Thursday, May 29, 2014
Credit Suisse Conviction Does Not Demonstrate Substantial Change In Department Of Justice Enforcement
The Department of Justice (DOJ) and Attorney General Eric Holder were strutting last week over the criminal conviction by plea of guilty of Credit Suisse, a major financial institution. "This case shows that no financial institution, no matter its size or global reach, is above the law," declared the Attorney General. Recent prosecutions of major financial institutions had resulted in lesser results, "deferred prosecutions," a somewhat deceptive term for "delayed dismissals," or a guilty plea by a minor affiliate.
The Credit Suisse guilty plea does not represent a sea change in the attitude of DOJ toward major financial institutions; rather, it appears to be a small ratcheting-up of the baseline penalty for serious criminal financial acts by such institutions. Credit Suisse, despite paying a hefty $2.6 billion fine, will not suffer the severe collateral consequences that ordinary individual defendants do upon a criminal conviction. (See here, NACDL's report "Collateral Damage: America's Failure to Forgive or Forget in the War on Crime -- A Roadmap to Restore Rights and Status After Arrest or Conviction," released today, Thursday, May 29, 2014.) It will still be able to act as an investment advisor, due to waivers agreed to by federal and New York State governmental agencies. Thus, its conviction, according to its chief executive Brady Dougan, will not have "any material impact on our operational or business capabilities." In other words, for Credit Suisse, it will be business as usual.
I hold no sympathy for Credit Suisse. Its crimes, continuous and notorious, have enabled American citizens and citizens of other countries to launder and evade tax payments on billions of dollars. In effect, Credit Suisse (not alone among Swiss banks) (see here) was a criminal enterprise, for many years making huge profits from extraordinary fees for its knowing and willful provision of a presumably safe haven for untaxed income, ill-gotten or otherwise. Mr. Dougan had stated to a Senate hearing in February that the tax evasion scheme was the work of a small group of private bankers that was hidden from senior management. That hard-to-believe claim was challenged in a statement by Schweitzerisher Bankpersonalverband, the organization representing the bank's employees: "It was common knowledge that tax evasion was the strategy, a business model pursued by many banks for a long time." See here.
To be sure, Credit Suisse's crimes did not cause the vast hardship to tens of millions of Americans that the wrongs -- criminal or not -- of other major financial institutions did in the last several years. And, further, its acts -- while subject to the long-arm jurisdiction of American courts -- were apparently legal under Swiss law, and seemingly condoned by the Swiss government.
Some commentators have suggested that there is considerable unfairness in prosecuting corporations for acts of low- or mid-level employees without knowledge of corporate leaders (see here), a position with which I generally agree. The demi-prosecution of Credit Suisse, however, does not appear to fit within that category, despite Mr. Dougan's claim. I see no unfairness in the government's requiring Credit Suisse to plead guilty.
I do, however, wonder about the effectiveness of the insistence on a guilty plea if the collateral consequences are waived. The conviction of a major financial institution with a considerable financial penalty but a waiver of regulatory bars is to me little different from a civil finding of wrongdoing with such a penalty. Other than its current status as a convicted felon, Credit Suisse today is essentially in the same position it was two weeks ago.
Given the legitimate (but probably exaggerated) fear that a felony conviction of a major financial institution without regulatory waivers will have on its existence and thus on the economy and societal well-being, it may well be that guilty pleas (and trial convictions too) of such corporations should be accompanied by limited collateral consequences. Such prosecutions, however, will then serve little more than a symbolic purpose (which I accept as a legitimate purpose). Overall, DOJ's prosecution to conviction of Credit Suisse is a positive step, albeit a small one.
The resolution here suggests again that the criminal process is inadequate to prosecute large financial institutions. Society looks to the criminal law to solve far more problems than the criminal law is capable of solving. Meaningful reform of a flawed financial system will not come from criminal prosecutions of corporations, but, if at all, from strong, substantial regulatory rulemaking and non-criminal legislation.
Tuesday, April 15, 2014
Last week, as reported in the New York Times (see here), the House of Representatives Oversight and Government Reform Committee voted to hold in contempt Lois Lerner, the Internal Revenue Service official who after making a brief statement declaring her innocence invoked her Fifth Amendment privilege and refused to answer questions from the Committee members. The Committee action will be referred to the entire House of Representatives for its consideration. If the House votes to hold Ms. Lerner in contempt, it would refer the matter to the United States Attorney for the District of Columbia, Ronald C. Machen, Jr., a Democrat who in my view is unlikely to pursue this politically-charged case.
The Committee vote was based on party lines, with the Republican majority voting against Ms. Lerner. A vote of the entire Congress, if it occurs, will most likely similarly be so based. Indeed, Representatives on the Committee took exaggerated and hyperbolic positions. Republican John J. Duncan claimed if Ms. Lerner's position were accepted, "every defendant . . . would testify and plead the Fifth so they couldn't be cross-examined . . . ." Democrat Elijah Cummings said if he were to vote to hold Ms. Lerner in contempt, it would "place him on the same page of the history books as Senator Joseph McCarthy."
As I said before (see here), I believe that Ms. Lerner's general declaration of innocence, before she invoked the Fifth, does not constitute a waiver, but I do not believe the issue is crystal-clear. Lawyers who represent witnesses before legislative committees (or in other matters) should be cautious about taking such positions.
Saturday, December 14, 2013
Yesterday, in U.S. v. Under Seal (4th Cir. 2013), the Fourth Circuit, joining several other federal circuits, extended the Fifth Amendment's Required Records Exception to records of foreign bank accounts required to be maintained pursuant to the Bank Secrecy Act ("BSA"). John and Jane Doe received a subpoena to turn over records of their Swiss bank accounts. They responded that complying with the subpoena compelled them to testify against themselves, as they were required to create and maintain such records pursuant to the BSA. They also argued that the long-standing, judicially-created, Required Records Exception did not apply in this case, because the BSA's record-keeping provisions are essentially criminal, rather than regulatory, in nature. The district court disagreed, the Does took civil contempt, and an appeal ensued. Unsurprisingly, the Fourth Circuit sided with the government, accepting its argument that the BSA's record-keeping provisions are essentially regulatory in nature. You are shocked? There's not exactly a strong constituency, public or judicial, for foreign bank account tax evasion.
Friday, November 1, 2013
Business Week has the story here. Former BDO Seidman CEO Denis Field, represented by Sharon McCarthy of Kostelanetz & Fink LLP, was acquitted on all seven counts he faced. Paul Daugerdas, former head of now-defunct Jenkens & Gilchrist's Chicago office, was convicted on seven of 16 counts. The original convictions against Daugerdas and Field were thrown out by SDNY Judge William Pauley after a juror's misconduct was brought to light.
Tuesday, September 24, 2013
Many years ago I authored an article titled, "Do We Need a 'Beanie Baby' Fraud Statute?" The Article considered how specific a statute needs to be to provide proper due process to a criminal defendant. It focused on the breadth of the mail fraud statute, while also recommending that criminal statutes cannot be created for every unique circumstance - like "Beanie Baby" fraud. It was written at the height of the time when individuals were committing crimes of fraud with "Beanie Babies." In some cases, the company producing this product was the victim of the fraud.
Another side of "Beanie Babies" is mentioned this past week - and it relates to the CEO of Ty Warner, who was the creator of "Beanie Babies." A DOJ Press Release tells that H.Ty Warner was charged with tax evasion for allegedly hiding funds in a secret Swiss offshore account. The press release states, "[t]hrough his attorney, Warner authorized the government to disclose that he is cooperating with the Internal Revenue Service and will plead guilty to the charge." According to the DOJ Press Release, "Warner is the second taxpayer charged in Federal Court in Chicago in connection with an ongoing investigation of U.S. taxpayer clients of Union Bank of Switzerland (UBS) and other overseas banks that hid foreign accounts from the Internal Revenue Service."
Thursday, August 29, 2013
The DOJ issued a press release today telling of "a program that will encourage Swiss banks to cooperate in the department's ongoing investigations of the use of foreign bank accounts to commit tax evasion." The release also notes that "Switzerland will encourage its banks to participate in the program." A joint statement was agreed upon by the DOJ and Swiss Federal Department of Finance." (see here). The program excludes those presently under investigation. It offers others a non-prosecution agreement under a list of terms that include, "cooperat[ion] in treaty requests for account information," "agree to pay substantial penalties," and "make a complete disclsure of their cross-border activitites." The press release notes that
"banks seeking a non-prosecution agreement must agree to a penalty in an amount equal to 20 percent of the maximum aggregate dollar value of all non-disclosed U.S. accounts that were held by the bank on Aug.1, 2008. The penalty amount will increase to 30 percent for secret accounts that were opened after that date but before the end of February 2009 and to 50 percent for secret accounts opened later than that."
It will be interesting to see how many banks come forward to obtain a non-prosecution agreement. And if they do, will the disclosures result in tax prosecutions of individuals within the U.S.
Friday, July 5, 2013
Noted here were the initial reports of alleged IRS targeting. The NYTimes tells the other side here. Perhaps this is a good time to appoint an independent non-political individual or entity to look into what really happened here, if anything.
Tuesday, May 14, 2013
The Treasury Inspector General for Tax Administration Office of Audit report and its highlights tell the story of how "Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention." This Report issued on May 14, 2013 has been the source of significant media attention and President Obama has stated that the Reports findings are "intolerable and inexcusable." (see CNN here). The Report calls for several recommendations, including "develop training or workshops to be held before each election cycle including, but not limited to, the proper ways to identify applications that require review of political campaign intervention activities."
A couple of observations: 1) It is good to see that this Audit produced this evidence and that it was not overlooked; 2) It is also good to see that the Attorney General is not taking this finding lightly; and 3) Most imoprtantly the President is not going to tolerate this activity.
Politics do not belong in the agencies of our government. Whether it be the DOJ, SEC, or IRS - it is important that when politics gets infused in discretionary decisions, someone immediately puts a stop to this happening. Internal compliance programs are important in the corporate world, maybe we need more compliance programs and monitoring within the government world.
Tuesday, December 4, 2012
On November 29, a divided panel of the Second Circuit vacated two out of four convictions obtained at trial by the government in the massive Ernst & Young (E&Y) tax shelter case, due to insufficient evidence. The opinion, United States v. Coplan et al, 10-583-cr(L), is available here.
In Coplan, four defendants were convicted after a 10-week trial on a variety of criminal tax charges arising out of their alleged involvement in the development and defense of five complicated tax shelters that were sold or implemented by E&Y to wealthy clients. Two defendants, Nissenbaum and Shapiro, had been tax attorneys at E&Y who were each convicted of conspiracy to defraud the United States and to commit tax evasion (18 U.S.C. §371) and two substantive counts of tax evasion (26 U.S.C. §7201). Nissenbaum also was convicted of one count of obstructing the IRS, in violation of 26 U.S.C. §7212(a), on the basis of allegedly causing false statements to be submitted to the IRS in response to an Information Document Request (IDR) submitted when the IRS was examining one of the tax shelters at issue.
The opinion is lengthy and complex, and resists easy summarization. It is well worth reading because it discusses in detail a kaleidoscope of issues relevant to any "white collar" criminal trial, from evidentiary rulings to jury instructions to sentencing. This commentary is limited to the sufficiency of evidence claims, and some of their implications for lawyers as potential defendants.
The panel in Coplan displayed a remarkable willingness to comb through an extremely complicated trial record and test every nuanced inference that the government urged could be drawn from the evidence in support of the verdicts. The bottom-line holding of the panel was that, after making all inferences in favor of the government, the convictions had to be vacated because the evidence of guilt was at best in equipose.
Although this general principle can be stated easily, its practical application in Coplan involved the panel conducting a particularized review of the evidence that appellate courts often forego. For example, one important fact for Shapiro was that a tax opinion letter provided to shelter clients stated that, for the purposes of the "economic substance" test governing tax-related transactions, the clients had a "substantial nontax business purpose" (OK, per the Coplan panel), rather than stating, as it had before Shapiro’s revisions, that the clients had a "principle" investment purpose. Likewise, although Shapiro had reviewed letters and attended phone conferences deemed incriminating by the government, his involvement in such conduct was not "habitual" or otherwise substantial. As for Nissenbaum’s Section 7212(a) conviction, his response to the IDR that the government characterized as obstructive – a partial explanation of the clients’ subjective business reasons for participating in the tax shelters – could not sustain the conviction because the IDR drafted by the IRS had sought all reasons held by the clients, rather than their primary reason. If this sounds somewhat murky and convoluted, it is. The point is that multiple convictions for very significant offenses were vacated after much effort at extremely fine line-drawing.
The implicit theme running throughout the discussion of the evidence was that it was not sufficiently clear that these lawyers had crossed the line while attempting to assist their clients, to whom they owed a duty. The competing tensions that lawyers can face was encapsulated in a jury instruction discussed later in the opinion. Although the trial court instructed the jury as requested by the defense that "[i]t is not illegal simply to make the IRS’s job harder[,]" it declined to instruct the jury on the larger defense point that "[t]his is particularly true for the defendants, whose professional obligations as attorneys or certified public accountants required them to represent the interests of their clients vigorously in their dealings with adversaries, such as the IRS."
The Coplan case echoes partially the case of Lauren Stevens, the former in-house counsel for GlaxoSmithKline who was indicted and tried in 2011 by the government for allegedly obstructing a U.S. Food and Drug Administration investigation of alleged off-label practices by the company. The district court dismissed all charges against Ms. Stevens at the end of the government’s proofs for insufficient evidence. The ruling was a tremendous defense victory and underscored, like the Coplan case, the difficulties that the government can face when it targets a lawyer on the basis of alleged conduct undertaken on behalf of a client. Nonetheless, these cases still stand as cautionary tales to practitioners. Although there are important differences between Coplan and Ms. Stevens' case, both cases remind us of the pitfalls that can await advocates who stumble into the cross-hairs of the government. Ms. Stevens – like Shapiro and Nissenbaum – was fortunate enough to have an extremely conscientious court willing to parse through the nuances of the evidence, a great defense team, and the resources for extended litigation. It is no slight to these clients or their lawyers to recognize that, in many ways, sheer luck played a role in their ultimate outcomes. Although acquittals can provide vindication, such finales may provide limited comfort to the client after the excruciating process of being investigated, charged and tried. That such a process might turn eventually on the precise phrasing of a document, or how a conference call might be handled, is sobering.
Tuesday, September 11, 2012
Thursday, July 12, 2012
Last month, in a thorough 64-page opinion, Southern District of New York Judge William Pauley ordered a new trial for three of four defendants convicted in what he described as "the largest tax fraud prosecution in U.S. history" because a juror, Catherine M. Conrad, had lied her way into being accepted as a juror. United States v. Daugerdas, et al., 09 Cr. 581.
There appears to be little question Ms. Conrad, a suspended lawyer, connived to make herself in her own word "marketable" so that she could have "an interesting trial experience" as a juror. In voir dire, she lied about her education, claiming the highest level she had reached was a B.A. when in fact she had a law degree. She concealed not only her membership in and suspension from the bar but her own criminal convictions -- for shoplifting, DWI, contempt and aggravated harassment -- as well as her husband's extensive criminal history, which included a seven-year prison stay. She made, according to the court, a "calculated, criminal decision to get on the jury."
At a post-trial hearing at which she was granted use immunity, Conrad stated that if the truth were known, "defense counsel would be wild to have me on the jury." In fact, however, Conrad turned out to be extremely biased against the defendants. In a congratulatory letter she sent to the prosecutors after the trial, she said she was "privileged to observe la creme de la creme -- KUDOS to you and your team." In that letter, she mentioned that she had fought against but ultimately had "thrown[n] in the towel" on a not guilty verdict on one of the counts concerning defendant David Parse. At the hearing, she testified that "most attorneys" are "career criminals." Two of the four convicted defendants were practicing lawyers; Parse was a non-practicing lawyer.
Judge Pauley, clearly upset by the need to retry a case which took three months, strongly urged the government to prosecute Conrad. Perhaps concerned that the government might feel that prosecuting her would be inconsistent with its opposition to a new trial, he added, "The prospect of preserving a tainted jury verdict should not temper the Government's resolve to call Conrad to account for her egregious conduct." Any prosecution of Conrad, however, obviously would have Kastigar obstacles because of her immunity.
The judge, following the Supreme Court's decision in McDonough Power v. Greenwood, 464 U.S. 548 (1984), found that in order to obtain a new trial, the moving party must "first demonstrate that a juror failed to answer honestly a material question on voir dire and then further show that a correct response would have provided a valid basis for a challenge for cause" (emphasis added). Apparently, even in a criminal case, the mere existence of a juror who deliberately lied her way onto the jury may not be sufficient to require a new trial. See United States v. Martha Stewart, 433 F.3d 273 (2d Cir. 2006). The McDonough test appears to be "If the juror hypothetically had answered truthfully, would her truthful answers have led to a challenge for cause?" Thus, unknown facts that might have affected her fitness to serve as a juror which would not in any case have been revealed by accurate responses to voir dire questioning presumably should not be considered.
In a lengthy analysis, mingling those hypothetical answers to questions asked during jury selection with, somewhat questionably, facts learned and impressions formed at the post-verdict hearing -- including Conrad's discovered dishonesty, bias and her animus to lawyers -- the court found that the McDonough criteria had been amply met. Accordingly, it ordered a new trial for all the convicted defendants -- except Parse, who the court ruled had "waived" his claim for a new trial since his attorneys knew or "with a modicum of diligence would have known" that Conrad's statements in jury selection were false and misleading and failed to disclose that knowledge to the court.
Judge Pauley felt that Parse's lawyers, the firm of Brune and Richard, knew or at least suspected (or alternatively should have known) that Conrad was an imposter certainly by the start of jury deliberations, but made a decision not to reveal their belief or suspicion to the court. The court was apparently affected by what seems to be a carefully-crafted, literally true but arguably misleading, statement in the lawyers' new trial motion that they were "prompted" by disclosure of Conrad's post-verdict letter to investigate and conduct records searches "in the wake of Conrad's . . . post-verdict letter." The court found that the motion contained "significant factual misstatements" and that its "clear implication" was to give the false impression that Parse's lawyers had no idea of Conrad's true identity until well after the verdict. In fact, as demonstrated in a later letter from the firm, in the firm's e-mails during trial, which were ordered by the court to be produced, and in testimony by the lawyers at a hearing, the firm apparently had concerns about and suspicion of Conrad's deception, initially at voir dire and later, after further record search revelations, during the judge's charge to the jury. A most graphic example was one lawyer's e-mail during the charge, "Jesus, I do think it's her."
The court believed that the attorneys' submission was designed to foreclose any government claim that their pre-verdict knowledge doomed their post-verdict motion on the grounds that they failed to act with "due diligence." The court found unconvincing the attorneys' claim that notwithstanding the similarities between the juror and the suspended lawyer discovered by electronic research -- name, home town, father's occupation, approximate age -- and the juror's use of previously unmentioned legal terms (such as respondeat superior) in jury notes she authored, the attorneys did not believe until after her letter to the government was disclosed that juror Conrad and suspended lawyer Conrad were the same person.
The court thus found that Parse's attorneys had "actionable intelligence" that Conrad was an imposter and that they had been required, but failed, to undertake "swift action" to bring the matter to the court's attention. The court apparently felt that the attorneys had attempted to "sandbag" it by remaining silent about the defect and only raising the issue when and if the trial did not conclude favorably, in effect providing them and their client with an "insurance policy against an unfavorable verdict." By his attorneys' conduct, the court ruled, Parse waived any error.
It may well be that during the trial the attorneys chose not to report their suspicions because they felt that Conrad, who appeared from web research to be potentially anti-government, would be a favorable juror for the defense, and they did not want to lose her. It may also be that, whatever the objective evidence that the juror and the suspended lawyer were one and the same might look like with hindsight, they actually thought that the juror and the suspended lawyer were different people since, as they claimed, they could not believe that the juror -- a lawyer -- would blatantly lie. Under either alternative, the court found, they had an obligation to share their knowledge with the court.
Some may argue that an attorney, in her duty of zealous representation of a client, may remain silent if she learns during jury selection that a juror misrepresented herself. Judge Pauley's contrary view is clear: "An attorney's duty to inform the court about suggested juror misconduct trumps all other professional obligations, including those owed a client." I agree. See New York Rules of Professional Conduct 3.3(b).
Some may also question whether Parse, the client, should suffer from his lawyer's purported misconduct or lack of diligence (of which he had no apparent knowledge). While generally a client is bound by a lawyer's strategic decision, and cannot cry foul if it backfires, Parse did suffer the same denial of a fair jury as the other defendants. Nonetheless, the court held that his attorneys' failure to report waived any objection by Parse, but granted new trials to the other three convicted defendants (whose lawyers apparently had no knowledge of Conrad's deception).
There are several ironies in this case: Parse, about whom, according to Conrad's letter to the prosecutors, the jurors "had qualms," is the only one whose conviction stands. Further, his attorneys were the ones responsible for investigating and presenting the motions which succeeded in a new trial for the others (who joined the motion), but not for him. And, lastly, if Conrad had told the truth at voir dire and revealed her suspension from the bar and her and her husband's criminal record, she undoubtedly would have been successfully challenged -- whether by cause or peremptory -- on the motion of the prosecution she so strongly favored, and not be the defense she despised.
Thursday, May 24, 2012
The Department of Justice yesterday announced the indictment of four Georgia residents for tax fraud. The press release (see here) stated, as is required by the ABA Fair Trial and Free Press Standards, ". . . the defendants are presumed innocent until proven guilty beyond a reasonable doubt." Nonetheless, the headline read "Georgia Tax Cheats Indicted for Conspiring to Defraud the United States," certainly not affording these defendants the presumption of innocence to which the DOJ release paid lip service.
The indictment was announced by the new Assistant Attorney General of the Tax Division, Kathryn Keneally, until recently my able and respected colleague in the New York City criminal defense bar. My assumption is that AAG Keneally neither wrote nor reviewed the headline.
Wednesday, February 22, 2012
Dominique Strauss-Kahn is once again in trouble with the law in relation to an investigation involving sexual activity. Strauss-Kahn was detained overnight in Lille, France, for questioning in a French investigation related to an alleged prostitution ring that purportedly supplied women for sex parties with Strauss-Kahn in Brussels, Paris and Washington.
Strauss-Kahn contends that he had no reason to believe that the women at these parties were prostitutes. His French lawyer bared that defense to French radio in December, "People are not always clothed at these parties. I challenge you to tell the difference between a nude prostitute and a classy lady in the nude." Reuters article, see here. This lack of scienter defense ironically appears to be the converse of what many believed would have been Strauss-Kahn's defense had the New York case in which he was accused of sexual assault gone to trial. In that case, it was expected that his defense would have been that he did believe that the woman in question was a prostitute.
The investigation, in which eight people have been charged, involves alleged misuse of corporate funds to pay for the services of the prostitutes. Engaging prostitutes is not illegal in France (although it is in Washington), but if the investigators determine that Strauss-Kahn had sex with prostitutes he knew had been paid for out of company funds, he might be charged as a beneficiary of that misuse of funds. Most likely, it will be difficult to prove that Strauss-Kahn, even if he were found to have known the women involved were prostitutes, knew how they were paid.
High-profile cases in other jurisdictions often affect prosecutorial priorities. One wonders whether this case will lead American prosecutors to scrutinize corporate books to determine whether corporate funds have been used to supply prostitutes to customers, political figures and others. I suspect that such payments (and consequent tax deductions as business expenses) are not wholly uncommon, at least for non-public businesses. Any resulting cases, involving both sex and corporate corruption, are sure to draw media attention.
Thursday, January 26, 2012
The L.A. Times reports here that Mitt Romney did not "explicitly disclose" certain foreign and offshore bank accounts on his required federal campaign disclosure forms. These same accounts were reported, however, to the IRS. Doesn't look like there's much to the story. There are different reporting requirements on campaign forms and IRS returns and some of the items revealed to the IRS were apparently listed at a higher level of generality on the campaign forms. Even assuming that there was some misreporting, one would be hard pressed to call it anything other than inadvertent.
Monday, June 6, 2011
The United States Supreme Court denied certiorari in the Wesley Snipes case (for background see here). His Petition to the highest court had raised questions regarding proof of venue in failure to file criminal tax cases. The next possible step would be for him to file a Motion to Vacate under 28 U.S.C. 2255.
See Order - Download Snipes
Wednesday, May 25, 2011
The DOJ Press Release is titled, Jenkens & Gilchrist Attorneys, Former BDO Seidman CEO and Deutsche Bank Broker Found Guilty in New York of Multi-Billion Dollar Criminal Tax Fraud Scheme - Massive, 10 Year Criminal Scheme Generated More Than $7 Billion Dollars of Fraudulent Tax Losses
The Press Release states in part:
"NEW YORK – Paul M. Daugerdas, Donna M. Guerin, Denis M. Field and David Parse were convicted today in Manhattan federal court for their roles in a tax shelter scheme in which they designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the Internal Revenue Service (IRS), announced Preet Bharara, U.S. Attorney for the Southern District of New York; John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division; and Victor S.O. Song, Chief of the IRS Criminal Investigation. Together, Daugerdas, Guerin and Field made $130 million in profits from the 10-year scheme.
But the press release also notes that, "Raymond Craig Brubaker,. . . a banker at Deutsche Bank who was also charged along with the defendants, was acquitted by the jury on all counts."
Brubaker was represented by the law firm of Kramer, Levin, Naftalis & Frankel.
Thursday, April 14, 2011
As tax day gets closer, it is always interesting to see the spike in criminal tax filings. In many ways this makes sense since a goal is to achieve deterrence by letting the public know the ramifications of failing to file or fraudulently filing tax returns. But one problem, as I see it, is that DOJ doesn't put out press releases when individuals are found not guilty.
Here are some of the recent DOJ Press Releases on tax filings:
DOJ Press Release, Alabama Sisters Indicted for Tax Fraud and Identity Theft
Sunday, March 6, 2011
Actor Wesley Snipes has filed his cert petition in the Supreme Court. The two questions presented are:
1. Is an accused person deprived of the right under Article III and the Sixth Amendment to be tried only by a jury of the community where venue is proper, when factual questions determinative of whether venue has been correctly laid are determined solely by a jury selected in the place challenged by the defendant as incorrect?
2. Where venue is a contested factual issue in a criminal trial, does the government bear a burden of proof beyond a reasonable doubt or only by a preponderance of the evidence?
Petition - Download WTS cert final 022811
Friday, December 24, 2010
Probably the rarest of decisions is a reversal on a rehearing. But this week, the Eleventh Circuit Court of Appeals did just that in the case of United States v. Kottwitz. In the original decision (see here), the court had concluded that the refusal to give the jury an instruction about reliance on an accountant's advice was error as to Counts Three, Four, and Five. In this rehearing, the court extended this decision to Count One - a conspiracy count. The court stated, "[e]ven though no evidence directly showed that Defendants’ accountant was involved in initially entering/hiding transactions on the corporate books (for example, the personal-expense transactions), Defendants introduced enough circumstantial evidence to warrant an instruction that -- at some pertinent point -- Defendants may have relied on the accountant’s advice."
Representing the defendant in this case was Jerry Froelich, Jim Jenkins, and Bruce Maloy of Atlanta, Georgia and the lawfirm of Bernhoftlaw was co-counsel and lead on the Kottwitz appeal for a lead defendant in the case. See Robert G. Bernhoft's Petition for Panel Rehearing -Download 1_09-09-10_PetitionPanelRehearing
Friday, October 1, 2010
NACDL's 6th Annual Defending the White Collar Case Seminar – “Evasion, Avoidance, or What? Ethically Navigating the Modern Tax Fraud Case Post-UBS,” Friday, October 1, 2010
Peter Hardy of Post & Schell and Kathryn Keneally of Fullbright & Jaworski presented on government enforcement initiatives and the voluntary disclosure program regarding Americans with off-shore bank accounts. The DOJ and IRS initiative began in 2007 at when Igor Linikov pled guilty to tax evasion in connection with a $350 million undisclosed bank account at UBS in Switzerland. He paid $52 million to the IRS, received probation and cooperated with the government. Later, the person who serviced Linikov at UBS pled guilty, cooperated and received nearly four years in jail.
UBS entered into a deferred prosecution agreement with the government, paid $700 million in penalties and disclosed the names of 250 account holders of foreign accounts to the government. Since then, the U.S. and Swiss governments have entered into an agreement whereby Swiss financial institutions have agreed to turn over information to the U.S. regarding Americans who hold accounts in Swiss institutions. As a result, the government is now prosecuting UBS account holders, although the cases have so far been few (only ten indicted), and the sentences have been relatively short.
Most practitioners may be unaware of the FBAR form that must be filed by a person who holds a foreign bank account containing greater than $10,000. Under Title 31 of the U.S. Code, a willful failure to file the form is a felony carrying a maximum sentence of five years. The civil penalty for failing to file is also severe. That penalty is 50% on the total assets in the account per year. Besides the FBAR, IRS Form 1040 requires a taxpayer to disclose foreign bank accounts. Failure to disclose the account on the Form 1040 is interpreted by the IRS as a false return, a felony.
To encourage voluntary compliance, and in recognition that people fall out of the system for various reasons, the IRS instituted the “Off-shore Voluntary Disclosure Initiative.” Under this Program, the IRS guarantees a one-time penalty of 20% of the highest balance in the foreign account for the prior six years. Those in the Program would, of course, have to file the FBAR and amend their tax returns to pick up the unreported income. Under this Program, 14,700 people came forward, which overwhelmed the system. After an extension, the Program ended on October 15, 2009. Thus, the IRS guarantee of the 20% penalty ended.
Although the Off-shore Program ended, the general IRS Voluntary Compliance Program regarding tax offenses still remains in effect. There are, however, some changes to this program implemented in connection with off-shore accounts. One such change is that the IRS developed an institutional position against so-called “quiet disclosure,” i.e., disclosing the omission by simply filing an amended return.
Today, there is a great deal of uncertainty regarding the treatment of undisclosed off-shore accounts by DOJ and the IRS for people who missed the “Off-shore Voluntary Disclosure Program” deadline. Moreover, UBS is not the only foreign bank disclosing the names of account holders to the IRS. News reports have revealed that HSBC and many others are doing the same. Now, white collar practitioners have to present clients with a choice of loss of their freedom versus the loss of the assets in their foreign accounts. Such decisions will become more frequent as DOJ and the IRS ramp-up prosecutions.