Friday, November 24, 2017

On Joint Defense Agreements (11/23/17)

Today's news includes an article indicating that Michael Flynn's lawyers had withdrawn from a joint defense/common interest agreement with President Trump's lawyers with respect to the acts being investigated by the Special Counsel, Robert S. Mueller III.  See A Split From Trump Indicates That Flynn Is Moving to Cooperate With Mueller (NYT 11/23/17), here.  Key excerpts are:
Lawyers for Michael T. Flynn, President Trump’s former national security adviser, notified the president’s legal team in recent days that they could no longer discuss the special counsel’s investigation, according to four people involved in the case — an indication that Mr. Flynn is cooperating with prosecutors or negotiating a deal. 
Mr. Flynn’s lawyers had been sharing information with Mr. Trump’s lawyers about the investigation by the special counsel, Robert S. Mueller III, who is examining whether anyone around Mr. Trump was involved in Russian efforts to undermine Hillary Clinton’s presidential campaign. 
That agreement has been terminated, the four people said. Defense lawyers frequently share information during investigations, but they must stop when doing so would pose a conflict of interest. It is unethical for lawyers to work together when one client is cooperating with prosecutors and another is still under investigation. 
The notification alone does not prove that Mr. Flynn is cooperating with Mr. Mueller. Some lawyers withdraw from information-sharing arrangements as soon as they begin negotiating with prosecutors. And such negotiations sometimes fall apart. 
Still, the notification led Mr. Trump’s lawyers to believe that Mr. Flynn — who, along with his son, is seen as having significant criminal exposure — has, at the least, begun discussions with Mr. Mueller about cooperating.
See also Why Trump should be nervous, but not panicking, after Michael Flynn’s lawyers cut off communication (WAPO 11/24/17), here.

For an interesting and entertaining comment on Trump's lawyer's reaction:  Hey Y’All, Jay Sekulow May Have No F**king Clue What He’s Doing (Above the Law 11/24/17), here.  The byline for the article is:  Trump's lawyer manages to put his foot in his mouth when "no comment" would have sufficed.

I thought this would be a good opportunity to offer readers some background on joint defense agreements.  I offer here the discussion of this topic in my, now discontinued publication, Federal Tax Crimes.  I discontinued this publication after writing Chapter 12: Criminal Penalties and the Investigation Function, in the publication Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015).  Although discontinued, I think the excerpt on Joint Defense Agreements is still useful to understand the issues presented.

The key example I use in the excerpts is (footnotes omitted):
A and B are targets of a grand jury investigation.  A has engaged attorney X, and B has engaged you.  You and X are considering a JDA in which X will share with you otherwise privileged information he receives from A, and you likewise will share with X otherwise privileged information you receive from B.  A and B, and their respective attorneys, will commit under the JDA to maintain the confidentiality of the information so shared.  Is this really an attorney-client relationship between you and A?  If that is the case, can A object to your representing B if both are subsequently indicted or, worse, can the prosecutor urge that X and you are conflicted out in the criminal case because of that JDA?  Even if there is not strictly speaking a traditional full-bore attorney-client relationship between you and A, do you still have responsibilities to A with respect to using the information received from A or A’s attorney - specifically, can you use the information to benefit your client (B) even if it is adverse to A?  On a more mundane level, do you have to do a conflicts check with respect to A and will you thereafter be conflicted in future representation based upon the relationship between you and A under the JDA?  Can you continue to represent B if A’s and B’s interests diverge?  Should your client decide to plea bargain, can you bring to the negotiating table the information you learned from A (either directly or through A’s lawyer, X)?  Do you have malpractice exposure to A?
I discuss a Flynn-type situation as follows (footnotes omitted except that one footnote from a case is in the text):

Monday, November 20, 2017

Does the False Claims Crime (18 USC § 287) Require Willfulness (or Something Like It) (11/20/17)

In United States v. Gasich, 2017 U.S. App. LEXIS 22696 (7th Cir. 2017), nonprecedential, here, the Seventh Circuit affirmed the taxpayer's conviction based on their plea of guilty to one count of false claims under 18 USC § 287, here.  Before sentencing, they sought to withdraw their pleas.  They had other bases for error in not allowing them to withdraw the plea, but I focus on only the mens rea requirement in § 287.

The relevant text of § 287 is:
Whoever makes or presents to * * * any department or agency [of the United States] * * *, 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 * * * *. 
The key facts on this issue:
  • "The Gasiches are tax protestors who have been warring with the IRS for roughly twenty years."
  • They attempted the OID scam, falsely reporting that various institutions had withheld tax allowing them $475,000 in refunds.
  • They were indicted.
  • The proceeded pro se at trial.
  • Before trial, each of them decided to plead to one § 2877 count.  The explained that they had come to understand that § 287 was a "strict liability" offense.  The court appointed standby counsel for them and scheduled plea colloquies.
  • At the plea colloquies, they repeated their understanding that § 287 was a strict liability offense.  The trial court advised them that the understanding was not correct as summarized:
The court flagged this as a misconception and listed the three elements of § 287-(1) that the Gasiches made a claim; (2) that the claim was false, fictitious, or fraudulent; and (3) that they knew that the claim was false, fictitious, or fraudulent at the time they made it. Though the [Gasiches readily agreed that they understood these elements, the court continued to clarify the point in a methodical dialogue with Barbara that defined the phrases "strict liability" and "mens rea" and explained how those definitions did or did not apply to their case. After this explanation of the law, the Gasiches agreed with the government's statement of the facts: they knowingly had claimed they were entitled to funds that were not withheld in order to get the IRS off their backs for their longstanding tax liabilities. The court then accepted their pleas.
  • The Gasiches then filed a number of motions as tax protestors are wont to do.  The trial court treated them as a motion to withdraw their plea.  The trial court denied the motion.
  • The trial court sentenced each to 3 years.
  • The Gasiches appealed.
Among their arguments was that they could not have given a knowing plea when the trial court failed to advise them of a potential conflict among the Circuits as to the mens rea element.  The Seventh Circuit's resolution of their mens rea argument:
The Gasiches next argue that their guilty pleas were invalid because they did not understand the elements of § 287 when they pleaded guilty. The record contradicts this contention. The Gasiches came in with a misunderstanding that the court quickly recognized and patiently corrected. Even if the Gasiches began their colloquies not fully grasping the elements of the crime, including the required state of mind, there is no reason to suspect that the confusion persisted after the district court's extensive explanations. That is the point of the colloquy. Their statements that they understood the charge and agreed to the factual basis offered by the government are subject to a "presumption of verity" and are "not a meaningless act." United States v. Collins, 796 F.3d 829, 834 (7th Cir. 2015). 
The Gasiches also insist on appeal that they could not knowingly and voluntarily plead guilty without a full understanding of a circuit split about whether 18 U.S.C. § 287 includes an element of willfulness beyond the knowledge requirement. Compare United States v. Clarke, 801 F.3d 824, 827 (7th Cir. 2015) ("[T]he government need not prove willfulness in a § 287 case."), with United States v. Nash, 175 F.3d 429, 437 (6th Cir. 1999) (finding harmless error in district court's refusal to instruct on a willfulness element in § 287). But the district court had no duty to inform the Gasiches of the split before accepting their pleas. A plea colloquy need not seek "conscious waiver" of every potential defense. United States v. Broce, 488 U.S. 563, 573 (1989). And lack of willfulness is no defense at all in this circuit. Cf. United States v. Ranum, 96 F.3d 1020, 1025 (7th Cir. 1996) ("[T]he failure to be informed of a non-existent legal defense could not, under any circumstances, represent a fair and just reason for withdrawing the plea."). Our determination that § 287 has no willfulness element is as old as the Gasiches' twenty years of quarrels with the United States taxing authority, see United States v. Catton, 89 F.3d 387, 392 (7th Cir. 1996) (clarifying that § 287 violation does not require willfulness), and their contention that the district court was required to apprise them of the possibility of changing our position is just as meritless.
JAT Comments:

Burden of Proof on the Eighth Amendment Excessive Fines Issue (11/20/17)

I was reading again the unpublished opinion in United States v. Bussell, 2017 U.S. App. LEXIS 21189 (9th Cir. 2017), here, which I blogged earlier in Ninth Circuit Summarily Rejects Arguments Against FBAR Willful Penalty (10/27/17), here.  As I noted in the blog, the Court's bottom-line was that Bussell had "failed to carry her burden to establish that the penalty is grossly disproportional to her offense."

I want to say some more about the burden of proof issues.  The Court said earlier in the opinion:
Bussell bears the burden to prove that the fine against her violates the Constitution. See United States v. $132,245.00 in U.S. Currency, 764 F.3d 1055, 1058 (9th Cir. 2014) (explaining that the claimant has the burden of establishing that the forfeiture is grossly disproportional to the offense). Generally, "a punitive forfeiture violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant's offense." United States v. Bajakajian, 524 U.S. 321, 334, 118 S. Ct. 2028, 141 L. Ed. 2d 314 (1998).
I think the Court is referring to the burden of persuasion which is a burden related to fact finding rather than legal conclusions.  Thus, I think the Court means that the person asserting a violation of the Eighth Amendment must establish the facts by a preponderance of the evidence that are necessary for a court to conclude that the Eighth Amendment applies.

I was trying to think about what this really meant in the two types of cases in which the Eighth Amendment issue might arise in the context of the FBAR willful penalty  -- the Government's FBAR suit to reduce the assessment to judgment and the refund suit by the person who did not file or filed an incomplete FBAR.  In both of those cases, the Government bears the burden of persuasion to establish that the person acted willfully in not filing or filing incompletely.  Basically, at least in the mainstream cases, the Government's threshold burden and any defense the person would require that the facts be fleshed out as to both issues.

I suppose that burden of proof could be teed up if the person asserting the Eighth Amendment admitted willfulness so that the Government did not have to prove willfulness to sustain the penalty.  That posture would leave the factual record bare except for such factual proof as the parties entered in the case as they sparred about the Eighth Amendment issue.  Then, the person might have a risk of nonpersuasion (burden of persuasion) as to any fact that would support application of the Eighth Amendment.

And, in any event, given the limited applicability of the burden of persuasion (it only applies in the rare case where the fact finder is in equipoise as to a fact), it would seem to me that making much ado about the burden is a bit of a diversion.

What concerns me is the Court's way of expressing its holding -- "Bussell has failed to carry her burden to establish that the penalty is grossly disproportional to her offense."  Read literally, that could mean either (i) that the Court was in equipoise on some the key fact or facts or (ii) that the court was able find all relevant facts and held that the Eighth Amendment just did not apply to the facts.  In either event, Bussell would not have established that the Eighth Amendment applied.  I think that the Court probably meant the latter; if that is what it meant, it did not state precisely its holding.  The more precise holding would have been something like: On the facts found, the Eighth Amendment does not apply.

Tuesday, November 14, 2017

Another Bullshit Tax Shelter Bites the Dust (11/14/17)

In Smith v. Commissioner, T.C. Memo. 2017-218, here, the taxpayers implemented and claimed the tax benefits of a tax shelter concocted by a Houston lawyer to shelter their income upon retirement.  Professor Bryan Camp has a nice discussion of the gambit and the result in Lesson From The Tax Court: The Power Of Fact-Finding (TaxProf Blog 11/13/17), here, who described it as a "Rube Goldberg scheme," which, he confessed, "I don’t understand how this works even as I am writing it!"

While I, like Professor Bryan Camp, don't profess to understand all the machinations, I think the core idea was for the taxpayers to create a limited partnership in which they directly or indirectly owned all the partnership interests - 98% LP interests and 2% GP interests.  They contributed significant cash and marketable securities to the partnership through an interim entity, an S Corporation.  The limited partnership was allegedly created for estate planning and preservation reasons.  Without the intervention of the S Corporation, that would not be particularly noteworthy.  The S Corporation first received the assets and then contributed them to the limited partnership.  (I haven't focused on the precise order of those steps, but it is not important.)  The S corporation then, in the same year, liquidated.

The machinations resulted in the following:
  • At the beginning of the process, the taxpayers had the cash and assets.
  • At the end of the process, the taxpayers had the LP interests and, indirectly, the GP interests.
  • Between the beginning and the end the Subchapter S corporation was created and liquidated. 
The taxpayers then claimed ordinary loss deductions based on the purported tax results of the S corporation.  I confess that I did not spend the time to fully understand exactly how those results worked.  Normally, the liquidation of an S corporation generates a capital loss to the extent that the value of the assets distributed is less than the shareholders' basis in the stock.  I think, however, that the lawyer pulled of some other sleight of hand to create the appearance of an ordinary loss in the S Corporation that flowed through to the shareholders via the K-1.  The ordinary loss was needed to shelter the ordinary income that caused the taxpayers to adopt the "Rube Goldberg scheme" in the first instance.  I may not have that right, because, in my mind, it is not critical to the result in the case.

The linchpin to the planning was that the S corporation be recognized for tax purposes.  This presented the issue that bedeviled true Bullshit tax shelters -- economic substance.  The taxpayers had to convince the court that they had some real reason to create and then liquidate the S corporation in the same year without any material activity other than routing assets from the taxpayer into the limited partnership.  The taxpayers failed in that burden.  The Tax Court Judge found that their testimony as to some legitimate nontax purpose for the S corporation was not credible.  Stated otherwise, the Tax Court found that they lied about the claimed nontax business purpose.

Monday, November 13, 2017

Fifth Circuit on Bruton Confrontation Clause Issue and Deliberate Ignorance / Willful Blindness Issue (11/13/17)

In United States v. Gibson, ___ F.3d ___, 2017 U.S. App. LEXIS 22261 (5th Cir. 2017), here, a nontax case, the Court hit some themes that I have discussed before in tax cases.  In this regard, as readers know, tax crimes are merely one subset of white collar crimes.  See e.g., Geraldine Szott Moohr, Tax Evasion as White Collar Fraud, 9 Hous. Bus. & Tax Law J. 207 (2009), here.  That is why experienced white collar crimes lawyers can try criminal tax cases, even learning a little tax law along the way.  And, it works vice-versa as well.

The opinion starts off with a good summary of the issues presented (footnote omitted, but it is not Shakespeare):
"The trouble with conspiracies is that they rot internally." According to the government's cooperating witnesses, the appellants—Earnest Gibson, III (Gibson III) and his son, Earnest Gibson, IV (Gibson IV)—participated in three: one to defraud Medicare, another to pay unlawful kickbacks, and a third to launder money. A jury convicted the Gibsons for each, plus several substantive kickback counts. On appeal, the Gibsons advance sufficiency challenges and assert that the health care fraud and money laundering conspiracies merged. For his part, Gibson III argues that the district court infringed his constitutional rights by limiting one of his cross-examinations and by admitting a co-conspirator's confession, in violation of the Bruton doctrine. He also faults the trial court for giving the jury "deliberate ignorance" instructions on charges requiring specific intent. In turn, Gibson IV posits that the district court imposed too much restitution. Both appellants also invoke the cumulative error doctrine, claiming that the trial court's alleged mistakes infected the verdict. We find no reversible error and thus affirm.
The Bruton Holding:

The Bruton holding is complete, so I just cut and paste:
The Bruton doctrine addresses the thorny Sixth Amendment problem where one defendant confesses out of court and incriminates a co-defendant without testifying at their joint trial. In its landmark opinion, the Bruton Court reversed a defendant's postal robbery conviction, see 18 U.S.C. § 2114, on Confrontation Clause grounds where his non-testifying co-defendant had made "powerfully incriminating" statements against the defendant in a pretrial confession, 391 U.S. at 135-36. At trial, a postal inspector testified that the declarant twice confessed—once to say that both the declarant and the defendant committed the robbery, and again to admit to having an "an accomplice he would not name[.]" Id. at 124. Though the trial judge instructed the jury to consider the confessions against only the declarant, the Supreme Court reversed the conviction because there was a "substantial risk that the jury, despite instructions to the contrary, looked to the incriminating extrajudicial statements in determining petitioner's guilt[.]" Id. at 126.

The Birkenfeld Prosecution, Conviction and Sentence (11/13/17)

When I read the decision in Birkenfeld v. Olenicoff, 2017 Cal. App. Unpub. LEXIS 7675 (Cal. Ct. App. 4th Dist. Div. 3 2017), which I blogged earlier today, Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (Federal Tax Crimes Blog 11/13/17), here, I decided to revisit the Birkenfeld criminal conviction and sentencing saga.  Long-term readers of this blog know that Birkenfeld broke the logjam of secrecy that let to the U.S. initiative against UBS and the Swiss Banks assisting U.S. taxpayers evade U.S. tax.  He was rewarded handsomely ($104 million in whistleblower award) for the information he provided.  He was hailed as Tax Analysts Person of the Year.  See Birkenfeld is Tax Analysts Person of the Year (Federal Tax Crimes Blog 1/1/2010), here.  He also was prosecuted, convicted by plea agreement, and sentenced to 40 months. 

I wanted to look at his prosecution, conviction and sentencing to see why the person of the year was prosecuted in the first place and then sentenced to such a significant term.

I think the story is told in the transcript of the sentencing hearing, here.  I provide the key excerpts, which are lengthy, from the transcript below, but I thought I would summarize the key points.

1.  The Government -- through Kevin Downing (yes, that one) -- acknowledged that Birkenfeld was the key that gave the Government the opportunity and means to bring the Swiss banks to justice and to identify many U.S. taxpayers playing the offshore account game with Swiss banks.

2.  The Government says, however, that Birkenfeld was not truthful or forthcoming about his role with Olenicoff.  That was the reason that he was prosecuted in the first place and that the Government requested a 5K1 downward departure to 30 months.

3.  Based on that Birkenfeld's role in the Swiss bank initiative, Birkenfeld's lawyer requested a downward 5K1 departure to a probation range and sentencing to probation.

4.  The judge sentenced Birkenfeld to 40 months.  (JAT Note: I think it is somewhat unusual that the judge sentenced above the months recommended by the Government.)

5.  Booker, variance and vary are not mentioned, so the sentencing was based on the Guidelines and an appropriate 5K1 departure.

The following excerpts are the ones I think are important, although the whole transcript is available).

Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (11/13/17)

In my periodic sweep for new cases for my blogs and publications, I came across Birkenfeld v. Olenicoff, 2017 Cal. App. Unpub. LEXIS 7675 (Cal. Ct. App. 4th Dist. Div. 3 2017), here.  The names are probably familiar with many, perhaps most, readers of this blog.  Birkenfeld was the guy who spilled the beans on UBS and broke the information logjam that permitted the U.S. juggernaut against UBS and other Swiss banks.  Olenicoff was a very wealthy U.S. taxpayer who was convicted for his unreported offshore bank activities.  As I understand it, Olenicoff put Birkenfeld on the U.S. radar screen and Birkenfeld extrapolated a form of success ($104 million in whistleblower award) as well as the punishment for some of his tax crimes with a prosecution, conviction and 40 month sentence.

At any case, when people suffer misfortunes of public disgrace and punishment, they often look for scapegoats.  Olenicoff started the ball rolling.  Olenicoff sued UBS AG, Birkenfeld and an assorted cast of characters related to the offshore account activity for which Olenicoff was convicted.  Olenicoff lost that gambit.  Olenicoff v. UBS AG, 2012 U.S. Dist. LEXIS 57360 (CD Cal. 2012), here.  Basically, in that case Olenicoff sued his co-conspirators in crime alleging all sorts of skullduggery on their parts and seeking to whitewash his own conduct.  The flavor of the court's reaction in dismissing the case can be appreciated from this single comment:  "Like a bad foundation undermining a building's structure, Olenicoff's Plea Agreement places nearly every room of his legal house of cards into jeopardy."  Of course, any time there is a legal proceeding, the prevailing parties incur fees which are often substantial in defending a case that should not have been brought in the first instance.

That leads us to the next and, hopefully, final steps in this drama.

UBS and Birkenfeld then, in separate actions, sued Olenicoff for malicious prosecution and related claims from Olenicoff's earlier failed suit against them.  UBS and Birkenfeld's suits failed for variations on the theme of unclean hands. As to UBS, see Janet Novack, UBS Too Dirty To Sue Billionaire Offshore Tax Cheat, Judge Rules (Forbes Personal Finance 7/28/15), here.  The case cited at the beginning of the blog relates to Birkenfeld's case.  Birkenfeld claimed to have spent $350,000 to $400,000 defending the case Olenicoff brought.  The court of appeals sustained the trial court's holding that Birkenfeld's suit was barred by the unclean hands defense.  At the start of its analysis, the court of appeals projects it holding:
The conduct engaged in by Birkenfeld is, without question, bad and satisfies the unconscionable, bad faith, or inequitable conduct requirement of the unclean hands doctrine. Birkenfeld does not contend otherwise and candidly acknowledges that he and Olenicoff were "partners in crime."

Monday, November 6, 2017

ICIJ Offers a New Trove of Offshore Activity Documents -- the Paradise Papers (11/6/17)

The International Consortium of Investigative Journalists (ICIJ) has struck again, disclosing a cache is new documents disclosing offshore activity of the rich and famous.  ICIJ calls the new cache of documents the Paradise Papers (which distinguishes it from the old cache, the Panama Papers, and from future caches).  The ICIJ web page for the Paradise Papers, here.

A helpful ICIJ introductory video is here.

The Wikipedia page is here.

BBC has a good piece "Paradise Papers: Tax haven secrets of ultra-rich exposed," here.

Offshore activity of the type disclosed in the Paradise Papers is not necessarily illegal.

My guess is that somewhere somehow related to these disclosures will be whistleblower claims.  Readers of this blog already have been introduced to the U.S. tax whistleblower regime in § 7623(b) that can be quite lucrative for whistleblowers -- 15-30% of collected proceeds.

A sensitive issue for whistleblowers is whether, in blowing the whistle, they violate U.S. law or non-U.S. laws (such as bank secrecy laws, etc.).  A related issue for whistleblowers affiliated with professional firms (such as law firms and accounting firms) whether they violate professional standards.  In either event U.S. Government agencies receiving such disclosures will be very concerned that the agencies not be viewed as affirmative actors in the violation of non-U.S. laws or professional standards.  And, if the whistleblower is violating legal or ethical standards, the U.S. Government agencies may not act, unless there is some affirmative support (such as the attorney-client crime-fraud exception).  For example, if the whistleblower is a lawyer, the IRS will be keenly interested in whether the attorney-client privilege is implicated with respect to the information and documents disclosed and may not use the disclosed information until they are assured the there is no taint that would prevent the use.  Those of us who have worked through the traps and landmines in this area know that anticipating and addressing these concerns are key to successfully getting to the goal of a whistleblower award.

Seventh Circuit Reverses Conviction in Tax Case Presided Over by Judge Posner (11/6/17)

United States v. El-Bey, 2017 U.S. App. LEXIS 20897 (7th Cir. 2017), here, is interesting because (i) it is a tax case, (ii) the Seventh Circuit reverses the conviction for improper remarks of the trial judge, and (iii) the trial judge was Richard Posner, then a Seventh Circuit judge designated as trial judge for the case.

Many -- but I hope, not too many -- readers of this blog might ask, so who is Judge Posner? His Wikipedia page is here.  He is generally considered a giant in the law because of his many judicial and extrajudicial contributions over a long period of time -- from his appointment to the Seventh Circuit in 1981 through his retirement in 2017.  In the law courses I formerly taught on Federal Tax Procedure and Federal Tax Crimes, I routinely required students to read some Judge Posner opinions because he is so articulate, moves quickly to the point and presents his reasoning so well.  He is not uncontroversial, though.  And this case shows him not at his best, but I believe it is an outlier over a very long and distinguished career.  (By the way, Judge Posner is a rare appellate judge who actually tried cases from time to time and for that, in my estimation, he is to be greatly commended; appellate judging is a lot different than trial judging; I am not sure that appellate judges always appreciate the dynamics of trying a case where there are so many opportunities for mistakes by the judges and the lawyers; trial judges make dozens, sometimes hundreds, of decisions, large and small, every day in a trial and often cannot slow down the course of trial to craft the best decision.)

In El-Bay, the defendant was charged with mail fraud and failse claims arising from false tax returns claiming $1.8 million in refunds, of which he received $600,000.  Defendant represented himself at trial and was a difficult litigant.  Defendant apparently pushed Judge Posner past his snapping point, causing Judge Posner to say some inappropriate things that suggested to the jury that defendant was dishonest and lacked credibility, thus denying defendant a fair trial.  Hence, the Seventh Circuit panel (Judges Wood, Manion and Williams) reversed in a per curiam opinion (meaning the author is not named).  The key discussion in the opinion is (footnote omitted):
It is clear from the transcript of the trial court proceedings that El-Bey was a difficult litigant. He filed numerous irrelevant motions, disregarded court instructions, and often inappropriately interrupted the district court to express disagreement and dissatisfaction. Nonetheless, we agree with El-Bey that the district court's remarks during cross-examination of the government's first witness conveyed bias regarding his dishonesty or guilt. The district court interrupted El-Bey at the beginning of his cross-examination, stating, "Look, paying taxes is not voluntary." When El-Bey noted that he was only reading what the document stated, the district court remarked "Come on"—a statement "laced with skepticism." United States v. Martin, 189 F.3d 547, 554 (7th Cir. 1999). The district court continued with further remarks in the presence of the jury reflecting upon El-Bey's dishonesty or guilt, stating, "You don't pay your tax, you go to jail," and "I'm going to kick you out if you keep on with this nonsense." While the government contends that the district court's statements were merely meant to remind El-Bey that his sovereign citizen views were not permitted at trial, the purpose of the comments cannot eliminate the bias conveyed to the jury by the remarks here. The court's statements that one who does not pay taxes goes to jail and that El-Bey was acting in a nonsensical manner indicated bias about El-Bey's guilt or honesty to the jury. Contra id. (no bias in district court's questioning of witness where "district judge was firm, but not harsh or abusive in any way [and] [t]he questions were not laced with skepticism and they gave no indication as to the judge's thoughts about [the defendant's] honesty or dishonesty"). 
We also find that these comments seriously impaired El-Bey's credibility as a pro se defendant in the eyes of the jury. "Federal district judges are busy people and they get irritated when lawyers waste their time and that of jurors, witnesses, and other lawyers. It is unfortunate, but it is inherent in an adversary system, that the cost of this irritation is likely to be borne primarily by the [defendant]." Cooper v. Casey, 97 F.3d 914, 919 (7th Cir. 1996). Reversible error occurs "when the judge so impairs the lawyer's credibility in the eyes of the jury as to deprive the client of a fair trial." Id. While a district court "must often confront courtroom behavior by attorneys which is deserving of censure, ... the judge's role in the exchange [here] went far beyond the correction of an alleged misstatement." United States v. Spears, 558 F.2d 1296, 1298 (7th Cir. 1977). The district court's admonishments of El-Bey and threat to eject him from court occurred in the presence of the jury and "so discredited him in the eyes of the jury that he could not have remained an effective spokesman for hi[mself.]" Id. (finding reversible error where district court admonished defense counsel by stating counsel's statements during closing were "absurd and bordering upon a lie" and threatening to fine counsel for contempt in the presence of the jury). This harm was exacerbated by the fact that the admonishment was not directed toward defense counsel and indirectly imparted upon the defendant, but, instead, was aimed directly at the defendant while he was exercising his constitutional right to defend himself.

Ninth Circuit NonTax Case on Good Faith Defense and Objective Reasonableness (11/6/17)

Federal tax crimes usually require that the defendant have acted willfully, with intent to violate a known legal duty.  Cheek v. United States, 498 U.S. 192 (1991).  A good faith subjective belief that there is no legal duty is a defense, because, by definition, such a belief, if found to exist, means the Government has not establish that the defendant intended to violate a known legal duty.  The good faith belief need not be objectively reasonable, but the objective reasonableness of the belief can be considered by the factfinder in determining whether the defendant had the subjective belief.  This is all well-known law in the tax context.

I recently read United States v. Wallen, 2017 U.S. App. LEXIS 21173 (9th Cir. 2017), here, an appeal from a conviction for "killing three grizzly bears in violation of the Endangered Species Act."  The elements of the crime, as recounted by the Court, are:
(1) the defendant knowingly killed a bear; (2) the bear was a grizzly; (3) the defendant did not have permission to kill the bear; and (4) the defendant did not act in self-defense or in the defense of others.
With respect to the fourth element, the statute, 16 U.S.C. § 1540(b)(3), says:
Notwithstanding any other provision of this chapter, it shall be a defense to prosecution under this subsection if the defendant committed the offense based on a good faith belief that he was acting to protect himself or herself, a member of his or her family, or any other individual, from bodily harm from any endangered or threatened species.
On appeal, as in Cheek, the parties "dispute whether the 'good faith belief' standard requires an objectively reasonable belief, as the government argues, or requires only a subjective belief in the need to protect oneself or others, as Wallen maintains."  The Court further explains:
Congress added the good faith belief defense in 1978, after an elderly couple was prosecuted for killing a grizzly bear that had threatened them. See 124 Cong. Rec. 21,584 (1978). But neither the statute nor the regulations say whether the requisite "good faith belief" must be objectively reasonable, see 16 U.S.C. § 1540(b)(3); 50 C.F.R. § 17.40(b)(1)(i)(B), and we are unaware of any binding case law addressing that question. We now hold that a subjective good faith belief suffices to establish self-defense under this statute.
In explaining its conclusion, the Court of course relied upon the text of the statute and cited prominently to Cheek and to Cheek's holding that, although objective reasonableness will not preclude a good faith belief, objective reasonableness or unreasonableness of the belief can be considered in determining whether the defendant in fact had a subjective good faith belief.  I  found the following a pretty good discussion of the concept:
We emphasize that, although the ultimate question is whether a defendant held a subjective good faith belief, the objective reasonableness (or unreasonableness) of a claimed belief bears directly on whether that belief was held in good faith. We and the Supreme Court have already said as much. In Cheek, 498 U.S. at 203-04, when assessing the petitioner's claimed belief that he was in compliance with the tax code, the Supreme Court explained that "the more unreasonable the asserted beliefs or misunderstandings are, the more likely the jury will consider them to be nothing more than simple disagreement with known legal duties imposed by the tax laws." Similarly, in Powell, 955 F.2d at 1212, we held the jury was "not precluded from considering the reasonableness of the interpretation of the law in weighing the credibility of the claim that the [defendants] subjectively believed that the law did not require that they file income tax returns." We have also recognized this principle in maritime cases that turn on "whether the seaman[] in good faith believed himself fit for duty when he signed aboard for duty." Burkert v. Weyerhaeuser S.S. Co., 350 F.2d 826, 831 (9th Cir. 1965). In Burkert, the "crucial fact issue before the court was whether or not there existed reasonable grounds to support [a seaman's] belief that he was fit for duty. The absence of such reasonable grounds would support a finding that [he] did not believe, in good faith, that he was fit for duty." Id. 
Under the Endangered Species Act, the reasonableness of a belief that an endangered animal posed a threat is likewise strong evidence of whether the defendant actually held that belief in good faith. Consider the example of a person who goes to the zoo, shoots all the endangered animals and then claims he believed the animals otherwise would have escaped and attacked him. The unreasonableness of the asserted belief should matter in a subsequent prosecution under the Endangered Species Act, as that unreasonableness casts significant doubt on the sincerity of the claimed belief. 
In sum, we hold the "good faith belief" defense under § 1540(b)(3) is available to defendants who, in good faith, subjectively believe they or others are in danger. A factfinder "is not precluded from considering the reasonableness" of this belief "in weighing the credibility of the claim," but that factfinder "may not substitute its own determination of objective reasonableness . . . [for] what the defendant subjectively believed." Powell, 955 F.2d at 1212. This means that traditional aspects of a self-defense claim — such as the immediacy of the threat, whether the defendant provoked the conflict or the amount of force used, see LaFave, supra, § 10:4(b), (d), (e) — may be considered for the purpose of determining whether a claimed belief was held in good faith. The standard is subjective, but the objective reasonableness of the defendant's claimed belief is relevant to the factfinder's assessment of the sincerity of that claim. 

Sunday, November 5, 2017

Court Rejects Braswell Claim That Government Questions Violated Braswell (11/5/17)

In  Braswell v. United States, 487 U.S. 99 (1988), here, the Court dealt with the tensions between the Fifth Amendment act of production doctrine, which gives Fifth Amendment protection to the testimonial aspects of the act of production, and the investigative need to obtain corporate records which are per se not subject to the privilege (both because the corporation has no Fifth Amendment privilege and documents generally are not subject to the Fifth Amendment privilege).  Outside the corporate document setting, the tensions are resolved by denying the Fifth Amendment privilege for existing voluntarily produced documents but recognizing the right of the person in possession of the documents to assert the Fifth Amendment privilege as to any testimony inherent in the act of producing the documents.  That is called the act of production doctrine.  If the custodian of corporate documents could assert the Fifth Amendment privilege via the act of production doctrine, investigative agents and courts might be stymied is determining truths.  Braswell resolved the tension by holding that the custodian may not assert the act of production to prevent having to produce the documents, but the Government could not use the testimony inherent in the act of production against the custodian.  (In effect, this is a form of use and derivative use immunity for the testimonial aspects of the act of production.)

In United States v. Stegman, 2017 U.S. App. LEXIS 20598 (10th Cir. 2017), here, the Tenth Circuit denied a Braswell claim of improper use by the prosecutor questioning the agent about the corporate records.  The records had been summonsed in the investigation.  The defendant, the custodian and owner of the corporation, produced the records pursuant to the summons.  In questioning the agent, the Government asked whether the documents were the defendant's ledgers that she controlled.  The defendant argued on appeal that this question violated the Fifth Amendment act of production privilege with respect to her production  of the records.  I quote the Court's opening discussion of Braswell and then the resolution of defendant's claim on appeal:
1. The holding in Braswell 
The Supreme Court granted certiorari in Braswell to address "the question whether the custodian of corporate records may resist a subpoena for such records on the ground that the act of production would incriminate him in violation of the Fifth Amendment." 487 U.S. at 100. The Supreme Court "conclude[d] that he may not." Id. In reaching this conclusion, the Court began by noting that corporations "are not protected by the Fifth Amendment." Id. at 102. More specifically, the Court noted that it "ha[d] long recognized that, for purposes of the Fifth Amendment, corporations and other collective entities are treated differently from individuals." Id. at 104. This collective entity rule, the Court noted, mandated "that without regard to whether [a] subpoena is addressed to the corporation" or "to the individual in his capacity as a custodian, a corporate custodian . . . may not resist a subpoena for corporate records on Fifth Amendment grounds." Id. at 108-09 (citations omitted). The Court then contrasted this with sole proprietorships and noted that sole proprietors are entitled to "show that [an] act of production [of proprietorship documents] would entail testimonial self-incrimination." Id. at 104. 
In a passage relevant to the case at hand, the Court explained the proper and improper uses of corporate records produced pursuant to a subpoena: 
Although a corporate custodian is not entitled to resist a subpoena on the ground that his act of production will be personally incriminating, we do think certain consequences flow from the fact that the custodian's act of production is one in his representative rather than personal capacity. Because the custodian acts as a representative, the act is deemed one of the corporation and not the individual. Therefore, the Government concedes, as it must, that it may make no evidentiary use of the "individual act" against the individual. For example, in a criminal prosecution against the custodian, the Government may not introduce into evidence before the jury the fact that the subpoena was served upon and the corporation's documents were delivered by one particular individual, the custodian. The Government has the right, however, to use the corporation's act of production against the custodian. The Government may offer testimony—for example, from the process server who delivered the subpoena and from the individual who received the records—establishing that the corporation produced the records subpoenaed. The jury may draw from the corporation's act of production the conclusion that the records in question are authentic corporate records, which the corporation possessed, and which it produced in response to the subpoena. And if the defendant held a prominent position within the corporation that produced the records, the jury may, just as it would had someone else produced the documents, reasonably infer that he had possession of the documents or knowledge of their contents. Because the jury is not told that the defendant produced the records, any nexus between the defendant and the documents results solely from the corporation's act of production and other evidence in the case. 
Id. at 117-18 (footnote omitted). 
* * * * 
3. Analysis 
Stegman argues on appeal that "[t]he prosecutor . . . violated Braswell by asking [the] witness to agree 'that those are Ms. Stegman's ledgers that she controlled.'" Aplt. Br. at 14 (quoting Aplt. App. at 3062-64). In other words, Stegman argues, "[t]he prosecutor blatantly attributed the records to [her], not the corporation." Id. at 33 (emphasis in original). Stegman in turn argues that "[b]ecause inter alia the Government used these ledgers to advance its allegation that [she] used whiteout before disclosing documents to the IRS, the Government cannot prove that this was harmless beyond a reasonable doubt." Id. at 14. 
Contrary to Stegman's assertions, however, we conclude that the prosecutor's questions did not violate Braswell. Specifically, the prosecutor did not ask the witness whether Stegman was the one who the compulsory summons was served upon or the one who delivered the requested ledgers to the government. Rather, the prosecutor asked the witness only who owned or controlled the ledgers and the witness testified simply that he assumed the ledgers belonged to Stegman. Thus, the questions did not violate the prohibition outlined in Braswell. It is also worth noting, as the district court did in overruling Stegman's contemporaneous objection, that nothing about the questions or the response was particularly significant, given the other evidence that was presented at trial establishing that Stegman was in complete control of Midwest and had prepared the ledgers at issue. 
In sum, then, we conclude that the prosecutor's questions and the witness's response did not violate Stegman's Fifth Amendment privilege against self-incrimination.

Wednesday, November 1, 2017

Tax Aspects of the Manafort and Gates Indictment Obtained by Special Counsel Mueller's Office (11/1/17)

Readers of this blog will almost certainly have been exposed to news about the indictment that Special Counsel Mueller's office obtained against Paul Manafort and Rick Gates.  See e.g., Richard Gordon, Manafort is the Tip of the Iceberg (NYT Op-Ed 10/20/17), here, (Gordon, by the way is a law professor who, according to the article, is a "tax professor who specializes in anti-money laundering.")  Many of the articles said that tax fraud was a core claim in the indictment.  But, this is not a typical tax crimes indictment.

I thought it might be helpful to readers, particularly students, to focus on the tax allegations on the indictment.  A copy of the indictment is here.

  • COUNT ONE (Conspiracy Against The United States - 18 U.S.C. § 371)
  • COUNT TWO (Conspiracy To Launder Money - 18 U.S.C. § 1956(h))
  • COUNTS THREE THROUGH SIX (For Manafort - Failure To File Reports Of Foreign Bank And Financial Accounts For Calendar Years 2011-2014 - 31 U.S.C. §§ 5314 and 5322(b); 18 U.S.C. § 2)
  • COUNTS SEVEN THROUGH NINE (For Gates - Failure To File Reports Of Foreign Bank And Financial Accounts For Calendar Years 2011-2013)(31 U.S.C. §§ 5314 and 5322(b ); 18 U.S.C. § 2)
  • COUNT TEN (Unregistered Agent Of A Foreign Principal - (22 U.S.C. §§ 612 and 618(a)(l); 18 U.S.C. § 2))
  • COUNT ELEVEN (False and Misleading FARA [Foreign Agents Registration Act] Statements - 22 U.S. C.§§ 612, 618(a)(2); 18 u.s.c. § 2))
  • COUNT TWELVE (False Statements - 18 U.S.C. §§ 2, 1001(a)

What is not in the indictment is a Court for a Title 26 tax crime.  There is some nuance here related to the conspiracy counts, both the general conspiracy count (Count 1) and the money laundering conspiracy count (Count 2) which are Title 18 counts, that can in some cases relate to conduct where the gravamen of the crime is a tax crime.  I will get into a discussion of that nuance later.