The Michael Cohen Information and Plea - Some Comments (8/21/18)

I offer a few comments on the Michael Cohen plea that is much in the news.  The USAO SDNY press release is here.  The criminal information is linked on the press release.  The press release is quite detailed, as perhaps the defendant involved and the circumstances require.

The criminal information and resulting plea is to 8 counts as follows (as corrected 8/22/18 2:40pm):

				Convicted	Max.
Code	Section	Description	Mos.	Counts	Mos.
26	7201	Tax Evasion	60	5	300
18	1014	False Statements to a Bank	30	1	30
52	30118(a) and 30109(d)(1)(A)	Causing Unlawful Corp. Contribution	60	1	60
52	30118(a) and 30109(d) (1) (A)	Excessive Campaign Contr.	60	1	60
Total				8	450
I omit from the Counts of Conviction aider and abettor or causer liability
under 18 U.S.C. § 2 (which just makes the person a principal)

Of course, all the buzz is about the relationship of the conduct charged in the counts and Trump.  Cohen was Trump's personal lawyer, I think until fairly recently.  I won't go into the political aspects of that.  Rather, I will go into what this may mean in terms of Cohen's providing information to the Special Counsel.  Basically, this involves him providing or being required to provide information about Trump.

Cohen made a straight up plea to the criminal information.  The prosecutor promised him nothing in return.  That is not the way pleas are normally done in tax and other white collar crime cases of which I am familiar. Normally, once the prosecutor has gotten the proverbial pound of flesh against the particular defendant, the prosecutor will agree not to prosecute other potential charges.  I am certain that there are a number of other charges that the prosecutor could have made.  The prosecutor has not agreed to forgo such additional criminal charges.  Now, in order to induce the prosecutor to forgo such other indictments, the defendant usually has to offer to cooperate against the bigger fish, which seems to be floating around this case.  Cohen did not agree to such cooperation in this case.

Does that mean that Cohen will not have to give testimony about Trump?  No.  Because there is the possibility of other charges, Cohen can certainly plead the Fifth Amendment privilege not to testify if called by the Special Counsel.  But, since the federal government has gotten a substantial conviction by plea thus, presumably, satisfying its prosecution angst against Cohen, the Special Counsel can obtain immunity for Cohen and force him to testify.  Of course, if Cohen then refuses to testify, the Court can send him to jail for contempt which, I suspect, would be an add on on the front end or back end to the sentence Cohen will draw for the counts of conviction to which he just pled.

And, of course, if Trump were to pardon Cohen, the same analysis would apply.  Cohen then has no fear of prosecution and cannot properly invoke a Fifth Amendment privilege. (I suspect that the Special Counsel would, just for caution, give him immunity anyway to further confirm that Cohen has no Fifth Amendment privilege he can assert.)

Upward Variance Not Asserted by Government Sustained on Appeal (4/16/17)

In United States v. Nguyen, ___ F.3d ___, 2017 U.S. App. LEXIS 6390 (5th Cir. 2017), here, Nguyen was charged by information, here, with a single count of aiding and assisting a false corporate return and pled guilty to that single count.  The plea agreement is here.  The final Guidelines calculation indicated a range of 21-27 months.  The maximum sentence based on the sole count of conviction was 36 months.  The Probation Officer informed in the Court in PSR of apparent structuring conduct and recommended an upward departure based on Sentencing Guidelines § 4A1.3, here, for an underrepresented criminal history or under Sentencing Guidelines § 5K2.21, here, for uncharged conduct.  The district court did not accept the recommendation, but did consider the conduct in question in exercising its Booker discretion under 18 USC § 3553(a), here, to make an upward variance to the maximum allowable sentence of 36 months.

I cut and paste much of the opinion because, I think, I could not improve on it.  After that I offer some comments.

Nguyen, the owner of a wholesale salon equipment business, was charged with aiding and assisting in the preparation of a false and fraudulent corporate tax return. He pleaded guilty pursuant to a written plea agreement and entered into a settlement agreement with the Government, wherein he agreed to forfeit $1,100,000 in seized funds. In preparing the presentence report ("PSR"), the probation officer determined that Nguyen had a total offense level of 13 and a criminal history category of I, resulting in an advisory Guidelines range of 12-18 months. However, the probation officer also noted that Nguyen appeared to be involved in unlawful structuring activities n1: IRS agents found over $4,900,000 in structured deposits made by third parties to bank accounts registered to Nguyen or his family members. Moreover, during a raid of Nguyen's business, IRS investigators found $3,215,703 in currency- most of it separated into $10,000 bundles-whose source could not be determined. In paragraph 87 of the PSR, the probation officer suggested the structuring activities could warrant an upward departure under U.S.S.G. § 4A1.3 for an underrepresented criminal history or under U.S.S.G. § 5K2.21 for uncharged conduct.
   n1 A person "structures" a transaction if he, acting alone or in conjunction with others, "conducts or attempts to conduct one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading . . . reporting requirements." 31 C.F.R. § 1010.100(xx) . Section 5324 makes it a crime to "structure or assist in structuring, or attempt to structure or assist in structuring," a transaction to avoid § 5313's requirement that financial institutions file a currency transaction report ("CTR") with the government for all cash transactions exceeding $10,000. 31 U.S.C. §§ 5313(a); 5324(a)(3); United States v. Rodriguez, 132 F.3d 208, 212 (5th Cir. 1997). 

Nguyen objected to the suggestion that an upward departure may be appropriate, and the Government agreed that there was insufficient evidence to prove that he had structured or directed the structuring of deposits into his bank accounts. The district court, however, entered an order tentatively concluding that Nguyen's objections to the upward departure were without merit. The district court suggested that it would reject the plea agreement, including the forfeiture settlement, and that Nguyen should receive a sentence above the advisory Guidelines range, given the probability that he knew of the structured deposits being made into his accounts and the Government's failure to prosecute him for that crime. 

At the first sentencing hearing, the district court conducted an evidentiary hearing to determine whether Nguyen had participated in illegal structuring activities. The district court questioned three witnesses. Oanh Nguyen, Defendant-Appellant's wife, testified that the new business bank accounts Nguyen had opened at Chase Bank ("Chase") and Wells Fargo were not an attempt to evade the law but rather a result of his decision to restructure the company after their son decided to leave the business. IRS Special Agent Alan Hampton and IRS Task Force Officer Alison Turner then testified about the investigation into Nguyen's financial activities. Afterwards, the district court accepted the plea agreement but expressed its belief that there was sufficient evidence to conclude that structuring activities occurred, that Nguyen was aware of the illegal transactions, and that he aided and abetted the deposits. The Government, while agreeing there was enough evidence to show that the funds were structured, expressed doubt that there was sufficient proof by a preponderance of the evidence to show that Nguyen himself assisted in the structuring. 

At the second sentencing hearing, the district court sustained Nguyen's objection to an upward departure as detailed in paragraph 87 of the PSR. The district court also concluded that Nguyen was not entitled to a reduction for acceptance of responsibility, which resulted in a newly applicable Guidelines range of 21-27 months. Taking into account the 18 U.S.C. § 3553(a) factors, the district court then sentenced Nguyen to 36 months in prison, to be followed by a one-year term of supervised release and payment of a $250,000 fine. The district court acknowledged the Government's doubt as to whether Nguyen participated in structuring activities, but explained that it had reached a different conclusion based on its examination of the evidence and provided a lengthy explanation as to why "it [was] more likely than not that [Nguyen] committed the offense of structuring." In support of its decision, the district court cited, inter alia, Nguyen's dishonesty in underreporting his taxable income for multiple years; the connection between the investigation into his structuring activities and the discovery of tax fraud; and that Nguyen was able to retain "millions of dollars" that could have been subject to forfeiture had the Government pursued forfeiture proceedings. The district court rejected Ms. Nguyen's explanation for why the new bank accounts were opened and noted that Defendant-Appellant gave conflicting explanations to IRS investigators as to whether funds seized from his business were bank withdrawals. In its thirteen-page Statement of Reasons ("SOR"), the district court reiterated these conclusions and detailed the factors that influenced it to impose an above-Guidelines sentence. Nguyen timely appealed.

More on Light Sentencing for Offshore Account Tax Crimes (3/5/15)

I wrote yesterday on an offshore conviction (Another UBS Client Sentenced Lightly (Federal Tax Crimes 3/4/15), here).  I commented that offshore tax crimes get punished lighter than ordinary tax crimes.  Today, I was going through some cases I had shelved and found one recent case that offers a contrast.

In United States v. Jones, ___  F.3d ___, 2015 U.S. App. LEXIS 3263 (8th Cir. 2015), here. the defendant was an ordinary tax cheat convicted under Section 7201, here, of evasion of payment.  Owing tax, he took numerous acts to avoid the IRS learning of and seizing his assets to pay the tax liability.  He was indicted for tax evasion.  He pled guilty.  His base offense level was 20 which means that the tax loss was more than $400,000.  See SG §2T4.1. Tax Table, here.   He received the sophisticated means 2 level increase.  See SG §2T1.1.(b)(2), here.  He then received the 3 level reduction for acceptance of responsibility.  See SG §3E1.1, here.   His offense level for the range calculations in the SG 5, Part A, here, was 19, producing a sentencing range of 30-37 months.  The sentencing judge used his Booker variance discretion to vary downward to 24 months imprisonment.  That sentence is 80% of the bottom of the Guidelines range.

Yesterday, I blogged on the sentencing of Gregg A. Kaminsky, an offshore tax evader.  Another UBS Client Sentenced Lightly (Federal Tax Crimes 3/4/15), here.  Although, I have not reviewed the underlying sentencing documents, I can construct his Guidelines calculations from the press release. Prior to doing so, I note that he pled guilty to an FBAR crime but the FBAR crime related to tax evasion.  Hence, his Sentencing Guideline calculations were apparently determined under the tax Guidelines.  I am not sure that this is correct for FBAR violations, but that seems to be the mainstream way of calculating the Guidelines for FBAR violations.  According to the press release, the tax loss was approximately $125,000, thus making his base offense level 16 under §2T4.1, here.  He would be subject to the sophisticated means enhancement under SG §2T1.1.(b)(2), here,  thus making  his offense level 18.  He would then qualify for the acceptance of responsibility 3 level reduction.  See SG §3E1.1, here.  His offense level for the sentencing table was thus 15, making his Guidelines range 18-24 months.  See SG 5, Part A, here.  The sentencing judge sentenced Kaminsky to 4 months in prison.  That sentence is about 22% of the bottom of the Guidelines range.

I am not sure that the conduct each undertook to effect their objective of tax evasion is materially different to explain the differences in their sentences.  Both behaved very badly.  Yet, the offshore tax evader got a relatively lighter sentence compare to their respect Guidelines ranges.

Many offshore violators receive no incarceration.  One explanation for some of the light sentences could be demographics.  Persons who amass the type of wealth that is likely to draw prosecutorial discretion to prosecute are older and thus not ideal candidates for incarceration.  See also §5H1.1. Age (Policy Statement), here, providing that " may be relevant in determining whether a departure is warranted, if considerations based on age, individually or in combination with other offender characteristics, are present to an unusual degree and distinguish the case from the typical cases covered by the guidelines."  Since age is recognized for potential departure in the Guidelines, I am sure it is considered also in exercise Booker discretion.  But, of course, that does not explain Kaminsky's light sentence and its seeming discrepancy compared to Jones' relatively heavier sentence.

Finally, these two instances are anecdotal.  Standing alone, they are not the basis for conclusions as to the universe of tax crimes sentenced.  Nevertheless, there is sufficient data from which a fair inference can be drawn that offshore tax cheating  is the preferred tax cheating based on sentences imposed.  (See my spreadsheet here which is long overdue for an update.)  Lighter sentencing for offshore tax crimes is the fact.  I ask whether that is right.

DOJ Requests Tougher Sentencing for Tax Crimes Involving Offshore Accounts (7/13/13)

DOJ has sent the U.S. Sentencing Commission its annual report "commenting on the operation of the sentencing guidelines, suggesting changes to the guidelines that appear to be warranted, and otherwise assessing the Commission's work."  The report is here.  The following is the excerpt on tax crimes involving offshore banks (footnotes omitted).

F. "Hidden Foreign Bank Accounts" Involved in Tax Crimes 

By law, U.S. taxpayers are required to report worldwide income from all sources, including income from offshore accounts. Similarly, the law requires a U.S. taxpayer to report to the U.S. Treasury Department his or her foreign accounts with balances in excess of $10,000 as to which he or she has certain ownership interests and/or control. The use of bank or investment accounts maintained in a tax haven with strict bank secrecy laws is often done less for customary investment purposes (due to low rates of return and high fees) than because it increases the difficulty of U.S. law enforcement agencies to discover the accounts and enforce U.S. laws. 

Our national tax enforcement program is enhanced when wrongdoers are appropriately sentenced, and those who would contemplate engaging in similar conduct are deterred. Conversely, the program is impaired and tax revenue is correspondingly lost when the offshore cases that are criminally prosecuted result in sentences that do not deter continued evasion. For example, where there is insufficient evidence to prove that the assets in an offshore bank account are themselves untaxed income, the tax loss (which determines the guideline offense level) is limited to the income earned on the offshore account, which can be low even if the account balance is high (as a result of low rates of return and high fees charged in exchange for the secrecy procured). 

We propose that the Commission amend the commentary in §2T1.1 to recognize that an upward departure may be warranted where the tax loss, the customary proxy for harm in tax-related cases, substantially understates the seriousness of the offense. We believe a provision patterned after Application Note 19 in §2B1.1 would best accomplish this and be most consistent with the current guideline structure. We propose a new Application Note 8 to §2T1.1 as follows: 

8. Upward Departure Consideration—There may be cases in which the offense level determined under this guideline substantially understates the seriousness of the offense. In such cases, an upward departure may be warranted. 

For example, a defendant who willfully fails to disclose an offshore bank account may have unreported income from the account that is relatively small in comparison with the value of the assets hidden, as a result of low rates of return and high fees charged in exchange for the secrecy procured. In such a case, the tax loss table in §2T4.1 may produce an offense level that substantially understates the seriousness of the offense. If so, an upward departure may be warranted.

Airline Pilot Shot Down at Sentencing (9/11/12)

DOJ Tax issued a press release, here, announcing the sentencing of an airline pilot to a whopping "120 months in prison for committing tax fraud."  Actually, the convictions were for filing counts of "10 counts of filing false tax returns and one count of obstructing the IRS."  It is unclear from the press release the precise nature of the 10 counts of conviction, but, as described in the quote, those counts appear to be Section 7207 counts.  Section 7207 is here and is titled "Fraudulent Returns, Statements, or Other Documents."  Section 7207 is a misdemeanor permitting a maximum sentence of 1 year per count.  With the tax obstruction count under Section 7212, here, a 3-year count, the maximum incarceration permitted for all counts of conviction was 13 years (156 months).  Still, 120 months is a very large sentence in tax cases.

Trying to reconstruct the Guidelines calculation, the restitution ordered for the IRS was $538,569.  Hence the tax loss was at least $538,569.  (It may well be that the defendant had already paid some of the tax loss, so this should be a minimum and there may be a $1.5 million addition as noted below.)  And, the defendant also appears to have fraudulently underpaid state taxes of $150,000 which may have been considered relevant conduct..  So, I am going to estimate (unscientifically) that his tax loss was at least $900,000, which would produce a Base Offense Level of 20.  Since the income appeared to be legal income, the only Specific Offense Characteristic that might apply would be sophisticated means and, as described, his conduct does not appear to have used sophisticated means.  The only other adjustment might be obstruction, which would add 2.  So, the Sentencing Table will produce a guidelines range of 51-63 months.  It would thus appear that the judge departed or varied upward -- a rarity in a tax case.

However, there is one ringer.  The defendant filed fraudulent delinquent returns "requesting fraudulent refunds from the IRS in amounts up to approximately $1.5 million."  So, his tax loss probably was more in the range of $2.4 million, which would indicate a Guidelines level of 26 and an indicated sentencing range of 63-78.  This would still indicate an upward departure or variance.