Friday, August 31, 2018

Update on Manafort Convictions Status (8/31/18)

I post today some links to Court documents from the docket entries on Pacer.  I remind readers that the Court Listener web site (here) offers cloned docket entries for cases (not sure whether it is all cases, but certainly most of the cases of importance).  Sometimes documents listed on the cloned docket entries are downloadable from the Court Listener web site.  The Court Listener docket entries for the Manafort case are here.  Sometimes it takes a day or two to update for the latest docket entries.  However, it does not appear that any of the Manafort documents are downloadable.  That seems strange to me because, the actual Pacer docket entries offers me the opportunity to obtain the documents free from Court Listener, which means that the documents are available on the Court Listener site (although not linked on the Court Listener docket entries).  In any event, since I can get the link to free documents, I offer that the links to key documents below for readers to see the documents if they wish.

Dkt Entry Date Description (JAT Brief Description) Link
261 8/16/18 Jury Questions Link
264 8/22/18 Mistrial Order Link
280 8/21/18 Jury Verdict Link
291 8/29/18 Gov't Motion to Extend Date re Retrial Link
292 8/20/18 Order on Government Motion to Extend Link

I have transcribed the jury's questions (Dkt 261) which are handwritten as follows (bullets added):
  • Is one required to file an FBAR if they own less than 50% of the account, do not have signature authority but do have authority to direct disbursement of the funds?
  • Can you define "shelf company" and filing requirements related to income?
  • Can you please re-define "reasonable doubt?"
  • Can the exhibit list be amended to include the indictment count to which they are related?
I don't have a transcription of the judge's answers.  All I have had is reporters' paraphrasings.  When and if I get the answers, I will post them and offer any comments I may have.  (If anyone has the transcription of the answers, please post them as a comment or email them; and, if anyone has the complete jury instructions, I would greatly appreciate receiving them.  My email is

Now on the possible retrial for the counts that were mistried because of the jury's inability to reach a unanimous verdict, I previously posted a discussion of why the sentencing for the counts of conviction could produce a sentencing range under the Sentencing Guidelines that is the same as if Manafort had been convicted of all counts submitted to the jury.  See Paul Manafort Verdict - On Relevant Conduct (8/21/18), here.  In calculating the Guidelines range the Judge is directed to consider "relevant conduct" -- similar criminal conduct other than the counts of conviction if the Government proves the conduct by a preponderance of the evidence.  Certainly, the mistried FBAR counts (Counts 11-14) are relevant conduct to the FBAR conviction (Count 11) and to the tax convictions (Counts 1-5). Likewise the mistried Bank Fraud and Conspiracy Counts (Counts 28-32) are relevant conduct to the convicted bank fraud count (Count 27).  So, assuming that the Government proves that unconvicted conduct by a preponderance of the evidence, the Guidelines calculations will be just as if Manafort were convicted on all counts.

Thursday, August 30, 2018

Government FBAR Willful Penalty Collection Suit and Issuance of Letters Rogatory (8/30/18)

In United States v. Katholos (W.D. N.Y. 17-cv-00531), docket entries here, the Government is suing Katholos for the FBAR willful penalty which remains unpaid (including penalties, statutory additions, interest and late payment penalties) of $4,474,320.29.  The complaint is here; the answer is here.

According to the complaint:
  • "As a result of the [UBS] John Doe summons, the United States received information regarding Ms. Katholos' Foreign Bank Account." (Complaint paragraph 7)
  • The facts alleged in the complaint seem to be a common fact pattern; the facts are different but the pattern is similar.  Several entities were established.
  • The complaint lists a number of transfers from UBS to other financial institutions.  (Complaint par. 25.)
  • The Government demands a jury. (See last paragraph.)
The answer has the following affirmative defenses:
  • Katholos did not act willfully.  Among the allegations in support of this defense:
50. The Complaint’s case for willfulness appears to rest on three major factual allegations, all of which are either incorrect or misleading. First, the Government alleges that Marika was on “inquiry notice” about FBAR reporting because of a 2007 federal income tax return. At the time of the filing of the Complaint, however, the Government possessed information demonstrating that Marika did not sign the 2007 federal income tax return that allegedly put her on “inquiry notice” regarding her FBAR obligations. Further demonstrating that she did not review this return, the 2007 return filed for Marika contains numerous, obvious errors: Marika’s name is misspelled and her address is incorrectly given in Elma, New York. 
51. Marika’s history of filing U.S. returns since her move to Greece in 1994 demonstrates that she was not fully aware of the relevant U.S. tax rules for reporting income overseas. Prior to 2009, federal tax returns were filed for Marika to report her interests in family assets that generated income in the U.S., such as annuities or rental income from real estate. When there was no U.S. income in a particular year, returns generally were not filed. In many or most cases prior to early 2009, Marika did not see or sign federal tax returns filed for her. 
52. Second, the Internal Revenue Service’s (“IRS’s”) interview with Marika’s return preparer Charles Koelemeyer, conducted more than four years after the relevant events, only demonstrates that he knew of FBAR reporting requirements well after the time period at issue. It does not demonstrate that he ever advised Marika about these requirements—or even that he ever spoke to her directly about taxes or U.S. reporting—prior to January 2009. Instead, once Marika learned of the relevant U.S. reporting requirements, she attempted to make a voluntary disclosure to the IRS in February 2009, months before the start of the formal Offshore Voluntary Disclosure Program. Marika’s effort was rejected as untimely because, on information and belief, UBS had
delivered her name to the IRS within one week prior to her disclosure. 
53. Finally, the Government alleges that Swiss bankers took actions, including signing forms, to conceal the relevant accounts from U.S. authorities. These are simply not allegations that Marika acted willfully: the allegations describe actions taken by Swiss bankers, not by her and her family. Instead, the long history of Marika and her family in Greece demonstrates that the UBS accounts were not set up for a U.S. tax-avoidance purpose. Marika moved to Greece in 1994, shortly after college, and has been a homemaker and caretaker of her children since that time. Marika’s father Theodore Katholos (now deceased) (“Mr. Katholos”) immigrated to the U.S. in the mid-1960s with a second-grade education in Greece, and became successful in the painting and contracting business in Buffalo, New York through hard work and determination, not through formal schooling. Mr. Katholos was largely unable to read or write in English. He was very successful in business, particularly given his background, but he lacked sophistication and training in tax matters. In the 1980s, Mr. Katholos seriously considered emigrating back to Greece, and so did Marika. When Mr. Katholos retired in 1997, he had intended to move back to Greece permanently.

Wednesday, August 29, 2018

Basler Kantonalbank Enters DPA Regarding U..S. Undeclared Accounts; To Pay $60.4 Million (8/29/18)

DOJ Tax Announced here that Basler Kantonalbank ("BKB") entered a deferred prosecution agreement ("DPA") approved by the district court for SD Florida.  As part of the agreement, BKB agreed to pay "$60.4 million in total penalties."  (As noted below, the aggregate $60.4 million is broken down as follows:

Restitution to the IRS for Unpaid Tax on the Undeclared Accounts - $17.2 million
Forfeiture - $29.7 million
Fines - $13.5 million

Federal law provides for three primary types of financial penalties — fines, restitution, and special assessments — which can be imposed in addition to imprisonment or probation.86

Other key excerpts:
Basler Kantonalbank (BKB), a bank headquartered in Basel, Switzerland, entered into a deferred prosecution agreement (DPA) that was approved today by the U.S. District Court for the Southern District of Florida, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division, United States Attorney Benjamin G. Greenberg, and Chief Don Fort for Internal Revenue Service-Criminal Investigation.  As part of the agreement, Basler Kantonalbank will pay $60.4 million in total penalties.   
* * * * 
In the DPA and related court documents, BKB admits that between 2002 and 2012 it conspired with its employees, external asset managers, and clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns.  At its peak in 2010, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million (many, but not all of which, were undeclared accounts that were part of the conspiracy).   According to the terms of the DPA approved today, BKB will cooperate fully, subject to applicable laws and regulations, with the United States, the Internal Revenue Service (IRS), and other U.S. authorities.  The DPA also requires BKB to affirmatively disclose certain material information it may later uncover regarding U.S.-related accounts, as well as to disclose certain information consistent with the Department’s Swiss Bank Program with respect to accounts closed between January 1, 2009, and December 31, 2017.  Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow BKB to demonstrate good conduct.  
The $60.4 million penalty against BKB has three parts.  First, BKB agreed to pay $17,200,000 in restitution to the IRS, which represents the unpaid taxes resulting from BKB’s participation in the conspiracy.  Second, BKB agreed to forfeit $29,700,000 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2012.  Finally, BKB agreed to pay a fine of $13,500,000.  This penalty amount reflects BKB’s thorough internal investigation and cooperation with the United States, as well as the bank’s extensive efforts at remediation, and its waiver of any claim of foreign sovereign immunity.  Among other remedial efforts, BKB implemented measures to require all U.S.-related accounts be tax compliant, closed a branch office responsible for much of the tax fraud and fired the employees involved in the offense, and conducted extensive outreach to former clients to encourage them to participate in IRS-sponsored voluntary disclosure programs.  
According to court documents filed as part of the DPA, BKB is a bank incorporated by the Parliament of the Basel City Canton.  From 1997 to 2014, BKB had a private-banking branch that operated from Zurich.  The bank assisted certain U.S. clients in concealing their offshore assets and income from U.S. taxing authorities.  By 2010, when BKB’s U.S.-related business was at its peak, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million.  Many, but not all, of these accounts were undeclared and part of the conspiracy to defraud the United States.

Monday, August 27, 2018

More on Immunity Granted by USAO SDNY to Persons in the Trump Orbit (8/27/18)

White collar crime lawyers know that the premier white collar crime prosecutors are in USAO SDNY.  That is the office that investigated and prosecuted Michael Cohen, Trump's personal lawyer, to a plea and has obtained two immunity agreements -- one for David Pecker, publisher of the National Enquirer, and for Allen Weisselberg, CFO of the Trump organization.  Those developments appear to bring great risk to Trump as shown in these articles. 

The reason I post them here is that they do inform readers who may not be that familiar with USAO SDNY (often referred to as the "Southern District") of its role in the federal white collar crime universe.  All who practice in this area know that the prosecution teams mounted by the "Southern District are formidable.  Wikipedia, here, notes that the Southern District is often referred to as the "Sovereign District of New York" because "of the office's resources, pursuit of high-profile cases, independence from presidential administrations and transitions, and tenacity."

First, there is this piece by Noah Feldman, a Harvard Law Professor:  The Prosecutors Who Have Declared War on the President (Bloomberg Opinion 8/26/18), here.

Some excerpts:
Once the Southern District gets its jaws onto a string of crimes, it doesn’t let go.
Weisselberg, as part of his deal, will likely be required to provide information on all criminal activity he knows about. 
Trump is now facing a two-front war against the Justice Department. The team led by special counsel Robert Mueller is supposed to focus on Russian interference in the 2016 election. But the Southern District can investigate any aspect of Trump’s behavior that took place in its jurisdiction, at any time. 
And unlike Mueller, who could in principle be fired, the Southern District isn’t one man; it’s a whole office of career lawyers. It can’t be fired. Even if Robert Khuzami, the acting U.S. attorney in this case, were removed, no new U.S. attorney could realistically call off the prosecutors. 
The Cohen conviction makes any such Southern District investigation normal and logical, not a “witch hunt.” 
Consider that the prosecutors now have strong evidence that the Trump Organization was part of a conspiracy to commit campaign-finance violations. The repayment of Cohen by the Trump Organization makes the company fair game. 
In any ordinary criminal investigation by the Southern District, evidence that a corporation has been used as part of a criminal conspiracy, with the knowledge and involvement of its owner and CFO, would naturally trigger further digging. Was this the first time the Trump Organization ever acted criminally? The Southern District prosecutors are going to want to know the answer. And they’re going to find out.
The upshot is that Trump is vulnerable to further revelations of criminal behavior. Some will no doubt have nothing to do with Russia. Others, such as money laundering, may turn up connections to Russians.

Thursday, August 23, 2018

On Trump 's White Collar Issues -- Immunity for Witnesses (8/23/18)

The Trump Presidency is a gift that keeps on giving to lawyers and, a smaller subset, lawyers interested in white collar crime (of which tax crimes is a subset).  I have in the past few days had several postings arising from the developments -- principally convictions by jury and plea agreement of persons close to the President.

Today, we have yet another development of interest.  It is reported that David Pecker, chair and CEO of American Media, the publisher of such publications as the National Enquirer.  (See his Wikipedia page here.)  Pecker used his publication power in support of Trump both in the press and outside the press and before his campaign for President and during his campaign for President.  The prominent instance of such support in the current news was his "purchase" of the rights to one of Trump's extra-marital sex partners' story about her liaisons with Trump (is he really big or as good as he claims?). The purchase was to help Trump by getting the rights to the story and then burying it -- called "catch and kill."

Readers will recall that Trump's long-time personal attorney who was active in paying to suppress such stories pled guilty to campaign finance crimes.  See The Michael Cohen Information and Plea - Some Comments (Federal Tax Crimes Blog 8/21/18), here; and The Tax View of the Hush Money Payments and Cohen's Reimbursements and Bonus (Federal Tax Crimes Blog 8/21/18), here.  One of the suppressions related to the one that Pecker had National Enquirer "catch and kill."  As reported in the news, apparently, Pecker was doing Trump's bidding in that activity.  The news now reports that Pecker has obtained immunity from the prosecutors, presumably the prosecutors on the Cohen prosecution in USAO SDNY, rather than the Special Counsel.  Jim Rutenberg and Rebecca R. Ruiz, David Pecker, Chief of National Enquirer’s Publisher, Is Said to Get Immunity in Trump Inquiry (NYT 8/23/18), here.

This offers an opportunity to talk about immunity in white collar crime cases such as we have under the Trump penumbra.  There are various shades of immunity, and I will get into that below in summary and a cut and paste from my Federal Tax Crimes book.  At this point, let me preface the discussion of immunity by noting that obtaining an immunity agreement is a contractual negotiation, not dissimilar to a plea negotiation.  The issue is how strong a party's perception of the other party's hand is.  Prosecutors will not agree to a strong form of immunity unless, by giving that strong form of immunity, the immunized party will give information that the prosecutors need, usually to nail a bigger fish. With that spare introduction, let's talk about the forms of immunity.  At the end of this blog, in addition to offering links to other blog entries on immunity, I will offer a cut and paste of the discussion of immunity in the working draft my Federal Tax Crimes Book (if I ever publish it again).  But, here is the thumbnail summary.

The types of immunity in the federal criminal universe are (I usually present these from the strongest to the weakest, and will us that ordering here):

1.  Transactional immunity.  Transactional immunity can be either blanket (extremely rare) or, for crimes within the scope of the testimony the witness will give (rare).  In the federal criminal universe, transactional immunity, either general or specific is rarely given.  Transactional immunity is not granted by federal statute.  So, it has to be stated in the "contract."  A subset of this would be a nonprosecution agreement that has been the topic of many blog entries here.  But, there is no indication that Pecker was given a nonprosecution agreement by that name.

2.  Use and Derivative Use Immunity.  This immunity which can be granted via the statute (a judge grants this immunity) or by agreement with the prosecutor assures the witness that the testimony he gives and any leads that might be derived from the testimony will not be used by the prosecutor to prosecute him for a crime.  This type of immunity is also not common, but one would say not rare (except in the SDNY which, in my experience and understanding through the white collar grapevine) seems to have a visceral answer of no to requests for this type of immunity).  This type of immunity still permits prosecution for the crime, but the prosecutor will have to establish in what is called a Kastigar hearing that the prosecution is not based directly or indirectly from the immunized testimony or the fruits of the immunized testimony.  That is usually so difficult that, as a practical matter, use and derivative use immunity is virtually transactional immunity for the crimes within the scope of the investigation.

3.  Use Immunity.  This type of immunity prevents the use of the immunized testimony, but permits the use of any evidence that the prosecutor learned from leads based on the immunized testimony.  This is a weak form of immunity.  This is the type of immunity usually offered, if at all, by USAO SDNY.  Of course, if someone has something major to offer the prosecutors, I am sure a stronger form of immunity can be negotiated.  (I have never been in a position to offer something major to prosecutors in my limited contact with USAO SDNY.)  This type of immunity is contractual and the terms of the contract may vary.  The USAO SDNY has a standard "contract" which offers the witness very limited, if any immunity.  But, since it does offer some immunity, the "contract" is often called a Queen for a Day agreement.  Use immunity,  or Queen for a Day, agreements are used in connection with proffer sessions whereby the witness who may be a subject or target is interview for up to a day (sometimes more than one day) by the prosecutors.  Sol Wisenberg has a good discussion in his posting, Queen For A Day: The Dangerous Game of Proffers, Proffer Agreements and Proffer Letters, here.

Wednesday, August 22, 2018

Is Federal Tax Fraud an Impeachable Offense for a President? (8/22/18)

The question I address here, albeit lightly, is whether, if it is shown that any President committed tax fraud (covering both evasion and tax perjury), the tax fraud would be an impeachable offense.  I do not address the issue of whether he can be indicted for tax fraud or any other offense while he still serves as President (although I do have an aside on that at the end).

The only actual example was President Nixon.  As I note in my chapter on Criminal Penalties and the Investigative Function, Chapter 12 in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015),  ¶12.01. Criminal Penalties in General, ¶ 12.01[1] In General at fn. 6:  Richard Nixon's alleged tax crime was fully pardoned in a general pardon by President Ford who succeeded Nixon on his resignation, but as to impeachment:
Among President Nixon's alleged crimes was tax evasion, which the House Judiciary Committee declined to include in the articles of impeachment because, it believed, tax evasion was not an impeachable offense. Mezvinsky & Freedman, Federal Income Tax Evasion as an Impeachable Offense, 63 Geo. L.J. 1071 (1974-1975).
But, there is authority from a scholar that income tax fraud can be an impeachable offense.  See Charles L. Black, Impeachment: A Handbook (1974), with pertinent portions republished by permission in Charles L. Black, The Impeachable Offense (Lawfare 7/20/17), here:
Income-Tax Fraud 
Serious income-tax fraud by a president, particularly when the vehicle of such fraud is a set of papers resulting from his holding one government office, and when he might anticipate virtual immunity from serious audit because of his occupying the presidency, would seem definitely impeachable, in addition to being criminal. The offense seems akin to bribery, in that it uses office for corrupt gain; in any case, it undermines government, and confidence in government. A large-scale tax cheat is not a viable chief magistrate.


OK, guys, if anyone is interested in this Amazing, Wonderful Cap suitable for wearing at all sorts of events -- court hearings, baseball games, kids soccer games, bar association meetings and, of course, Trump rallies, etc., let me know.  Perhaps we can start a movement here.

The Tax View of the Hush Money Payments and Cohen's Reimbursements and Bonus (8/21/18; 8/24/18)

The NYT reports today:  Carol D. Leonnig, Trump’s company approved $420,000 in payments to Cohen for the hush money, relying on ‘sham’ invoices, prosecutors say (NYT 8/21/18), here.  Basically, as I understand it, Trump ran the payments through his company.  And, according to the article, for his efforts on behalf of Trump personally, company executives decided to give Cohen "an additional $360,000 for expenses and other fees and taxes, plus a $60,000 bonus, prosecutors said." That could be to hide the payments for campaign purposes, but it also has a tax side that is commonly encountered or observed by tax crimes practitioners.  By submitting sham invoices to a corporation controlled by a person who is the personal beneficiary of the payments (Trump), the corporation was poised to claim as deductions what should be treated as nondeductible dividends to the person exercising that control (Trump).  So, potentially, tax is evaded at both the corporate and shareholder levels.  Assuming the Government can establish Cheek intent beyond a reasonable doubt, then that is tax evasion under § 7201.

Added 8/24/18 8:30am:

Catherine Rampell, No collusion? We’ll see. But what about tax fraud (WAPO 8/23/18), here.
What about tax crimes, though? 
There’s plenty of precedent for prosecuting those. And the Cohen filings this week raise serious new questions about whether Trump has criminal tax-fraud exposure. 
* * * * 
To be clear, we don’t know whether Trump has violated any tax laws. But there’s a red flag in prosecutors’ filings against Cohen regarding the fate of hundreds of thousands of dollars in taxes one would expect to have been paid Uncle Sam. 
It’s a little technical, so bear with me. The issue involves payments that the Trump Organization made to Cohen as part of an agreement silencing adult-film actress Stephanie Clifford (a.k.a. Stormy Daniels) and how the company accounted for them.
Cohen paid Clifford $130,000. Trump’s company ultimately reimbursed him for this payment to the tune of $420,000. 
Why so much more than the original hush-money amount? 
Because the Trump Organization peculiarly decided not to categorize the payment as a reimbursement for an expense Cohen incurred, the way a client might normally reimburse a lawyer for airfare while traveling on client business. Instead, according to prosecutors’ filings, the Trump Organization falsely called the entire payment a “retainer” and accounted for it internally as “legal expenses.” 
That is, they indicated they were merely compensating Cohen for legal services provided to the company.

Tuesday, August 21, 2018

The Michael Cohen Information and Plea - Some Comments (8/21/18)

I offer a few comments on the Michael Cohen plea that is much in the news.  The USAO SDNY press release is here.  The criminal information is linked on the press release.  The press release is quite detailed, as perhaps the defendant involved and the circumstances require.

The criminal information and resulting plea is to 8 counts as follows (as corrected 8/22/18 2:40pm):

Convicted Max.
Code Section Description Mos. Counts Mos.
26 7201 Tax Evasion 60 5 300
18 1014 False Statements to a Bank 30 1 30
52 30118(a) and 30109(d)(1)(A) Causing Unlawful Corp. Contribution 60 1 60
52 30118(a) and 30109(d) (1) (A) Excessive Campaign Contr. 60 1 60
Total 8 450
I omit from the Counts of Conviction aider and abettor or causer liability 
under 18 U.S.C. § 2 (which just makes the person a principal)

Of course, all the buzz is about the relationship of the conduct charged in the counts and Trump.  Cohen was Trump's personal lawyer, I think until fairly recently.  I won't go into the political aspects of that.  Rather, I will go into what this may mean in terms of Cohen's providing information to the Special Counsel.  Basically, this involves him providing or being required to provide information about Trump.

Cohen made a straight up plea to the criminal information.  The prosecutor promised him nothing in return.  That is not the way pleas are normally done in tax and other white collar crime cases of which I am familiar. Normally, once the prosecutor has gotten the proverbial pound of flesh against the particular defendant, the prosecutor will agree not to prosecute other potential charges.  I am certain that there are a number of other charges that the prosecutor could have made.  The prosecutor has not agreed to forgo such additional criminal charges.  Now, in order to induce the prosecutor to forgo such other indictments, the defendant usually has to offer to cooperate against the bigger fish, which seems to be floating around this case.  Cohen did not agree to such cooperation in this case.

Does that mean that Cohen will not have to give testimony about Trump?  No.  Because there is the possibility of other charges, Cohen can certainly plead the Fifth Amendment privilege not to testify if called by the Special Counsel.  But, since the federal government has gotten a substantial conviction by plea thus, presumably, satisfying its prosecution angst against Cohen, the Special Counsel can obtain immunity for Cohen and force him to testify.  Of course, if Cohen then refuses to testify, the Court can send him to jail for contempt which, I suspect, would be an add on on the front end or back end to the sentence Cohen will draw for the counts of conviction to which he just pled.

And, of course, if Trump were to pardon Cohen, the same analysis would apply.  Cohen then has no fear of prosecution and cannot properly invoke a Fifth Amendment privilege. (I suspect that the Special Counsel would, just for caution, give him immunity anyway to further confirm that Cohen has no Fifth Amendment privilege he can assert.)

Paul Manafort Verdict - On Relevant Conduct (8/21/18)

Paul Manafort has been found guilty of eight counts and could not reach a verdict on the remaining 10 counts.  The judge has declared a mistrial on those 10 counts.  The case will now proceed to sentencing on the 8 counts of conviction.  Before sentencing, there may be post-trial motions, including a motion for new trial on the counts of conviction.  The Government now has choice whether to re-try on the counts that were subject to mistrial.

Focusing on the count of conviction.  I understand that the counts of conviction and their maximum sentences (by "stacking" the sentences for the counts of conviction) are:
Code Section Mos. Counts Max. Mos.
26 7206(1) 36 5 180
31 5322 60 1 60
18 1344 360 2 362
Total 8 602

Most readers of this blog will know that the maximum sentence amount is maximum possible.  The actual sentence is determined under the Sentencing Guidelines and the sentencing court's Booker discretion.   The Guidelines calculations generally (certainly in most tax cases even with nontax crimes of conviction), produces an indicated sentencing range much less than the maximum.  Readers should also recall that the judge should consider "relevant conduct" -- conduct other than the counts of conviction -- in calculating the Sentencing Guidelines range.  Thus, the judge can consider relevant conduct even if the conduct is: (i) uncharged, (ii) charged and dismissed (usually by plea agreement), (iii) charged but acquitted, or (iv) charged but subject to mistrial.  All the Government has to do to establish relevant conduct is prove the conduct by a preponderance of the evidence.  Thus, specifically, if Judge Ellis is convinced by a preponderance of the evidence that Manafort was guilty of the charges for which he declared a mistrial, the Sentencing Guidelines range will be exactly the same as if Manafort had been convicted of all counts (i.e., no counts were subject to mistrial).  (Some readers may want more on this so, I cut and text below some discussion on this.)

For this reason, if the judge includes some or all of the mistried counts in the relevant conduct calculation, I can't see what the advantage would be for re-trying the mistried counts.


Monday, August 20, 2018

Another Offshore Account Guilty Plea (8/20/18)

DOJ Tax announced here that Ben Zion Birman of Los Angeles pled guilty to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR).  Here are the relevant excerpts:
According to court documents, Ben Zion Birman, of Los Angeles, California held offshore accounts in Israel at Bank Leumi Le-Israel B.M. from 2006 to 2011. Birman willfully failed to file with the Department of Treasury an FBAR for calendar year 2010, despite having over $1 million in Bank Leumi accounts.  In an effort to further hide his money, Birman instructed Bank Leumi to hold bank mail from delivery to the United States, and obtained access to his offshore funds through the use of “back-to-back” loans, which were designed to enable borrowers to tap their concealed accounts.  These lending arrangements permitted Birman to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel. 
In December 2014, Bank Leumi entered into a deferred prosecution agreementafter the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers to prepare and present false tax returns by hiding income and assets in offshore bank accounts in Israel and other locations around the world.  Under the terms of the deferred prosecution agreement, Bank Leumi paid the United States a total of $270 million and continues to cooperate with respect to civil and criminal tax investigations.
* * * * 
Birman faces a maximum sentence of five years in prison, as well as a period of supervised release, restitution and monetary penalties. Birman's sentencing is scheduled for December 10, 2018.  

Hardship Fund for Swiss Bankers Affected by U.S. Swiss Bank Initiative (8/20/18)

Finews reports that "Several Swiss bank staff advocacy groups launched a «hardship fund» to help employees finding themselves in dire financial straits."  Claude Baumann, Financial Aid for Swiss Bankers ( 8/16/18), here. 

The fund will exist until all Swiss bank still on the hook with U.S. prosecutors have settled their respective criminal investigations: those include Basler Kantonalbank, Liechtensteinische Landesbank's Swiss arm which is being wound down, as well as privately-held Pictet and Rahn and Bodmer. 
The situation around HSBC's Swiss bank as well as Israeli firms Hapoalim and Mizrahi remains unclear. All «hardship cases» were accepted, Wyder said; the lobby has committed to supporting personal difficulties, not legal expenses.  
Personal Data Shipped 
Any current or former Swiss banking employees who have had their data sent to the U.S. as a result of a 2012 government decision to do so or the 2013 settlement can apply for emergency funding. Applicants who can show financial, personal, or familial hardship as a result of their names being handed over to U.S. officials are likely to get financial aid.
The funding isn't lavish: payments are capped at 10,000 Swiss francs ($10,300), but in cases of exceptional hardship, bankers can submit a second application. 
JAT Comment:  I don't know whether the fund accepts donations from U.S. taxpayers who feel empathy for the Swiss Bankers.  I doubt, though, that a U.S. income tax deduction will be available for contributions.

Saturday, August 18, 2018

District Court Opinion Over Parties' Sparring About Summons Enforcement for Foreign Account Records (8/18/18; 12/20/19)

Caution as of 12/20/19:  I learned today that the district court had issued a subsequent opinion of which I was previously unaware.  I learned of the subsequent opinion, here, in this blog:  Leslie Book, I Do Not Have What You Want: The Affirmative Defense of Non-possession In Summons Enforcement Proceedings (Procedurally Taxing Blog 12/20/19), here.   In the subsequent opinion, the Court held in Conclusion:
Having determined that Santoso has demonstrated not only that she does not possess the summoned documents but also that she has taken reasonable steps to obtain them if they are within  her control, I find that Santoso has established the affirmative defense of non-possession and her Motion to Dismiss the Petition and Quash the Summons is granted with the exception of the Sampoerna documents. Santoso must produce any records she obtains related to her Sampoerna shares by September 27, 2019, or file a status report that explains why she is unable to produce any further documents regarding the shares, and the steps taken in an attempt to produce further documents.
Please review to Les Book's discussion in the Procedurally Taxing Blog.

In United States v. Santoso, 2018 U.S. Dist. LEXIS 136889 (D. Md. 2018), here, the IRS issued one or more summonses to a taxpayer who, it seems, received large sums of money from overseas, "allegedly as 'gifts,' from members of her famously wealthy family in Indonesia."  Presumably, pursuant to summonses, "she has given sworn testimony to the IRS on three occasions for more than twenty hours and provided over a thousand documents."  But, the court reviewed the transcripts and concluded "that much of it is of little value because it is made up of speaking objections made by Santoso's lawyers, sparring between them and counsel for the IRS and the revenue agent, and assertions of the fifth amendment by Santoso."  So, over Santoso's objection that she did not have or control documents within the description in the summons, the IRS moved to enforce the summons.

In order to enforce the summons, the Government's initial burden is to meet the Powell requirements, well known to readers of this blog.  Those requirements are (i) a legitimate purpose, (ii) relevance to the IRS inquiry, (iii) information not already possessed by the IRS and (iv) compliance with the administrative steps.  The Government met that burden.

But, a witness cannot produce documents she does not possess or control.  So, after the Government meets the Powell requirements, the witness then must credibly show lack of ability to comply because of lack of possession or control.  The Court held that a hearing must be held as to whether Santos "made more than "a pro forma" effort to obtain records that she does not actually possess, or made more than a cursory search for them."

The Court then notes the dearth of authority on precisely what Santos must do to meet her burden.  The Government asserted (fn. 5) that her diligent efforts "should include (without limitation):
(1) Contacting the foreign financial institutions from which she received millions of dollars in wire transfers to determine whether she possessed a relevant legal interest in the originating or other bank accounts. See Resp.' Mot. Quash, ECF No. 19 at *5 (admitting that "the wire transfers originated from entities located in Singapore, Indonesia, or Hong Kong");
(2) Ascertaining whether she received and retained an interest in any assets of her mother's estate and, as a consequence, retains possession and control of related records. See Mot. to Quash, ECF No. 19-1 at *6 (December 6, 2017 letter from Respondent's counsel stating that Respondent's sister "was left with the responsibility of administering and managing [Respondent's mother's] estate after her death.");
(3) Taking additional steps to determine whether she owns stock in a foreign company, such as Sampoerna Tobacco, after Respondent's family conspicuously avoided answering Respondent's initial inquiry regarding such ownership. Compare Resp.' Mot. Quash, Ex. 1B, ECF No. 19-1 at *8 (December 6, 2017 letter from Respondent's counsel to counsel for Respondent's family, asking six numbered questions, including whether family was "aware of the existence of any records that show that Sharon Santoso owns foreign stock (e.g. Wismilak or Samporena)?" with id. at *10 (January 2, 2018 response from Blank Rome attorneys answering only five of Respondent's numbered questions, and failing to address or acknowledge the question concerning stock ownership); and
(4) Taking all other reasonable steps to (A) identify potential sources of summonsed records; (B) obtain information from those sources (including, if necessary, pursuing rights under local law); and (C) use newly discovered information, if any, to identify additional sources of summonsed records.
Pet.'s Resp. to Resp't's Request to Stay 2. The IRS also requested that Ms. Santoso provide an update on the steps she has taken to obtain the documents in question. Because it is uncertain what is required, I have ordered the parties to brief whether or not Ms. Santoso must update the IRS on the steps she has taken before the upcoming hearing.
The Court said, however, "it is far from clear to me that there is authority that she must do that much."

Friday, August 17, 2018

The Manafort Trial - Judging the Judge's Conduct (8/17/18)

While there have been any number of pundits pontificating on the Manafort trial, I have not offered those pundits pontifications because I am not sure whether they really contribute much to the readers of this blog.  I do, however, offer this one by Nancy Gertner (Wikipedia here), who has been a private practitioner and federal judge and is now Harvard Law School professor.  She is quite accomplished.  And, she is well known to students of tax procedure for a leading case -- United States v. Gertner, 65 F.3d 963 (1st Cir. 1995), here -- I had tax procedure students read.  In that case, the IRS attempted to end-run the requirements for a John Doe Summons procedure by issuing a regular summons to her law firm.  I provide a discussion of that case at the end of this blog.

I first offer her WAPO Opinion piece:  The extraordinary bias of the judge in the Manafort trial (WAPO 8/16/18), here.

Key excerpts:
The performance of U.S. District Court Judge T.S. Ellis III in the trial of Paul Manafort on bank fraud and tax evasion charges has been decidedly unusual. 
During the trial, Ellis intervened regularly, and mainly against one side: the prosecution. The judge's interruptions occurred in the presence of the jury and on matters of substance, not courtroom conduct. He disparaged the prosecution's evidence, misstated its legal theories, even implied that prosecutors had disobeyed his orders when they had not. 
Under the Code of Conduct for U.S. judges, a judge is supposed to be fair and impartial, as well as "patient, dignified, respectful and courteous" to those in his courtroom. The rule's concern is as much about the appearance of justice as its reality. If the judge violates that rule and a defendant is convicted, there may be a trial remedy — an appeal. 
But there will be no appeal available to address Ellis's anti-prosecution bias if Manafort is acquitted by the jurors, who began deliberating on Thursday. The prohibition against double jeopardy precludes it. And if President Trump's former campaign chairman is convicted despite Ellis's interventions, the judge's hostility toward the prosecution will have been irrelevant.

Comments on Manafort Jury Day 1 Deliberation Questions (8/17/18)

I thought I would offer some quick additional comments on the four questions the jury asked after its first day of deliberation in the Manafort trial.  I will take the questions and Judge Ellis' answers as reported by WAPO in this article:  Manafort jury enters second day of deliberations (WAPO 8/17/18 10:49am), here, and will offer my comment after each question and answer:
First, jurors asked if someone was required to file a form called an FBAR — which is required of people with foreign bank accounts containing more than $10,000 — if they owned less than 50 percent of such an account and did not have signature authority but did have the ability to direct disbursement. At trial, Manafort’s lawyers suggested their client might have believed he did not have to file such forms, because the companies in question were set up under his consulting firm. After 2011, he shared ownership of the firm equally with his wife. 
In response, the judge read to them again the legal instructions he provided on that point Wednesday. He told the jury that along with the requirement for people who own more than 50 percent of a company with foreign bank accounts, a person must file FBARs if he “controls the disposition of money, funds, or other assets held in a financial account by direct communications.”
JAT Comments on First Question:  Although I don't have the specific instructions as given by Judge Ellis, the law is clear that the Government has to prove that Manafort actually knew of the FBAR obligation and specifically intended to violate the obligation.  (Students and practitioners in this area will recognize this as the Cheek requirement made applicable to FBARs by Ratzlaf.) This is a specific knowledge and intent crime.  (Of course the required intent assumes that the defendant knew the obligation.)  Since a defendant rarely admits the specific knowledge and intent, the Government usually proves knowledge and intent by circumstantial evidence.  I don't know the state of the record on knowledge and intent.  Now, on the more specific question of whether there was an FBAR filing obligation in the first place, I presume that, if WAPO reports the judge's instructions correctly, the obligation arises in the disjunctive (i) if Manafort owned more than 50% which he apparently didn't or (ii) if Manafort had control over the account as the judge instructed.  While it seems clear that Manafort did have overall control over the account, the finer question under the instruction  is whether he could exercise that control by direct communications to the financial institution.  I don't know whether the Government proved that beyond a reasonable doubt.  (I have to say, however, that if there were no evidence sufficient to prove that type of control, the judge presumably would have directed a verdict in Manafort's favor, so I assume that there is some evidence of the required level of control.)  Also, I wonder whether the FBAR obligation can be avoided by having some minion (such as Gates) be the person with direct communication authority and what the state of the evidence and the instructions were on that issue.  In any event, if the jury does not get comfortable with the requirements for knowledge and intent, it would seem that the beyond a reasonable doubt instruction would require the jury to find not guilty on the FBAR count.
Second, jurors asked if the judge could define “shelf company” and the filing requirements related to income. Witnesses testified at Manafort’s trial that he used so-called shelf companies — companies previously created by a lawyer in Cyprus that could be used to control the bank accounts in question — in order to move Manafort’s money. To that question, the judge said the jury would have to rely on their memory of the evidence presented at trial.
JAT Comments on Second Question:  This seems like a fair question that a jury might ask.  The report of Judge Ellis' answer is curious to me.  It seems to me that the question, as reported by the WAPO article, is asking both a factual question -- a definition of "shelf company" -- and a legal question -- the relationship of a shelf company to income (presumably as the income must be reported on the return).  If I am right, the judge could and should have answered that legal question.  Perhaps the witnesses spoke to that issue, but usually in trials witnesses do not testify as to the law; nevertheless, in constructing the unreported income, the summary witness (presumably an IRS agent) would have to base the construction of income on the law as to whether the item is taxable income.  Since it is a question infused with a legal issue, I think the judge could have offered the jury some guidance -- such as that cash earned in the way the Government alleges would be taxable if the jury finds that the cash was received by the company (I am not sure that the judge would have to go into assignment of income, sham corporations or the subpart F reporting rules).  But that suggested answer depends upon the state of the record; I don't know the state of the record.  As with my concluding FBAR question comment, if the jury does not get comfortable that the law required Manafort to report the income, then it should acquit.  (Note, though, that if the law did not require him to report the income, Judge Ellis should have instructed a verdict.)

Thursday, August 16, 2018

On the Manafort Tax, FBAR and Bank Fraud Trial - Complex White Collar Crimes Are About the Lie (8/16/18)

In the Manafort prosecution, each side claims that lies from the other side entitles it to win.  During the closing arguments yesterday, WAPO had a running commentary of the oral arguments and the lie word (or some variant) came up early and often on both sides.  See Rachel Weiner, Matt Zapotosky, Lynh Bui and Tom Jackman, Paul Manafort trial Day 12: Case heading to jury, deliberations start Thursday (WAPO 8/15/18), here.

Of course, the defendant who rests without putting on evidence has few defenses he can credibly argue. As I noted earlier, the defendant's lawyer can argue that the Government's evidence does not prove guilt beyond a reasonable doubt.  The defendant can make that argument credible if he can convince the jury that key government witness(es) lied.  So, not surprisingly, Manafort's lawyer, Kevin Downing (formerly of tax prosecution repute, Wikipedia here) makes that claim.

From the prosecution perspective, these complex financial crimes cases are about lies, which is why the prosecution hammered that claim home.  Juries may not understand complex financial, accounting and tax rules, but they do understand lies.

I have had a number of posts about "The Lie."  Those posts are collected here but the key ones for purposes of this discussion with appropriate excerpts (in chronological order) are:
  • DOJ Tax's Further Attempts to Drum Up Business / Revenue (Federal Tax Crimes Blog 12/26/09), here.
4. Another good snippet reputedly from Downing consistent with his man on a righteous mission persona is: "I want to go after the privileged people who've had the benefits of this country and are cheating their taxes, get them in front of local juries and convict them." Lee A. Sheppard, The UBS Endgame, 2009 TNT 186-1 (9/29/2009). Even the crusty Lee Sheppard is enthralled by Himself, following up with: "It is reasonable to assume that the blasé Swiss and the complacent rich American tax cheats never counted on meeting up with a guy like Kevin Downing, senior trial counsel in the Justice Department's Tax Division, who has been leading the prosecutions against Swiss bank UBS AG. Downing, a former Marine." 
5. Jeff Neiman, an AUSA for SD Florida who is prominently involved in these prosecutions, said that he wanted to "avoid technical tax issues." Sheppard paraphrased: "Whether the defendant is lying, cheating, and stealing is what the argument to the jury boils down to for Neiman." See my earlier blogs on The Lie. This statement echoes the theme of the Enron prosecutions: "This is a simple case. It is not about accounting. It is about lies and choices." John C. Hueston, Behind the Scenes of the Enron Trial: Creating Decisive Moments, 44 Am. Crim. L. Rev. 197, 207 (2007). See also Stuart P. Green, Lying, Cheating, and Stealing: A Moral Theory of White Collar Crime 246-48 (2006)
And, in case you did not already know, that is the same Kevin Downing who is the lead defense lawyer.

Wednesday, August 15, 2018

NACDL Report on Diminishing Number of Criminal Trials and Corrosive Effects (8/15/18)

The National Association of Criminal Defense Lawyers recently released a report titled: THE TRIAL PENALTY:The Sixth Amendment Right to Trial on the Verge of Extinction and How to Save It (2018).  The report may be downloaded here.

The Executive Summary is (footnotes and blurbs omitted):
The Scope of the Problem 
In the words of John Adams, “[r]epresentative government and trial by jury are the heart and lungs of liberty. Without them we have no other fortification against being ridden like horses, fleeced like sheep, worked like cattle, and fed and clothed like swine and hounds.” President Adams’ colorful language reflected the strength of his view — a view shared by his  contemporaries — that the right to trial by jury protects our liberties every bit as much the right to cast votes for our representatives. 
To the modern ear, this view comes as a surprise. While Americans celebrate the notion of representative government just as much now as they did in the time of the Framers, few still think of trial by jury as a bulwark against the arbitrary and capricious use of government power. Why does this notion seem so surprising to the modern observer? What has become of the sense — so natural for Mr. Adams and his contemporaries — that trial by jury protects freedom? 
The answer, is simple: over the last fifty years, trial by jury has declined at an ever-increasing rate to the point that this institution now occurs in less than 3% of state and federal criminal cases. Trial by jury has been replaced by a “system of [guilty] pleas” which diminishes, to the point of obscurity, the role that the Framers envisioned for jury trials as the primary protection for individual liberties and the principal mechanism for public participation in the criminal justice system. 
Guilty pleas have replaced trials for a very simple reason: individuals who choose to exercise their Sixth Amendment right to trial face exponentially higher sentences if they invoke the right to trial and lose. Faced with this choice, individuals almost uniformly surrender the right to trial rather than insist on proof beyond a reasonable doubt, defense lawyers spend most of their time negotiating guilty pleas rather than ensuring that police and the government respect the boundaries of the law including the proof beyond a reasonable doubt standard, and judges dedicate their time to administering plea allocutions rather than evaluating the constitutional and legal aspects of the government’s case and police conduct. Equally important, the public rarely exercises the oversight function envisioned by the Framers and inherent in jury service. Further, the pressure to plead guilty, and plead early, is often accompanied by a requirement that accused persons waive many valuable rights, including the right to challenge unlawfully procured evidence and the right to appeal issues which have an impact not only in their cases but also for society at large.  
While scholars still debate the theoretical justifications for and against plea bargaining, neither the government nor the public have exhibited any significant resistance to its rise to dominance. This is not altogether surprising given the ostensible advantages of plea bargaining. Trials are lengthy, expensive processes that can leave victims waiting for years to obtain restitution and closure. Plea bargaining presents a seemingly reasonable alternative that promotes efficiency while providing defendants an opportunity for leniency and putting them on an early road to rehabilitation. Conventional wisdom understandably views this as a win/win solution, particularly because the Constitution affords defendants the right to choose to go to trial if they wish to do so. 

Inspired by the Manafort Trial, On the Beyond a Reasonable Doubt Standard (8/15/18; 8/17/18)

WAPO reports:  Rachel Weiner, Matt Zapotosky, Lynh Bui and Devlin Barrett, Jurors in Paul Manafort trial send judge four questions, including asking him to redefine reasonable doubt (WAPO 8/16/18 5:33pm), here.  I address all four questions in a subsequent blog:  Comments on Manafort Jury Day 1 Deliberation Questions (Federal Tax Crimes Blog 8/17/18), here.  Since I had already posted on the beyond a reasonable doubt question here, I will just leave that answer here and link it in the later blog:

The Beyond a reasonable doubt question and Judge Ellis' answer as reported in the WAPO article are:
Third, they asked if the judge could “redefine reasonable doubt.” Jurors sometimes struggle with what constitutes a reasonable doubt of someone’s guilt, versus an unreasonable doubt. The judge told them reasonable doubt “is a doubt based on reason,” but added: “The government is not required to prove guilt beyond all possible doubt.”  
Defense attorneys emphasized in their closing argument that it’s not enough to believe a defendant is “likely” guilty or even “highly likely” guilty, using a thermometer chart to make the point.
I offer as an addendum at the bottom of this blog a discussion of Beyond a Reasonable Doubt from my Federal Tax Crimes publication that I discontinued when I began working on the Tax Crimes Chapter in the Saltzman publication on Tax Procedure.  I think the discussion is still good, but without updated cases.


I write today because of the Manafort case.  Yesterday, Manafort's attorneys did not put on evidence in defense and Manafort waived his right to testify.  Technically, the defense rested after the prosecution concluded its case.  The defense would say that they did elucidate evidence in Manafort's favor by cross examination of the prosecution's witnesses which, they will claim, produced some affirmative evidence in Manafort's favor and, in any event, they will claim, precludes the prosecution of meeting its burden to prove guilt beyond a reasonable doubt.

Addendum 2:24pm (EDT): WAPO has here a running report on the Manafort arguments as they progress.  Relevant to the beyond a reasonable doubt standard, the WAPO running report has this:
1:52 p.m.: Manafort attorney says defense put on no evidence because case wasn’t ‘beyond a reasonable doubt’ 
Defense attorney Richard Westling began his closing argument on behalf of Paul Manafort not with specific evidence but broad concepts — presumption of innocence, burden of proof and reasonable doubt. 
“You took a solemn oath” to abide by these legal precepts, he said. “Be steadfast.” 
One juror nodded as Westling emphasized the the fact that Manafort stands innocent. “If you’re thinking right now any of this evidence adds up to anything, you shouldn’t be,” Westling said. “Put it out of your mind.” 
He went on to explain that the burden of proof is on the government, and that the defense “made a decision not to put on evidence because… we believe the government has not met that burden.” 
The burden the prosecutors have to overcome, he explained with a thermometer-like chart, is not that Manafort “possibly,” “probably,” “likely” or “even highly likely guilty,” but that he is “guilty beyond a reasonable doubt.”
I thought readers might appreciate some links to discussions of what proof beyond a reasonable doubt means and how it is explained to the jury.  I first offer some of the more significant discussions I have had on the issue in this blog.  These offerings are in reverse chronological order.
  • Reasonable Doubt and Jury Nullification (Federal Tax Crimes Blog 12/30/14), here.
  • Daugerdas Retrial Jury Instructions - Part 01 Reasonable Doubt (Federal Tax Crimes Blog 11/12/13), here.
  • Proof Beyond a Reasonable Doubt - Ramblings (Federal Tax Crimes Blog 9/1/13), here.
  • Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases (Federal Tax Crimes Blog 1/29/13), here.
  • Reasonable Doubt and Mickey Mouse (Federal Tax Crimes Blog 3/6/12), here.
  • Reasonable Doubt - What is It? (Federal Tax Crimes Blog 10/16/09), here.

Tuesday, August 14, 2018

Zürcher Kantonalbank (ZKB) Reaches DPA for Conspiracy Charge; Two ZKB Employees Plead to Misdemeanor Conspiracy (8/14/18)

USAO SDNY announced here the deferred prosecution agreement (DPA) with Zürcher Kantonalbank, (ZKB) along with guilty pleas for two of its bankers.

Key points from the press release and linked documents:

1. "ZKB is charged with conspiring to help U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns, and otherwise hide hundreds of millions of dollars in offshore bank accounts held at ZKB."  "The criminal charge against ZKB is contained in an Information (the “Information”) alleging one count of conspiracy to willfully and knowingly (1) defraud the IRS, (2) file false federal income tax returns, and (3) evade federal income taxes."  Some of the conduct forming the basis for the charge is set forth in the press release and linked document.

2.  Under the DPA, "ZKB admitted to its unlawful conduct in assisting U.S. taxpayer-clients in violating their legal duties." "If ZKB abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charges. "

3.  The DPA requires ZKB to pay a total of $98,533,560, broken down as follows (DPA par. 4):
Restitution $39,142,000
Forfeiture   $24,266,300
Penalty       $35,125,260
  • Per DPA par. 5, the restitution is for lost U.S. tax.  ZKB will get no credit for tax, if any, otherwise paid by the U.S. taxpayers.
  • Per DPA par. 6, forfeiture is "a substitute res for gross fees paid to ZKB by U.S. taxpayers with undeclared accounts at ZKB from January 1, 2002, through approximately December 31, 2013."
  • Per DPA par. 9, the penalty amount is based on the facts and "the factors set forth in 18 U.S.C. § 3553(a) and 18 U.S.C. § 3572(a)."
4.  ZKB was given cooperation credit, but the credit " was reduced by the Government due to ZKB’s actions, as described in the Statement of Facts, in dissuading two indicted ZKB bankers from cooperating with U.S. authorities for years after their indictment."  That reduction in credit is describe as follows:
Indictment of ZKB Employees and ZKB’s Response to the Indictment 
Despite ZKB’s cooperation with the Government in this case, the Government views the actions of ZKB with respect to indicted bankers FELLMANN and REIST, described in the Statement of Facts, as inconsistent with a policy of full cooperation.  Those actions, accordingly, have reduced the amount of cooperation credit afforded by the Government to ZKB. 
In December 2012, three ZKB bankers – FELLMANN, REIST, and Otto Hüppi – were charged in the Southern District of New York with conspiracy to defraud the United States and the IRS for their role in ZKB’s offense.  Although ZKB retained independent U.S. counsel for the bankers, beginning in 2013 and continuing through 2015, ZKB’s in-house counsel and, at times, ZKB employees from the Human Resources department and other departments, regularly met with FELLMANN and REIST.  At those meetings, which were not attended by FELLMANN and REIST’s independent U.S. counsel, ZKB, among other things, made statements that caused FELLMANN and REIST to feel dissuaded from reaching out to the U.S. Attorney’s Office in order to explore the possibility of cooperating.  In addition, ZKB’s in-house counsel suggested to FELLMANN that he did not have any information of value to contribute to the U.S. Attorney’s Office’s ongoing investigation.  Furthermore, based on conversations with ZKB, FELLMANN and REIST felt that their continued employment at ZKB and ZKB’s ongoing payment of their legal fees would be threatened should they take steps that were viewed by ZKB as inconsistent with the bank’s own interests.  Due in part to these discussions with ZKB, FELLMANN and REIST did not seek to cooperate with the investigation until the summer of 2015, approximately two and a half years after being indicted.

Friday, August 10, 2018

Mizrahi-Tefahot Bank Rejects DOJ $342 Million Settlement Offer for NPA (8/10/18)

A reader linked to this article:  Shoshanna Solomon, Mizrahi-Tefahot Bank rejects $342 million US fine to settle tax evasion probe (The Times of Israel 8/8/18), here.

I hesitate to do excerpts because the article is short and has good information throughout.  Still, here are some excerpts as a teaser:
In a filing to the Tel Aviv Stock Exchange late Tuesday, the bank said that it received a notice from the US Justice Department that it is willing to close the investigation if the bank agrees to pay a fine of $342 million. 
The letter from the representative of the US Justice Department stated the amount without any indication of how it was reached, the bank said in the filing. The letter also included a draft factual document that could be used as a basis for a Deferred Prosecution Agreement, with the aim of negotiating the terms of an agreement, the filing said. 
The board of directors instructed the bank’s attorneys to inform the US authorities that they reject the offer, saying that any amount to be paid to the US regulators should be “significantly lower” than the amount suggested. To date, the bank has set aside some $45 million to cover a potential settlement with the US authorities. 
* * * * 
US authorities targeted three Israeli banks with investigations regarding tax evasion in the US by customers. In 2014, Bank Leumi Le-Israel Ltd. agreed to pay some $400 million to US regulators to settle a criminal probe after admitting it helped US taxpayers hide assets. Investigations by US regulators into Bank Hapoalim Ltd. and Bank Mizrahi-Tefahot Ltd. are ongoing. 
As of February, Israel’s Bank Hapoalim had set aside some $343 million for the investigation, warning that the overall exposure could be even higher.

Thursday, August 2, 2018

Peter Hardy Post on Reckless Conduct for BSA Civil Penalties (8/2/18)

Peter Hardy, here, has the great posting:  The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties (Money Laundering Watch 8/1/18), here.  Peter discusses the developments in the FBAR civil willfulness penalty context (often discussed on this blog) but says
[T]he point of this post is that the case law now being made in the FBAR and offshore account context will have direct application to more traditional Anti-Money Laundering (“AML”)/BSA enforcement actions, because the civil penalty statute being interpreted in the FBAR cases is the same provision which applies to claimed failures to maintain an adequate AML program and other violations of the BSA.  Thus, the target audience of this post is not people involved in undisclosed offshore bank account cases, but rather people involved in day-to-day AML compliance for financial institutions, who may not realize that some missteps may be branded as “willful” and entail very serious monetary penalties, even if they were done without actual knowledge.  This may be news to some, and it underscores in particular the risks presented by one the topics that this blog frequently has discussed: the potential AML liability of individuals.
Peter has good discussions of the Markus and Norman [Mindy Norman] cases I have discussed on the blog.   Peter concludes:
When pursuing a civil or criminal enforcement action involving any kind of statute with a relatively low mental statement requirement (the classic examples are statutes involving public safety, such as regulations pertaining to the U.S. Food and Drug Administration), the government often will argue that, regardless of the thin statutory requirements, the facts at hand demonstrate actual knowledge and some sort of nefarious conduct. That may well be true in particular cases, and it should give comfort to AML professionals to the extent that it is true, because it suggests that the government will not pursue “willful” penalties unless the actual facts are sufficiently egregious and such a penalty is deserved (in the view of the government).  Nonetheless, AML requirements sometimes can be as amorphous as they are sprawling. As the FBAR cases reflect, the BSA presents the real-world possibility that severe civil penalties can be imposed in the absence of actual subjective knowledge.  This is a potentially sobering reminder to financial institutions and their Boards, executives, compliance officers and shareholders.
I do note that I link Peter's  Money Laundering Watch Blog on the right side of this blog, so readers having an interest can access it by clicking there or creating their own bookmark for his blog.

Wednesday, August 1, 2018

Court of Federal Claims Rejects Colliot; FBAR Willful Penalty Not Limited to $100,000 (8/1/18)

In Norman v. United States (Ct. Fed. Cl. Dkt 15-872T, Order dated 7/31/18), here, the Court held Mindy Norman liable for the FBAR willful penalty.  Basically, on the merits, the Court found that Norman was willful and deceitful about her willfulness.

Perhaps more importantly for most readers of this blog, the Court rejects Colliot's holding that the FBAR willful penalty is limited to a maximum of $100,000, because the regulations had not been changed to reflect the statutory amendment increasing the maximum FBAR willful penalty.  Basically, the Court held that the statute trumps the regulation.

The opinion is very short (9 pages, with the discussion relevant to the Colliot issue being at page 7-9).

The conclusion for the whole opinion is (p. 9):
The Court finds that Ms. Norman’s repeated and admitted lack of care in (1) filing inaccurate official tax documents without any review, (2) signing foreign banking documents without any review, and (3) later providing false sworn statements both to the IRS and to this Court, both with and without review, reaches the standard of reckless disregard for the law required to constitute a willful violation of § 5314. Contrary to Ms. Norman’s new argument in light of Colliot, Congress clearly raised the maximum civil money penalty in § 5321 to the greater of $100,000.00 or one half of the balance of the account. As such, the Court holds that Ms. Norman willfully violated U.S.C. § 5314, and that the assessment of the civil money penalty under 31 U.S.C. § 5321 in the amount of 50 percent of her account’s balance was appropriate. The Court therefore dismisses the case, and the Clerk is directed to enter judgment accordingly.
On the issue of whether the regulation caps the FBAR willful penalty after the statute's amendment, my prior blogs are (reverse chronological order):

  • Another District Court Limits IRS Authority for FBAR Willful Penalty to $100,000 (Federal Tax Crimes Blog 7/18/18), here (on the Wadhan case reaching same result as Colliot)
  • Update on Colliot Limitation on Discretion for FBAR Willful Penalty (Federal Tax Crimes Blog 7/16/18; 7/18/18), here.
  • District Court Caps IRS Authority to Assess Willful FBAR Penalty at $100,000 (Federal Tax Crimes Blog 5/19/18), here.