Case with Good Discussion of Venue for Tax Evasion Charges (12/10/17)

In United States v. Michael Sang Han, 2017 U.S. Dist. LEXIS 198609 (D. D.C. 12/1/17) (Criminal Action No. 15-142 (JEB)), which I do not link because I provide everything relevant to this post in the post), the Court starts the opinion with this introduction:

Defendant Michael Han allegedly promised investors that his company Envion would usher in a black gold rush by turning plastic back into oil. According to the Government, although that concept never materialized, it did not stop Han from stringing along his financers, ultimately defrauding them out of nearly $40 million. With trial a couple of months away, Defendant now brings several Motions challenging the validity of the Indictment. Specifically, he asks the Court to: (1) require the Government to provide a bill of particulars; (2) dismiss Counts 10 and 11 as lacking venue [for the tax evasion counts]; (3) dismiss Count 12 for first-degree fraud as duplicative of the wire-fraud charges (Counts 1 and 2); and (4) dismiss Count 3 for securities fraud as failing to state an offense. Finding no merit in any of these positions, the Court will deny all of the Motions.

I offer here the Court's discussion of the disposition of the tax evasion venue motion.  Students of tax crimes should find it useful.  I think the Court's discussion is pretty good.  However, for those who want more background and context, I offer here the venue chapter from the latest working draft of my Federal Tax Crimes book which is good through about 2015 and is still good on venue.  (That book is now discontinued because I offer a substantially overlapping Chapter on tax crimes in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015).)

The Court's tax evasion venue discussion in Han is as follows:

B. Venue (Counts 10 and 11) 

Han next moves to dismiss the tax-evasion counts (10 and 11) on the ground that venue is not proper in the District. See ECF No. 45. The Government has a choice of forum in which to prosecute but still ultimately bears the burden of establishing proper venue by a preponderance of the evidence. See United States v. Lam Kwong-Wah, 924 F.2d 298, 301 (D.C. Cir. 1991). The Court views such evidence in the light most favorable to the Government when determining whether it has done so. Id. 

The Indictment charges Han with violations of 26 U.S.C. § 7201, the prosecution of which requires a willful "affirmative act constituting an evasion or attempted evasion of" a tax deficiency. Sansone v. United States, 380 U.S. 343, 351 (1965). Tax evasion is a continuing offense, meaning that it may be prosecuted in any jurisdiction "through which a process of wrongdoing moves." United States v. Johnson, 323 U.S. 273, 276 (1944); see also 18 U.S.C. § 3237(a) (allowing for "any offense against the United States [that is] begun in one district and completed in another, or committed in more than one district" to be "prosecuted in any district in which such offense was begun, continued, or completed"). The offense is not completed until the person's tax return is filed, signed, and mailed, but it begins whenever the defendant makes a "willful attempt to defeat and evade" tax liability. Spies v. United States, 317 U.S. 492, 499 (1943). Venue is thus proper in any district where the defendant "beg[a]n, continued, or completed" an affirmative act with a "tax evasion motive." United States v. Strawberry, 892 F. Supp. 519, 521 (S.D.N.Y. 1995). 

Here, Han argues that § 7201 requires that he commit an act while actually present in the District, which he believes the Government has not sufficiently alleged. Defendant is correct that the Indictment does not state that Han committed any act with a tax-evasion motive while in D.C. Instead, it alleges that he (1) "cause[d]" a fax to be transmitted "from the District directing the transfer of $20 million to" his personal bank account, see Indictment, ¶ 46, and (2) provided false information to Envion bookkeepers who were located in D.C., which resulted in the creation of false business records. Id., ¶¶ 52, 54. Han acknowledges that the Indictment contains information that he interacted with individuals within the District but contends that he "cannot be subject to venue in the District of Columbia due to the alleged acts of a third party." ECF No. 57 (Reply) at 4; see Mot. at 2 (noting that Indictment "claims that [he] concealed information from, or misled, unnamed Envion employees who were allegedly located in the District of Columbia for some period of time").

To determine proper venue absent a statutory directive, "a court must initially identify the conduct constituting the offense (the nature of the crime) and then discern the location of the commission of the criminal acts." United States v. Rodriguez-Moreno, 526 U.S. 275, 279 (1999). As to the conduct, the Supreme Court in Spies noted that since "Congress did not define or limit the methods by which a willful attempt to defeat and evade [taxes] might be accomplished," it would not do so either. See 317 U.S. at 499. Instead, the Court gave an illustrative list of acts from which "affirmative willful attempt may be inferred[,]. . . such as keeping a double set of books, making false entries of alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal." Id. (emphasis added). The essential conduct, therefore, is any affirmative act with a "tax-evasion motive." Spies, 317 U.S. at 499..
According to Han, however, the Government comes up short on the second part of the venue inquiry — viz., the location of the crime. He argues that tax evasion requires that the defendant himself commit such an act in the jurisdiction of venue. Venue doctrine, however, is not so circumscribed. 

The Supreme Court has long recognized that "there may be a constructive presence in a state, distinct from a personal presence, by which a crime may be consummated." Hyde v. United States, 225 U.S. 347, 362 (1912), superseded on other grounds by Pena-Rodriguez v. Colorado, 137 S. Ct. 855 (2017). Particularly when an offense (like tax evasion) is a continuing offense, Congress can "provide that the locality of a crime shall extend over the whole area through which force propelled by an offender operates." United States v. Johnson, 323 U.S. 273, 275 (1944); see 18 U.S.C. § 3237(a) (continuing-offense venue provision). The focus for venue purposes, therefore, is on the conduct not the actor. See Johnson, 323 U.S. at 276 (holding that continuing offenses can be prosecuted in "any criminal court of the United States through which a process of wrongdoing moves"); Spies, 317 U.S. at 499 (defining punishable tax-evasion conduct as any acts "the likely effect of which would be to mislead or to conceal"). 

The cases upon which Defendant relies support the same conclusion. For example, Han selectively cites United States v. Martino, No. 100-389, 2000 WL 1843233, at *2 (S.D.N.Y. Dec. 14, 2000) ("In tax cases such as this, the government generally must show that the defendant engaged in some affirmative act in this district with a tax evasion motive."). The next paragraph, however, clarifies that such "affirmative acts" include "any district where the tax preparer received false information from the taxpayer." Id. The key in Martino, as in Spies and Johnson, is whether the defendant's act in furtherance of tax evasion "propelled" through the district. Johnson, 323 U.S. at 275; see United States v. McGill, 964 F.2d 222, 230 (3d Cir. 1992) ("An affirmative act is anything done to mislead the government or conceal funds to avoid payment of an admitted and accurate deficiency."); cf. Hyde, 225 U.S. at 356-67 (venue proper in district where co-conspirator carried out overt acts even if defendant never entered the district). 

Despite the Supreme Court's seemingly boundless formulation of venue, common sense and notions regarding "the fair administration of criminal justice and public confidence in it," Johnson, 323 U.S. at 276, suggest there must be some limiting principle. Otherwise, "a defendant who devised a scheme to defraud while driving across the country could be prosecuted in virtually any venue through which he passed." United States v. Ramirez, 420 F.3d 134, 145 (2d Cir. 2005); see United States v. Smith, 641 F.3d 1200, 1208 (10th Cir. 2011) (venue for false-statements-to-government-agent offense not proper in Oklahoma simply because statements were about events that occurred in Oklahoma). The Supreme Court has, accordingly, explained that venue is proper in any location where the offense's "essential conduct elements" occurred. Rodriguez-Moreno, 526 U.S. at 280. Lower courts have embodied this guidance in varying formulations. See United States v. Auernheimer, 748 F.3d 525, 537 (3d Cir. 2014) (venue proper in "location in which a crime's effects are felt"); United States v. Bowens, 224 F.3d 302, 313 (4th Cir. 2000) ("When Congress defines the essential conduct elements of a crime in terms of their particular effects, venue will be proper where those proscribed effects are felt."); United States v. Reed, 773 F.2d 477 (2d Cir. 1985) (venue proper in "sites other than where the [defendant's] acts occurred" if conduct had substantial contact with district); United States v. Williams, 788 F.2d 1213, 1215 (6th Cir. 1986) (adopting Reed substantial-contacts test); United States v. Brimberry, 779 F.2d 1339, 1345 (8th Cir. 1985) (holding that in bankruptcy-fraud case venue proper in district where bankruptcy proceeding is located even if fraudulent acts never occurred there). 

The "essential conduct element[]," Bowens, 224 F.3d at 313, of § 7201 is the evasion of a tax deficiency. By allegedly providing false information to Envion employees in D.C., which was then used to construct corporate and individual tax returns, Han committed a "willful attempt to defeat and evade" tax liability. Spies, 317 U.S. at 499. Similarly, the Indictment's allegation that Han caused a fax to be transmitted from D.C., directing the deposit of the $20 million into his personal bank account without counting those funds as income, is "conduct, the likely effect of which would be to mislead or to conceal." Id. It is thus irrelevant that Defendant was not actually present here when the acts he directed occurred. That alleged conduct "bear[s] substantial contacts," United States v. Saavedra, 223 F.3d 85, 93 (2d Cir. 2000) (citation omitted), with D.C., making venue proper here. 

Defendant alternatively argues that, even if his communications with Envion bookkeepers suffices as an affirmative act, it is irrelevant to his individual tax liability. The alleged conduct, however, resulted in both false corporate and individual records. As his employer, Envion was presumably responsible for constructing Han's W-2 information. If he falsely recorded income as business loans, his W-2 — upon which his accountant undoubtedly relied in completing his tax returns — would also be false. The Indictment, therefore, sufficiently alleges conduct in the District with a tax-evasion motive to support venue here.