Posner and Yoon on What Judges Think of the Qualify of Legal Representation in Federal Criminal Cases

I just reviewed Richard A. Posner and Albert H. Yoon, What Judges Think of the Quality of Legal Representation, 63 Stan. L. Rev. 317 (2011). I thought some snippets from the article about federal criminal cases might be interesting to readers (some is repetitive, depending upon context in the article; also some footnotes are omitted):

[pp. 319-320]

We found that judges perceive significant disparities in the quality of legal representation in criminal cases, and that these disparities occur in 20% to 40% of the cases they hear. Federal judges generally rate prosecutors as comparable in quality to public defenders and significantly better than court-appointed counsel or retained counsel.

First Circuit Case on Relevant Conduct and Conditions of Supervised Release.

In United States v. Thomas, 653 F.3d 13 (1st Cir. 2011), here, the defendant had a long history of failure to file, failure to pay, and various acts of tax obstruction during the period. For years, the Government tried to work with him to get him into compliance, but finally gave up and brought criminal charges for six counts of evasion of assessment. That led to a lengthy saga in the district court, which the district court characterized as the most "difficult" case it had ever managed. The defendant finally pled guilty to a single count of evasion of assessment and the other counts were dismissed. The district court imposed a sentence of 24 months' imprisonment. The court also imposed restitution for the plea year (presumably pursuant to the plea agreement, since restitution is not allowed for tax crimes). On appeal, the defendant complained only about the district court's inclusion in the tax loss calculation of penalties and interest for nonplea years which drove his Base Offense Level up substantially and the district court's requirement that the defendant file delinquent returns and pay back taxes as a condition of his eventual supervised release. I cover those items briefly.

Judge Smells a Rat in Government's Use of Tax Loss Presumption for Restitution

The tax loss is the principal determinant in tax Guidelines sentencing calculations. The Guidelines "contemplate that the court will simply make a reasonable estimate based on the available facts." SG 2T1.1, Application Note 1. Where the tax loss is not "reasonably ascertainable," the sentencing court may use certain "presumptions" to estimate the tax loss "unless the government or defense provides sufficient information for a more accurate assessment of the tax loss." Id. And, SG 2T1.1(c)(2)(A) provides that "If the offense involved failure to file a tax return, the tax loss shall be treated as equal to 20% of the gross income * * * less any tax withheld or otherwise paid, unless a more accurate determination of the tax loss can be made."

Restitution is a different concept designed to make the victim of the crime whole. Although, in tax cases, the tax loss and the restitution amount is often -- perhaps usually -- the same, it is not necessarily the same because the tax loss can, in some cases, include tax loss the defendant intended but never realized whereas restitution is allowed only for the realized tax loss.

Avoiding the Stipulations in a Plea Agreement for Purposes of Sentencing (2/12/01)

In United States v. Gillen, 2011 U.S. Dist. LEXIS 12606 (WD PA 2/9/11), the defendant entered a plea agreement in which he stipulated to the tax loss involved for purposes of the Guidelines Offense level in S.G. 2T1.1 and 2T1.4 (Tax Table). This is all routine stuff. Prior to sentencing, however, the defendant notified the Government that he would attempt at sentencing to prove a lower tax loss. The Government cried foul and move to enforce the stipulation.

The district court agreed that the defendant's attempt to avoid his stipulation for purposes of the Guidelines calculation would be foul. But, the court reasoned, the Guidelines are just advisory and the court has an obligation to determine a fair sentence under 18 USC § 3553(a). The plea agreement did permit the defendant to urge a variance under 18 USC § 3553(a). So, the district court concluded (footnote omitted):

The Mass Document Dump and the Prosecutors' Brady Obligations (2/11/11)

In United States v. Ohle, 2011 U.S. Dist. LEXIS 12581 (SD NY 2011), here, aff'd 2011 U.S. App. LEXIS 21275 (2d Cir. 2011), the defendants moved for a new trial, complaining that the prosecutors violated their Brady obligations. Prior to trial, the prosecutors turned over to the defendants a massive quantity of documents that the Government had obtained from Jenkins & Gilchrist (J&G). The format for the turn over of documents was a Concordance database, in which the documents were viewable and searchable. The prosecutors thought that all J&G documents were in the database. After trial, at the Fatico sentencing hearing, the prosecutors admitted that the turn over did not include approximately 110 boxes. The principal question presented was whether the 110 boxes contained Brady material that should have been disclosed contained Brady material that should have been disclosed, but a related question was whether a mass document disclosure without specifically identifying the Brady material was appropriate. The court, Jed Rakoff, rejected the claim, finding no Brady violation.

I address only the larger issue of the ground rules for the prosecutors' obligations when making mass document disclosures, often referred to as an open file policy. In large white collar cases, including large tax crimes cases (such as Ohle and the KPMG related criminal cases), the turnover of massive quantities of documents is common. The Court had an interesting discussion of the ground rules that apply. I quote (footnote omitted):

Another Sentence To Consider When Thinking of Sentencing Disparities

DOJ Tax CES touts this sentence on its web site here. The read on the site is short, so I encourage readers to look at it. Here's the guts of it though:

1. Plea to mortgage fraud (5 year count) with "total bank fraud loss, which included relevant conduct stemming from additional frauds that Shaffer perpetrated upon other banks, was $2,688,571.93."

2. Plea to tax evasion count (5 year count) with total tax loss (including relevant conduct for nonplea years, $536,228.77.

3. Plea to failure to collect, account for and pay over employment taxes (5 year count) with total tax loss, including relevant conduct, $272,209.14.

Sentence 51 months.

Compare this sentence with Mr. Thorson's. See here and here.

New Statute for Civil Effect of Restitution in Tax Cases (2/11/11)

Tax crimes afficionados know that restitution is not available for a Title 26 tax crime of conviction but is available if the crime of conviction, although related to tax, is under Title 18 (often the Klein conspiracy or even a conspiracy to commit a tax offense). The exceptions for Title 26 crimes of conviction permit restitution: (i) if the defendant agrees to restitution in a plea agreement; or (ii) if the court imposes restitution as a condition of some benefit given the defendant (e.g., probation). Even when permitted, restitution has been just an order of the court which is not self-executing and requires some collection efforts by the Government unless the defendant pays voluntarily which most defendants will pay before sentencing if they can in order to get the extra juice in for the judge's sentencing discretion.

Tax crimes afficionados also know that the reason restitution is not generally available for tax crimes under Title 26 is that the IRS has elaborate civil mechanisms to collect taxes, which is after all (at least in the criminal amount) the basis for restitution in criminal tax cases (whether under Title 26 or Title 18). From a civil perspective, most taxes involved in tax crimes are subject to the notice of deficiency requirement, permitting a taxpayer to contest in the Tax Court before the IRS actually assesses the tax and can deploy its collection mechanisms. Since the notice of deficiency is generally issued after the criminal tax case is finally closed, the notice of deficiency and Tax Court procedures with the prohibition on assessment often meant that the taxes reflected in the order of restitution were not assessed for years and the collection mechanisms in the Code were postponed for years.

Congress recently enacted a statute to make collection restitution for unpaid tax more efficient. Section 3(a) of P.L. 111-237, effective for restitution orders entered after August 16, 2010, amends Title 26 as follows (§ references are to Title 26 as amended):

IRS Announces Second Special Voluntary Dislcosure Initiative for Offshore Accounts

The IRS announced today a special voluntary disclosure program. For now, I will just link to the announcement here. and provide only the bullet points I see with no (or very limited) editorial comment:

1.  The deal is available through 8/31/11.  (Note, however, taxpayers must "file" the required amended income tax returns discussed in paragraph 3 below by 8/31/11, so last minute decisions to join the program apparently will not work, particularly in light of the lead time required to obtain documents from foreign banks.)

2.  The in lieu of FBAR penalty is 25% of the highest aggregate balance in the foreign account(s) from 2003 to 2010.  Some taxpayers will be eligible for lower penalties. 

3.  Taxpayers must amend all affected income tax returns during the years 2003 - 2011 and pay the resulting taxes, pay either a 20% accuracy related penalty in the case of filed returns or the up to 25% failure to file penalty in the case of unfiled returns, and pay interest on both.  These returns must be filed by 8/31/11.  Some taxpayers will be eligible for lower penalties.

4.  A 12.5% penalty rate will apply if the aggregate balance did not exceed $75,000 in any of the years from 2003-2010.  Presumably this lower rate will be both for the in lieu of FBAR penalty and the income tax penalty.  There is also mention of a 5% rate in "limited situations."

Additional Information from IRS:
IRS / Shulman Announcement of OVDI Program
2011 OVDI Frequently Asked Questions (pdf)
2011 OVDI Frequently Asked Questions (link to IRS site)
How to Make a Voluntary Disclosure
Voluntary Disclosure Contacts

As Corrected 2/9/11

Can I Just Pay and Make the Investigation / Prosecution Go Away?

Criminal tax practitioners often are asked early in the representation (and often more than once) whether, if the client under investigation or being prosecuted, simply pays the tax involved -- even with interest and penalties -- will the problem simply go away. The answer that I give to this is no. (Actually, depending upon the facts and if it is early on in the investigation, the answer may be more nuanced than an outright unequivocal no, as I note later in the blog) As I have sometimes explained after giving the answer no, the investigating agent or prosecutor really does not care whether the taxes are ever paid; he or she wants a conviction.

In United States v. Quinn (D. Kansas 2/3/11), the defendant tried to make the case go away by paying the tax. The defendant was prosecuted under § 7202 Willful failure to collect or pay over tax, the criminal analog to the civil trust fund recovery penalty, § 6672. Failure to collect and pay over tax, or attempt to evade or defeat tax (sometimes called the responsible person penalty). After being indicted, the defendant paid the amount for which she was charged and moved to dismiss. The district court denied the motion to dismiss.

First Sentencing in Offshore Case that Went to Trial (2/5/11)

Maricio Cohen Assor and Leon Cohen-Levy, previously blogged here, were sentenced yesterday. I include below links to the SD FL USAO press release and some articles, but here are the bullet points I found interesting:

1. Each was convicted of one count of conspiracy (Klein conspiracy) under 18 USC 371 and 2 counts of filing false tax returns under 26 USC 7212.  The maximum permissible sentence for those counts of conviction was 11 years each.

2. Each received 10 years incarceration (mitigated only if they qualify for the rather minimal good time benefit).

Walter Anderson -- The Fight Continues (2/2/11)

The Walter Anderson saga continues with a decision by the Court of Appeals for the District of Columbia Circuit United States v. Anderson, 2011 U.S. App. LEXIS 1651 (D.C. Cir. 1/25/11). Those wanting some discussion of the saga might do a Google search; my quick search turned up thousands of items, including the following two: the Wikipedia entry here and the JusticeforWalt entry here. (Those wanting a less biased discussion might focus on the Wikipedia entry.) For present context, his case was one of the largest tax crimes case (in terms of tax loss) ever, and perhaps the largest individual tax crimes case. (Some of the marketed tax shelter criminal cases involved more tax loss because more taxpayers were involved.)

At any rate, the new decision arises from his prior conviction. The conviction was affirmed but remanded. United States v. Anderson,543 F.3d 1072 (D.C. Cir. 2008). In part here relevant, the earlier opinion permitted plea agreement restitution even though (i) the plea agreement cited the wrong Title 18 section, a phenomenon the Government urged and the court held was a scrivener’s error that did not vitiate the parties’ meeting of the minds to agree to restitution; and (ii) the plea agreement did not state an amount for restitution.

Another Indictment with Allegations Reputedly of Activity by HSBC and Its Bankers

The Government has obtained another indictment of one Vaibav Dahake, a U.S. depositor in an offshore financial institution. The indictment is a for a single conspiracy count.  The indictment contains the standard allegations -- a U.S. depositor, a tax haven (BVI) entity with bearer shares to hide the activity, an "international bank" (reputed to be HSBC) and a U.S. division of the international bank (this element is standard to date, but perhaps not so standard in the future with other banks who avoided overt U.S. presence). The U.S. division allegedly marketed Indian banking services to U.S. persons of Indian descent. Mr. Dahake allegedly had bank accounts in BVI and India that he did not report on an FBAR.

And, since the Government now seems to be focusing on the enablers, the indictment names 5 alleged bank related co-conspirators -- 3 U.S. bankers and 2 India bankers, all connected with the international bank.

Sentencing Disparities

I just posted a discussion of the Thorson case here and earlier posted a discussion of the Quellos principals' sentencing here.  For conduct that does not appear dissimilar except that the Quellos' defendants conduct (including relevant conduct) involved far more tax loss, Thorson got 108 months and the Quellos defendants got 50 months.  And, one of the Quellos defendants, like Thorson, was an attorney who failed in his responsibilities as an attorney as fully as did Thorson.  Yet, the sentencing courts imposed incredibly disparate sentences.  While that is certainly possible in a post-Booker world, I am not sure it is to be lauded.  Which, if any of those sentences, are appropriate may depend upon the eye of the beholder, but it does seem to the eye of this beholder that there is some basic unfairness in the existence of that type of disparity.

Addendum 1/30/11 4:26pm:  Let me add this one also, where for a bogus tax shelter, the lawyer got 18 months in prison.  See DOJ Press Release of 1/28/11.

When is Producing False Documents Under Compulsion Obstruction?

In United States v. Thorson, 633 F.3d 312 (4th Cir. 2011), the Court (at least the majority) rejected the defendant's attempt to avoid the sentencing enhancements imposed by the sentencing court. I thought one of defendant's argument was worth commentary here.

The defendant, a lawyer, assisted in a bogus tax shelter.  Key elements of the bogus shelter involved (i) the backdating of documents to make cemetery lots contributed to charity appear as if they had been purchased and held for longer than a year and (ii) the inflation of the values of the donated cemetery lots. Defendant routed his share of the ill-gotten gains through a corporation and created various documents, some backdated, related thereto. In 1998, in response to the IRS "formal request" (presumably an IDR), the defendant produced documents, one of which he prepared after receiving the IDR. Thereafter, a grand jury investigation started and, in response to a grand jury subpoena, the defendant produced that false document and another false document that had been prepared before either the IRS or the grand jury investigation started. Stated otherwise, none of the documents produced in response to the grand jury subpoena were falsified after the date of the grand jury subpoena.

Quellos Principals Sentenced

Yesterday, the United States Attorney's Office for WD WA announced here the sentencing off Jeffrey Greenstein, for CEO of Quellos Group, LLC, and Charles Wilk, head of Quellos' private client group (he was also a tax attorney). They each received 50 months in prison. (I have previously blogged on Quellos here).

Greenstein and Wilk were convicted of crimes involving transactions that never occurred and structures that were never implemented. From the press release:

Greenstein and Wilk did not tell clients, or the attorneys who evaluated the proposals, that the POINT transaction was predicated on a sham. They knew but did not disclose that there was no offshore investment fund, and that no shares of stock were actually purchased and possessed by any offshore investment fund. They knew that the purported offshore investment fund was merely a shell entity with nominee administrators and no assets or employees.

Suspension of Statute of Limitations Period During Request for Foreign Assistance to Obtain Evidence (1/28/11)

18 USC Section § 3292 provides that, if the Government makes an official request to a foreign government to obtain evidence in that country and thereafter applies to a district court for an order to suspend the statute of limitations, upon appropriate proof that the official request was made and that the requested evidence is in the foreign country, the district court "shall suspend the running of the statute of limitations for the offense." The suspension period is from the date of the request to the foreign country until the foreign court or authority takes final action on the request, with a maximum of 3 years.  The DOJ CTM discussion of this provision is at CTM 7.06 (2008 ed.).

In Jenkins v. United States, ___ F.3d ___ (9th Cir. 2011), the Ninth Circuit applied this suspension statute in a straight-forward manner. One key holding is worth noting, even though it is a straight forward application of the statute.

My Lawyer Did Not Advise Me of the Consequences of My Perjuring Myself in My Defense

Clecker v. United States (11th Cir. 2011) (Unpublished) is a good reminder of the dangers of a defendant testifying in a criminal case. Cleckler was charged with "conspiracy to defraud the United States, in violation of 18 U.S.C. §§ 2(b) and 371 (Count 1), and corrupt or forcible interference with the administration of the internal revenue laws, in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2 (Count 2)." The Government presented a number of witnesses and, apparently, Cleckler's counsel advised him that he had the right not take the stand but, given the evidence, he was at high risk if he did not. If he took the stand, the jury verdict would almost certainly turn on his credibility. The jury convicted, apparently because the jury did not find Cleckler credible. At sentencing, the judge found that Clecker perjured himself and imposed the two level obstruction of justice enhancement U.S.S.G. § 3C1.1.

Cleckler sought in a Section 2555 proceeding to vacate the sentence based on ineffective assistance of counsel -- to wit, that his trial attorney had not warned or properly warned Cleckler about the potential consequences of lying as respects exposure to the sentencing enhancement for obstruction. The district court dismissed the claim but issued a certificate of appealability on the issue of "[w]whether the district court erred by denying Cleckler's claim that his attorney failed to advise him of the consequences of testifying on his own behalf at trial." On appeal, the Eleventh Circuit affirmed in an unpublished opinion. While the opinion itself may not be worthy of publication, the circumstances are worthy of practitioners' attention.  A good, quick read.

Fourth Circuit says Factual Uncertainty Is Not Legal Uncertainty for James-Critzer-Mallas Defense (4/25/11)

I have written in other blogs about uncertainty in law and the legal principle, emanating from the seminal decision in James v. United States, 366 U.S. 213 (1961), here, that uncertainty as to the law's commands precludes criminal prosecution. (For my prior blog discussions, see here.)  There are two key Fourth Circuit cases on that issue -- United States v. Critzer, 498 F.2d 1160 (4th Cir. 1974) and United States v. Mallas, 762 F.2d 361 (4th Cir. 1985). The Fourth Circuit recently addressed the issue again in in United States v. Cole, 631 F.3d 146 (4th Cir. 2011). Unfortunately the facts were very bad for the defendant, so it was clear that the Court of Appeals was not inclined to want to help him.

The defendant, a real estate agent, received secret commissions by having the sellers pump up the sales price and remit the amount of the artificially inflated commissions to a corporation he owned. The defendant did not disclose these secret commissions to his partners, the buyers.  The corporation apparently did not report the "commissions" and neither did the defendant who was the actual earner of the commissions. Indeed the defendant did not even file tax returns until he learned that that he was being criminally investigated. He then filed tax returns for the years involved (2001-2003), reporting no taxable income for each year. He did this by characterizing the "commissions" as "assignment fees" which he treated as a sale of capital assets producing short term capital gains against which he applied carry forward losses. The Government did not agree with these shenanigans and indicted. As described by the Court:

A grand jury issued a superseding indictment in September 2008 charging Cole in six counts: three counts for willfully filing false tax returns for tax years 2001, 2002, and 2003, in violation of 26 U.S.C. § 7206(1), and three counts for evading income taxes in the same years in violation of 26 U.S.C. § 7201. The indictment charged that, inter alia, Cole falsely claimed $2 million of ordinary income as capital gains.

From the bare text, one might wonder why the Government was charging both 7206(1) and 7201 for the same three years. Rather than speculate at this time (maybe readers can provide the answer crisply), I just move on to address the issue of uncertainty in the law.

According to the Court, the jury convicted as follows:

In a special verdict form the jury largely adopted the Government's theory of the case, although it declined to find that Cole had fraudulently claimed charitable deductions and business expenses. Ultimately, the jury found Cole guilty on all six counts for willfully mischaracterizing the $2 million as capital gains each year and failing to report the $98,200 in income from the sale of the $1 million note.