Tuesday, May 15, 2018

Special Counsel Opposes Motion to Dismiss FBAR Count as Untimely Because of Secret 18 USC 3292 Order (5/15/18)

Paul Manafort filed a motion to dismiss the FBAR count, Count 11 of the superseding indictment, here, in the case in E.D. Virginia, United States v. Manafort (E.D. Va. No. 1:18-cr-83 (TSE)).  The argument was the the statute of limitations prevented that count.  As described in the superseding indictment:

COUNTS 11-14: 31 U.S.C. §§ 5314 and
5322(a); 18 U.S.C. §§ 2 and 3551 et seq.
Failure To File Reports Of Foreign Bank
And Financial Accounts

Count 11 was for failure to file the FBAR for 2011, due on June 29, 2012.  The statute of limitations is 5 years (18 USC 3282(a), here), which had lapsed on June 29, 2017.  The original indictment was brought on February 13, 2018, and the superseding indictment brought on February 22, 2018.  The indictment was clearly out of time unless some special rule applied.  And it did.  As the prosecutors explained in its response to the motion, here (and Exhibit A here):
Section 3292(a)(1) of Title 18 suspends the running of the statute of limitations where the government, before the return of an indictment, applies to a court in which a grand jury is investigating the offense to suspend the running of the statute of limitations because evidence of the offense being investigated is in a foreign country. In connection with that application, the government must show, by a preponderance of the evidence, that “an official request has been made for such evidence and that it reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country.” 18 U.S.C. § 3292(a)(1). If the government is successful in making that showing, the running of the applicable statute of limitations is suspended from “the date on which the official request is made” until “the date on which the foreign court or authority takes final action,” id. § 3292(b), though the suspension may not exceed three years, id. § 3292(c).
Because the government secured a timely and valid order in this District to suspend the running of the applicable statute of limitations until at least the date on which the Superseding Indictment was returned, Manafort’s motion should be denied. On June 6, 2017, the government transmitted a request pursuant to a mutual legal assistance treaty (“MLAT”) to the Republic of Cyprus seeking, among other evidence, bank records, articles of incorporation, and witness interviews concerning certain of Manafort and Richard Gates’s bank accounts in Cyprus.  
On June 26, 2017, the government applied, ex parte, to this Court for an order pursuant to 18 U.S.C. § 3292 to suspend the applicable statute of limitations in light of the government’s MLAT request to Cyprus. This Court (Hilton, J.) granted the government’s request on June 27, 2017, thus suspending the applicable statute of limitations during the pendency of the government’s official request to Cyprus. See In Re Grand Jury Investigation, No. 14 GJ 1420 (E.D.V.A. June 27, 2017) (attached hereto as Exhibit A). As found by Judge Hilton, a grand jury impaneled in this District was conducting an investigation into, as relevant here, the flow of foreign money to Manafort, DMP International, Davis Manafort Partners, Smythson LLC, and Jesand Investment Corporation, and into subject offenses that included potential violations of 31 U.S.C. §§ 5314 and 5322(a) (Failure to File a Report of Foreign Bank Accounts). Judge Hilton further found, based on a preponderance of evidence, that evidence of such offenses was located in Cyprus and that the government had made an “official request” to Cyprus for that evidence under 18 U.S.C. § 3292(d) on June 6, 2017. Having found the requirements of Section 3292 satisfied, Judge Hilton ordered that the statute of limitations be suspended for the FBAR offenses, among others, for the period authorized by Section 3292(c). 
Because Cyprus had not taken “final action” on the government’s June 6, 2017 official request at the time the Superseding Indictment was returned, the statute of limitations remained suspended. Specifically, Cyprus produced documents in response to the government’s June 6 request on September 6, 2017; October 2, 2017; November 1, 2017; and April 30, 2018. Several of the items requested in the June 6, 2017 request remained outstanding at least until the time of the April 2018 production. For example, on December 8, 2017—before Cyprus’s most recent production—the government wrote to Cypriot authorities to renew its June 6, 2017 request (and a related request made two weeks later). The government’s December 8 letter stated that, after reviewing the records produced thus far, investigators had identified several items called for in the MLAT request that Cyprus had not produced. And Cyprus did not make a subsequent response to the government’s request until the April 30, 2018 production mentioned above. The bottom line, then, is that Cyprus had not fully satisfied the government’s official request when the original and Superseding Indictment of Manafort were returned on February 13 and 22, respectively. As a result, no “final action” had yet occurred as of the date of the operative indictments, and the applicable statute of limitations remained suspended. See United States v. Bischel, 61 F.3d 1429, 1433-34 (9th Cir. 1995) (construing “final action” to mean “a dispositive response by the foreign sovereign to both the request for records and for a certificate of authenticity of those records”); see also, e.g., United States v. Ratti, 365 F. Supp. 2d 649, 659-60 (D. Md. 2005) (following Bischel’s interpretation of Section 3292).
For other Federal Tax Crimes blogs on this issue

  • Suspension of Criminal Statute of Limitations Upon Request to a Foreign Government for Information (Federal Tax Crimes Blog 11/14/13), here.
  • Eleventh Circuit Sustains Statute Suspension For Foreign Records Request Under 18 USC 3292 (Federal Tax Crimes Blog 8/17/12), here.
  • Court holds Application to Court for 18 USC 3292 Foreign Treaty Request Suspension Must be Made Within Statute of Limitations (Federal Tax Crimes Blog 2/11/12), here.
  • Suspension of Statute of Limitations Period During Request for Foreign Assistance to Obtain Evidence (1/28/11), here.
JAT Comments:

1.  The docket entries as of today are here.  I found no indication that the court has acted on the motion.  Based on my reading of the prosecutors' response, it is likely to be denied.

2.  This case illustrates that the putative target of an investigation may not be able to predict when the statute of limitations actually runs.  Manafort and his counsel did not know of the order which was sealed until disclosed in the Government's response.

3.  One thing we don't know is whether there might be some unified grand jury proceeding to look at the information DOJ Tax and the IRS is getting about foreign bank accounts (e.g., from the DOJ Swiss Bank Initiative) and whether any 3292 orders have been obtained.  There might be some really interesting issues presented if such orders have been obtained, such as when final action occurs (individual by individual, or for the final individual in the or a group, etc.).

4.  There are other events that might trigger a suspension of the statute of limitations.  The following is from my now discontinued Federal Tax Crimes book, but is probably still pretty good on the general issues (footnotes omitted; note that I do not indent the following):

Several events can suspend the running of the statute of limitations for tax crimes.  Note the following:

The civil and criminal statutes of limitations are suspended: (i) if the taxpayer brings or participates in a proceeding to quash the summons, the statute is suspended during the period the proceeding is pending; or (ii) if the third party summonsee, including a John Doe summonsee, fails to respond properly, the statute is suspended during the period beginning on the date six-months after the summons is issued and ending on the date of “final resolution of such response.”

The statute of limitations is suspended during a so-called Due Process Proceeding when there are limitations upon the IRS’s ability to investigate or collect.

18 U.S.C. § 3292 may permit the Government unilaterally to toll the statute of limitations by making an official request for foreign records relevant to the crimes being investigated by a grand jury.  I discuss this below.

Tolling By Absence from Country or Fugitive Status.
Tax Crimes & Conspiracies.  For the tax crimes created in the Internal Revenue Code and for conspiracies related to tax – both offense conspiracies and Klein defraud conspiracies – where the statute of limitations is determined in § 6531, the statute is tolled while the defendant is outside the United States or a fugitive from justice within the meaning of 18 U.S.C. § 3290.  Tolling is in the disjunctive.
Absence.  The defendant’s mere absence from the United States tolls the statute.  For example, a defendant’s eleven-day health and pleasure trip to Switzerland tolled the statute of limitations under 26 U.S.C. § 6531.
Fugitive.  Section 3290 defines fugitive as “any person fleeing from justice.”  The “majority rule” is that “intent to avoid arrest or prosecution must be proved” for § 3290's fugitive definition to apply; the minority rule is that mere absence from the jurisdiction, regardless of intent, is sufficient. As noted, of course, the disjunctive provision in § 6531 tolls the statute upon mere absence from the country regardless of fugitive status under § 3290.  I am not aware of a case that discusses whether § 3290 applies to crimes outside Title 18 (other than instances such as § 6531 which expressly imports it for Title 26 crimes).  For example, I am aware of no case that says that § 3290 applies for FBAR crimes.  However I found one case where it did apply to a non-Title 18 crime (an immigration crime), so I presume that it does apply to non-Title 18 crimes, but readers should confirm that if it is important.
For Other Crimes.  For other tax related Title 18 crimes where the statute of limitations is determined in Title 18 (e.g., false statements to an agent) rather than § 6531, the statute of limitations is tolled only if the defendant is a fugitive as defined in § 3290.  As noted, intent for the absence is critical under the majority rule.

The statute is tolled while an indictment is under seal.

For tax crimes, the statute is effectively tolled for 9 months by the Government filing a complaint. This device is a limited one to be used in exigent circumstances, and not as a general way to extend the statute in all cases.

If a timely indictment is dismissed after expiration of the statute of limitations for a reason other that one that bars later prosecution, a new indictment or information may be brought within six months of the dismissal.

One problem of uncertain scope is the Wartime Suspension of Limitations Act ("WSLA"), 18 U.S.C. § 3287.  The statute provides in relevant part:

When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544 (b)), the running of any statute of limitations applicable to any offense
(1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not,
* * * *
shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

Subsection (1) is worded very broadly and is not limited to fraud that relates to any hostility authorized by declaration of war or congressional resolution.  Specifically, the Iraqi and Afghanistan  engagements have been authorized but have not been terminated in the form textually prescribed the by statute.  Does that mean that all frauds – including tax fraud crimes – now have their statutes of limitations suspended?

* * * *

b. Foreign Country Evidence.

In a world where international commerce, often of the illegal sort and often assisting tax fraud, is increasing exponentially, key evidence may be overseas.  Because long delays may be encountered in gathering foreign evidence, 18 U.S.C. § 3292 in some cases permits the statute of limitations to be suspended during the period between the U.S. request for foreign evidence and the production of that evidence by the foreign authority.  The key elements for this tolling are:

There must be a grand jury investigation.
Incident to the investigation, a request for information must be made to a foreign jurisdiction before the return of an indictment.  The request must be an official request, defined as “a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country.”  I cover below in the text various of these methods for making a request to a foreign country.  In the tax context, perhaps the principal form of the request would be under the double tax treaty, which was one of the devices used in the UBS grand jury investigation to flush out information about UBS depositors.  Effectively, what I call a “John Doe” request was submitted to the Swiss tax administrators for information and documents related to U.S. taxpayers meeting certain criteria.
That request to the foreign authority must be made within the otherwise applicable statute of limitations.
The Government must apply to the district court.  There is conflict in the circuits as to whether this application must be filed before the normal statute of limitations expires.
The tolling period is from the date of the request until the foreign government takes final action on the request.
There is conflict among the circuits as to whether the application to the district court must be filed before the foreign authority’s final action on the request.
The tolling period cannot exceed the lesser of (i) three years or (ii) if the final action from the foreign authority is during the otherwise applicable statute of limitations, for more than six months.

I mentioned above that there are two conflicts as to when the application to the district court must be made.  The Government has a solution to avoid prejudice to the Government as to these conflicts in interpretation.  The Government can simply make the application to the district contemporaneously or soon after the request is made within the otherwise applicable statute of limitations.  Why wait?

The application to toll the statute of limitations under § 3292 is filed ex parte, and the consideration of the application and order granting the application are filed under seal.  So the target of the investigation has no notice that Government is seeking to unilaterally extend the statute of limitations or, if the Government is successful, that the statute has been extended.   In the proceeding on the application, the Government must prove by a preponderance of the evidence that “an official request has been made for such evidence and that it reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country.”  What does preponderance of the evidence mean in this context?  Do the Federal Rules of Evidence (FRE) apply in the proceeding, so that the Government must introduce admissible evidence?  Since the request is inextricably tied to the grand jury which may consider hearsay testimony which would likely not be admissible under FRE, may hearsay evidence be used to meet the Government’s burden in the ex parte proceeding?  One court addressed related issues in holding that (1) the Government’s application must contain affirmative evidence other than bare allegations in the application and (2) the Government cannot later after an indictment in the extended limitations period correct deficient evidence in the original application.  The Court declined to address the issue of whether FRE applied in the application proceedings (which would have resolved the issue of the types of uses to which hearsay testimony can be put).

Because, as noted, no one outside the grand jury team may know that the statute has been extended, you as a practitioner will be a considerable disadvantage in advising the client as to the criminal statute of limitations for misconduct.  Perhaps, the better part of wisdom is to caveat the advice with a statement that the advice may be subject to any action, known or unknown, that would cause the statute of limitations to be extended.  Thus, the client may be lulled into a false sense of security.

If indicted, the defendant will have the opportunity to test the validity of any § 3292 order extending the statute of limitations.  Recent cases indicate that the courts will be attentive to proper objections.

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