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.

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.

Second Circuit Decision Applying Fifth Amendment to Foreign Compelled Testimony (7/19/17)

The Second Circuit issued an important decision today dealing with the use -- directly or indirectly -- of testimony compelled by a foreign government in a U.S. criminal case.  United States v. Allen, ___ F.3d ___ (2017), here. This is not a tax prosecution, but the holding could apply in all U.S. prosecutions, tax or otherwise, where foreign compelled testimony is used.

The opinion is very long and very good.  The Court's summary of the opinion is:

 This case—the first criminal appeal related to the London Interbank Offered Rate (“LIBOR”) to reach this (or any) Court of Appeals—presents the question, among others, whether testimony given by an individual involuntarily under the legal compulsion of a foreign power may be used against that individual in a criminal case in an American court. As employees in the London office of Coöperatieve Centrale Raiffeisen‐Boerenleenbank B.A. in the 2000s, defendants‐appellants Anthony Allen and Anthony Conti (“Defendants”) played roles in that bank’s LIBOR submission process  during the now‐well‐documented heyday of the rate’s manipulation. Defendants, each a resident and citizen of the United Kingdom, and both of whom had earlier given compelled testimony in that country, were tried and convicted in the United States before the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) for wire fraud and conspiracy to commit wire fraud and bank fraud.
While this appeal raises a number of substantial issues, we address only the Fifth Amendment issue, and conclude as follows.   

First, the Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings applies even when a foreign sovereign has compelled the testimony.    

Second, when the government makes use of a witness who had substantial exposure to a defendant’s compelled testimony, it is required under Kastigar v. United States, 406 U.S. 441 (1972), to prove, at a minimum, that the witness’s review of the compelled testimony did not shape, alter, or affect the evidence used by the government.   

Third, a bare, generalized denial of taint from a witness who has materially altered his or her testimony after being substantially exposed to a defendant’s compelled testimony is insufficient as a matter of law to sustain the prosecution’s burden of proof. 

Fourth, in this prosecution, Defendants’ compelled testimony was “used” against them, and this impermissible use before the petit and grand juries was not harmless beyond a resonable doubt. 

Accordingly, we REVERSE the judgments of conviction and hereby DISMISS the indictment

Fifth Amendment and Immunity in Congressional Hearings (3/6/14; 3/11/14)

Since the Darrell Issa witch hunt is back in the news regarding Lois Lerner's invocation of her Fifth Amendment privilege, I thought I would remind readers of the following blog entry earlier when this nonsense flared up.  Invoking the Fifth - the House Oversight Inquisition (Federal Tax Crimes Blog 5/25/13), here.

I now add two excerpts from law review articles -- the first discussing assertion of the Fifth Amendment in a congressional hearing and the second discussing the congressional committee's ability to avoid the Fifth Amendment by getting immunity for the witness.  (Note that the latter is the way that Committee can get Lerner's testimony that Issa and his crew claims is so essential to the  investigation; so one obvious question is why the Committee does not obtain immunity for her; could one answer be that they know the testimony she will give is not as damaging as they can claim if she does not give the testimony; in other words, is she more useful to the conspiracy theorists by claiming the Fifth when the truth to which she would testify is not helpful to their cause?)

Kalah Auchincloss, Congressional Investigations and the Role of Privilege, 43 Am. Crim. L. Rev. 165, 193-195 (2006) (footnotes omitted).

B. Fifth Amendment in a Congressional Investigation 

1. Watkins v. United States: The 5th Amendment Lives 

As noted several times previously, individual rights did not appear to pose a limit on congressional investigatory power until after the era of abuse by HUAC. Despite the importance of the Fifth Amendment, it is interesting to observe that even this explicitly constitutional privilege was not openly recognized by the Court as available to a witness before Congress until the 1950s.  

In Watkins v. United States [354 U.S. 178 (U.S. 1957), here], the Supreme Court granted certiorari to review the conviction of a witness for contempt for declining to answer questions posed to him by HUAC.  Watkins had cited the Fifth Amendment right to remain silent as justification for his refusal to testify. The Court overturned Watkins' conviction, finding that the Bill of Rights applies to congressional hearings just as it does to courts:

It is unquestionably the duty of all citizens to cooperate with the Congress in its efforts to obtain the facts needed for intelligent legislative action. It is their unremitting obligation to respond to subpoenas, to respect the dignity of the Congress and its committees and to testify fully with respect to matters within the province of proper investigation. This, of course, assumes that the constitutional rights of witnesses will be respected by the Congress as they are in a court of justice. The Bill of Rights is applicable to investigations as to all forms of governmental action. Witnesses cannot be compelled to give evidence against themselves.

Third Circuit Addresses Kastigar Requirements After Immunized Testimony (7/19/12)

In United States v. Bagdis, 2012 U.S. App. LEXIS 14672 (3d Cir. 2012), here, cert denied, 2013 U.S. LEXIS 917 (1/22/13), a nonprecedential opinion, the Third Circuit affirmed a taxpayer's conviction for one count of attempting to obstruct the administration of the Internal Revenue Code (§ 7212, 3 year max per count); seven counts of conspiracy to defraud the United States (18 USC § 371, the Klein conspiracy,. 5 year max per count); eight counts of aiding and assisting in the preparation of false tax returns (§ 7206(2), 3 year max per count); three counts of failure to file tax returns or supply information (§ 7203, 1 year max per count); and five counts of failure to file currency transaction reports by a business (31 USC § 5322, 5 year max per count).  (My rough and ready calculation of the permitted effect of "stacking" these to reach the maximum possible sentence indicates a maximum sentence of 90 years.)

In calculating the Guidelines range, the court included an obstruction 2 level enhancement.  The range thus derived was 121 months to 151 months.  The court sentenced to 120 months, but assigned that 120 months to the count for tax obstruction (§ 7212), with the sentencing on the other 26 counts to run concurrently.  The judge must have been asleep at the bench on that one, because the defendants was convicted of only one count of tax obstruction, with a maximum sentence of 3 years (36 months) and sentencing in excess of a count of conviction is a no-no.  (As my calculation above indicates, there is certainly a way to achieve a 120 month sentence, but it cannot be done the way the sentencing judge did it.)  After the parties called the error to the sentencing judge's attention, he then proceeded to make the same genre of error by imposing a sentence of 42 months on an aiding and assisting that had a statutory maximum of 36 months.  [The court of appeals' discussion on this point is less than satisfying, but I decline to speculate further about it; the case was remanded to permit the sentencing judge to get it right this time.]

On appeal, the defendant claimed that the district court had erred by not forcing a Kastigar hearing to prove that the Government had not used immunized testimony.  Kastigar v. United States, 406 U.S. 441 (1972).  The background was that, in its investigation leading to the instant prosecution, the IRS conducted a sting operation on the defendant, a lawyer, who marketed his services as created a labyrinth of corporations to hide taxable income in plain sight.  During that sting operation, the defendant disclosed to the sting agents that the lawyer had given immunized testimony in another district, a phenomenon previously unknown to the investigators.  The immunity had been granted in that separate investigation by letter that "afforded protection that [was] coextensive with, and no less than, formal statutory use immunity" codified at 18 U.S.C. § 6002." A "taint team" was established to insure that, in the current investigation, the IRS used no information from the immunized testimony.  After indictment, the defendant then sought a Kastigar hearing.  (I attach at the end of this blog some materials from the current draft of my Federal Tax Crimes text that explain the purpose of the Kastigar hearing.)

Fifth Amendment Act of Production Privilege and Encrypted Data Files (2/25/12)

In In re: Grand Jury Subpoena Duces Tecum Dated March 25, 2011, 670 F.3d 1335 (11th Cir. 2012), here, the Eleventh Circuit decided an important Fifth Amendment case -- whether the compelled witness has a Fifth Amendment privilege as to any "testimony" inherent in the witness' compelled decryption of his hard disk.  This case was not a tax case.  Rather, the underlying crime investigated related to child pornography.  But the implications in  tax cases are apparent, since tax cases often are based on access to computer files.  Indeed, one of the first exercises in the IRS gaining access to computers in criminal tax investigations (whether by search warrant or otherwise) is to image the disks for access and use in the investigation.  Obviously, access and use are impeded by encryption.

Readers will recall that, although there is not normally a Fifth Amendment privilege as to any documents (including computer files) which a witness has voluntarily prepared, the witness being compelled to produce documents has a Fifth Amendment privilege with respect to testimony inherent in the compelled act of producing those documents (or computer files).  This embellishment on the Fifth Amendment is referred to as the Act of Production doctrine that was developed in two important tax cases -- Fisher v. United States, 425 U.S. 391 (1976); and United States v. Hubbell, 530 U.S. 27 (2000).

Not uncommonly, when a witness asserts the Fifth Amendment, the U.S. Attorney will request a district court to grant an immunity order under 18 U.S.C. §§ 6002 and 6003 which grants the compelled witness immunity with respect to any "testimony."  In the context of pre-existing documents or computer files, as involved in the case discussed here, the only testimony is in the act of production.  An immunity order is supposed to be coextensive with the witness' Fifth Amendment privilege.  In the lingo of immunity, that immunity must be derivative use immunity rather than use immunity.  See Kastigar v. United States, 406 U.S. 441(1972).  I offer the following from my book (varied just slightly):

(b) Derivative Use Immunity. 

As we see from the Kastigar discussion later in this section, is conceptualized as co-extensive with the Fifth Amendment privilege.  The Fifth Amendment privilege may be asserted as to testimony that is not only itself incriminating but that might lead to incriminating information.  This type of immunity prevents the prosecutor from using (i) the testimony given and (ii) any leads developed from the testimony. This type of immunity is called “derivative use” immunity, because of the latter feature.  (Immunity offering only use of the testimony given is called use immunity and is more limited than derivative use immunity.)  This type of immunity may be obtained both by statute or by agreement between the witness and the prosecutor. 

Derivative use immunity is sometimes referred to as “use and derivative use immunity” in order to reinforce that it covers use immunity also  I use the shorter form derivative use immunity for it always entails use immunity, to which we now turn. 

(c) Use Immunity. 

From the defendant’s perspective, this is the worst form of immunity and, correspondingly, from the prosecutor’s perspective, the best if immunity has to be given at all.  This form of immunity prohibits use of the testimony given .  It does not prohibit use of leads derived from the testimony.  Because of significant prosecutorial limitations on derivative use immunity, if the prosecutor is inclined to offer immunity at all, it will usually be use immunity.  Statutory immunity is derivative use immunity, so use immunity is available only by agreement with the prosecutor.   

In Grand Jury Subpoena, the district court's order granted only use immunity under the statute.  Therein lay the rub.  The Eleventh Circuit reversed the district court's holding of contempt for disobeying the use immunity order  because the order was for use immunity rather than derivative use immunity.

Defense Witness Immunity: Prosecutor Discretion and Compelling Testimony of a Reluctant Witness in Criminal Cases (9/6/11)

In criminal cases, the prosecutors often bring charges where third party witnesses could give testimony that might be crucial to the prosecution or the defense. For example, the prosecutors' imagination for the ubiquitous conspiracy charge will often include unindicted co-conspirators, named in the indictment or not. It is not uncommon for those witnesses to be reluctant for a number of reasons, including fear of prosecution if they were to testify or fear of some other type of retribution if they testified. The former, of course, has constitutional dimensions.

At least in the example of unindicted co-conspirators, the prosecutors may be able to use and abuse hearsay statements under FRE 801(d)(2)(E). But, prosecutors may want actually live testimony of the unindicted co-conspirator(s). The prosecutors have a powerful tool to force such testimony by conferring statutory immunity. 18 USC Section 6003 (court "shall" issue the order of statutory immunity upon request of prosecutors). If the witness is important to the prosecutors' case against the named defendants, the prosecution will have the incentive to force the witness to testify upon penalty of contempt and incarceration if he or she does not testify. The prosecutors will often not want to confer immunity if the testimony is less important to the prosecution and the prosecutors want to hold open the possibility of prosecuting the witness in the future. (Technically, the grant of statutory immunity grants only derivative use immunity, but the difficulties of the Kastigar hearing may make prosecution unlikely after the witness testifies under compulsion of statutory immunity (use and derivative use immunity). )