Lawyer, Alleged Offshore Account Enabler, Loses Motion to Dismiss Indictment (5/6/17)

I have previously written about Michael Little, a British and U.S. lawyer and U.S. permanent resident, who was indicted for enabling offshore evasion for U.S. taxpayers.  (I list at the end of this blog entry the principal prior blog entries mentioning Little.)  The superseding indictment is here; the extensive docket entries in the case are here.  The superseding indictment charges:

• Count 1 Tax Obstruction, § 7212(a) (Pages 1-10)
• Counts 2 through 7 Failure to File for 2005-2010, § 7203 (Page 11)
• Count 8 Willful Failure to File FBAR, 31 USC § 5313 and 5322(a); Title 31 CFR §§ 103.24, 103.27(c,d) and 103.59(b); 18 USC § 2. (Page 12)
• Count 9 Conspiracy (Pages 12-16
• Counts 10-19 Aiding and Assisting the filing of false Forms 3520, § 7206(2) (Pages 16-18)

In United States v. Little, 2017 U.S. Dist. LEXIS 67580 (SD NY 2017), here, the Court denied Little's motion to dismiss.  The gravamen of the Court's action is stated in the opening paragraph:

Defendant Michael Little moves for partial dismissal of the Second Superseding Indictment on the grounds that his prosecution for failure to file individual income tax returns and Reports of Foreign Bank and Financial Accounts ("FBARs") would deprive him of due process of law in violation of the Fifth Amendment to the United States Constitution. Little asserts that at the time of the events charged in the indictment he was a U.K. citizen and a lawful permanent resident of the U.S. He argues that the statutes and regulations requiring U.K. citizens with permanent residence status under U.S. immigration law to file U.S. income tax returns and FBARs, when read in conjunction with the U.S./U.K. Tax Treaty (the "Treaty"), are ambiguous, such that a person of ordinary intelligence lacks notice as to what constitutes compliance with the law. The Court finds that none of the relevant statutes or regulations, whether read in isolation or together, or in conjunction with the Treaty, are so ambiguous that they could properly be found unconstitutionally vague as applied to the charged conduct. Defendant's motion for partial dismissal of the indictment is thus denied.

The standard for void for vagueness is stated:

"As generally stated, the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement." United States v. Rybicki, 354 F.3d 124, 129 (2d Cir. 2003) (quoting Kolender v. Lawson, 461 U.S. 352, 357, 103 S. Ct. 1855, 75 L. Ed. 2d 903 (1983)). Because the First Amendment is not implicated, the Court assesses Little's challenge as applied, i.e., "in light of the specific facts of the case at hand and not with regard to the statute's facial validity." Id. (quoting United States v. Nadi, 996 F.2d 548, 550 (2d Cir. 1993)). Courts examine as-applied vagueness claims in two steps: "a court must first determine whether the statute gives the person of ordinary intelligence a reasonable opportunity to know what is prohibited and then consider whether the law provides explicit standards for those who apply it." Rubin v. Garvin, 544 F.3d 461, 468 (2d Cir. 2008) (quoting Farrell v. Burke, 449 F.3d 470, 486 (2d Cir. 2006)). The "novelty" of a prosecution does not bolster a vagueness challenge, for the lack of a prior "litigated fact pattern" that is "precisely" on point is "immaterial." United States v. Kinzler, 55 F.3d 70, 74 (2d Cir. 1995). 

"A scienter requirement may mitigate a law's vagueness, especially where the defendant alleges inadequate notice." Rubin, 544 F.3d at 467 (citing Vill. of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 499, 102 S. Ct. 1186, 71 L. Ed. 2d 362 (1982)). Where "the punishment imposed is only for an act knowingly done with the purpose of doing that which the statute prohibits, the accused cannot be said to suffer from lack of warning or knowledge that the act which he does is a violation of law." United States v. Tannenbaum, 934 F.2d 8, 12 (2d Cir. 1991) (quoting Screws v. United States, 325 U.S. 91, 102, 65 S. Ct. 1031, 89 L. Ed. 1495 (1945) (plurality opinion)) (Bank Secrecy Act provision requiring reporting by financial institutions not void for vagueness when applied to an individual because the Act defined financial institutions to include "[a] person who engages as a business in dealing in or exchanging currency" and defendant knew he was "committing a wrongful act.")

The Court then found that the various counts in question were not void for vagueness.  Readers can review the opinion for more detail, but I focus here on the tax obstruction count which, unlike most Title 26 crimes, does not have a requirement that the defendant act willfully but does require that the defendant act corruptly.  The court said:

Thus, conviction pursuant to each of these statutes requires the government to prove beyond a reasonable doubt that Little acted willfully with respect to the failure to file tax returns and FBARs, and corruptly with respect to the obstruction of the internal revenue laws. As described above, the presence of this scienter requirement undercuts any due process void for vagueness challenge. Because a conviction may only be obtained only if the government proves, beyond a reasonable doubt, that the defendant knew he was legally required to file tax returns or file an FBAR, and so knowing, intentionally did not do so with the knowledge that he was violating the law, he cannot complain that he could be convicted for actions that he did not realize were unlawful. See, e.g., 3 L. Sand, et al., Modern Federal Jury Instructions, Criminal Inst. 50B-11 at 50B-16 (2013) ("A willful violation of this reporting requirement can only occur if the government proves beyond a reasonable doubt that the defendant knew of the reporting requirement and that the defendant acted with the specific intent to violate that requirement.")

The Court thus holds that the essence of the Cheek standard -- intentional violation of a known legl duty -- applies to tax obstruction, which is consistent with the holding in United States v. Kelly, 147 F.3d 172 (2d. Cir. 1998) cited earlier in the opinion for another point.

DOJ's criminal tax manual says somewhat the same, albeit obliquely (CTM 17.04 ELEMENTS OF THE OMNIBUS CLAUSE, here):

Section 7212(a) does not include any language requiring that the defendant acted willfully. The Second Circuit has upheld a district court’s refusal to give a Cheek willfulness instruction, noting that Section 7212(a) does not include that term and opining that the district court's instructions as to “corruptly” and “endeavors” were “as comprehensive and accurate as if the word ‘willfully’ was incorporated in the statute.” United States v. Kelly, 147 F.3d 172, 177 (2d Cir. 1998).

For other blogs on the relationship of the mens rea in § 7212(a) and the other Code provisions requiring willfulness, see (reverse chronological order):

• Mens Rea Element of False Claims Crime, 18 USC § 287 (Federal Tax Crimes Blog 11/19/16), here.
• Tenth Circuit Affirms a Tax Obstruction Charge (Federal Tax Crimes Blog 9/15/15), here.
• District Court Cryptically Rejects Defendant's Arguments on Instructions (Federal Tax Crimes Blog 5/25/15), here.
• Tenth Circuit Opinion on Mens Rea for Tax Obstruction - What Does Unlawful Mean? (7212(a)) (Federal Tax Crimes Blog 3/30/14), here.
• Jury Instructions in Tax Obstruction and Klein Conspiracy Case (Federal Tax Crimes Blog 2/6/13), here.

The following minute entry from the docket sheet two days after the decision discussed above was entered gives some idea as to whether the case is headed (note that Little, a lawyer, is appearing pro se but there is standby counsel):

05/05/2017 Minute Entry for proceedings held before Judge P. Kevin Castel:Pretrial Conference as to Michael Little held on 5/5/2017, as to Michael Little( Responses due by 6/16/2017, Jury Trial set for 3/19/2018 at 10:00 AM before Judge P. Kevin Castel., Pretrial Conference set for 3/7/2018 at 02:00 PM before Judge P. Kevin Castel.) Defendant appearing pro se with standby counsel, Sean Maher. AUSA Stanley Okula, Paul Krieger present.Final Pretrial Conference is scheduled for March 7, 2018 at 2:00 p.m. Trial is scheduled for March 19, 2018 at 10:00 a.m. Govt request to charge, voir dire, 404b and in limine motions due January 8, 2018. Defs response to Govt submissions and any in limine and submissions by defendant due January 22, 2018. Govt response to defs submissions due February 5, 2017. Govt to submit 3500 material by March 5, 2018. Defendant to submit motions with respect to deceased witnesses by June 2, 2017; Govt to respond by June 16, 2017. Time is excluded until the trial date of March 19, 2018. (jw) (Entered: 05/05/2017)

My principal prior blog entries on Little are (reverse chronological order):

• Another Seggerman Family Member Pleads to Charges Related to Foreign Bank Accounts (Federal Tax Crimes Blog 8/29/13), here.
• Sealed Indictments - A Primer (Federal Tax Crimes Blog 7/11/12; revised 6/29/16), here.
• British Lawyer Charged in Swiss Bank Mess Related to UBS Account (Federal Tax Crimes Blog 5/11/12), here.