Saturday, October 2, 2021

Plea Deal with Russian Bank Founder for Tax Perjury Requiring Payment of More than $500 Million (10/2/21)

I previously reported on the Indictment of Oleg Tinkov and move to extradite him.  U.S. Taxpayer Renouncing U.S. Citizenship Indicted And Extradition Started (Federal Tax Crimes Blog 5/11/20), here, where I discussed the DOJ press release.  I noted in the blog that the indictment charged two counts of tax perjury, § 7206(1), although, as his overall conduct was described, it seems that there could be other counts as well for which the grand jury could approve a superseding indictment.

Tinkov has now pled to a single count of tax perjury.  DOJ Press release “Founder of Russian Bank Pleads Guilty to Tax Fraud: Admits to Concealing More Than $1 Billion in Assets when Renouncing U.S. Citizenship and Agrees to Pay More Than $500 Million Penalty” (10/1/21), here.  I tried to access the plea agreement on PACER (Dkt Entry 25), but the link said, “You do not have permission to view this document.”  I suppose it is under seal.  When it is unsealed, it will be available on PACER (fee required) and, likely soon thereafter, free on CourtListener, here.

In the meantime, I offer excerpts from the press release.  I focus first on the damning facts of his conduct:

According to the plea agreement, Oleg Tinkov, also known as Oleg Tinkoff, was born in Russia and became a naturalized United States citizen in 1996. From that time through 2013, he filed U.S. tax returns. In late 2005 or 2006, Tinkov founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides its customers with online financial and banking services. Through a foreign entity, Tinkov indirectly held the majority of TCS shares.

In October 2013, TCS held an initial public offering (IPO) on the London Stock Exchange and became a multi-billion dollar, publicly traded company. As part of going public, Tinkov sold a small portion of his majority shareholder stake for more than $192 million, and his assets following the IPO had a fair market value of more than $1.1 billion. Three days after the successful IPO, Tinkov went to the U.S. Embassy in Moscow, Russia, to relinquish his U.S. citizenship.

As part of his expatriation, Tinkov was required to file a U.S. Initial and Annual Expatriation Statement. This form requires expatriates with a net worth of $2 million or more to report the constructive sale of their assets worldwide to the IRS as if those assets were sold on the day before expatriation. The taxpayer is then required to report and pay tax on the gain from any such constructive sale.

Tinkov was told of his filing and tax obligations by both the U.S. Embassy in Moscow and his U.S.-based accountant. When asked by his accountant if his net worth was more than $2 million for purposes of filling out the expatriation form, Tinkov lied and told him he did not have assets above $2 million. When his accountant later inquired whether his net worth was under $2 million, rather than answer the question, Tinkov filled out the expatriation form himself falsely, reporting that his net worth was only $300,000. On Feb. 26, 2014, Tinkov filed a false 2013 individual tax return that falsely reported his income as only $205,317. In addition, Tinkov did not report any of the gain from the constructive sale of his property worth more than $1.1 billion, nor did he pay the applicable taxes as required by law. In total, Tinkov caused a tax loss of $248,525,339.

JAT Comments:

 1. When plea deals like this require the payment of large amounts, the question is whether the misbehavior actually cost the plea defendant relative to his costs had he not misbehaved?  A partial answer is given in the press release, quoting Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division:  “Today, Tinkov has entered a plea to a felony and agreed to pay more than $500 million in taxes, interest and penalties, more than double the amount of money he sought to escape paying to the U.S. Treasury through his fraudulent scheme.”

 2. One thing that interests me is the question of whether the press release improperly disclosed tax return information.  I have not revisited that issue in some time now, but my recollection is that, for such press releases, DOJ and the IRS rely upon the public disclosures in the criminal case.  My question is whether that justification would apply when some of the information may come from the plea agreement (including the statement of facts usually accompanying a plea agreement) that is filed under seal?  I don’t know the answer but those with a dog in that hunt might be motivated to check it out.

 3. In a quick search for the answer to the tax return information question just noted, I came up with a nice quote from United States v. Zak, 481 F. Supp. 3d 1305, 1310 (N.D. Ga. 2020), here, where the plaintiff involved in syndicated conservation easements complained inter alia about general IRS press releases:

For example, Clark cites a November 12, 2019 news release in which the Commissioner of the IRS, Charles P. Rettig, says, "We will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions." (Counterclaim, Doc. 123 at 120-21.) This statement is full of policy enforcement bravado. But it does not appear to disclose any specific individual's return information or identity — but instead, the IRS's stated goal of stopping the use of allegedly fraudulent conservation easements through litigation.

4.  I noted the following for Dkt. Entry 25, here (emphasis supplied):

Minute Entry for proceedings held before Magistrate Judge Nathanael M. Cousins: Initial Appearance as to Oleg Tinkov held on 10/1/2021. Arraignment as to Oleg Tinkov (1) Count 1-2 held on 10/1/2021. Plea entered by Oleg Tinkov (1) Count 1-2. Oleg Tinkov Not Guilty on counts 1. The Court directs entry of the following Order: Pursuant to the Due Process Protection Act, the Court advised government counsel of the government's disclosure obligations under Brady v. Maryland and its progeny, and that the failure to do so in a timely manner may result in dismissal of the indictment or information, dismissal of individual charges, exclusion of government evidence or witnesses, or any other remedy that is just under the circumstances.FTR Time Zoom: 1:01pm - 1:20pm. (cjlS, COURT STAFF) (Filed on 10/1/2021) (Entered: 10/01/2021)

I had not previously focused on The Due Process Protection Act, enacted in 2020 amending FRCrP 5(f).  The White Collar Crime Prof Blog offers a crisp introduction with links here.  I am not sure that the Act’s requirements have any meaning in a plea deal.  My understanding is that, usually, a client waives any disclosure obligations.  I may poke around that issue more, but I think this item in the plea proceedings was just pro forma because required by the statute on the defendant’s first appearance.


No comments:

Post a Comment

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.