring that it either terminate EY or the plaintiffs, or perhaps both.  Sprint terminated the executives, an action which would not have occurred had the executives not invested in the bullshit tax shelter EY promoted to plaintiffs.

8. The plaintiffs discovered later that the IRS had colluded with EY.

9.  Such collusion (or aiding and abetting) is actionable under New York law.

10.  As a result, the US is liable under the Federal Tort Claims Act.

A lot of interesting stuff should come out of this case.  The U.S. has not yet filed an answer.

Notably, however, plaintiffs make no attempt in the complaint to discuss the bullshit tax shelter or defend their participation in such bullshit tax shelters.  One would have thought that such astute taxpayers (suggested by the damage model for $42,550,000 and $116,800, respectively) would have invested in bullshit tax shelters.  When that comes up, as it undoubtedly will, they will surely claim that they relied on EY and whatever other professionals were involved.  But whether anyone will believe it may be another issue.

The pdf of the complaint is linked above.  Here is a table of the relevant complaint paragraphs.  The allegations in the complaint are in the left hand column.  My comments to some of the paragraphs are in the right hand column.

Articles on ICIJ's Panama Papers and Ramifications (4/25/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Andrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Panama Papers: Mossack Fonseca raids seize 'large amount of evidence' (ABC News 4/22/16), here.

Panamanian investigators have raided a property used by Mossack Fonseca, the law firm at the centre of a massive leak of offshore financial data, removing bags full of shredded documents as evidence, a local prosecutor said. 

"We have secured a large amount of evidence found in the location," said organised crime investigator Javier Caraballo. 

He said they also found many shredded papers, which they removed as evidence.
In a statement, Mossack Fonseca said it had digitised all its documents and that the shredded papers taken from its premises were bound for recycling. 

The law firm added that as a result of a previous search, prosecutors already had copies of all the documents they removed on Friday (local time).

Charles (Chuck) Rettig, US Launches Criminal Inquiry Into 200 US Citizens Named In The Panama Papers (Forbes 4/23/16), here.

The Panama Papers. A massive law firm data breach of otherwise secretive financial information identifying numerous high-ranking government and public officials around the world was recently disclosed online by the International Consortium of Investigative Journalists. (ICIJ). Almost forty years of confidential information from 1977 to December 2015 was somehow obtained by an anonymous source from the internal database of Panama-based law firm Mossack Fonseca & Co. and apparently includes approximately 11.46 million files comprising approximately 2.6 terabytes (the equivalent of approximately 600 DVDs) of otherwise confidential financial data. 

US Launches Criminal Inquiry into Several of the 200 US Citizens Named in the Panama Papers. The ICIJ has now confirmed that it received an email (published by the Guardian) from U.S. Attorney Preet Bharara for the Southern SO +0.00% District of New York indicating that his office had “opened a criminal investigation regarding matters to which the Panama Papers are relevant.” Further, his office would greatly appreciate the opportunity to speak as soon as possible with any ICIJ employee or representative involved in the Panama Papers Project in order to discuss this matter further.” 

* * * * 

Articles on ICIJ's Panama Papers and Ramifications (4/22/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Julia Harte, Journalists will not share Panama Papers with Justice Department (Reuters 4/21/16), here.

The media group that coordinated the Panama Papers investigation into offshore companies said on Thursday it would not participate in a criminal probe by the U.S. Department of Justice. 

"ICIJ, and its parent organization the Center for Public Integrity, are media organizations shielded by the First Amendment and other legal protections from becoming an arm of law enforcement," said Gerard Ryle, director of the consortium, in a press release on the group's website.

Martha M. Hamilton and Hamish Boland-Rudder, Banks Ordered to Provide Info on Panama Dealings to NY Regulator, here.

More than a dozen banks will have to turn over details of their dealings with Panama law firm Mossack Fonseca to New York’s banking regulator, as authorities continue to respond to revelations from the Panama Papers investigation.

The order came from the New York Department of Financial Services and was sent to 13 foreign banks identified in articles published by ICIJ and its media partners, including Deutsche Bank AG, Credit Suisse Group AG, Commerzbank AG and ABN Amro Group NV, Bloomberg reported. 

The banks have been given 10 days to respond, and were asked to provide communications, phone logs and records of transactions between their New York branches and employees or agents of Mossack Fonseca, as well as any subsequent communication with shell companies formed as part of these transactions. According to Bloomberg, the regulator has also asked banks to identify any New York-based personnel who may have held positions at the shell companies. 

The regulator is reportedly searching for potential violations of rules or regulations related to the law firm. The banks have not been accused of wrongdoing.

Panama Papers: About 80 serious Australian criminals named in leaked documents, ATO says (ABC News 4/21/16), here.

Articles on ICIJ's Panama Papers and Ramifications (4/20/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Josh Meyer, Panama Papers: Federal Prosecutor Looking for Crimes By U.S. Citizens (NBCNews 4/10/16), here.

The Justice Department has opened a formal criminal investigation into potentially widespread illegalities exposed by the Panama Papers, the massive leak of financial details about secret offshore accounts, federal law enforcement officials told NBC News Wednesday -- and its first priority will be finding wrongdoing by U.S. firms and individuals. 

The U.S. Attorney for the Southern District of New York, Preet Bharara, confirmed the investigation in a letter written to the International Consortium of Investigative Journalists (ICIJ), which has led a worldwide effort to report on suspected money laundering, tax evasion and other criminal activity exposed in the documents.
Many financial transactions related to global money laundering, drug trafficking and other illegal activity involve New York-based banks. A senior federal law enforcement official said the initial focus will be identifying illicit activity by American citizens and corporations. 

Bharara's efforts are the first evidence that criminal prosecutors from the Justice Department have become involved in the Panama Papers and will be looking for wrongdoing by U.S. companies and citizens. NBC News reported Sunday that IRS and U.S. Treasury officials have met with their counterparts from around the world in an effort to analyze and use the data about more than 214,000 offshore companies listed by Panamanian law firm Mossack Fonseca. 

In his brief letter, Bharara simply said that his office -- which has jurisdiction over many of the world's largest banks and financial firms -- has "opened a criminal investigation regarding matters to which the Panama Papers are relevant." 

* * * * 

Does A Standard Willfulness Instruction Adequately Inform the Jury of the Good Faith Defense? (4/19/16; 4/21/16)

Note:  I have made significant revisions to this blog entry on 4/20/16 and 4/21/16.

Often, the only defense to the standard Title 26 tax crimes (as well as a Title 18 USC offense conspiracy to commit a Title 26 tax crime will willfulness as an element) is whether the Government proved beyond a reasonable doubt that the defendant acted willfully.  Title 26 tax crimes generally require that the defendant act willfully.  The offense conspiracy to commit such a tax crime imports the mens rea element that the defendant act willfully.  Generally, a subjective good faith belief, other than one based on constitutional claims, that the defendant does not owe the tax means that the defendant did not act willfully, which is defined as an intentional violation of a known legal duty.  See Cheek v. United States, 498 U.S. 192, 203 (1991).  A standard instruction in such cases is basically that the defendant may be convicted only if the Government proves beyond a reasonable doubt that the defendant acted willfully.  A defendant whose sole defense to a tax crime is that he did not act willfully will often claim that he acted in the subjective good faith belief.  Cheek held that the jury should not have been instructed that the good faith belief much be objectively reasonable.  If the jury believes that the defendant had such a good faith belief or, more importantly, that the Government did not prove beyond a reasonable doubt that he did not have such a belief and thereby acted willfully, the instructions will require that the jury acquit.

The question that often arises is whether the defendant is entitled to a jury instruction in addition to a standard willfulness instruction.  The defendant whose defense is good faith will want to rivet the jury's attention on that claim of good faith.  Basically, the desired good faith instruction will be some variation of:

The defendant has raised the defense that he acted in the good faith belief that his conduct was legal.  A good faith belief that the conduct was legal means that the defendant act willfully, for acting willfully requires that the defendant know that he is violating the law.  Therefore, since the government must prove beyond a reasonable doubt that the defendant acted willfully, the government must prove beyond a reasonable doubt that the defendant did not have a good faith belief that his conduct was legal.   If you find that the government did not so prove beyond a reasonable doubt, you must acquit.

Note that I have stated the instruction in perhaps the best way for the defendant (although I would appreciate hearing from readers as to alternative formulations).

Is the trial court required to give such as instruction where the defendant has introduced evidence of good faith (usually, but always, requiring that the defendant testify to assert his good faith belief)?  Where the defendant has not properly put the issue of his good faith belief in play, then such an instruction is not required.  But where the defendant has put the issue of his good faith belief in play, is the court required to give a good faith belief instruction or, stated differently, will a court reverse if it does not?

The Sixth Circuit addressed that issue in United States v. Rae, 2016 U.S. App. LEXIS 6845 (6th Cir. 2016) (nonprecedential), here.  The Court said no to the question but it is critical to note that, ultimately, the Court said that he had not properly raised the issue.  Here is the relevant portions of the opinion (bold face supplied by JAT):

First, Rae alleges that the district court erred by failing to give a good faith jury instruction regarding the tax evasion charge in Count 1, based on his belief that he was not required under the Internal Revenue Code to pay income taxes. Rae contends that the record supported a good faith defense. Challenges to a district court's decision not to give a requested jury instruction are reviewed under an abuse of discretion standard rather than de novo. United States v. Blood, 435 F.3d 612, 623 (6th Cir. 2006). "An omission, or an incomplete instruction, is less likely to be prejudicial than a misstatement of the law." Henderson v. Kibbe, 431 U.S. 145, 155, 97 S. Ct. 1730, 52 L. Ed. 2d 203 (1977). When reviewing a district court's decision not to give a jury instruction, we must reverse only if we find that the proposed instruction is correct, not substantially covered by the actual jury charge, and "so important that failure to give it substantially impairs defendant's defense." United States v. Sassak, 881 F.2d 276, 279 (6th Cir. 1989). 

The district court instructed the jury that as to Count 1, tax evasion in violation of § 7201, the government was required to prove that: (1) Rae owed the income tax, (2) Rae committed an affirmative act constituting an evasion or an attempt to evade or defeat his tax obligation, and (3) that in evading or attempting to evade or defeat his tax obligation, Rae acted willfully. The district court defined "willfully" as follows: 

An act or failure to act is willful. For purposes of tax evasion . . . it is voluntary, intentional violation of a known legal duty rather than the result of an accident, mistake or negligence. (Emphasis added.)  [JAT Note:  bold-face is supplied by me; italics were supplied by the Court.]

Articles on ICIJ's Panama Papers and Ramifications (4/17/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Nicholas Shaxson, Five myths about tax havens (WAPO 4/15/17), here. I think the author uses the term myth to be falsehoods (or not truthoods).  The first myth is:

1. Tax havens protect vulnerable people against despotic governments, unjust laws and political turmoil.

The author addressed this myth:

One benefit of tax havens, to listen to economists such as Cato Institute senior fellow Daniel Mitchell, is that they help shield oppressed groups from greedy and corrupt regimes. The “financial privacy laws” that govern tax havens make them especially “attractive to people who live in nations plagued by incompetent and/or venal governments,” Mitchell argued in a 2008 Cato-produced video titled “The Moral Case for Tax Havens.” The most famous version of this myth was first peddled in 1966 by the Schweizerische Kreditanstalt (today’s Credit Suisse), suggesting that Swiss bank secrecy was set up to protect Jewish money from the Nazis. 

In reality, Switzerland’s famous banking secrecy law of 1934 was triggered by a French tax-evasion scandal involving several wealthy elites, and Swiss secrecy wound up protecting a ton of Nazi loot. Tax havens shield the money of rich people, not vulnerable ones. Indeed, the Panama Papers revealed offshore accounts associated with several dictators and members of oppressive regimes from around the globe, and few linked to ordinary citizens. When tax havens assist kleptocratic elites in hiding their cash with impunity, they don’t guard against corruption and despotism — they help perpetuate them. Tax havens provide an escape route from laws that is available only to a rich minority that can afford to use it, thus removing from the equation the constituency with the greatest power to push for reform.

There are four more.  Enjoy!

David Lawder, U.S. Treasury readies new tax rules as G20 vows to fight evasion (Reuters 4/16/16), here.

The U.S. Treasury Department is finalizing new tax rules aimed at combating the use of shell companies to evade taxes, U.S. Treasury Secretary Jack Lew said on Saturday amid increased pledges by global finance leaders to cooperate on tax issues. 

In a statement to the International Monetary Fund's steering committee, Lew said the Treasury was finalizing a rule that would require banks to identify the beneficial owners of new customers that are companies. 

"In addition, we are about to propose a regulation that would require the beneficial owners of single-member limited liability companies to identify themselves to the Internal Revenue Service, thus closing a loophole that some have been able to exploit," Lew said. 

In the wake of controversy stirred by the so-called Panama Papers, which revealed widespread use of tax havens and shell companies by wealthy global elites, officials from the Group of 20 major economies on Friday threatened to penalize tax haven countries that do not comply with new information-sharing efforts and moves to reduce tax mismatches between countries. 

They called for criteria by July to identify non-cooperative jurisdictions. 

"Defensive measures will be considered by G20 members against non-cooperative jurisdictions" if progress toward tax goals is not made, the group said in its statement.
Lew said the United States fully supports calls for all countries to automatically exchange financial account information.

Articles on ICIJ's Panama Papers and Ramifications (4/16/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Leonid Bershidsky, Were the Panama Papers Planted? Who Cares (Bloomberg View 4/15/16), here.

The opening salvo

Last week, a respected Russia scholar in the U.S. speculated that the Kremlin might be behind the so-called Panama Papers, the big dump of data about offshore accounts that has implicated several countries' officials in shady dealings. And on Thursday, President Vladimir Putin of Russia blamed the U.S. for the leak.

And the closing:

But I would argue that, in the end, that the provenance isn't important -- only the accuracy of the data is. 

Putin has confirmed that the Russian part is accurate. The information is, of course, more damaging than Putin is willing to admit: It exposes the inner workings of Russia's crony capitalism. he material also has proved accurate regarding accounts of people from Iceland, Spain, the U.K. and elsewhere. So why get hung up on its source? It makes much more sense to applaud the work of the investigative journalists who checked and developed the leak. It's an extraordinary collective performance by a much-maligned professional community that has proved convincingly that it has an important social role to play. 

Andrew Mayeda and Mark Deen, G-20 Threatens Penalties on Tax Havens After Panama Papers (Bloomberg 4/15/16). here.

Group of 20 economies threatened to penalize havens that don’t share information on their banking clients after the leak of the Panama Papers provoked a global uproar over tax evasion. 

The G-20 will consider “defensive measures” against financial centers and jurisdictions that don’t commit to an international standard requiring the exchange of information about account holders, the group’s finance ministers and central bankers said Friday in a statement after meeting in Washington. 

The group said it would work with the OECD to come up with criteria for identifying “non-cooperative jurisdictions” by July, adding that improving the transparency on who controls legal tax entities is vital to the international financial system. 

* * * * 

Global Standard 

The statement refers to a global standard developed by the OECD and endorsed by the G-20. The standard calls on tax jurisdictions to share information on an annual basis about their banking systems, including the names and tax identification numbers of account holders. 

The language on tax and financial transparency amounts to a victory for major European nations including the U.K., France and Germany, who a day earlier agreed to automatically share information on the ultimate owners of companies and trusts.
China put up the most resistance to the tax-related part of the G-20 statement, and the U.S. was also reluctant, according to two G-20 officials familiar with the talks; one person said China was the main reason why the statement didn’t single out Panama. The officials asked not to be identified because the meetings were private. 

* * * * 

Bright, Dark

Is Good Faith a Defense to False Claim Charges (4/16/16)

In United States v. Croteau, 2016 U.S. App. LEXIS 6547 (11th Cir. 2016), here, the taxpayer was convicted or "ten counts of making false, fictitious, or fraudulent claims on his tax returns, in violation of 18 U.S.C. § 287 and 2, and one count of corruptly interfering with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a)."  Section 287(a), false claims, is one of the panoply of charges that the Government can make for tax crimes.  Today's blog entry will deal with the § 287(a) charges.

Crouteau's misconduct was repeatedly claiming false OID withholding and filing related forms with the IRS, resulting, he claimed, in refunds of well over $3.8 million.  Early on, the IRS caught on and advised him to file corrected returns.  Nevertheless, the taxpayer did not correct and repeated the behavior, which the IRS caught.  And he "Croteau created, submitted, and recorded various fictitious and fraudulent documents claiming rights to millions of dollars owed him by the U.S. Treasury and various government agencies and officials." Finally he "recorded several false, fictitious, and fraudulent liens and documents in the Lee County Clerk's office asserting that the IRS and various IRS officials owed him hundreds of millions of dollars in total."

After several years of trying to get him to behave, the Government had enough:

On August 21, 2013, a grand jury indicted Croteau with ten counts of filing false, fictitious, and fraudulent tax returns with the IRS, in violation of 18 U.S.C. § 287 and 2. Croteau was charged for ten of the false and fraudulent tax returns he filed between September 2008 and September 2010 for tax years ranging from 2006 to 2009, in which he claimed total refunds in excess of $3.8 million. Separately, the grand jury indicted Croteau with one count of corruptly interfering with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2. This charge was based on the alleged false and fraudulent tax returns covered by Counts One through Ten as well as the supplementary submissions supporting the tax refunds including the 1099-OID forms, the separate fictitious and fraudulent instruments Croteau submitted to the U.S. Treasury Department, and the fictitious and fraudulent liens and documents he recorded in the Lee County Clerk's office.

As in many, perhaps most tax cases, there is little or no defense to the objective elements of the crimes charged, so that the defendant is left to the defense that he did not have the requisite mens rea for the defense.  For the usual tax crimes in the Code, the mens rea is the highest -- that the defendant acted willfully, meaning that he intended to violate a known legal duty.  The defense often deployed in such cases is that the defendant did not act willfully because he acted in good faith belief that what he was doing did not violate the law.  This is commonly referred to as the Cheek defense, based on the leading case of Cheek v. United States, 498 U.S. 192 (1991). Technically, where this good faith defense is properly raised in a criminal case with an element that the defendant have acted willfully, the Government must prove that he acted willfully, which requires that the Government disprove the good faith claim.  I have discussed previously the dicey issue of how the defendant puts good faith in play in order to get a jury instruction on good faith to supplement the standard jury instruction on willfulness.  Bottom line it will usually require the defendant to testify, but sometimes there can be sufficient other evidence to raise the defense, thus permitting the defendant to forgo testifying.

Some crimes deployed for tax misconduct, particularly the Title 18 offenses, do not have a textual element that the taxpayer act willfully.  The crimes for which Crouteau was charged do not have a textual willfulness requirement.  I have previously noted that tax obstruction, § 7212(a), although not having a textual willfulness element might have elements which, as interpreted and applied, rise to the same level as willfulness. But I focus today on the 18 U.S.C. § 287, here, charges.  Section 287 provides

False, fictitious or fraudulent claims
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.

Articles on ICIJ's Panama Papers and Ramifications (4/14/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.  

Max Ehrenfreund, What the Panama Papers don’t say about global finance is just as troubling (WAPO 4/14/16), here.  Another view of the unintended consequences of the developed world's crackdown on offshore financial activity.

Banks' disparate treatment of suspect financial activity suggests that new regulations in the United States and other developed countries, intended to prevent illicit activity, could be detrimental for charities and some less wealthy economies. 

"What the Panama Papers scandal makes really clear is if you’ve got a lot of money, you can get a bank to break more or less any law you want," said Scott Paul, a senior adviser at Oxfam America. "If you don’t have a lot of money, banks will close the door in your face just because of the risk of illegality." 

* * * * 

Yet since the financial crisis made banking less profitable, some banks have decided that vetting their less affluent, less lucrative customers isn't worth the expense, experts say. In part because of the risk of scrutiny from regulators and the press, firms such as Bank of America and Barclays are now reluctant to do business in poor countries where lawbreaking is more common.\ 

Banks' withdrawal from some markets in East Africa, the Middle East, Latin America and other regions has provoked an international debate about the costs and benefits of authorities' efforts to counter illicit finance. 

"Until very recently, there really wasn't a conversation," Paul said. Without careful attention from policymakers, he warned, "it's going to be poor populations and these high-risk jurisdictions that get cut out of the financial system."  

Diplomats and charities have lost their accounts. Meanwhile, migrants working in developed countries as breadwinners for their families in poorer nations are paying more to send them money through informal channels. In the private sector and among nonprofit groups, some worry that rules issued by the U.S. government, along with the European Union and a 35-nation body called the Financial Action Task Force, are making the problem worse. 

Regulators must balance "restrictions that you want to put in place to keep the bad guys out" against "restrictions so strong that you keep the good guys out, too," argued Rob Rowe, a vice president at the American Bankers Association. "There's no easy answer." 

* * * * 

"We recognize that reduced access could impede the flow of money for a family member in need," Szubin said, but he added, "We don't yet see evidence of systemic retrenchment -- and even if we truly are seeing some consolidation, we have not yet identified its scope."

I work for a Swiss Private Bank and serve wealthy Russians (Reddit 4/9/16), here.  Still another view of the offshore account morass.

For 7 years I have been working in Swiss Private Banking, serving wealthy Russian clients. I work with offshore company accounts every day. Many of our clients also had their data leaked together with the 200k other companies. In my old job I even had a meeting with one of the top managers of Mossack Fonsecca but never directly sent clients to them. 

Defending what I do here on reddit is probably as popular as justifying paedophiles so I'm prepared to get insulted. I know that I am doing good work and made peace with the fact that most people probably always will hate me for what I do. 

Anyway, I want to clear up some misconceptions and write about what people like me do and how our industry works. I actually see the recent leaks as a great opportunity for banks like mine to show to the world that they did their homework and that the bad apples that give my profession a bad reputation get sorted out.

Articles on ICIJ's Panama Papers and Ramifications (4/13/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.  

Panama papers: Mossack Fonseca headquarters raided (4/13/16), here.

Police carried out Tuesday's raid along with officials from an organised crime unit. Officers set up a perimeter around the headquarters while prosecutors entered the offices to search for documents. 

Afterwards, the attorney general's office said the aim had been "to obtain documentation linked to the information published in news articles that establish the use of the firm in illicit activities". 

The statement added that searches would also take place at subsidiaries of the firm.

Elida Moreno, Panama raids offices of Mossack Fonseca law firm (Reuters 4/13/16), here.

The national police, in an earlier statement, said they were searching for documentation that "would establish the possible use of the firm for illicit activities." The firm has been accused of tax evasion and fraud.

Peter J. Henning, Panama Papers Show How Lawyers Can Turn a Blind Eye (NYT DealBook), here.
Peter Hemmings is a frequent writer on white collar crime.

During the savings-and loan-crisis in the early 1990s, the question “Where were the lawyers?” was asked about the wrongdoing taking place at numerous banks. 

The confidential documents known as the Panama Papers, which show how lawyers helped set up offshore bank accounts and shell companies, provides one possible answer: The lawyers have always been right in the middle of it. 

This is not the only recent example of lawyers acting as willing participants in trying to help clients, while seemingly turning a blind eye to possible violations of the law. A report issued by the nonprofit organization Global Witness, featured on the “60 Minutes” news program in January, included undercover videos of lawyers in New York who appeared quite eager to advise the mysterious representative of an African minister about how to move funds into the United States to buy assets while keeping his ownership anonymous. 

Rather than seeking to keep clients from violating the law, it appears that some lawyers are willing to go right up to the line of legality in their representation. By keeping themselves ignorant about what may be going on, these lawyers have been able to maintain the facade that they are not involved in potentially illegal activities, even though they are often the prime enablers of misconduct. 

Has the legal profession lost its moral compass?

 The article concludes:

It is no surprise that lawyers are at the center of the debate about how to deal with the use of shell companies and secret accounts to hide assets because lawyers are frequently involved in structuring the entities. Despite the elevated rhetoric about the role of lawyers in society, the legal ethics rules do little to restrict how lawyers can represent clients who flirt with the edges of the law. 

Limiting the tools for helping clients engage in misconduct would make it harder for lawyers to claim they are only serving the wishes of those clients.

Articles on ICIJ's Panama Papers and Ramifications (4/12/16)

I've been traveling most of the day, so don't have much to offer.  I'll be back up and running in full stride tomorrow.

Eamon Javers, Swiss banker whistleblower: CIA behind Panama Papers (CNBC 4/12/16), here.  This article quotes Bradley Birkenfeld as saying that "the CIA I'm sure is behind this."  Well.

Panama Papers: Spy agencies widely used Mossack Fonseca to hide activities (RT 4/12/16) here. Excerpts:

Intelligence agencies from several countries, including CIA intermediaries, have abundantly used the services of Panamanian law firm Mossack Fonseca to "conceal" their activities, German newspaper Sueddeutsche Zeitung (SZ) says, citing leaked documents. 

Both "secret agents and their informants have used the company's services," wrote the newspaper, which earlier this month published online materials based on 11.5 million documents from the Panamanian law firm. It has been called the largest leak on corruption in journalistic history. 

"Agents have set up shell companies to conceal their activities," the Munich-based newspaper reported, adding that there are CIA mediators among them. 

According to SZ, Mossack Fonseca's clients also included some of those involved in the so-called Iran-Contra affair, in which several Reagan administration officials secretly facilitated arms sales to Iran in the 1980s in order to secure the release of US hostages and fund Nicaragua's Contra rebels. 

The Panama Papers also claim to reveal that some "former high-ranking officials of the intelligence services of Saudi Arabia, Colombia and Rwanda" are listed amongst the company's clients. Among them was Sheikh Kamal Adham, the former Saudi intelligence chief, who according to SZ, was "one of the CIA's key intermediaries in the 1970s" in the Middle East region.

Holly Watt, Panama Papers: global tax officials to launch unprecedented inquiry (Guardian 4/12/16), here.  Excerpts:

Tax investigators from 28 countries will meet in Paris on Wednesday to launch an unprecedented international inquiry following the publication of the Panama Papers.
Senior officials from tax authorities around the world have said they intend to work together to analyse information revealed by the documents, which have provoked international concern over the offshore industry. 

Investigations have been launched in a number of countries over the past week, but the Paris meeting will be an attempt to develop a global strategy to crack down on offenders.
The sheer scale of the leak – 11.5m documents, covering 210,000 companies in 21 offshore jurisdictions – has led to Wednesday’s hastily arranged meeting.

Articles on ICIJ's Panama Papers and Ramifications (4/11/16)

Crawford Kilian, The Man Who Foretold the Panama Papers (The Tyee 4/5/16), here.  This is a book review of Thomas Piketty's new book, Why Save the Bankers? And Other Essays on Our Economic and Political Crisis, here, which was just published.  Piketty, here, is the author who stirred the global pot with his massive Capital in the Twenty-First Century, here, with more data and analysis of data than most of us want to think about much less read. (I have heard that Piketty's book has the lowest number of actual readers among persons who have purchased the book; disclaimer: I too purchased it and have yet to read it other than episodically.)  The book being reviewed here is a collection of other smaller works by Piketty that develop and sometimes predate publication of Capital in the Twenty-First Century.  Here are some excerpts (bold face-supplied by JAT):

But why bother to buy a scrapbook of ancient columns when you can read Capital in the Twenty-First Century? For one very good reason.

The world's greatest economic detective 

Because Thomas Piketty follows the money. He goes into the tax archives of the last two centuries, and he has become the greatest economic detective the world has ever known. He has tracked the wealth of the rentier class since Napoleon -- the families of the "independently wealthy" who live off the income paid them because they own moneymaking enterprises and land.  

In one column, published five years ago on April 5, 2011, Piketty offers what is almost a throw-away line: "... at the world level, the net financial position is negative over-all, which is logically impossible unless we assume that on average we're owned by the planet Mars. More likely, this contradiction suggests that a nonnegligible share of financial assets held in tax havens and by nonresidents is not correctly reported as such." 

In other words, every country in the world is losing money, and therefore losing tax revenue. The implication is that every country is making up for the loss either by taxing its poorer residents more than they should be, or by cutting social services.
Five years later, almost to the day, the Guardian and the German newspaper Süddeutsche Zeitung broke a major global scandal: the Panama Papers.

Piketty's colleague, Gabriel Zucman, published on that issue in the The Hidden Wealth of Nations: The Scourge of Tax Havens (2015), here.

Juan Carlos Varela (President of Panama), Don’t Blame Panama. Tax Evasion Is a Global Problem (NYT 4/11/16), here.

DESPITE their name, the Panama Papers are not mainly about Panama. They are not even primarily concerned with Panamanian companies. The more than 11 million documents, illegally hacked and released last week relating to previously undisclosed “offshore” corporations, is roiling the world with revelations of the vulnerability for rampant abuse of legal financial structures by the wealthy. 

They are unfairly called the Panama Papers because this particular trove of documents came from a single law firm based in Panama. But the problem of tax evasion is a global one. 

Panama does not deserve to be singled out on an issue that plagues many countries. But we are willing to accept the responsibility for fixing it, in part because greater transparency is ultimately a continuation of reforms we have recently undertaken. The world must tackle this problem collectively and with urgency, and Panama stands ready to lead the way.

Articles on ICIJ's Panama Papers and Ramifications (4/10/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.  

Josh Meyer, Feds 'Chomping at the Bit' to Use Panama Papers to Catch Criminals (NBCNews 4/10/16), here.  Here are excerpts from the article:

[US] Federal agents and prosecutors are "chomping at the bit" to exploit the Panama Papers and launch prosecutions, a senior federal law enforcement official told NBC News -- but want to be sure that the way the huge data dump about offshore money was obtained doesn't jeopardize their cases. 

"It is a bonanza," the official said in reference to the cache of 11 million financial documents about shell companies that a Panamanian law firm set up for some of the world's shadiest and most powerful people. 

* * * * 

But first the feds need to figure out the best way to use the documents without running afoul of a complicated thicket of laws, especially the attorney-client privilege that law firm Mossack Fonseca has used to protect its thousands of clients from public scrutiny over the past four decades. 

Authorities run the risk of having prosecutions thrown out, and investigations quashed, if the underlying information is found to have been improperly obtained. One key question, according to the U.S. official and others, is whether the documents were hacked or otherwise illegally obtained from Mossack Fonseca. 

* * * * 

U.S. officials believe they won't have trouble getting access to the Panama Papers, especially as there are indications that at least some of the documents will be released publicly in a few weeks. 

And they are confident that they will be able to use many of the documents by claiming Mossack Fonseca knew or should have known that particular clients were engaged in illegal activity, citing "know your client" financial transparency laws in the U.S. and internationally. 

In the meantime, another key step will be for the Justice Department to prepare a "clean team" that would vet the documents before introducing them into investigations and open cases where they might run the risk of tainting them.

 Panama Papers: PM sets up anti-tax dodging task force (BBC 4/10/16), here.

The [UK] government is to set up a new task force to investigate allegations of tax-dodging and money laundering in light of the Panama Papers leak. 

The unit will be led by HM Revenue and Customs and the National Crime Agency.
It will also include specialists from the Serious Fraud Office and the Financial Conduct Authority. 

It was announced by Prime Minister David Cameron as he released details of his tax returns in an effort to defuse a row over his financial affairs. 

The move is also being seen as an effort by Mr Cameron to regain the initiative on the issue of tax avoidance, after attention focused on his own involvement with his late father's offshore fund, Blairmore Holdings.

Periodic Posting of Articles on ICIJ's Panama Papers and Ramifications (4/9/16)

There are so many news articles on the ICIJ's Panama Papers and their ramifications that I have decided just periodically (mostly daily) post an aggregation of the news articles or other content on the web that I think may be useful to readers.  Readers should remember that I do not look at all that web content, so there may be good content that I miss.  I urge readers aware of content that I missed to post the missed items as content or email the missed items to me at jack@tjtaxlaw.com.

First, the Wikipedia offering on the Panama Papers is here.  I presume that it will be regularly updated and could be a good source of information.  Readers interested in the issue probably should check it from time to time.

Also, Wikipedia offers a list of people named in the Panama Papers, here.

Now, here are today's offerings:

Billionaire Reading Name In Panama Papers Totally Forgot He Even Had Funds In Seychelles (TheOnion 4/7/16), here.  Noting that the billionaire, Frederick Weldon, claims to have forgotten about funds stashed in the Seychelles.  Except:

“Oh, yeah, right—jeez, forgot about that,” said Weldon, who after thinking about it for several moments, began to recall having his attorney at one point set up a tax-free dummy corporation in the island nation off the coast of Africa to harbor a portion of his assets. “Wow, I haven’t thought about that in years. How much was it again? $30 million? $40 million? Anyway, I’m glad they reminded me. Who knows how long that would have slipped my mind.” Weldon added that, just to be on the safe side, he’d better make some calls to Switzerland, Luxembourg, Hong Kong, Singapore, Bermuda, Mauritius, Macau, and the Isle of Man to make sure he wasn’t missing any other funds he had stored away.

[Note to readers 4/12/16 1:24pm:  A reader made a comment below that the Onion is a parody news site.  I should have caught that.  So read the above offering as parody.  Had I realized that before posting, I would not have posted, but having posted, I thought I would leave it up.] 

John Letzing, Swiss Banks at Risk of Harboring Corruption Proceeds, Says Regulator (WSJ 4/7/19), here.  Excerpts:

Mark Branson, chief executive of the Swiss Financial Market Supervisory Authority, or Finma, noted in public remarks Thursday that Swiss wealth managers are “increasingly accepting money from faraway, previously less-familiar markets.” That, he said, shifts the danger for Swiss banks “away from risks connected with tax law towards money laundering risks.” 

“It is often more difficult to determine the origin of money from developing countries,” Mr. Branson said. 

* * * * 

“We need a culture in which bank employees feel personally committed to combating money laundering,” Mr. Branson said. 

More Swiss banks need to be proactive about reporting suspicious activity, he said, with 18% of such reports based on the bank’s internal suspicions, while 28% are “in response to a newspaper article.”

Ralph Atkins, Swiss banks warned of exposure to EM money laundering (FT 4/7/16), here.  I do not post excerpts because FT requests that links to the article be given instead of cutting and pasting.  I will note that the article is more detailed than the WSJ article above and does have some good information.  Readers may be required to have a subscription.

Luke Harding, The fallout from Panama Papers revelations so far, country by country (Guardian 4/8/16), here.  Good country by country update for Russia, Azerbaijan, Iceland, UK, China, Zimbabwe, Iran, Australia, Panama, Pakistan, Argentina and Syria.

NYT Article on US as Tax Haven (4/7/16)

Patricia Cohen, Need to Hide Some Income? You Don’t Have to Go to Panama (NYT 4/7/16), here.  Excerpts:

Yet while the United States demands that financial institutions in other countries share information about Americans with accounts abroad, its reciprocation efforts fall short, critics say. 

“You see a ton of wealth in tax havens in Switzerland and the Cayman Islands that is owned by shell companies that are incorporated in Panama or in Delaware,” he said. “The bulk of this wealth does not seem to be duly declared on tax returns.” 

A recent report by the Institute on Taxation and Economic Policy called “Delaware: An Onshore Tax Haven” noted that the state’s lack of transparency combined with an enticing loophole in its tax code “makes it a magnet for people looking to create anonymous shell companies, which individuals and corporations can use to evade an inestimable amount in federal and foreign taxes.” 

Heather A. Lowe, the legal counsel and director of government affairs for Global Financial Integrity, a research and advocacy group in Washington, warned that the problem was much more widespread than just a handful of states. 

“You can create anonymous companies anywhere in the United States,” Ms. Lowe said. “The reason people know about Delaware, Nevada and Wyoming is because these states market themselves internationally.” 

* * * * 

Although there are legitimate reasons that individuals and businesses want to screen their holdings — for privacy or to prevent competitors from discovering investment plans — several experts said cloaking wrongdoing was a more common purpose. 

Aside from avoiding taxes, shell companies are routinely used by terrorist organizations to hide assets, by political donors to sidestep campaign finance laws and by criminals to launder money, Mr. Gardner said.

NYT Article on the Panamanian Law Firm at the Center of the Panama Papers Leak (4/7/16)

A New York Times lead article focuses on the Panamanian law firm Mossack Fonseco, here, which is at the center of the latest leaks so prominent in the news in the last few days.  Kirk Semple, Azam Ahmed and Eric Lipton, Panama Papers Leak Casts Light on a Law Firm Founded on Secrecy (NYT 4/6/16), here   The Panama Papers Overview of the Report is here (with links); My blog on the Panama Papers Report is ICIJ Panama Report on Offshore Financial and Enabler Skulduggery (4/4/16; 4/5/16), here,

There are a vast number of news articles on the report and its ramifications.  The scope of the Panama Papers is so large that I expect that many more articles will appear for some time into the future.  I cannot read them all.  I can read selectively and pass on to the blog's readers the ones I think useful.  But my sampling is necessarily anecdotal.  With that caveat, I excerpt key portions from the NYT article:

The firm, Mossack Fonseca, was built on assurances of bulletproof privacy for its clients. But its operations were laid bare this week by a vast leak of millions of documents that have helped expose the proliferation of shell companies and tax havens for the world’s wealthiest people.  

* * * * 

The leak has also brought more scrutiny to Panama’s financial and legal sectors, just as the country’s leadership was trying to shed its longstanding reputation as a haven for the loot of the criminal and corrupt. In February, Panama was removed from a watch list maintained by an international agency that sets standards to combat money laundering and terrorism financing, but it remains under scrutiny as a haven for tax evaders.

Panama’s president has vowed to cooperate with any judicial investigations stemming from the leaked information, which could put him in the awkward position of allowing an inquiry into his former adviser. 

* * * * 

Among the leaked documents was an email exchange obtained by the International Consortium of Investigative Journalists, in which the firm’s top partners realized they had worked for years with clients from Iran who had been listed on a sanctions list published by the United States government and the United Nations. 

“This is dangerous!” Mr. Mossack wrote in an email to Mr. Fonseca and others at the firm. “A red flag should have been raised immediately.” 

Mr. Mossack placed blame for the oversight on employees in the law firm’s London office who were “not doing their due diligence thoroughly, (or maybe none at all).” 

* * * * 

The rise of Mossack Fonseca coincided with the emergence of Panama as a capital of the worldwide offshore banking industry. The increasing flow of global capital across borders during the 1970s and 1980s fueled a market for lawyers and accountants capable of sheltering the money, and Panama was primed to take advantage of the boom. 

Beginning in the early 1900s, its station as a trade and shipping center — at the intersection of two continents and at the convergence of the Pacific Ocean and the Caribbean Sea — made it an obvious candidate for offshore accounting. International ships flew the Panamanian flag to take advantage of its advantageous corporate tax structure, which some experts say was copied almost directly from the state of Delaware. 

“Because it has always been at the center of international trade, it was a natural fit for things like offshore finance and international offshore tax planning,” said Victor Fleischer, a professor at the University of San Diego School of Law. “I don’t know if it is justified or not, but people have always thought of Panama as a little bit shady.”

Article on U.S. Rule to Require Banks to Identify Shell Company Owners (4/6/16)

Louise Story, U.S. Plans to Require Banks to Identify Owners of Shell Companies (NYT 4/6/16), here.  Excerpts:

The United States government is close to issuing a rule that will for the first time require banks and other financial institutions to find out the identities of people hidden behind shell companies. 

The rule is meant to close a major loophole in the American banking system that enables the sorts of secretive financial maneuvers that were thrust into the spotlight this week with the leak of millions of documents from a law firm in Panama. 

* * * * 

Under federal regulations, banks with American branches in the United States are required to “know their customers” who open accounts in the United States. But those rules have been significantly weakened because banks have not been required to know the identities of customers who set up accounts in names of shell companies. 

The government’s proposed customer due diligence rule, or C.D.D., is an attempt to close that loophole, a senior Treasury official said in an interview. 

“I don’t think everyone recognizes the connection between the C.D.D. and the Panama Papers,” said the official, Jennifer Shasky Calvery, director of the department’s Financial Crimes Enforcement Network. 

The new rule, she said, “would clarify and make absolutely clear to our financial institutions that they must know and understand the beneficial ownership of their customers,” she said. “We already know that they need to know their customer, but where that customer is a legal entity, we are clarifying that they need to know and understand the beneficial owner of that customer. Who is actually calling the shots? Who stands to gain?” 

The United States has been considered a laggard in the global push to shine light on the murky world of shell companies. 

For one thing, the United States allows its states to register limited liability companies and other structures without requiring the names of the actual people behind those companies. In addition, the know-your-customer loophole has let banks decide whether they will expend the resources to pierce the secrecy of shell companies that set up accounts. 

The new Treasury rule will require banks to find out the identities of any individuals who own 25 percent or more of corporate entities that open bank accounts, as well as any individuals exercising control over those entities.

Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (4/5/16; 4/6/16)

Note:  I ran out of time and so could not complete the blog.  I will probably add some more discussion later, but the discussion as now presented will not be materially revised.  I may also post some links to the cases which have not already been linked below.

Today, I start a series of blogs directed to students and new practitioners to analyze the indictment of former Tax Court Judge Kroupa and her husband.  I discussed the US Attorney press release for her indictment yesterday.  Former US Tax Court Judge Kroupa Indicted (Federal Tax Crimes Blog 4/4/16), here. I think that a course on Tax Crimes could be taught around the indictment, with some detours along the way.  But, I will try to restrain myself in these blogs and just hit some parts that I think might be interesting to students and new practitioners.

The Kroupa indictment is here.

The Kroupa indictment charges a number of counts for statutorily distinct crimes.  The overall pattern of conduct alleged is that the couple cheated on their taxes.  But, as to any pattern of criminal conduct, there are many federal crimes that can be charged.  For example, mail is almost always involved in a tax crime which would permit a wire fraud charge.  The mail fraud statute is 18 USC §1341, here. For run of the mill tax crimes (such as in this case), DOJ Tax will not authorize a wire fraud charge.  But it could have, and the grand jury surely would have indicted.

DOJ Tax did authorize and the grand jury charged the following counts:

Defraud/Klein Conspiracy, 18 USC § 371, here, a five year felony - 1 count
Tax evasion, § 7201, here, a five year felony - 2 counts
Tax Perjury, § 7206(1), here, a three year felony - 2 counts
Tax Obstruction, §7212, here, a three year felony - 1 count

Now, if the defendants are convicted on all counts, the concept of stacking means that the maximum incarceration period they could be sentenced is 24 years.  But, they will not be sentenced to that maximum period because the sentencing will be governed by the Sentencing Guidelines and the Court's Booker discretion (United States v. Booker, 543 U.S. 220  (2005)), which will certainly be far less than 24 years and likely will be less than 5 years and probably 3 years or less.  So, from this perspective, why bring all the counts.  I plan to offer later in the series on the Kroupa indictment some discussion of how the Sentencing Guidelines will come into play.

Now, back to the indictment.

Paragraphs 1 - 4 of the indictment provide introductory background.  Kroupa's status as a Tax Court judge is alleged to support that she had knowledge of the law.  For most tax crimes in Title 26 (IRC), willfullness is an element of the crime.  Willfulness is the intent to violated a known legal duty.  Cheek v. United States, 498 U.S. 192 (1991).  Ignorance of the law is an excuse.  See also Bryan v. United States, 524 U.S. 184, 195 (1998).  The introductory allegations about Kroupa are fairly straightforward -- she was a Tax Court judge and she resigned.  (See ¶ 3 of the indictment.)  Her tax background which seems to be extensive (see Wikipedia entry, here, even though perhaps not the strongest for a Tax Court judge) is not alleged, but probably will be introduced at trial (if there is a trial).

Drucker's Article on Panama and U.S. as Tax Havens and Failure to Adopt CRS

Jesse Drucker is one of my favorite reporters on the international finance scene and often writes on tax issues.  His latest is Source: Panama Has Company as Bank-Secrecy Holdout, as U.S. Offers Haven (Bloomberg 4/5/16), here

The teaser opening:

Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money. 

Over the past several years, amid increased scrutiny by journalists, regulators and law enforcers, the global tax-haven landscape has shifted. In an effort to catch tax dodgers, almost 100 countries and other jurisdictions have agreed since 2014 to impose new disclosure requirements for bank accounts, trusts and some other investments held by international customers -- standards issued by the Organization for Economic Cooperation and Development, a government-funded international policy group. 

Places like Switzerland and Bermuda are agreeing, at least in principle, to share bank account information with tax authorities in other countries. Only a handful of nations have declined to sign on. The most prominent is the U.S. Another, Panama, is at the center of a storm over tax evasion and global cash flight that broke out over the weekend.

The article then goes on to discuss the state of global disclosure, calling out the U.S. for not entering the Common Reporting Standard ("CRS") promoted by the OECD.  The Commissioner of the IRS has called for the U.S. to adopt CRS.  See Commissioner Koskinen Calls On Congress to Adopt Common Reporting Standard (Federal Tax Crimes Blog 3/15/16), here.

Former US Tax Court Judge Kroupa Indicted (4/4/16; 4/5/16)

The US Attorney for Minnesota announced, here, the indictment of former Tax Court Judge Diane L. Kroupa and her husband, Robert E. Fackler.  The indictment is here.  (This copy is the one linked in the announcement; it does not have file stamps but does indicate that it was the final.) The charges for each are:  "conspiracy, tax evasion, making and subscribing false tax returns and obstruction of an IRS audit."

Kroupa resigned from her judgeship somewhat unexpectedly in June 2014. According to the US Attorney press release, the charges relate to the two claiming personal expenses as business expenses of the husband's consulting business, failing to report income from a land sale, concealing documents from the preparer and then obstructing the audit. Here are excerpts::

They fraudulently claimed the following personal expenses as deductible business expenses: rent and utilities for the Maryland home; utilities, upkeep and renovation expenses of the Minnesota home; pilates classes; spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and expenses for vacations to Alaska, Australia, The Bahamas, China, England, Greece, Hawaii, Mexico and Thailand. 

According to the indictment and documents filed in court, KROUPA and FACKLER made a series of other false claims on their tax returns, including failing to report approximately $44,520 that KROUPA received from a 2010 land sale in South Dakota. The defendants falsely claimed financial insolvency to avoid paying tax on $33,031 on cancellation of indebtedness income. 

According to the indictment and documents filed in court, in 2006, KROUPA and FACKLER concealed documents from their tax preparer and an IRS Tax Compliance Officer during an audit. During a second audit in 2012, KROUPA and FACKLER caused misleading documents to be delivered to an IRS employee in order to convince the IRS employee that certain personal expenses were actually business expenses of Grassroots Consulting. 

According to the indictment and documents filed in court, between 2004 and 2010, KROUPA and FACKLER purposely understated their taxable income by approximately $1,000,000 and purposely understated the amount of tax they owed by at least $400,000.

JAT Comments:

Right now, I can make only one comment -- if the allegations are proven, it is deeply disappointing that a judge would have participated in conduct -- particularly of the scope alleged.

I never tried a case before Kroupa, but I have had occasion to observe her work and occasionally to blog on her work.  See the blog entries with her name here.  My impression of her work -- and this is purely anecdotal from the limited data set of observations -- is that she was a pretty good judge.

Kroupa's Wikipedia entry is here.  The Wikipedia entry links to her Tax Court bio here which appears to be out of date.

Addendum 4/5/16 10:00am:  I will post a series of blogs beginning today for students and new practitioners that will discuss some aspects of the indictment.  I list the blog entries below, starting with the first:

1. Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (Federal Tax Crimes Blog 4/5/16), here.

UK Supreme Deploys Economic Concepts Similar to US Doctrines for Attacking Tax Shelters (4/4/16)

The UK Supreme Court has nixed a sham tax scheme.  New Judgment: UBS AG v HMRC; DB Group Services (UK) Ltd v HMRC [2016] UKSC 13 (UKSC Blog), here (with link to the opinion, here). Jane Croft and Vanessa Houlder, UBS and Deutsche avoided tax on bonuses, rules Supreme Court (FT 3/9/16), here.  A reader sometime back advised me of this development; apologies to readers for not getting around to it earlier.)

To me, the interesting point was the discussion of statutory interpretation, with incident of taxation based on the reality of the transaction, ignoring the insertion of meaningless steps solely to affect taxation, etc..  I direct readers to  the Supreme Court opinion, here:¶¶ 61, p. 20 -  32, p. 33).   Here is the conclusion:

98. The error of the Court of Appeal in these cases lies, in my opinion, in adopting a literal construction of Chapter 2, and applying it to a correspondingly formal analysis of the facts. Adopting a purposive construction of Chapter 2, the conditions relied upon in order to bring the shares in question within the scope of the exemption conferred by section 425(2) failed to make provision of the kind required by section 423(1)(a): that is to say, provision having a business or commercial purpose, as distinct from provision whose only purpose was the obtaining of the exemption. That does not however mean that the conditions are to be disregarded for all fiscal purposes. Income tax is payable on the value of the shares as at the date of their acquisition in accordance with Abbott v Philbin, account being taken of any effect which the conditions may have had.

Excerpts From the FT article:

UBS and Deutsche Bank have lost a legal challenge brought by HM Revenue & Customs over two offshore schemes designed to avoid paying tax on bankers’ bonuses. 

The Supreme Court on Wednesday overturned two earlier court decisions over the controversial schemes that operated in 2003 and 2004.

HMRC had argued throughout the 12-year dispute that the schemes were designed to exploit tax avoidance loopholes and the banks should pay back about £50m each. 

The tax schemes centred on bankers receiving shares in specially created companies, meaning they escaped income tax. 

The banks then paid banker bonuses into the schemes without having to account to HMRC for income tax or national insurance contributions for the staff or their own liabilities on earnings. 

Some 426 staff agreed to take part in the scheme and it was argued in court papers that UBS devised schemes in 2003 and 2004 to avoid paying £36.9m of tax and £12.7m in national insurance on £92m of bankers’ bonuses.\ 

Deutsche’s scheme revolved around £91m of bonuses and share awards to individual bankers above £2m. 

The Supreme Court found the restrictive conditions attached to the shares in the UBS scheme “had no business or commercial rationale beyond tax avoidance”. In the Deutsche scheme, the conditions were “simpler but equally artificial”. 

Lord Robert Reed, the Supreme Court justice, noted in his ruling: “In our society, a great deal of intellectual effort is devoted to tax avoidance.” 

He added it was “difficult to accept” arguments that parliament when passing the law had intended to encourage tax exemptions for restricted share awards where this “has no purpose whatsoever other than the obtaining of an exemption itself”. 

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