U.S. Department of Justice charges former UBS banker Christos Bagios with conspiracy to defraud the United States

The United States Attorney’s Office for the Southern District of Florida together with the Department of Justice – Tax Division, charged via information Christos Bagios, now a senior banker at Credit Suisse, of conspiring to defraud the United States of income taxes from U.S. citizens and residents pursuant to 18 U.S.C. section 371, commonly referred to as a Klein Conspiracy. Section 371 is available in full here.

According to the criminal complaint, Bagios, while he worked at UBS from 1999 through 2005, helped U.S. taxpayers hide assets from the U.S. government. U.S. taxpayers have an obligation under the Bank Secrecy Act to report foreign bank accounts to the U.S. Treasury. The Bank Secrecy Act is enforced by the Department of the Treasury – Financial Crimes Enforcement Network; see https://www.fincen.gov/statutes_regs/bsa/

According to the information, Bagios aided as many 150 U.S. clients in a bid to conceal between $400 million and $500 million from the Internal Revenue Service. The IRS has been delegated the authority to administer the Foreign Bank Account Report (“FBAR”) forms (Form TD 90.22-1) available here.

As we have previously blogged, four other Swiss bankers were charged last week with helping Americans evade U.S. taxes.

The full text of the criminal complaint can be found here

As we noted before, it appears that in the wake of the UBS deferred prosecution and the indictment, trial and conviction of Maurico Cohen Assor and his son, the Department of Justice is stepping up and continuing enforcement of tax related crimes. The attorneys at Fuerst Ittleman have extensive experience in criminal and civil tax litigation and regularly represent those being investigated for criminal tax offenses. If you have questions regarding income tax and reporting obligations, contact Fuerst Ittleman at contact@fidjlaw.com.

U.S. Supreme Court to Decide if Internal Revenue Code Section 7206 Offenses are a Basis for Deportation

In November of 2010, the taxpayer at issue in Kawashima v. Holder, 615 F.3d 1043 (9th Cir. 2010) (available here), petitioned the Supreme Court for a Writ of Certiorari. The question presented to the Court in that petition was whether Code section 7206, available here, provides a basis for deportation. The Ninth Circuit has reached a different conclusion than the Third Circuit in Ki Se Lee v. Ashcroft, 368 F.3d 218, 224 (3d Cir. 2004) (available here) creating a split among the Circuits.

The law at issue, 8 U.S.C. §1101(a)(43)(M), available here, defines an aggravated felony as

(M) an offense that”

(i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or

(ii) is described in section 7201 of title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000.

The split between the Circuits is whether an IRC section 7206 violation can be an aggravated felony when IRC section 7201 is exclusively referenced as an aggravated felony within the criminal provisions contained in Title 26 (the Internal Revenue Code). The significance of this issue is that if the Ninth Circuit’s decision is adopted by the Supreme Court, any crime contained in the Internal Revenue Code could in theory be used as a basis for deportation. As a result, any criminal tax offense must be studied for both criminal and immigration consequences.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating criminal tax matters and have experience litigating ineffective assistance of counsel claims after a plea or conviction.

Swiss Bankers Indicted in Virginia by Department of Justice Tax Division for aiding tax evasion

On February 23, 2011, a federal indictment was unsealed in the United States District Court for the Eastern District of Virginia alleging violations of 18 U.S.C. section 371, commonly referred to as a “Klein Conspiracy.” The Defendants are Marco Parenti Adami, Emanuel Agustoni, Michelle Bergantino, and Roger Schaerer.

The indictment alleges that an international Swiss bank (unnamed in the indictment) was one of the largest wealth mangers in the world and had branches in the U.S. and over $3 Billion in total assets in undeclared accounts. The indictment also alleges that two private Swiss banks and an Israeli bank participated in the conspiracy. All defendants, either residents or citizens of Switzerland, are alleged to have conspired with each other to defraud the United States for the purposes of impeding, impairing, obstructing, and defeating the lawful government functions of the IRS in the ascertainment, computation, assessment, and collection of revenue “ specifically U.S. income taxes.

The indictment goes on to allege that the conspiracy involved soliciting U.S. customers to open undeclared Swiss bank accounts through the use of nominee tax haven entities, and that as a result of the defendants actions, U.S. customers filed false and fraudulent income tax returns with the IRS and failed to file Form TD 90.22-1 (Foreign Bank Account Report). More specifically, the indictment alleges that the defendants discouraged their U.S. customers from disclosing their unreported foreign bank accounts to the IRS through the Voluntary Disclosure program and instead encouraged their U.S. customers to transfer their funds to other banks in Switzerland and Hong Kong.

The full indictment is available here.

It appears that in the wake of the UBS deferred prosecution and the indictment, trial and conviction of Maurico Cohen Assor and his son, the Department of Justice is stepping up and continuing enforcement of tax related crimes. The attorneys at Fuerst Ittleman have extensive experience in criminal and civil tax litigation and regularly represent those being investigated for criminal tax offenses.Swiss Bankers Indicted in Virginia by Department of Justice Tax Division for aiding tax evasion

FDA Releases Criteria For Criminal Prosecution Under Park Doctrine

The FDA has released “criteria” it developed for consideration of which cases would be appropriate for misdemeanor criminal prosecution under the Park Doctrine, named after a Supreme Court case called United States v. Park, 421 U.S. 658 (1975).

Under the Park Doctrine, an executive may be criminally prosecuted for violations of the Food, Drug & Cosmetic Act, if he or she had, by reason of his or her position in the corporation, responsibility and authority either to prevent in the first instance, or to promptly correct the violation of the law. This is known as the “responsible corporate officer doctrine,” which does not require that the corporate officer be aware of wrongdoing within the company. Use of this doctrine is limited to misdemeanor offenses involving regulatory or public safety crimes that do not have an intent requirement.

The new criteria released by the FDA is not binding on the agency, and creates no rights or benefits on the behalf of a putative defendant who is potentially subject to Park responsible corporate officer liability. In addition to the individuals position in the company and whether he or she had the authority to prevent or correct the violation, the FDA will also consider, when determining whether to bring a Park Doctrine indictment:

  1. Whether the violation involves actual or potential harm to the public;
  2. Whether the violation is obvious;
  3. Whether the violation reflects a pattern of illegal behavior and/or failure to heed warnings;
  4. Whether the violation is widespread;
  5. Whether the violation is serious;
  6. The quality of the legal and factual support for the proposed prosecution; and
  7. Whether the proposed prosecution is a prudent use of agency resources.

The announcement regarding the new criteria may be found here.

The FDA has expressly stated that it will seek to increase the amount of Park Doctrine criminal prosecutions of corporate executives whose companies are involved in Food, Drug & Cosmetic Act violations. This increase in enforcement is part of the FDAs aggressive stance in a variety of investigations, one of which has recently resulted in the prosecution of a companys lawyer for obstruction of justice, as we previously blogged here. Compliance reviews, and if necessary, a strong defense team in the face of such potential jeopardy to ones liberty is advisable, necessary and prudent in todays regulatory environment. In addition, when facing a potential Park Doctrine prosecution, executives should consider obtaining separate counsel from their employers, free of any potential conflicts of interest with the company.

Fuerst Ittleman attorneys have represented clients in a variety of FDA-related criminal investigations and prosecutions. For more information, please contact us at contact@fidjlaw.com.

Seafood Executives Plead Guilty to Selling Mislabeled Fish

Shortly before a trial that was to begin in Mobile, Alabama, two executives from an Arizona based seafood wholesaler, Consolidated Seafood Enterprises, pled guilty to a scheme to defraud the public by mislabeling imported fish. The plea agreement of one of the defendants may be viewed here.

Consolidated Seafood Enterprises contracted with importers to bring in fish from overseas and then sell them to wholesalers that supplied restaurants and stores. Both executives admitted that they bought and sold approximately 385,000 pounds of frozen catfish, called basa, swai and sutchi, which was falsely labeled to evade customs duties. They then passed 101,000 pounds off as grouper to customers in southern states including Alabama and Florida. They sold 25,000 pounds of Lake Victoria Perch as grouper or snapper. The defendants also admitted to overstating the size of shrimp they sold and falsely labeling them as wild caught from the U.S., when in fact they were from shrimp farms in foreign countries.

Under the terms of the plea agreement, one executive Karen Blyth, will serve 2 years and 9 months in prison, while her co-defendant, David Phelps will serve 2 years in prison. The defendants also agreed to the forfeiture of over 7,000 pounds of fish. The Court will determine the amount of fine and both executives will not be able to hold ownership or managerial interests in the seafood industry until after they serve 3 years of supervised release after completing their prison sentences. The Court accepted the plea agreement on January 24, 2011.

The mislabeling of food products is a violation of the Food, Drug & Cosmetic Act, and the Lacey Act, while submitting false statements to Customs to evade duties is a violation of Title 18 of the Criminal Code. Fuerst Ittleman lawyers have substantial experience representing clients involved in both the distribution and importation of food products who are under federal criminal investigation for violations of these laws.

Joe Diruzzo of Fuerst Ittleman petitions United States Supreme Court for Writ of Certiorari

Joe Diruzzo of Fuerst Ittleman petitions United States Supreme Court for Writ of Certiorari [PDF]

On January 10, 2010, Joseph A. DiRuzzo, III, Esq., CPA, an associate at Fuerst Ittleman filed a Petition for a Writ of Certiorari in the United States Supreme Court inLizardo v. United States, available [here].  The Petition seeks to review the decision of the Third Circuit Court of Appeals, where the Third Circuit held, inter alia, that it lack jurisdiction to hear Lizardo’s appeal under Federal Rule of Appellate Procedure 4, available [here]. The Third Circuit expressly noted a split in opinion from the decision of the Sixth Circuit Court of Appeals in the case of National Ecological Foundation v. Alexander, 496 F.3d 466 (6th Cir. 2007).

The background of the case is as follows.  Lizardo sought to vacate his sentence via collateral attack pursuant to 28 USC sec. 2255.  The District Court of the Virgin Islands denied Lizardo’s sec. 2255 petition.  Lizardo then filed a motion for reconsideration pursuant to Federal Rule of Civil Procedure 59(e), commonly referred to as a motion for reconsideration. At the time of the litigation before the District Court a motion for reconsideration had to be file within 10 days of the final judgment to be timely (currently the time for a motion for reconsideration is 28 days). The Defendant, the  United States, did not object to the motion for reconsideration on timeliness grounds.  The District Court then denied the motion for reconsideration on the merits.

Lizardo then filed a notice of appeal with the Third Circuit.  The United States, at that point, first objected to the notice of appeal as being untimely as defined in Federal Rule of Appellate Procedure 4 and claimed that the Third Circuit lacked jurisdiction to hear Lizardo’s appeal.  In coming to its conclusion that it lacked jurisdiction to hear Lizardo’s appeal, the Third Circuit noted that notwithstanding that motion may be "timely" for district court litigation, it is not necessarily "timely" for circuit court litigation.  The reason that Lizardo’s motion for reconsideration was "timely" at the district court level was that motions for reconsideration, and the then 10 day time limitation, were not founded in statute and hence not jurisdiction.  Rather, motions for reconsideration were based on the rules enabling provisions, and objections based on lack of timeliness are subject to forfeiture by the opposing party is not properly raised.  In 2004 the U.S. Supreme Court issued its decision in Kontrick v. Ryan, 540 U.S. 443 (2004), announced the new "claims-processing" jurisprudence.  Subsequently in 2005 and 2007 the Supreme Court further expounded on the "claims-processing" rules in Eberhart v. United States, 546 U.S. 12 (2005) and Bowel v. Russell, 551 U.S. 205 (2007).

However, the Third Circuit in its decision ruled, in direct conflict with the Sixth Circuit in National Ecological Foundation, that a party could raise a timeliness objection in the first instance at the Courts of Appeals.  The Third Circuit then described its rationale why it departed from the Sixth Circuit.  The Third Circuit took exception to the Sixth Circuit’s approach claiming that there would be a disparity in treatment in the six types of post-judgment motions addressed in Federal Rule of Appellate Procedure 4(a)(4)(A), and the recent amendments to the Rules of Appellate procedure sought to standardize the time in which post-judgment motions must be made.  Additionally, the Third Circuit noted that the Sixth Circuit’s approach produced uncertainty in the appellate timeline.  Finally the Third Circuit quoted to its prior decision in Guitierrez v. Johnson & Johnson, 523 F. 3d 187 (3d Cir. 2008), for the proposition that "the fact that [a] motion was timely for the purposes of the District Court’s schedule does not necessarily made it timely for an appeal to the Court."

Interestingly, Judge Jordan authored both a concurrence and a dissent, concurring that the Court lacked jurisdiction over the appeal of the denial of the 28 USC sec. 2255 petition, but not over the appeal of the denial of the motion for reconsideration.  In Judge Jordan’s dissent, he reaches the same conclusion regarding jurisdiction that the Sixth Circuit reached.

In Lizardo’s Petition for a Writ of Certiorari filed with the U.S.Supreme Court the following highly technical questions were presented for the Court’s consideration:

1.         Whether, in light of this Courts holding in Kontrick v. Ryan, 540 U.S. 443 (2004), and its progeny, the Court of Appeals erred in concluding that when a party forfeits an objection to the untimeliness of a motion at the trial level, that forfeiture does not operate as a bar to a subsequent untimeliness objection at the appellate level, operating to cause the notice of appeal to be “untimely” for the purpose of Fed. R. App. 4, which is also contrary to a decision of another circuit.

2.         Whether, in light of this Courts holding in Kontrick, supra, and its progeny, the Court of Appeals erred in failing to adopt the position of the dissenting opinion which concluded that the Court of Appeals had jurisdiction over Petitioners appeal from the trial courts denial of Petitioners deemed timely motion for reconsideration, which is also contrary to a decision of another circuit.

It remains to be seen if the U.S. Supreme Court will accept jurisdiction, but the Petition ended with the following passage that demonstrates the importance of this issue:

"[T]he determination of a “timely” appeal for Rule 4 purposes is a recurring issue; an issue that potentially affects every appeal before the Circuit Courts, and in turn affecting the number of cases [the U.S. Supreme] could potentially review on the merits.  [The U.S. Supreme Court] should grant the instant Petition to address this extremely important issue of federal procedural law."

The attorneys at Fuerst Ittleman handle complex issues of federal litigation at the District Court, Circuit Court, and if necessary in the U.S. Supreme Court.

Federal Prosecutors Focus On Payment Processors In Latest Effort To Prevent Online Poker Sites From Operating

As the new year begins, federal prosecutors continue their efforts at cracking down on online poker in the US. The latest has not focused on the numerous online poker sites or the 2.5 million Americans that regularly play. Rather, the Department of Justice has focused its efforts on payment processors, the financial outfits that move money between online poker sites, their players, and the banks. Online pay for play poker sites generate over $30 billion annually.

Though there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has consistently maintained the position that the operation of pay for play online poker sites violates federal law. Traditionally, the prosecution of individual bettors and intra-state gambling crimes has been largely left to the individual states, however, there are numerous federal gambling statutes that the Department of Justice has employed against large-scale gambling businesses and payment processors that operate interstate or internationally. These statutes include the Wire Act, RICO, the Bank Secrecy Act, civil forfeiture proceedings, as well as 18 U.S.C. § 1955 which makes it a crime, to conduct, finance, manage, supervise, direct, or own all or part of a gambling business, so long as it is illegal to operate such a business under state law.

The State of Washington provides a textbook example of federal prosecutorial action and the relationship between federal prosecutors and state law and law enforcement. Since October of 2010, the Department of Justice in conjunction with Washington State Gambling Commission have filed four civil forfeiture complaints against more than $20 million in cash in Bank of America, JPMorgan Chase, and Wells Fargo, belonging to various payment processing firms. The joint investigations began in 2009 shortly after the Washington Supreme Court upheld a state law prohibiting online poker for money in the state.

The largest of these forfeitures, involving $5.1 million, began after the government was notified that a player had received a payout check from Arrow Checks, a payment processor for online poker sites such as Pokerstars.net. During its investigation, the government was able to establish a series of wire transfers from other states, such as Texas, and from Canada to accounts in Washington. Payouts were then sent to players around the state. As a result of these investigations, the payment processors, which held the accounts, were charged with operating unlicensed money transmitting businesses and violating the federal wire act because online poker for money is illegal in Washington.

The Washington investigations come in the wake of the May 2010 guilty plea of Canadian payment processor Douglas Rennick for violations of the Wire act. Authorities alleged that Rennick processed over $350 million in payouts for internet poker companies. As part of the plea agreement, Rennick agreed to forfeit $583 million which included millions of dollars in payouts and funds belonging to various poker sites and players. However, the affected poker sites refunded any lost money to their players after federal authorities froze the assets of Rennick.

If you have questions pertaining to the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Florida Attorney General centralizes anti-pill mill initiative in West Palm Beach

Florida has become infamous for clinics, known as “Pill Mills,” that dole out tremendous amounts of pain medications. And within the state of Florida, no county has seen more Pill Mill activity than Palm Beach County.

Thus, after Pam Bondi, the newly elected Attorney General for the State of Florida, named former State Senator David Aronberg to head the States anti-pill mill initiative, it came as no surprise when Mr. Aronberg chose to centralize the Attorney Generals war against pill mills in West Palm Beach as opposed to Tallahassee, Floridas capital city. According to Mr. Aronberg, West Palm Beach is “ground zero,” but promised that Palm Beach County would continue to be a leader in eradicating pill mills.

This law firm has considerable experience representing pain clinics and other medical practices in a variety of capacities. If you have any questions about Floridas anti-pill mill initiative, please feel free to contact us at contact@fidjlaw.com.

New British Bribery law will mean trouble for American pharmaceutical firms

A new British anti-bribery law taking effect in April, in certain ways more stringent than the Foreign Corrupt Practices Act (“FCPA”) in the United States, is worrying American drug companies enough begin  strengthening existing compliance programs in anticipation of the new law.

In recent years, the U.S. Department of Justice has exacted severe monetary penalties against pharmaceutical companies for violating the FCPA, which prohibits U.S. companies from engaging in bribery of foreign government officials. A recent Wall Street Journal article found here reported that, not surprisingly, British officials may specifically target pharmaceutical companies for enforcement of this new law once it is in effect. The new law is known simply as “The Bribery Act”.  

The Bribery Act prohibits any company operating in the United Kingdom, whether foreign or domestic, from making any illicit payments to foreign government officials. However, unlike the U.S. FCPA, The Bribery Act also prohibits illicit payments to private citizens or businesses, and even applies if the person making the payment does not even realize he or she is paying a bribe.

Notably, the Bribery Act does not include a crucial exemption included in the FCPA: Facilitation payments, or “grease” payments, permissible under the FCPA under certain circumstances, are not allowed under The Bribery Act.  As such, conduct which may be perfectly legal for an American pharmaceutical company based in Britain under the FCPA, may be illegal under The Bribery Act.

A stringent compliance regime, along with an understanding of both the FCPA and The Bribery Act is necessary for a company engaged in international business to avoid the traps and pitfalls both these laws can erect to harm its business. Our firm is experienced in conducting internal investigations to ferret out potential problems and to suggest policies and procedures to steer clear of violations.

Latest developments in the Pharma lawyer obstruction of justice case

We had earlier blogged on the indictment of Lauren Stevens, the former Vice-President and Associate General Counsel for GlaxoSmithKline for allegedly making false statements and obstruction of justice in regard to a FDA investigation. That earlier blog is here. Now, in a recent development, it turns out that the government is seeking to prevent Stevens from relying on an “advice of counsel” defense at trial.

In a press account, it was suggested by her counsel that Stevens may raise an “advice of counsel” defense as it stated that Stevens did everything “consistent with ethical lawyering and the advice provided her by a nationally prominent law firm retained by her employer”. Soon afterward, the government filed a motion with the court to forbid Stevens from raising an “advice of counsel” defense at trial.

In that motion, which can be found here, the government states that “advice of counsel” cannot be a defense to the obstruction of justice charge against Stevens pursuant to 18 U.S.C. Sec. 1519 because it is not a “specific intent” crime. A “specific intent” crime is one in which the government must prove the defendant acted willfully, i.e., knew that the conduct charged violated the law. The government maintains in its motion that Sec. 1519 is a “general” intent crime, in that ignorance of the law is not an excuse; all that is required is proof that the defendant acted knowingly, i.e., not by mistake, when she allegedly covered up off label uses of a drug, with the intent to impede, obstruct or influence the FDAs investigation. According to the government, since Sec. 1519 does not require willful conduct, i.e., conduct committed with knowledge that it violated the law, advice of counsel that the conduct is lawful is irrelevant.

However, Stevens was also charged with other certain “specific intent” crimes that do require proof of willful conduct. 18 U.S.C. Sec. 1512, another obstruction of justice statute, requires proof that a defendant acted “corruptly”. 18 U.S.C. Sec. 1001, making false statements to the government, requires proof that the defendant knew he/she was acting unlawfully. In regard to these charges, the government argues in its motion that the “advice of counsel” defense should not be available until Stevens can satisfy that she fully disclosed all facts to the companys attorneys before seeking advice, and that she relied on the advice in a good faith belief that the conduct was legal. In another twist, the government takes the position that even if advice was given by lawyers to Stevens that her conduct was legal, those lawyers represented GlaxoSmithKline, not Stevens personally. Since she was not the lawyers client, according to the government, the defense should not be available.

What can so far be gleaned from the events in the Stevens case is how important it is to adequately document, in writing, the information provided to regulatory counsel and the advice received from regulatory counsel. In addition, in house counsel and compliance personnel must exercise heightened diligence to ensure that information provided to the FDA is accurate and complete. Given the governments hard nosed enforcement efforts, adequate documentation of this diligence and information and advice shared may make all the difference.

As of the date of this blog, Stevens had not yet responded to the governments motion. A hearing will most likely be held prior to a decision.