TIGTA Report on IRS Compliance Activity Bank Secrecy Act Delegated Authority Other than For FBARs (9/29/18)

TIGTA has issued a report titled "The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance (Ref. Num. 2018-30-071 9/24/18), here.  Although included in the report, the highlights page is here.

The report note (p. 2) that the IRS has delegated authority over the following areas (emphasis supplied by JAT):

1) Enforce the criminal provisions of the BSA as provided in 31 C.F.R. § 1010.810(c)(2). 

2) Examine certain nonbank financial institutions to determine compliance as set forth under Title 31 BSA requirements in December 1992; however, the FinCEN retains the final authority to impose civil penalties.n3
   n3 Originally delegated under Department of the Treasury Directive 15-41, December 1, 1992, and as authorized under 31 C.F.R. § 1010.810(b)(8). This regulation authorizes the IRS to conduct most of its Title 31 BSA examinations, such as those with respect to nonbank financial institutions. It does not authorize the IRS to investigate Report of Foreign Bank and Financial Accounts violations; that authority is found in 31 C.F.R. § 1010.810(g). Also, final authority to assess civil penalties is delegated to the FinCEN per 31 C.F.R. § 1010.810. 

3) Examine and impose civil penalties for the Report of Foreign Bank and Financial
Accounts in April 2003.n4 (TIGTA’s review does not include a review of the Report of Foreign Bank and Financial Accounts program).
   n4 Memorandum of Agreement and Delegation of Authority for Enforcement of FBAR Requirements, April 2, 2003; and as authorized under 31 C.F.R. § 1010.810(g)

Accordingly, per 3), the report does not deal with the IRS's FBAR enforcement which has figured so prominently in this blog.  The report does cover other authorities related to tax crimes.

I cut and paste the highlights page:

Highlights

THE INTERNAL REVENUE SERVICE’S BANK SECRECY ACT PROGRAM HAS MINIMAL IMPACT ON COMPLIANCE 

Final Report issued on September 24, 2018 

Highlights of Reference Number:  2018-30-071 to the Commissioner of Internal Revenue. 

IMPACT ON TAXPAYERS 

The Currency and Foreign Transactions Reporting Act of 1970 requires U.S. financial institutions to assist U.S. Government agencies in detecting and preventing money laundering and to assist U.S. persons in reporting foreign bank and financial accounts.  The law has been amended several times and is now known as the Bank Secrecy Act (BSA).  The IRS received delegated authority to enforce the BSA’s criminal provisions and examine certain nonbank financial institutions.  The IRS also has authority to examine trades and businesses for compliance with Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, under Internal Revenue Code Title 26 and 31 and authority to assess penalties under Title 26.  However, the Financial Crimes Enforcement Network (FinCEN) retains the final authority to impose Internal Revenue Code Title 31 civil penalties. 

WHY TIGTA DID THE AUDIT 

This audit was initiated to evaluate the impact of the IRS’s compliance efforts related to its delegated authority under the BSA. 

WHAT TIGTA FOUND 

The IRS Small Business/Self-Employed Division conducts BSA compliance activities through its Specialty Examination function, which has a dedicated BSA Program.  TIGTA reviewed a statistically valid random sample of 140 compliance cases from a population of 24,212 closed cases worked by the BSA Program for Fiscal Years 2014 through 2016 and found that 105 (75 percent) were closed with 383 Title 31 violations in which the respective business only received a letter citing the violations found.  For the same fiscal year period, TIGTA found that 1) referrals to the FinCEN of Title 31 penalty cases go through lengthy delays and have little impact on BSA compliance; 2) the BSA Program spent about $97 million to assess approximately $39 million in penalties; and 3) while referrals were made to IRS Criminal Investigation, most of the investigations were declined and less than half of the cases were accepted. 

Additionally, a September 2016 TIGTA report addressed the need for the IRS to incorporate BSA Program personnel in developing its virtual currency strategy; however, the IRS has still not effectively used the BSA Program in this area.  TIGTA also found that until June 2017, the BSA Program did not require Publication 1, Your Rights as a Taxpayer, as a required enclosure to notify taxpayers of their rights when initiating a Form 8300, Title 26 examination, and some examiners still are unaware of the change that requires taxpayers to be notified of their rights. 

WHAT TIGTA RECOMMENDED 

TIGTA recommended that the IRS: 1) coordinate with the FinCEN on the authority to assert Title 31 penalties or reprioritize resources to more productive work; 2) leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy; 3) notify examiners of new appointment letter enclosures that includes Publication 1; 4)  evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and 5) improve the process for referrals to IRS Criminal Investigation.  The IRS agreed with four of the five recommendations.  The IRS will incorporate its virtual currency strategy into its Title 31 compliance efforts; provide BSA examiners guidance on appointment letter enclosures; review and improve the FinCEN referral process; and review the BSA criminal referral criteria to maximize efficiency and enhance BSA referrals to Criminal Investigation.  However, the IRS disagreed with pursuing Title 31 penalty authority stating it was outside its purview and that the FinCEN intends to retain this authority.

DOJ "Justice Manual" -- the USAM Revised, Updated, Renamed (9/28/18)

The Department of Justice issues this Press Release:  Department of Justice Announces the Rollout of an Updated United States Attorneys’ Manual (9/25/18), here.  I quote it in full because it is short; I bold face things I want to draw attention to:

Department of Justice Announces the Rollout of an Updated United States Attorneys’ Manual

The Department of Justice announced the rollout of an updated United States Attorneys’ Manual, now titled the Justice Manual. It is the first comprehensive review and overhaul of the Manual in more than 20 years. The Department-wide effort involved the dedicated work of over 200 Department of Justice employees. 

“This was truly a Department-wide effort, involving hundreds of employees collaborating from many different Department components,” said Deputy Attorney General Rod Rosenstein. “To mark this significant undertaking, and to emphasize that the Manual applies beyond the United States Attorneys’ Offices, we have renamed it the Justice Manual. Though the name has changed, the Manual will continue as a valuable means of improving efficiency, promoting consistency, and ensuring that applicable Department policies remain readily available to all employees as they carry out the Department’s vital mission.” 

By 2017, many provisions of the Manual no longer reflected current law and Department practice. This diminished the Manual’s effectiveness as an internal Department resource, and reduced its value as a source of transparency and accountability for the public. To bring the Manual up to date, employees from around the country, primarily career attorneys, undertook a yearlong, top-to-bottom review. The Department’s goals were to identify redundancies, clarify ambiguities, eliminate surplus language, and update the Manual to reflect current law and practice. 

Some specific changes include expanding the Principles of Federal Prosecution to incorporate current charging and sentencing policies, and adding new policies on religious liberty litigation, third-party settlement payments, and disclosure of foreign influence operations.

The Justice Manual is here.

The Tax Section is Title 6 and is here with the following sections (cut and paste):

6-1.000 - Policy
6-2.000 - Prior Approvals
6-3.000 - Prior Approvals
6-4.000 - Criminal Tax Case Procedures
6-5.000 - Civil Tax Case Responsibility
6-6.000 - Compromises And Concessions
6-7.000 - Post-Judgment Collection

I think there may be a mistake in the naming of the first three.  I think the Policy is in 6-2.000 and the Prior Approvals are in 6-3.000.  The first section (6-1.000) is just a description of the scope of the Tax Division's work, rather than statements of policy.  So, I think the first three sections should be named as follows:

6-1.000 - The Tax Division's Scope [My description]
6-2.000 - Policy
6-3.000 - Prior Approvals

I have not attempted to read through the provisions and thus cannot speak to how they may have been changed.  I really don't intend to try to compare to the provisions in the now superseded USAM, but I do plan to work my way through them (hopefully sometime in October) to see whether anything catches my attention.

Caterpillar Shareholder Suit For Fraudulent Disclosures from Tax Civil and Criminal Investigation Dismissed (9/28/18; 3/20/24)

I have previously written on the Caterpillar kerfuffle.  Search Warrant Executed Against Caterpillar HQ, Apparently Related to Tax (Federal Tax Crimes Blog 3/6/17; 3/8/17), here; and The Whistleblower Behind Caterpillar Tax Commotion (6/2/17), here.  A district court has just dismissed a shareholder claim of securities fraud against Caterpillar for inadequate and misleading disclosures about the search warrant and criminal investigation.  Société Générale Securities Services, GbmH v. Caterpillar, Inc. (N.D. Ill. No. 17 cv 1713), order dated 9/26/18, here.

Several government agencies, including the IRS, obtained and executed a search warrant.  The apparent focus was:

Caterpillar’s creation of a Swiss subsidiary, Caterpillar S.A.R.L. (“CSARL”) in 1999, through which Caterpillar paid an effective tax rate of 4-6% to the Swiss government. Société Générale alleges that CSARL lacked a proper business purpose and thus was not a legitimate tax reduction plan. A former employee filed a whistleblower lawsuit  that was resolved through a settlement. After that lawsuit, however, the IRS, Congress, and other government agencies began investigating Caterpillar’s tax position.

Large dollars are potentially involved, which could substantially affect Caterpillar's financial position and stock price.  In addition, if indeed Caterpillar participated in illegal tax shenanigans, major fines and other financial and reputational consequences could apply.

When a registered public company has a significant event that could affect its share price, it has to make appropriate public announcements.  Obviously, a previously undisclosed criminal investigation with a search warrant is a major event requiring some disclosures.  Caterpillar made announcements which, according to the opinion, the plaintiff alleged were actionably inadequate by downplaying the potential financial effect of the investigations, particularly the potential for significant tax, penalties and interest.  The Court summarized and categorized the claims as follows:

(1) General statements that Caterpillar’s consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”). These statements appear in nearly identical form in Caterpillar’s Form 10-K (2013-2017) and Form 10-Q for each quarter of 2013 and 2014. 

(2) Statements disclosing the IRS examination of tax returns from 2007 to 2009 in Form 10-K (2013 and 2014) and Form 10-Q (each quarter of 2014). The forms further state: “In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, liquidity or results of operations.” In 2014, Caterpillar included the additional statement that this opinion included “the impact of a loss carry-back to 2005.”  

(3) Lagacy’s testimony before the Senate Subcommittee and corresponding press release in advance of that testimony in which she referred to Caterpillar’s legal compliance with tax laws, that CSARL is not a shell corporation, and that Caterpillar remains convinced that its restructuring complied with the tax code. 

(4) Caterpillar’s Form 10-K, 2015-2016 (all quarters) and 2017 (first quarter) disclosed the grand jury subpoena from January 8, 2015, stating: “The Company is cooperating with this investigation. The Company is unable to predict the outcome or reasonably estimate any potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity.” Caterpillar further states: “we believe that taxing authorities could challenge certain positions[,]” and reported that “[o]n January 30, 2015, we received a Revenue Agent’s Report (RAR) from the Internal Revenue Service (IRS) indicating the end of the field examination of our U.S. tax returns for 2007 to 2009 including the impact of a loss carryback to 2005. The RAR proposed tax increases and penalties for these years of approximately $1 billion primarily related to two significant areas that we intend to vigorously contest through the IRS Appeals process…. Based on the information currently available, we do not anticipate a significant increase or decrease to our recognized tax benefits for these matters within the next 12 months. We currently believe the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. We expect the IRS field examination of our U.S. tax returns for 2010 to 2012 to begin in 2015. In our non-U.S. jurisdictions, tax years are typically subject to examination for three to eight
years.”

I won't get into the details of the Court's treatment of the securities and fraud claims because they relate to law other than the focus of this blog -- federal tax crimes.  But, federal tax crimes enthusiasts might be interested in the following excerpts (which at least I found interesting):

Court Holds That Liability for FBAR Civil Willful Penalty Survives Death (9/26/18)

In United States v. Schoenfeld (M.D. Fla. 3:16-cv-1248-J-34PDB), by order dated 9/25/18, here, the Court held (p. 37) that the "the Court finds that the Government's claim did not abate upon Steven Schoenfeld's death."  The reasoning for the holding is found at pp. 24-36.  The first 24 pages include a short one-page introduction and then 23 pages disposing of procedural issues arising from the death of the person putatively liable that the Government sued after he had died but without knowledge of his death.  I do not discuss the procedural issues because they do not appear to be of interest to readers of this blog.

I also do not discuss the key holding of interest -- that the FBAR civil willful penalty survives death.  The Court does a good job of developing and resolving the issue.  Whether its resolution of the issue will ultimately be sustained is an open issue.

I have discussed this issue before, so I refer readers to the blog entry discussion:  Will the FBAR Willful Penalty Survive Death (Federal Tax Crimes Blog 6/6/14), here (which links to Les Book's excellent discussion on the Procedurally Taxing Blog).

Ninth Circuit Affirms Convictions for Klein conspiracy, Tax Evasion and Tax Perjury (9/26/18)

In United States v. Visconti, ______ (9th Cir. 2018) (nonpublished), here, the Ninth Circuit affirmed Visconti's conviction for "conspiracy to defraud the United States, attempted evasion of income tax, and making a false tax return."  Since the decision is nonpublished, the panel apparently felt it somewhat routine.  Nonetheless, I thought readers might find the following helpful:

1.  Corporate Distributions - the Boulware Issue

It is conventional wisdom that the Government bears the burden of proving beyond a reasonable doubt that the criminal defendant is guilty.  Where the criminal count is that the taxpayer failed to report a distribution from a corporation with respect to his stock, the distribution is only income if either (or some combination of both), the corporation has E&P and, to the extent there is no E&P, the distribution exceeds the defendant's basis in the stock with respect to which the distribution was made.  So, does the Government have to prove beyond a reasonable doubt E&P and/or insufficient basis in order to convict the defendant for willfully evadinig tax on the distribution (§ 7201) or willfully misstating the quantum of his income (§ 7206(1))?  The answer is no; the absence of the elements that would make the corporate distribution nontaxable is an affirmative defense that the criminal defendant must establish.  See Boulware v. United States, 552 U.S. 421 (2008); and United States v. Boulware, 558 F.3d 971 (9th Cir. 2009); see also Boulware Wins the Battle Only to Lose the War (Federal Tax Crimes Blog 3/9/09), here (discussing the 9th Circuit decision on remand from the Supreme Court); and for more on affirmative defenses in criminal cases, see Supreme Court Decision on Burden of Proof for Affirmative Defense of Withdrawal from Conspiracy (Federal Tax Crimes Blog 1/10/13), here.

In Visconti, the Court held that "Visconti failed to establish that his stock basis exceeded the value of the distributions."  The facts on that issue appear to me to be somewhat convoluted, but it does appear that Visconti failed to meet that burden.

What about the E&P issue?  The Court did not discuss it, but Visconti would clearly lose unless he established both lack of E&P and sufficient basis to cover the distribution.  By showing that he lacked that basis, the distribution would be taxable whether or not there was E&P.

Question, by holding that the defendant must prove the defense, one issue is what that level of proof is?  Beyond a reasonable doubt?  (Certainly not.)  By a preponderance of the evidence?  (Suspect to me)?  Or, just sufficient to show that the Government has not proved it case beyond a reasonable doubt? (I think this is right.)

2.  Admission of a Witness' Plea Agreement and the Vouching Issue.

It is standard law that the prosecutor should not vouch for the credibility of a witness.  See e.g., United States v. Warshak, 631 F.3d 266 (6th Cir. 2010), reh'g and reh'g en banc denied, 2011 U.S. App. LEXIS 5007 (6th Cir. 2011) (noting that improper prosecutorial vouching "typically occurs occurs when a prosecutor supports the credibility of a witness by indicating a personal belief in the witness's credibility, thereby placing the prestige of the office of the United States Attorney behind that witness." (Cleaned up)).  Visconti claimed that the admission of the witness' plea agreement requiring that he testify truthfully had the effect of the prosecutor vouching for the credibility of the witness.  The court rejected the argument as follows:

Visconti relies on dicta in United States v. Roberts, 618 F.2d 530, 536 (9th Cir. 1980), which raises concerns about admitting a plea agreement. But Roberts did not hold that a plea agreement containing a promise of truthfulness is per se inadmissible. References to a plea agreement “are only mild forms of vouching” and when “the credibility of [a witness] would almost certainly have been challenged during cross-examination, there [is] justification to bolster credibility.” United States v. Brooks, 508 F.3d 1205, 1211 (9th Cir. 2007). The prosecutor did not reference nor elicit testimony regarding the plea agreement’s truthfulness provision, nor did she bolster credibility by expressing personal belief in the witness’s credibility. Visconti challenged the witness’s credibility on crossexamination, and the district court instructed the jury to consider the witness’s testimony with “greater caution.” The district court did not plainly err by admitting the plea agreement. See United States v. Daas, 198 F.3d 1167, 1179 (9th Cir. 1999).

3.  Denial of Advice of Counsel Instruction

OVDP Closes Friday; So What? (9/26/18)

There is a lot of buzz in the legal community and among commentators about the closing of the OVDP program this Friday.  I picked up substantial buzz from a listserv I am on and from posting on the web, including most prominently Peter Reilly's posting, Window Closing On IRS Program To Lessen Penalties, Avoid Prison For Offshore Shenanigans (9/25/18), here.

Some readers might find the following short comments helpful.

1.  The OVDP program is for the bad actor -- the taxpayer who was willful in filing or failing to file income tax returns and FBARs.  The willful bad actor is at risk of criminal prosecution and civil monetary costs (income tax, income tax penalties, interest and FBAR willful penalties).  The bad actor can square up with the IRS via OVDP and get substantial peace of mind.  After OVDP closes on Friday, the bad actor has no clear path to squaring up and getting peace of mind.  However, the IRS will have the traditional voluntary disclosure program which most the bad actor can use to square up and get peace of mind, assuming the bad actor qualifies, although, even if he mitigates the risk of criminal prosecution, the risk of higher financial costs is greater.

2.  For those who are not bad actors, the Streamlined Programs are still available.  The key to the Streamlined Programs is the nonwillful certification and narrative supporting the nonwillful certification.  The risk in entering the Streamlined Programs is that a taxpayer's certification and supporting narrative may be false or perceived by the IRS to be false or even suspect.  This could lead to an audit in which the IRS can test the validity of the certification and supporting narrative.  And, if those are false or misleading, the IRS could take away the financial benefit of the Streamlined Programs by making the taxpayer pay the income tax, income tax penalties (possibly the 50% civil fraud penalty), interest on both, and the FBAR willful penalty which is generally, by IRS exercise of discretion, a single 50% of high amount penalty, but might be more).  And, if the certification and supporting narrative are false, the taxpayer is at risk of criminal prosecution for that submission, as well as for the prior conduct the taxpayer was trying to absolve in the Streamlined Program.  Of course, that risk in the Streamlined Programs only apply to bad actors who should not have gotten into the program in the first place.

In short, the closing of OVDP on Friday only posits risks for bad actors -- those whose tax and FBAR noncompliance was willful.  Even for that category, there are fixes.  Those at risk of falling in that category should consult counsel.

California Plastic Surgeon Sentenced to One Year and One Day for FBAR Violation (9/14/18)

DOJ announced here another sentence related to offshore accounts.  Marc Edward Mani, a prominent Beverly Hills plastic surgeon, was sentenced for one plea count of FBAR violation.  I previously reported his plea:  Another Plea Agreement for Offshore Account (7/29/17; 7/30/17), here.  I also offer the following documents:

• The Government's Sentencing Memo, here.
• The Defendant's Sentencing Memo, here.
• The Government's Supplemental Memo re Restitution, here.
• The Judgment, here.

Excerpts from the sentencing press release:

Mani pleaded guilty In July 2017 to one count of failing to file a foreign bank and financial account report (FBAR) for the 2013 tax year. When he pleaded guilty, Mani admitted failing to file FBARs with the Treasury Department for both the 2012 and 2013 tax years. He also admitted that he failed to report on his federal income tax returns the vast majority of the approximately $1.28 million in foreign income he earned in Dubai for the years 2012, 2013 and 2014. 

          Mani began to travel to Dubai in 2011 to perform plastic surgery for a foreign medical center. Mani’s accountant, who was aware that Mani was earning foreign income, informed him that he would be required to report to U.S. authorities any foreign bank accounts under his control. In 2012, Mani opened an account with a Dubai-based bank and began depositing income he earned from abroad into this account. He liquidated the account in 2013, when it held more than $400,000 in foreign currency.

JAT Comments:

1.  The Governments Sentencing Recommendation.

Based on a tax loss based on the tax sentencing guidelines of 13 after a 2-level reduction for 5K1.1 substantial assistance.  The indicated range for the sentence at the 13 level is 12-18 months.  The Government recommended a sentence of 14 months.  The Government summarizes its key support for the recommended sentence as follows:

Manafort Plea Documents and Comments (9/24/18)

I have just returned from a foreign trip and have had the opportunity to review the Manafort plea documents.  Those documents are:  (i) the plea agreement, here; (ii) the Statement of Offenses and Other Acts, here; and (iii) the Superseding Criminal Information, here.

Some comments:

1.  The plea agreement (par. 1) requires that Manafort plead to two conspiracy offenses. The first conspiracy offense (Count One) is the type commonly required in major tax crimes conspiracy cases.  Readers will recall that the conspiracy statute describes two types of conspiracy -- an offense conspiracy and a defraud conspiracy (commonly called in tax cases a Klein conspiracy).  See 18 USC 371, here ("either to commit any offense against the United States, or to defraud the United States, or any agency thereof").  The Superseding Criminal Information to which Manafort pled as required by the plea agreement is for both the offense conspiracy (naming the offenses) and a defraud conspiracy, stating the defraud conspiracy first (see Count One, par. 61, "knowingly and intentionally conspired to defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental functions of a government agency, namely the Department of Justice and the Department of the Treasury.")  Technically, I think (but have not updated my thoughts on this), the Government might have charged the offense and defraud conspiracies separately, but I have not seen that in tax cases where both were pled, particularly where both offenses are within the same range of conduct.  In many tax cases, only one of the two types of conspiracies is charged even where the indictment could have included both types.  For further nuance, given the Sentencing Guidelines keying the recommended sentence to tax loss and including relevant conduct tax loss, not charging any crime within the scope off the defendant's conduct may not affect the actual calculations.

2.  Manafort agrees not to appeal the conviction verdicts in the ED VA case (plea agreement par. 1), and the Government agrees not to retry to counts on which the jury hung in the ED VA case.

3.  The convictions in the ED VA case will be sentenced separately.  I have written on sentencing issues in the ED VA case:  See Paul Manafort Verdict - On Relevant Conduct (Federal Tax Crimes Blog 8/21/18), here.  I suspect that, at some level, the sentences will be coordinated so that, between them, they reach an appropriate sentence based on Manafort's overall conduct.  I note in this regard that all of the counts would have been charged in the DC case except that some crimes required venue in ED VA rather that DC and Manafort refused to waive venue so that all could proceed in a single indictment.  If there had been a single case, the sentencing judge in that case would have been able to insure a sentence based on the overall conduct without any potential differences that might be introduced by having two judges sentencing for various pieces of the conduct.  Importantly, in respect to venue, the Government can pursue the ED VA counts on which the jury hung in DC because, in paragraph 3 of the plea agreement, Manafort agrees to waive venue as to those charges in ED VA should he violate the agreement.  (I suppose that is to permit the Government to have only one more trial rather than two if he violates the plea agreement, but I also wonder whether the Government just did not want to re-try the hung counts before Judge Ellis (see The Manafort Trial - Judging the Judge's Conduct (Federal Tax Crimes Blog 8/17/18), here).)

Houston Attorney Charged With Tax Crimes Related to Offshore Accounts (9/21/18)

DOJ Tax has announced here that an attorney, Jack Stephen Pursley, from Houston has been indicted as an enabler in an offshore account matter.  The indictment is here.

The press release summary key excerpts are:

According to the indictment, Jack Stephen Pursley, also known as Steve Pursley, conspired with another individual to repatriate more than $18 million in untaxed earnings from the co-conspirator’s business bank account located in the Isle of Man.  Knowing that his co-conspirator had never paid taxes on these funds, Pursley allegedly designed and implemented a scheme whereby the untaxed funds were made to appear to be stock purchases in United States corporations owned and controlled by Pursley and his co-conspirator. 

The indictment alleges that Pursley received more than $4.8 million and an ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme.  The indictment further alleges that for tax years 2009 and 2010 Pursley evaded the assessment of and failed to pay the incomes taxes due on this money by, amongst other means, withdrawing the funds as purported non-taxable loans or returns of capital.  Pursley allegedly used the money he received to purchase personal assets, including a vacation home in Vail, Colorado and property in Houston.  

The counts charged are:

1. Defraud / Klein Conspiracy - Count One

2. Tax Evasion - Counts Two-Four (Two related to Pursley's taxes and one related to the taxpayer's taxes.)

JAT Comments: 

On Trump, Manafort and Joint Defense Agreements (9/14/18; 9/15/18)

Paul Manafort reached a plea agreement with the special counsel that requires his cooperation with the special counsel.  See e.g.,  Spencer S. Hsu , Devlin Barrett and Justin Jouvenal, Manafort will cooperate with Mueller as part of guilty plea, prosecutor says (WAPO 9/14/18), here.   I noticed just a couple of days ago that Trump's vocal counsel, one Rudy Giuliani, claimed that Trump and Manafort had a joint defense agreement ("JDA").  Colin Kalmbacher, Giuliani Confirms Trump and Manafort Have Joint Defense Agreement for Mueller Probe, Share Confidential Information (Law & Crime 9/13/18), here.

I had not heard that Trump and Manafort had a JDA before (or had not recalled that I had heard that), so I was intrigued as to why Trump's vocal counsel, one Rudy Giuliani, would be making a point of it now.

I will speculate that one reason might be to taint any information that Manafort may give pursuant to the cooperation agreement.  How would that happen?  The essence of a JDA is to assure that privileged information shared among members of the JDA will be privileged as to all members.  Hence, if the prosecution (the special counsel) obtains an indictment of another member of the JDA (here Trump), the prosecution would have to prove that the prosecution is not based directly or indirectly on privileged information Trump shared with Manafort under the JDA.  (See On Joint Defense Agreements (Federal Tax Crimes Blog 11/23/17), here, where I discuss these concepts.)

But the issue here may not be ability to prosecute Trump but ability to share relevant information with Congress as to whether Trump should be impeached and convicted.  The rules that might require exclusion in a criminal prosecution of Trump would not apply in an impeachment proceeding.  In that sense, the issue is not whether Trump should be convicted of a crime but whether his conduct is sufficient to justify impeachment by the House and conviction by the Senate.  Manafort's use of the information he received under the JDA could be used for that purpose.

Addendum 9/15/18 2:45 am:

Foreign Bank Enabler Pleads Guilty to FATCA Crime Based on Undercover Operation (9/11/18)

DOJ Tax announced here that:  Former Executive of Loyal Bank Ltd Pleads Guilty to Conspiring to Defraud the United States by Failing to Comply with Foreign Account Tax Compliance Act (FATCA) (9/11/18).  Key excerpts (emphasis supplied):

Earlier today in federal court in Brooklyn, Adrian Baron, the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, an off-shore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, pleaded guilty to conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA).  Baron was extradited to the United States from Hungary in July 2018.  

* * * * 

FATCA is a federal law enacted in 2010 that requires foreign financial institutions to identify their U.S. customers and report information (FATCA Information) about financial accounts held by U.S. taxpayers either directly or through a foreign entity.  FATCA’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses. 

According to court documents, in June 2017, an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank.  The undercover agent informed Baron that he did not want to appear on any of the account opening documents for his bank accounts at Loyal Bank, even though he would be the true owner of the accounts.  Baron responded that Loyal Bank could open such accounts and provide debit cards linked to them. 

In July 2017, the undercover agent again met with Baron and described how his stock manipulation scheme operated, including the need to circumvent the IRS’s reporting requirements under FATCA.  During the meeting, Baron stated that Loyal Bank would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” U.S. involvement.  Subsequently, in July and August 2017, Loyal Bank opened multiple bank accounts for the undercover agent.  At no time did Baron or Loyal Bank request or collect FATCA Information from the undercover agent. 

Baron’s guilty plea represents the first-ever conviction for failing to comply with FATCA.  When sentenced, Baron faces a maximum of five years in prison.

Baron is the second defendant to plead guilty in this case.  On July 26, 2018, Arvinsingh Canaye, formerly the General Manager of Beaufort Management Services Ltd. in Mauritius, pleaded guilty to conspiracy to commit money laundering. 

Peter Hardy offers a very good discussion DOJ Secures First Ever Conviction for Violating FATCA (Money Laundering Watch Blog 9/17/18), here.

Financial Times Article on the State of Swiss Banks (9/6/18)

Ralph Atkins, Switzerland’s banks try to put the past behind them (FT.com 9/5/18), here.  

Key excerpts:

In total, Swiss banks have paid $5.5bn in US penalties since the first moves against them a decade ago. 

The Swiss would undoubtedly like to think the past is behind them. Times are certainly better. “After years of struggling with structural change stemming from the financial crisis, the tide has begun to turn,” consultancy KPMG reported recently in its annual survey of 90 Swiss private banks. 

* * * * 

Swiss banks have overhauled compliance systems — Americans living in Switzerland today have a particularly hard time opening a bank account — and thrown out clients who cannot prove they are honest with their taxes. Bern has struck automatic exchange of information deals with EU states and 60 other countries. 

* * * * 

Last month, two outstanding US tax cases — against Zürcher Kantonalbank and Basler Kantonalbank — were settled with penalties of $98.5m and $60.4m. The agreements offered a flashback to an era when Switzerland really was a haven for chancers. According to the US justice department, Basler Kantonalbank had in 2008 seen as a “business opportunity” the criminal investigations faced by its larger rival UBS. The Basel bank’s services had included “promoting” Swiss bank secrecy as a means of concealing assets and income. 

* * * * 

FBAR Collection Suit Where Taxpayer Put in Writing to UBS That He Wanted to Avoid Disclosure to IRS and Opted Out of OVDP (9/5/18)

The Government brought the following FBAR collection suit:  United States v. Gentges (USDC SDNY Dkt. 7:18-cv-07910), complaint here and Court Listener docket here.  Excerpts that I think are interesting from the complaint are:

15. In November 2001, Gentges signed documents to open the 4959 Account, choosing to open it as a numbered account rather than a “name account.” He identified himself as the beneficial owner of the 4959 Account and listed his address in Hawthorne, New York. 

16. Gentges instructed UBS not to invest in U.S. securities, and signed an instruction to UBS stating, “I would like to avoid disclosure of my identity to the US Internal Revenue Service under the new tax regulations. To this end, I declare that I expressly agree that my account shall be frozen for all new investments in US securities as from 1 November 2000.” 

17. Gentges instructed UBS to retain his mail at the bank, for a fee, rather than mailing it to his address in New York. Subsequently, when Gentges would visit the bank in Switzerland—including three instances in 2007 alone—he retrieved his mail and then authorized UBS to destroy the mail that he did not take with him. 

 * * * * 

C. Subsequent Dealings with UBS and Closure of the Accounts 

32. In September 2008, Gentges was informed by UBS personnel that he had to either file an IRS form W-9 or close his UBS accounts by the end of the year. 

33. Instead of filing an IRS form W-9 and/or making a voluntary disclosure at that time, in September and October 2008, Gentges instructed UBS to transfer securities from his UBS accounts to Migros Bank, another financial institution based in Switzerland. 

34. In November 2008, Gentges instructed UBS to transfer all remaining funds in the 4959 Account and the 4337 Account to accounts at Migros Bank. 

35. In November 2008, Gentges instructed that his retained UBS mail be sent to an
address in Lyss, Switzerland. 

* * * * 

D. Examination and Assessment of Civil Penalties

Swisspartners' Principal Avoids Punishment in Switzerland for Turning Over U.S. Client Files to DOJ (9/1/18)

Reuters has this article on a Swiss Asset Manager who reached an NPA with DOJ and turned over U.S. client files.  John Miller, Asset manager who helped U.S. find tax cheats beats Swiss spy charges (Reuters 8/31/18), here.  I reported on the NPA in Swiss Non-Bank Enabler Enters NPA and Cooperates to Identify U.S. Persons (Federal Tax Crimes Blog 5/9/14), here.

Excerpts from  the Reuters article:

A Swiss asset manager who in 2013 provided U.S. prosecutors with more than 100 files from clients suspected of dodging taxes has been cleared of spying-related charges in his home country, recently published Swiss court documents showed. 

 * * * * 

In a 17-page ruling, a Swiss judge concluded there was insufficient evidence to convict him. It was delivered in May, but published only later by the Swiss Federal Criminal Court. Details have not been widely reported, even in Switzerland. 

“It can be presumed in favor of the accused that he believed in the legality of his approach and didn’t consider the possibility that he acted unlawfully for a foreign state,” the ruling said. 

In November 2013, Egli's Swisspartners Group provided records on 109 clients to the U.S. Department of Justice, court documents show, helping his company secure a relatively mild $4.4 million settlement deal with American prosecutors aggressively pursuing tax cheats with wealth stashed abroad. 

The move landed him in trouble in Switzerland, however, where authorities accused Egli of “forbidden actions in the service of a foreign country.” The Swiss attorney general’s office (OAG) sought fines of $275,000.

While U.S. DOJ officials lauded his “extraordinary cooperation” at the time, Egli was criticized at home by some Swiss media for turning over client data as he secured a non-prosecution agreement for Swisspartners. 

* * * * 

Egli’s case is an easy-to-miss footnote among the billions of dollars of U.S. settlements in recent years reached by dozens of Swiss banks over harboring untaxed assets.