Wednesday, February 27, 2019

Default Judgment Entered Against Convicted Defendant Who Agreed to Penalty (2/27/19)

In  United States v. Sarshar, 2019 U.S. Dist. LEXIS 27845 (C.D.Cal.2019), the court rendered default judgment against Masud Sarshar in the Government's FBAR collection suit to recover a willful FBAR penalty of $18,242,537.65 plus interest.  (I don't provide a link because it is a straight default judgment after the defendant had already agreed to the penalty at sentencing (see below).)

Sarshar had previously pled for conspiracy and tax obstruction and was sentenced to 24 months in prison.  See my prior blogs (reverse chronological order):

  • Taxpayer with Israeli Bank Accounts Sentenced to 24 Months (Federal Tax Crimes Blog 3/13/17; 3/18/17), here.
  • Another Plea to Offshore Account Tax Crimes (Federal Tax Crimes Blog 8/1/16), here.

The sentencing blog entry notes from the DOJ Press Release:
 In addition to the term of prison imposed, Sarshar was ordered to serve three years of supervised release and to pay more than $8.3 million in restitution to the IRS, plus interest and penalties. Sarshar also agreed to pay an FBAR penalty of more than $18.2 million for failing to report his Israeli bank accounts.
Since Sarshar had already agreed to the FBAR penalty, the suit was just a formality required by the 2 year period to file the suit.

11th Circuit Holds Relevant Conduct Loss for Guideline Calculation Can Be Less Than Loss Within Scope of Criminal Conspiracy (2/27/19)

In United States v. Anor, 2019 U.S. App. LEXIS 4858 (11th Cir. 2019), here, Anor was a relatively low level employee in a tax preparation office which prepared and filed hundreds of false and fraudulent tax returns.  She pled guilty to conspiracy to conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349.  In calculating the loss for Sentencing Guidelines purposes, the district court included all the losses related to conspiracy -- being all the losses involved.  The Court of Appeals reversed because the Guidelines' discussion of relevant conduct would be less than the losses within the scope of the criminal conspiracy.  Here is the discussion:
However, "[t]he limits of sentencing accountability are not coextensive with the scope of criminal liability." United States v. Hunter, 323 F.3d 1314, 1319 (11th Cir. 2003). Under the guidelines, liability for the reasonably foreseeable acts of others is limited by the scope of the criminal activity the defendant agreed to jointly undertake. See U.S.S.G. § 1B1.3, cmt. n.2. Therefore, "to determine a defendant's liability for the acts of others, the district court must first make individualized findings concerning the scope of criminal activity undertaken by a particular defendant." Hunter, 323 F.3d at 1319 (quotation marks omitted). "In determining the scope of the criminal activity, the district court may consider any explicit agreement or implicit agreement fairly inferred from the conduct of the defendant and others." United States v. Petrie, 302 F.3d 1280, 1290 (11th Cir. 2002). Once that individualized finding is made, the court can proceed to determine reasonable foreseeability. Hunter, 323 F.3d at 1319. 
Our decision in Hunter illustrates the limits of sentencing accountability for low-level defendants who are convicted of participating in a broader conspiracy. The defendants in Hunter were participants in a counterfeit corporate check-cashing ring that operated in South Florida. Id. at 1316. The ring was composed of three "levels" of participants—two individuals at the top who were responsible for printing the counterfeit checks; three individuals who were responsible for recruiting and occasionally driving the check-cashers (called "runners") to cash the checks; and, at the bottom, nineteen runners. Id. At sentencing, the district court held the three defendants, who were runners, responsible for the total loss of the entire conspiracy, stating that the losses associated with the broader conspiracy were reasonably foreseeable to them. Id. at 1318. 
On appeal, we held that reasonable foreseeability alone was not enough and that the district court erred by failing to "first determine the scope of the criminal activity [the defendants] agreed to jointly undertake." Id. at 1320 (quotation marks omitted). We explained that "the Guidelines establish that the fact that the defendant knows about the larger operation, and has agreed to perform a particular act, does not amount to acquiescence in the acts of the criminal enterprise as a whole." Id. Thus, the fact that the defendants cashed multiple checks, which made them responsible for those checks, did not "automatically" or "necessarily" support a finding that they knew the scale of the conspiracy, "let alone that [they] agreed to the full extent of that criminal activity." Id. at 1320-21. Similarly, the mere fact that one of the defendants identified other runners working for a mid-level operative was "not enough to make her accountable for their conduct" without some other evidence "from which an agreement can be inferred." Id. at 1320. Cautioning that the defendants' "involvement and agreement in the conspiracy may be limited to the checks each actually cashed," we vacated the application of a loss enhancement and remanded for the court to make individualized findings as to the scope of criminal activity each defendant agreed to undertake. Id. at 1322. 
Hunter further elaborated on the types of evidence showing agreement in a larger criminal scheme. See id. at 1321-22. One "relevant factor in determining whether an activity is jointly undertaken is whether the defendant assisted in designing and executing the scheme." Id. at 1321; cf. United States v. McCrimmon, 362 F.3d 725, 732-33 (11th Cir. 2004) (holding a defendant responsible for the entire amount of loss where the defendant, though he did not "design" the scheme, actively recruited investors to further the scheme and had a role equivalent to a higher-level operative). Another is "evidence of sharing or mutuality from which an agreement in the larger criminal scheme can be inferred." Hunter, 323 F.3d at 1322. For example, in United States v. Hall, we affirmed a court's determination that the defendant's relevant conduct included fraud losses caused by others in a telemarketing-type conspiracy where each of the participants knew each other and was aware of the others' activities, and they aided and abetted one another by sharing lead sheets of potential victims and sharing telephones. 996 F.2d 284, 285-86 (11th Cir. 1993).

Thursday, February 21, 2019

Willful Blindness - Is It An Inference of Knowledge or Intent or Is It a Substitute (2/21/19)

I am back on one of my pet peeves -- deliberate ignorance.  (Deliberate ignorance is also called willful blindness or conscious avoidance; in an instruction context it is also called the ostrich instruction.)  I just picked up United States v. Maitre, 898 F.3d 1151 (11th Cir. 2018), here. The Court rejected a claim that the trial court should not have given the deliberate ignorance instruction.  In the course of doing so, the Court said (p.1157):
This Court considers "deliberate ignorance of criminal activity as the equivalent of knowledge."
I just think that is wrong.  If the ultimate element of the crime is actual knowledge or specific intent, a defendant's willful blindness should do no more than permit a jury to infer the required knowledge or intent.  In other words, it is circumstantial evidence of the ultimate element of actual knowledge or specific intent.  A finding that the defendant was willfully blind should not compel a finding that the defendant has actual knowledge or specific intent element of the crime.  Congress has not said that when it requires actual knowledge or specific intent as an element of the crime, anything less will do.

I have written on this before, but just wanted to vent again.

Other blog entries on this:

  • Interesting NonTax Case on Willful Blindness (Federal Tax Crimes Blog 10/3/17), here.
  • The Willful Blindness Concept -- What Does It Do? (Federal Tax Crimes Blog 1/23/17), here.
  • Willful Blindness / Conscious Avoidance and Crimes Requiring Intent to Violate a Known Legal Duty (Federal Tax Crimes Blog 7/21/14), here.
  • More on Conscious Avoidance (Federal Tax Crimes Blog 1/21/13), here.
  • Third Circuit Decision in Stadtmauer - Willful Blindness (Conscious Avoidance) (Federal Tax Crimes Blog 9/10/10), here.

10th Circuit Reverses Tax Money Laundering Conviction For Lack of Sufficiency of Evidence (2/21/19)

In United States v. Christy, ___ F.3d ___, 2019 U.S. App. LEXIS 4594 (10th Cir. 2019), here, the Court opens with this summary:
On May 21, 2014, CNB auditors conducted a surprise audit of the Burlington, Kansas Central National Bank ("CNB" or "Bank") vault. The vault was missing $764,000. When they began to suspect Ms. Christy, she forged documents to purport that she had sent the missing cash to the Federal Reserve Bank of Kansas City ("FRB"). A grand jury indicted her on one count of bank embezzlement, six counts of making false bank entries, six counts of failing to report income on her taxes, and 10 counts of money laundering. After a six-day trial, a jury found Ms. Christy guilty of all charges except four money laundering counts. 
On appeal, Ms. Christy argues that (1) cumulative prosecutorial misconduct violated her due process rights, (2) the evidence was insufficient for her money laundering convictions, and (3) the jury instructions improperly omitted a "materiality" element for the false-bank-entry charges.
Of these three issues identified by the Court, I address on the second -- the money laundering because it is tax money laundering, not commonly encountered.  The prosecutorial misconduct issue is interesting but so long (from p. 9 to p. 39) that I did not delve deeply into it.

I also address an issue discussed by the majority in the first footnote (spanning from p. 2 to p. 3) regarding whether, even with counts of conviction reversed because the Guidelines calculations would be the same.

Tax Money Laundering.

The Court offers this additional procedural background (p. 40):
The jury found Ms. Christy not guilty of the four money laundering counts based on loan payments the Christys made before 2014 (Counts 14-17). The cash payments underlying Ms. Christy's six money laundering convictions (Counts 18-23) were made on two loans in the Christys' names at the Farmers State Bank in Aliceville, Kansas. 
Count 18 charged Ms. Christy with money laundering for making a $1,000 payment on March 17, 2014 on Loan 7521, a home loan that originated in 2011 and called for a minimum monthly payment of $600. With one exception, a payment of $1,848 that was not charged in the indictment, every one of the Christys' payments on Loan 7521 in 2013 and 2014 was $1,000. Counts 19-23 concerned cash payments on Loan 7962, a refinancing agreement for the Christys' home loan. n13 Ms. Christy was convicted based on five cash payments on this loan made between March 17, 2014 and May 12, 2014, ranging from $834.49 to $3,200 and averaging approximately $2,167. 
Ms. Christy filed a motion for acquittal on the money laundering counts at the close of the Government's case, arguing there was insufficient evidence to show that her loan payments were made with embezzled funds. She did not argue that [*45]  there was insufficient evidence of specific intent. She renewed her motion at the end of trial. The district court denied the motion, stating, 
A reasonable jury could infer from the circumstantial evidence presented at trial that the cash used to make these loan payments came from funds that Ms. Christy had embezzled from the vault at CNB and that Ms. Christy conducted the financial transactions with the intent to file a false income tax return in violation of 26 U.S.C. § 7206(1).
The issue was whether the evidence was sufficient to show that Christy had the required "intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986."  Section § 1956(a)(1)(A)(ii).  The Government argued that two types of acts were sufficient:

Wednesday, February 20, 2019

UBS Fined $4.2 Billion for Its French Foreign Account Escapades Raiding France of Taxes (2/20/19)

Liz Alderman, French Court Fines UBS $4.2 Billion for Helping Clients Evade Taxes (NYT 2/20/19), here.

The lavish spending caught up with UBS on Wednesday, when French judges ordered it to pay a record 3.7 billion euro fine, about $4.2 billion, for carrying out what prosecutors said was a long-running scheme to help French clients hide huge sums of money from the authorities. 
The penalty, the largest in French history, included €800 million to be paid to the government, which said it had lost revenue as a result of UBS’s helping French citizens evade taxes from 2004 to 2012. 
UBS said in a statement that it “strongly disagrees with the verdict” and that it planned to appeal. “The bank has consistently contested any criminal wrongdoing,” the statement said, adding that the judgment was “not supported by any concrete evidence.” 
The ruling coincides with crackdowns on tax evasion in France and other countries that have put Swiss banks in particular on the defensive. 
UBS paid a $780 million fine in the United States in 2009 to resolve accusations that it had helped rich clients dodge taxes, and pledged to divulge the names of over 4,450 people with Swiss bank accounts. Credit Suisse was fined $2.6 billion by the Justice Department in 2014, and €300 million by France in 2017 in similar cases

Federal Tax Procedure Book Update on Tax Crimes (2/20/19)

Today, I completed revisions to the Tax Crimes section of my Federal Tax Procedure Book so that I could circulate to Jim Malone's Tax Practice and Procedure class to UVA Law School where I will guest teach the subject next week.  I have  circulated it to class members.  Readers of this blog can download it here.  A related spreadsheet is available here.

As always, I would appreciate feedback from readers for improvement.

The next editions of the FTPB will be published in early August 2019.