Park Doctrine Insurance Offered to Cover Responsible Corporate Officer Liability

The FDA has made clear that prosecuting individuals for strict liability misdemeanors under the Park Doctrine, also known as the “Responsible Corporate Officer Doctrine” (“RCO”), is a priority amid the clamor for the FDA to get “tough” on persons and companies in regulated industries, such as food and drug. The Park Doctrine allows a corporate official to be convicted of a misdemeanor based entirely on his or her position and responsibility in a corporation. There is no requirement that a person had any criminal intent or acted personally in any wrongdoing, or for that matter, was even aware of a violation. We have previously blogged about the re-discovery of the Park Doctrine by the FDA, here and here.

Now, given the heightened risk of Park Doctrine prosecutions by the government, Allied Insurance Company commenced issuing its “RCO Policy,” designed to provide coverage for control group executives for defense costs during an investigation or misdemeanor criminal proceeding, including potential losses resulting from debarment or exclusion from contracting with federal programs as a result of a misdemeanor conviction. Debarments or exclusions would result in substantial loss of income and livelihood for an RCO executive convicted of a misdemeanor under the Park Doctrine. However, the policies do not provide coverage for offenses for which the executive exhibited criminal intent, such as intent to defraud.

Under most current Directors & Officers (D&O) indemnity policies, coverage is provided for defense costs until there is a finding of criminal liability against the insured.  Under the Park Doctrine, such criminal liability can occur without the insured being shown to have intended or even been aware of the existence of the criminal violation. Under such a scenario, the insurer can deny coverage for the executive at the most critical stages of a criminal investigation, thereby leaving the executive to fend for him or herself in funding a defense, to his or her financial ruin.  This is tantamount to having no D&O coverage at all. It is often at the investigation stage where an adequately funded defense is most critical in order to stave off indictment.  Preventing indictment in the first place is paramount since post-indictment approximately 95 % of federal criminal cases result in a criminal conviction, either by plea or verdict.  It appears that this new RCO Policy could go a long way toward ensuring an adequately funded defense and avoiding the worst case scenario for executives.

The recent emphasis on Park Doctrine prosecutions by the Department of Justice and FDA, with the idea of increasing the deterrent effect of criminal prosecutions for violation of our nations food and drug laws, has elevated the potential liability of executives in regulated industries. The market is responding to these liability concerns by offering products insuring against these risks, although it remains to be seen whether the necessary premiums for such coverage will be acceptable to insurance customers.  Perhaps the best medicine is prevention”heightened recurrent training, invigorated compliance programs and revised policies and procedures to prevent violations in the first place.

Fuerst Ittleman PL is experienced in providing legal services to FDA regulated entities to address the prevention of violations and mitigation of potential Park Doctrine liability.  In this heightened enforcement environment, an ounce of prevention is worth more than a pound of cure.

Third Circuit Court of Appeals Affirms Conviction for Tax Offenses

On March 8, 2012, Judge Fisher for the U.S. Court of Appeals for the Third Circuit issued an opinion in the case of United States of America v. Lawrence Murray affirming the judgment of conviction but remanding for resentencing.

The facts are as follows:

On January 7, 2000, a federal grand jury returned a nineteen-count indictment charging Lawrence Murray (“Murray”) with conspiracy to defraud the Internal Revenue Service (“IRS”), in violation of 18 U.S.C. § 371 (Count 1); aiding, assisting and counseling the filing of false tax returns, in violation of 26 U.S.C. § 7206(2) (Counts 2-14); bank fraud, in violation of 18 U.S.C. § 1344 (Count 15); wire fraud and aiding and abetting wire fraud, in violation of 18 U.S.C. §§ 1343, 1349, and 2 (Count 16); making false statements to U.S. Citizenship and Immigration Services (“CIS”), in violation of 18 U.S.C. § 1001 (Count 17); and filing false tax returns, in violation of 26 U.S.C. § 7206(1) (Counts 18 and 19).

Between 2005 and 2010, Murray operated a tax consulting business known as the Tax Doctor Corporation (“TDC”). According to testimony of TDC clients and employees, Murray advised high-income taxpayers how to fraudulently structure personal and business finances to maximize tax deductions and minimize tax burdens. Among other services, TDC would form shell corporations for its clients, and Murray would advise clients in deducting personal living expenses as business expenses of these corporations and in moving money between shell corporations in order to fabricate “expenses” for “contracted services” or “management fees.” Murray also advised clients in the creation of false corporate board minutes for the shell corporations. Murrays goal for his clients was to reduce their taxable income to zero, and he charged his clients between 20 and 35 percent of the tax savings they could expect to realize in the first year. He used the same techniques to reduce his own tax burden.

Murray also aided clients who, because their tax returns showed zero income, encountered difficulties in obtaining loans. For two clients, Murray created false tax returns showing higher income than the returns filed with the IRS so that they could use the false returns in applying for mortgage and business loans. Though Murray prepared and sent these returns to his clients, the clients never used them in their loan applications.

Ultimately, Murray was convicted and sentenced to 170 months imprisonment and five years of supervised release. The District Court also ordered Murray to pay restitution of $3,331,825.53.

The Third Circuit affirmed Murrays conviction, but agreed with Murray that his sentence was at least partially entered in error:

[The] 2T1.1(b)(1) enhancement for criminally derived income was erroneously applied in this case. A two-level enhancement under § 2T1.1(b)(1) is called for “[i]f the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity . . . .” (emphasis added). This enhancement compensates for offenses where the amount of criminally derived income is “difficult to establish” and “substantially understated.” U.S.S.G. § 2T1.1 background. The PSR applied the enhancement because the TDC tax returns “include deductions totaling $428,521 and $792,439,” and therefore, did not correctly identify the income generated by TDC. However, as the Government observes, although Murray filed false tax returns, he did not fail to identify TDC as the source of criminally derived income. Rather, he claimed improper deductions under “contracting services” to reduce taxable income, which protected the income from taxation, but did not make it difficult to ascertain. Accordingly, the enhancement was not applicable.

A full copy of the decision can be found here.

The case of Lawrence Murray can teach high net worth individuals, return preparers, investment advisors, lawyers and CPAs a host of lessons. As it relates to his criminal prosecution, the case should serve as a reminder that in criminal tax litigation, a defendant needs to engage a trial team that can navigate both criminal law and tax law.  Having one without the other can place the defendant in a position where critical issues are not identified, and potential opportunities to minimize (or eliminate) criminal exposure are lost.

The attorneys are Fuerst Ittleman have extensive substantive tax and criminal law experience.  The firm regularly handles matters involving civil tax litigation, criminal defense, and criminal tax defense (at the trial and appellate levels, include U.S. Supreme Court litigation).  You can contact an attorney via telephone by calling us at 305.350.5690 or via email at contact@fidjlaw.com.

11th Circuit Court of Appeals Decision Regarding “Act of Production” Doctrine Has Implication for Bank Secrecy Act and Foreign Bank Account Report (FBAR) Cases

On February 23, 2012, the 11th Circuit Court of Appeals reversed an order of the U.S. District Court for the Northern District of Florida holding in contempt the target of a grand jury (“John Doe) who had asserted his Fifth Amendment privilege after receiving a grand jury subpoena.

The relevant facts are as follows.  On April 7, 2011, John Doe was served with a subpoena duces tecum requiring him to appear before a Northern District of Florida grand jury and produce the unencrypted contents located on the hard drives of his laptop computers and five external hard drives. Doe informed the United States Attorney for the Northern District of Florida that, when he appeared before the grand jury, he would invoke his Fifth Amendment privilege against self-incrimination and refuse to comply with the subpoena. Because the Government considered Does compliance with the subpoena necessary to the public interest, the Attorney General, exercising his authority under 18 U.S.C. § 6003, authorized the U.S. Attorney to apply to the district court, pursuant to 18 U.S.C. §§ 6002 and 6003, for an order that would grant Doe immunity and require him to respond to the subpoena.

18 U.S.C. section 6002 can be found here. 18 U.S.C. section 6003 can be found here.

On April 19, 2011, the U.S. Attorney and Doe appeared before the district court. The U.S. Attorney requested that the court grant Doe immunity limited to “the use [of Does] act of production of the unencrypted contents” of the hard drives. Thus, Does immunity would not extend to the Governments derivative use of contents of the drives as evidence against him in a criminal prosecution.  The court accepted the U.S. Attorneys position regarding the scope of the immunity to give Doe and granted the requested order. The order “convey[ed] immunity for the act of production of the unencrypted drives, but [did] not convey immunity regarding the United States [derivative] use” of the decrypted contents of the drives.

After the hearing adjourned, Doe appeared before the grand jury and refused to decrypt the hard drives. The U.S. Attorney immediately moved the district court for an order requiring Doe to show cause why Doe should not be held in civil contempt. The court issued the requested order, requiring Doe to show cause for his refusal to decrypt the hard drives. In response, Doe explained that he invoked his Fifth Amendment privilege against self-incrimination because the Governments use of the decrypted contents of the hard drives would constitute derivative use of his immunized testimony which was not protected by the district courts grant of immunity. An alternative reason Doe gave as to why the court should not hold him in contempt was his inability to decrypt the drives. The court rejected Does alternative explanations, adjudged him in contempt of court, and ordered him incarcerated.

The 11th Circuit held that Does decryption and production of the hard drives contents would trigger Fifth Amendment protection because it would be testimonial, and that such protection would extend to the Governments use of the drives contents. According to the 11th Circuit, the district court therefore erred in two respects. First, it erred in concluding that Does act of decryption and production would not constitute testimony. Second, in granting Doe immunity, it erred in limiting his immunity under 18 U.S.C. §§ 6002 and 6003 to the Governments use of his act of decryption and production, but allowing the Government derivative use of the evidence such act disclosed.

This ruling is significant to those individuals who are currently under IRS and/or U.S. Department of Justice Investigation for failure to comply with the Bank Secrecy Acts requirement that U.S. Taxpayers who have foreign bank accounts with more than $10,000.00 must file Form TD 90.22-1, commonly referred to as an FBAR.  A copy of an FBAR can be found here.

The 11th Circuits decision appears to support Taxpayers position that a grand jury subpoena requiring them to identify (and produce bank statements of) foreign bank accounts in which they have signatory authority over or a financial interest in, is in violation of the 5th Amendment.  As the 11th Circuit put it:  “What is at issue is whether the act of production may have some testimonial quality  sufficient to trigger Fifth Amendment protection when the production explicitly or implicitly conveys some statement of fact.”  Slip op. at 13.  “An act of production can be testimonial when that act conveys some explicit or implicit statement of fact that certain materials exist, are in the subpoenaed individuals possession or control, or are authentic.”  Slip op. at 20.

A full copy of the decision can be found here.

In respect to FBAR cases, the act of production of the foreign bank account statements conveys an explicit statement that the taxpayer has a financial interest in, or signatory authority over, an undisclosed foreign bank account; the bank statements are within the taxpayers possession or control; and that the bank statements (and the information contained therein) is authentic.  This case present a potential arrow in the quiver of taxpayers that are currently (or may be soon to be) litigating against the government.  However, a timely challenge to a grand jury subpoena is crucial, as a failure to timely assert the 5th Amendment may  result in waiving this valuable constitutional right.

The attorneys at Fuerst Ittleman, PL have experience contesting grand jury subpoenas issued to taxpayers for their foreign bank account information.  Senior Tax Associate, Joseph A. DiRuzzo, III, is currently counsel of record in one case in Florida where the government has sought foreign bank records of taxpayers through the use of a grand jury subpoena.  You can contact an attorney by calling us at 305.350.5690 or by email at contact@fidjlaw.com.

Department of Justice Prosecutes for Failure to Remit Employment Taxes Collected From Employees

On December 7, 2011, Louis Alba pled guilty to criminal tax charges (Internal Revenue Code section 7202) for failing to remit to the IRS employment taxes (FICA and/or FUTA) withheld from employee wages in the amount of almost $780,000 over approximately six years.   The case is United States v. Alba, case # 2:11-cr-730 (Eastern District of New York).

While the incident leading to Mr. Albas conviction is not uncommon, the prosecution is nevertheless instructive. Indeed, in tough economic times, business owners sometimes view employment taxes as a way to improve cash flow and use money collected from employees in the form of FICA and/or FUTA taxes as a de facto government bridge loan.  However, as revealed by this case, the IRS views this as stealing money from the employees who have contributed to social security, and the IRS can, and has, prosecuted those “responsible persons” in the business who have the obligation to ensure that employee withholdings go to the IRS.

The language of Internal Revenue Code section 6672(a) states:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 [IRC Sec. 6653] or part II of subchapter A of chapter 68 [IRC Sections 6662 et seq.] for any offense to which this section is applicable.

The language of Internal Revenue Code section 7202 states:

Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $ 10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

As these statutory provisions make clear, section 6672(a) substantially tracks section 7202, and make available to the government criminal penalties for those that failure to collect and/or remit employment taxes.

If you have serious questions about this case or how it may apply to you or your business, feel free to contact us via telephone 305.350.5690 or email  contact@fidjlaw.com for a confidential consultation.

The Supreme Court Adds Tax Crimes under IRC §7206 to the List of Aggravated Felonies Requiring Deportation of an Offending Alien

On February 21, 2012, in Kawashima v. Holder, the Supreme Court affirmed the deportation of Mr. Kawashima, who pleaded guilty to one count of “willfully making and subscribing a false tax return” in violation of IRC §7206(1), and Mrs. Kawashima, who pleaded guilty to one account of “aiding and assisting in the preparation of a false tax return” in violation of IRC §7206(2).  A copy of the courts decision is available here.

Specifically, the Supreme Court found that convictions under IRC §§7206(1) and (2) where the Governments revenue loss exceeded $10,000, qualified as aggravated felonies pursuant to 8 U.S.C. §1101(a)(43)(M).  Because 8 U.S.C. §1227(a)(2)(A)(iii) provides that “[a]ny alien who is convicted of an aggravated felony at any time after admission is deportable,” the Supreme Court found that the Kawashimas convictions necessitated deportation. 
8 U.S.C. §1101(a)(43)(M) defines an aggravated felony as:

  1. Involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or
  2. Is described in section 7201 of title 26 in which the loss to the Government exceeds $10,000. 

Notably, the provision specifically cites to crimes under IRC §7201 and does not mention IRC §7206, the statute relating to the Kawashimas convictions.  Consequently, the classification of the Kawashimas crimes as “aggravated felonies” occurred pursuant to 8 U.S.C. §1101(a)(43)(M)(i) as crimes “involving fraud and deceit.”

The Kawashimas asserted that “textual differences between Clause (i) and Clause (ii) [of 8 U.S.C. §1101(a)(43)(M)] indicate that Congress intended to exclude tax crimes from Clause (i).”  Kawashima at 7.  The Supreme Court appeared to find Congresss specific mention of tax crimes under IRC §7201 in Clause (ii) of 8 U.S.C. §1101(a)(43)(M) to be insignificant in its analysis.   

The difference in language does not establish Congress intent to remove tax crimes from the scope of Clause (i).  Clause (i) covers a broad class of offenses that involve fraud or deceit.  Clause (i) thus uses correspondingly broad language to refer to the wide range of potential losses and victims. Clause (ii), on the other hand, is limited to the single type of offense described in IRC §7201 (relating to tax evasion), which, by definition, can be only one type of loss (revenue loss) to one type of victim (the Government.)  Congress decision to tailor Clause (ii)s language to match the sole type of offense covered by Clause (ii) does not demonstrate that Congress also intended to implicitly circumscribe the broad scope of Clause (i)s plain language.

Id. (emphasis added).

Furthermore, the Supreme Court found it irrelevant that neither fraud nor deceit are formal elements to procure a conviction under IRC §7206. 

IRC §7206 provides in pertinent:

Any person who”

(1) Declaration under penalties of perjury
Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

(2) Aid or assistance
Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document;
. . . shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

With regard to Mr. Kawashimas conviction under IRC §7206(1), the Supreme Court stated:

Although the words Ëœfraud and Ëœdeceit are absent from the text of IRC §7206(1) and are not themselves formal elements of the crime, it does not follow that his offense falls outside of [8 U.S.C. §1101(a)(43)(M)(i)].  The scope of that clause is not limited to offenses that include fraud or deceit as formal elements.  Rather Clause (i) refers more broadly to offenses that “involve” fraud or deceit “ meaning offenses that necessarily entail fraudulent or deceitful conduct . . . Because Mr. Kawashimas conviction established that Ëœhe knowingly and willfully submitted a tax return that was false as to a material matter, he therefore committed a felony that involved Ëœdeceit. 

Id at 5. (emphasis added).

With regard to Mrs. Kawashimas conviction under IRC §7206(2), the Supreme Court stated that her conviction “establishes that, by knowingly and willfully assisting her husbands filing of a materially false tax return, Mrs. Kawashima also committed a felony that involved Ëœdeceit.”  Id. at 6.

In its holding, the Supreme Court has refused to acknowledge the ambiguity of 8 U.S.C. §1101(a)(43)(M), is facially open to more than one interpretation.  While recognizing this ambiguity, Justice Ginsberg stated in her dissent:  

If the two proffered constructions of subparagraph (M) are plausible in roughly equal measure, than our precedent directs us to construe the statute in the Kawashimas favor . . .  We resolve doubts in favor of the alien because deportation is a drastic measure. 

Id. at 3.  (emphasis added).
In her dissent, Justice Ginsberg also identified numerous other offenses, which pursuant to the Courts analysis, would now be deemed “aggravated felonies” requiring deportation.

Many federal tax offenses, like IRC § 7206 involve false statements or misleading conduct.  See, e.g., §7202 (failing to truthfully account for and pay taxes owed).  Conviction of any of these offenses, if the Courts construction were correct, would render an alien deportable.  So would conviction of state and local tax offenses involving false statements . . . [S]ee, e.g., Del. Code Ann., Tit. 30 §574 (2009) (submitting a tax return false as to any material matter is a criminal offense); D.C. Code §47-4106 (2001-2005) (same); Ala. Code §40-29-114 (2003) (same); Va. Code Ann. §58.1-1815 (2009) (willfully failing to account truthfully for or pay certain taxes is a criminal offense.).

Id. at. 8. (emphasis added).

Following Justice Ginsburgs logic, it becomes likely that immigration proceedings may now be initiated in a variety of instances where deportation was previously little more than a remote threat.  Not only foreign persons residing in the U.S., but return preparers, accountants, immigration lawyers, tax lawyers, and criminal defense lawyers should be aware of this decision and govern themselves accordingly.

If you have any questions regarding tax crimes under IRC §7206, IRC §7201, or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

Joseph A. DiRuzzo, III of Fuerst Ittleman petitions the Supreme Court of the United States for a Writ of Certiorari

On February 22, 2012, Joseph A. DiRuzzo, III, Esq., CPA, a senior tax associate at Fuerst Ittleman, filed a Petition for Writ of Certiorari in the United States Supreme Court in United States v. John M. Crim. Mr. Diruzzos Petition is available here.

The Petition seeks to review a decision of the Third Circuit Court of Appeals, which affirmed in part, and vacated and remanded in part, a judgment of conviction for a violation of 18 U.S.C. section 371 (a Klein conspiracy) and a violation of 26 U.S.C. section 7212(a) (interfering with the due administration of the Internal Revenue Code).  The Third Circuits decision is available here.

The background of the case is as follows.  On November 28, 2006, an indictment was filed against John Michael Crim (“Crim”) and other co-defendants, charging them in Count One with conspiracy to defraud the United States in violation of 18 U.S.C. § 371.  On April 24, 2007, a superseding indictment was filed against the Crim and other co-defendants, charging them again with conspiracy to defraud the United States in violation of 18 U.S.C. § 371.  Crim was also charged in Count Two of the Superseding Indictment with corruptly endeavoring to interfere with the administration of the Internal Revenue laws in violation of 26 U.S.C. § 7212(a). 

Count One of the superseding indictment alleged that Crim was the co-founder of an organization known as the Commonwealth Trust Company (“CTC”).  Count One charged as follows: “[f]rom at least January 2000 through at least July 2003, in the Eastern District of Pennsylvania and elsewhere, defendants [Crim and co-defendants] conspired and agreed, together with others known and unknown to the grand jury, to commit an offense against the United States, that is, to defraud the United States by impeding, impairing, obstructing, and defeating the lawful functions of the [IRS] of the Department of the Treasury, in the ascertainment, computation, assessment, and collection of income taxes.”

Count One further alleged that: “CTC marketed two domestic fraudulent trust packages and one offshore fraudulent trust package to its clients. The domestic trust packages consisted of a Pure Trust Organization (“PTO”) and a Private Company Trust (“PCT”). The offshore trust package consisted of an Internationally-based Corporation (“IBC”). In the domestic trust PCT system, CTC instructed clients to remove funds earned from legitimate businesses and, instead of paying income tax on those funds, to divert that income through a series of domestic trusts under the clients control. CTC represented to its clients that, by diverting the income through a series of trusts, the clients could escape paying taxes on that income or could significantly reduce the amount of taxes they owed. CTC also instructed clients to transfer assets they already owned into CTCs other domestic fraudulent trust package, the PTO, to conceal and protect real and personal property from IRS levies and seizure attempts.” Count One alleged that Crim was the Head Trustee of CTC, a member of the CTC Executive Board, and a promoter of CTC trust products.

In the “manner and means” segment of the superseding indictment, Count One alleged that it was part of the conspiracy that Crim and others “met with taxpayers within the Eastern District of Pennsylvania and elsewhere to solicit and maintain clients for CTCs offshore and domestic trust packages by falsely representing that taxpayers could lawfully avoid paying income taxes by placing their income and assets into CTCs trust packages.”

Count Two charged that, on May 10, 2002, in Lancaster, Pennsylvania, Crim and other co-defendants corruptly endeavored to obstruct and impede the due administration of the Internal Revenue laws by speaking at a conference to CTC clients at which the defendants intended to cause the fraudulent use of CTC products by teaching the CTC clients how to engage in sham paper transactions that would result in the concealment from the IRS of clients property and of their receipt of income.  According to the Superseding Indictment, all of this violated 26 U.S.C.  § 7212(a).

On January 7, 2008, the trial began against Crim and co-defendants Taylor, Paul Crim, and Brownlee, before the Honorable Anita B. Brody and a petit jury.  On January 25, 2008, the District Court charged the jury. On January 28, 2008, the jury returned guilty verdicts against Crim on Count One (18 U.S.C. § 371) and Count Two (26 U.S.C. § 7212(a)).  On July 7, 2008, the District Court sentenced Crim to 96 months imprisonment on Count One and Count Two, with each count to be run concurrently.  Restitution was ordered to the government in the amount of $17,242,806.57. 

Mr. DiRuzzo did not represent any of the defendants at trial but was retained by Mr. Crim for representation before the United States Supreme Court. The Petition for Writ of Certiorari presents the following discrete questions:

Whether, in light of the Courts holding in United States v. Aguilar, 515 U.S. 593, 132 L. Ed. 2d 520, 115 S. Ct. 2357 (1995), and its progeny, the Court of Appeals erred in failing to conclude that the “Omnibus Clause” of 26 U.S.C. § 7212(a) requires the prosecution prove that a criminal defendant have (i) knowledge of some pending Internal Revenue Service action of which the criminal defendant was aware, and (ii) that there be a “nexus” between a criminal defendants actions and the actions taken by a third-party, which is also contrary to a decision of another circuit.

The Petition argues that the Third Circuits opinion is contrary to the decisions of the Supreme Court of the United States, in Aguilar, and is in conflict with the Sixth Circuit Court of Appeals decision in United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998), which held that “due administration of the Title [26] requires some pending IRS action of which the defendant was aware.”  Id. at 957. 

The attorneys at Fuerst Ittleman handle cases involving complex litigation (including income tax litigation) at the District Courts, the Court of Federal Claims, Circuit Courts, and if necessary in the U.S. Supreme Court.  You can reach an attorney by emailing us at contact@fidjlaw.com, or by calling us at 305.350.5690.

U.S. Department of Justice Indicts Swiss Bank Weglin & Co. for Assisting in Tax Fraud

On February 2, 2012, the U.S. Department of Justice announced the indictment of Wegelin & Co., a Swiss private bank, for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret accounts and the income these accounts generated from the Internal Revenue Service (IRS).  This is the first time an overseas bank has been charged by the United States for facilitating tax fraud by U.S. taxpayers.

The Justice Department press release  also notes that the U.S. Government seized more than $16 M from Wegelins U.S. correspondent bank accounts, pursuant to a civil forfeiture complaint.  The press release details the allegations in the criminal indictment, the thrust of which are succinctly summarized as follows:

In the wake of the IRS investigation of UBS, members of Wegelins senior management affirmatively decided to capture the illegal business that UBS exited.   To capitalize on the business opportunity this presented and to increase the assets under management, along with the fees earned from managing those assets, Berlinka, Frei, Keller and others, acting on behalf of Wegelin, told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to U.S. authorities because the bank had a long tradition of secrecy.   They also persuaded U.S. taxpayer-clients to transfer assets from UBS to Wegelin by emphasizing, among other things, that unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to U.S. law enforcement pressure.   Members of the Swiss banks senior management approved efforts to capture the clients who were leaving UBS and also participated in meetings with U.S. taxpayer-clients who were fleeing UBS.

However, the timing of indictment is conspicuous.  On January 30, 2012, eight Swiss banks (Credit Suisse, Julius Baer, and Basler Kantonalbank, among others) handed over to the United States government data on U.S. clients  suspected of evading U.S. income taxes.  This disclosure was made in order to avoid prosecution in the United States.  However, remarkably, the data was encrypted at the Swiss governments request, and Switzerland has indicated that it will not provide the encryption key to unlock the data  until the Swiss and the United States reach a broader agreement on exchange of information.

The clear implication of the Wegelin indictment is that the Department of Justice is making good on its threats of prosecution.  Indeed, in taking the unprecedented move to indict a foreign bank that has no branches to the United States, the Justice Department is sending a clear message to foreign banks, and U.S. taxpayers, that income tax evasion, and assisting those that evade income taxes, will not go unpunished.

The press release is available here.

The attorneys at Fuerst Ittleman have extensive experience dealing with IRS audits and Justice Department prosecutions.  You can reach an attorney by emailing us at contact@fidjlaw.com.

Three Swiss Bankers Charged for Conspiracy to Defraud the United States by Helping Americans Keep Secret Foreign Accounts

On January 3, 2012, a grand jury sitting in the Southern District of New York returned an indictment charging Michael Berlinka, Urs Frei, and Roger Keller with conspiracy to defraud the United States in violation of 18 U.S.C. section 371.  The indictment alleges that the three Defendants worked at a Swiss Bank that actively solicited American taxpayers who were fleeing UBS in the wake of the 2008 Department of Justice investigation and deferred prosecution agreement against UBS.

The indictment alleges that the Defendants sought to take advantage of the UBS investigation by offering to allow American taxpayers to open bank accounts that would not be disclosed to the IRS.  American taxpayers maintaining financial accounts abroad have an obligation under Title 31 of the United States Code to file Form TD90-22.1 (Report of Foreign Bank and Financial Accounts (“FBAR”)), available here, with the United States Treasury Department.  The willful failure to file an FBAR form is a felony.  The Defendants, according to the indictment, gave as part of their sales pitch to prospective clients assurances that the bank accounts would not be disclosed because the bank had a long tradition of bank secrecy and did not have offices outside of Switzerland.   The Defendants opened accounts at the bank in the name of sham corporations and foundations in jurisdictions that the IRS considers to be tax havens.

In order to ensure that the accounts would remain secret, account holders names were not used, statements  were not mailed to the United States, and emails were sent from personal accounts instead of business email accounts, all with the aim of reducing the risk of detection by U.S. law enforcement.  To that end, according to the indictment, the Defendants used a third-party website called “SwissPrivateBank.com” to solicit new business from American taxpayers.  The indictment goes on to detail, without naming, various individuals who had accounts opened by the Defendants with the aim of avoiding IRS detection and to avoid income tax obligations.     

A full copy of the indictment is available here. 

The attorneys at Fuerst Ittleman have experience with IRS and Department of Justice investigations of U.S. taxpayers who have unreported income and undeclared foreign bank accounts.  You can reach an attorney by emailing us at:  contact@fidjlaw.com, or by calling us at  305.350.5690.

U.S. Department of Justice Indicts U.S. Citizens Residing in the U.S. Virgin Islands for Bank Secrecy Act Violations and Tax Evasion

On November 8, 2011, a grand jury sitting in the U.S. Virgin Islands returned a second superseding indictment in the case of United States of America and People of the Virgin Islands, v. Joseph Edge and Laura Edge, case # 3:10-cr-44. The indictment charged that the defendants had conspired to structure financial transactions and had violated and 33 V.I.C. section 1521, the Virgin Islands tax evasion statute.

A copy of the indictment can be found here

The Bank Secrecy Act (BSA) is codified at Title 31 of the United States Code and prohibits, among other things, the structuring of transactions with financial institutions in order to avoid the $10,000 reporting requirement for cash transactions. The indictment alleged that the Defendants used various business entities to attempt to conceal earned income by causing personal debts to be paid through the business entities.

The significance of the indictment is that the U.S. Department of Justice has now turned its eye on those U.S. citizens residing in the U.S. Virgin Islands who are in violation of the BSA and for related tax crimes.

The attorneys at Fuerst Ittleman have extensive experience defending against criminal violations of the BSA and the Internal Revenue Code throughout the country and in the U.S. Virgin Islands. Additionally, Joseph A. DiRuzzo is licensed to practice in the U.S. Virgin Islands and has litigated dozens of criminal cases there. You can reach an attorney by emailing us at: contact@fidjlaw.com.

Justice Department Announces FCPA Charges Brought Against Former Siemens Executives

On December 13, 2011, the U.S. Department of Justice ("DOJ") announced that it formally brought charges against eight former executives and agents of Siemens AG. The indictment, found here, charges the defendants with violating various federal laws, including conspiracy to violate the Foreign Corrupt Practices Act ("FCPA").

According to the DOJ, the defendants sent bribes to officials in the Argentine government in order to secure a coveted contract for the Documento Nacional de Identidad ("DNI Project"), a project to replace the country’s national identity booklets with national identity cards. In addition to the alleged bribes to secure the contract, Siemens AG executives allegedly made further corrupt payments when the DNI Project was suspended and later pursued fraudulent arbitration in Washington D.C. against the Argentine government in an effort to recover profits that the company would have received had the Project not ultimately been terminated. In sum, the DOJ alleges that the conspiracy spanned almost two decades, from 1996 to 2009, and involved the commitment of over $100 million in bribes.

The FCPA makes it a crime for U.S. persons or companies, along with their subsidiaries and agents, to bribe officials of foreign countries in return for some business advantage. As we previously reported, the U.S. government has made it a priority to prosecute individuals and companies for violations of the FCPA, having secured lengthy prison sentences as well as hefty fines for offenders in 2011 alone. The DOJ has emphasized that heightened enforcement efforts aimed at thwarting corrupt payments to foreign officials will continue. This indictment against senior executives of a huge multi-national corporation with worldwide operations showcases the high profile of FCPA enforcement and prosecutions within the DOJ.

For more information about the FCPA or Fuerst Ittleman’s experience in defending against criminal investigations and prosecutions for white collar offenses, please contact us at contact@fidjlaw.com.