Thursday, January 13, 2022

5th Circuit Reverses Conviction to Have Court Calculate the Foreign Evidence Request Final Action for Statute of Limitations Suspension and, Properly Instructed, Have Jury Determine Whether Criminal Act Occurred in Statute of Limitations as Suspended (1/13/22)

In United States v. Pursley, ___ F.4th ___, 2022 U.S. App. LEXIS 934 (5th Cir. 1/13/22), CA5 here and GS here, the Court reversed Pursley’s judgment of conviction on conspiracy and tax evasion counts because

  • the district court had not calculated the statute of limitations suspension period for foreign evidence requests under 18 U.S.C. § 3292; and
  • the district had not instructed the jury that it must find an overt act/affirmative act within the applicable statute of limitations period as extended by § 3292.

The Court remanded to have the district court (i) calculate the suspension period under § 3292 and (ii) if after that calculation, there are acts that a jury could find were committed in the applicable statute of limitations (calculated with the suspension), to retry the case and submit the issue to the jury as to whether there were such acts.

For an introduction to § 3292, I offer the following from my 2013 Tax Crimes book which was the last time I considered it in detail (John A. Townsend, Federal Tax Crimes, 2013 pp. 463-466 ( 2013 SSRN: https://ssrn.com/abstract=2212771) (note I copy and paste the text without the footnotes, so those wanting the footnotes should download the pdf file; I think this remains a fair summary of the law even today):

b. Foreign Country Evidence.

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

             •          There must be a grand jury investigation.

            •          Incident to the investigation, a request for information must be made to a foreign jurisdiction before the return of an indictment.  The request must be an official request, defined as “a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country.”  I cover below in the text various of these methods for making a request to a foreign country.  In the tax context, perhaps the principal form of the request would be under the double tax treaty, which was one of the devices used in the UBS grand jury investigation to flush out information about UBS depositors.  Effectively, what I call a “John Doe” request was submitted to the Swiss tax administrators for information and documents related to U.S. taxpayers meeting certain criteria.

            •          That request to the foreign authority must be made within the otherwise applicable statute of limitations.

            •          The Government must apply to the district court.  There is conflict in the circuits as to whether this application must be filed before the normal statute of limitations expires.

            •          The tolling period is from the date of the request until the foreign government takes final action on the request.

            •          There is conflict among the circuits as to whether the application to the district court must be filed before the foreign authority’s final action on the request.

            •          The tolling period cannot exceed the lesser of (i) three years or (ii) if the final action from the foreign authority is during the otherwise applicable statute of limitations, for more than six months.

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

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

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

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

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