Pistachios in a Pinch

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Tougher Sanctions Close Pipeline for Trade in Food, Carpets and Financial Transactions from Iran

On August 16, 2010, the Department of Treasurys Office of Foreign Assets Control (OFAC) promulgated new regulations to implement the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).  President Obama signed CISADA into law on July 1st with the goal to enforce U.N. Security Council sanctions and “to protect the international financial system from abuse by Iran,” according to OFAC Director Adam Szubin.

American financial institutions operating correspondent accounts or payable-through accounts for foreign financial institutions as well as companies currently importing food and carpets from Iran must take note of these provisions, which go into effect on September 29, 2010.

Before these implementing regulations, there was a “general license” issued by OFAC authorizing the importation of certain foodstuffs (like caviar and pistachios) and carpets from Iran into the United States.  However, the new regulations eliminate the general license and prohibit all such imports beginning on September 29, 2010.  OFAC has also indicated that it will no longer issue specific licenses for such products after that date.  Therefore, according to the OFAC guidance, “any such goods for commercial importation into the United States must be entered for consumption before that date.”

For financial institutions, the new regulations either outright prohibit, or impose strict conditions on, the opening or maintaining of a U.S. correspondent account or payable-through account for a foreign financial institution that the government finds have knowingly aided or facilitated certain activities benefitting the Government of Iran, Iran’s Islamic Revolutionary Guard Corps (IRGC), or Iranian financial institutions.  CISADA also makes it easier for state and local governments to prohibit investments of public funds in companies which are investing in Iran.

The penalties for institutions or companies found violating these new regulatory provisions are severe.  Civil penalties may be imposed up to $250,000 or twice the value of the transaction involved.  In addition, criminal penalties for willful violations of the law include fines of up to $1 million and prison sentences of up to 20 years.

One key provision of CISADA is the civil and criminal liability for parent companies for acts by subsidiaries that the parent had “reason to know” could lead to a violation of the law.  This is an attempt by the government to close one of the many loopholes which have allowed U.S. companies to benefit for years from trade with Iranian which arguably violated previous sanctions.

Health Care Reform Strengthens Fraud Prosecutions and Expands Scope of False Claims Act

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The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, will make it easier for the federal government to investigate and prosecute health care fraud and increase penalties for violations. The new bill provides for more than $350 million over 10 years to reduce healthcare fraud and abuse while easing prosecutions, strengthening sentencing guidelines, and expanding the False Claims Act.

The bill eliminates the need for prosecutors to prove actual knowledge of or specific intent to violate the law under the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b) and the federal health care fraud statute (18 U.S.C. § 1347). The Bill is likely in response to the 9th Circuit Case, Hanlester Network v. Shalala, which provided for heightened standards of intent. Prosecutors will also be able to issue administrative subpoenas for the production of documents.

Kickbacks and offenses in violation of Section 301 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 331) will now be considered Federal Health Care Fraud Offenses. Further, those suspected of obstructing a criminal investigation of federal health care fraud may have their assets frozen, while those who obtain property from the commission of fraud w have their personal property subject to forfeiture.

The bill will also change the definition of “intended loss” under the Federal Sentencing Guidelines. Section 2B1.1(b)(1) of the guidelines provides that the loss from fraud is calculated as either the actual loss or intended loss whichever is greater. While courts in the past have calculated “intended loss” as the amount actually paid by the government or payable under government fee schedules, the new bill allows for the dollar amount of fraudulent bills submitted to constitute prima facie evidence of intended loss. The result will be heightened sentencing for white collar criminals in health care. Further, the statute will increase the offense level for defendants convicted. Changes include:
¢ A two-level increase in the offense level for losses of $1 million or more.
¢ A three-level increase in the offense level for losses of $7 million or more.
¢ A four-level increase in the offense level for losses of $20 million or more.

The False Claims Act will also be strengthened by the reform statute. Claims arising from a violation of the Ant-Kickback statute will now expressly constitute violations of the False Claims Act, regardless of whether the wrongdoer submits the claim. The bill also strengthens the Act by allowing for whistleblowers to bring suits and restricting the public disclosure bar (providing that disclosures made in criminal, civil or administrative hearing or in government reports, hearings, audits and investigations bar a federal FCA suit) to federal government hearings, reports, audits and investigations. Finally, the FCA will be applicable to payments made by the American Health Benefit Exchanges if they include federal funds and civil penalties for exchange-related FCA liability will be 3 to 6 times the amount of damages.

Additional Provisions include:
¢ The ability to suspend pending Medicare and Medicaid payments to providers and suppliers pending investigations into allegations of fraud.
¢ Civil monetary penalties for knowingly making false statements to enroll as a provider or supplier in a federal health care program.
¢ Mandatory compliance programs for providers and suppliers.
¢ HHS oversight of Medicaid and Medicare Parts C and D.
¢ Exclusions from Medicaid for companies or individuals that control entities that have not repaid overpayments, have been suspended, terminated, or excluded from participation, or are affiliated with an entity that has.
For more information regarding Health Care Reform please contact us at contact@fidjlaw.com.

Judge Agrees Agency for Health Care Administration Rule Goes Beyond Regulatory Powers

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On July 23, 2010, Administrative Law Judge Eleanor M. Hunter entered a Final Order in the case of Las Mercedes Home Care Corp v. Agency for Health Care Administration. The Order declared invalid a rule requiring Medicaid providers of home health agencies to issue either W-2 or 1099 tax forms to individuals on their staffs.

Las Mercedes is a licensed home health agency in Florida and was an enrolled Medicaid provider of home health services from July 1, 2004 through June 30, 2006. The company works with patient physicians to determine the type and scope of home health services needed and arranges for such services to be provided through one of 22 companies with which it maintains staffing agreements.

The suit began in response to a September 30, 2008, Final Audit Report issued by ACHA which sought $878,843.93 in Medicaid overpayments and a fine of $1,000. Soon afterwards, Las Mercedes requested an administrative hearing and the case was referred to the Division of Administrative Hearings (DOAH) in November and set for hearing in February. Following numerous continuations, the AHCA Motion to Amend Final Audit Report was granted on June 24, 2009.

After additional discovery, Las Mercedes filed a Motion to Dismiss arguing that the AHCA rule requiring that Medicaid home health agencies issue W-2 or 1099 forms to individuals conflicted with Statutory authority. In response to an AHCA objection to consideration of the validity of the rule, Las Mercedes filed a rule challenge case; the two cases were then consolidated.

The challenged rule is a provision from the Florida Medicaid Home Health Services Coverage and Limitations Handbook, which has been incorporated by reference by Florida Administrative Code Rule 59G-4.130. The rule requires Home Health services to be provided by professionals who are directly employed by or under contract with a home health agency enrolled in Medicaid Home Health Services program and provides, “Employed or contracted means that the home health agency provides a W-2 of 1099 tax form for the individual.”

Attorney Andrew Ittleman of Fuerst Ittleman, on behalf of Las Mercedes, alleged that the Rule was an invalid exercise of AHCA authority because it (1) went beyond AHCAs powers, (2) contradicted the Florida Statute 400.463(9) definition of “employed by or under contract with” and (3) was arbitrary and capricious.

After determining that the DOAH had jurisdiction to determine the validity of Medicaid rules, the court found that none of the purported statutes authorized AHCA to regulate the business relationship between a home health agency and its employees or contractors. Accordingly, the Court held that the Rule goes beyond the scope of AHCA powers.

The court then found that the “direct employee” definition provided in Section 400.462(9), which includes, “an employee for whom a management company that has a contract to manage the home health agency on a day-today basis…” contradicted and precluded the AHCA definition of the same term. Further, there was no indication that the Legislature or federal government had intended for the AHCA to create its own more restrictive definition.

Finally, the court ruled that the additional requirement under the AHCA Rule was an irrational and illogical methodology for ensuring health, safety, and welfare, and curbing fraud, waste, and abuse. Thus, the court voided the rule established on page 1-8 of the Florida Medicaid Home Health Services Coverage and Limitations Handbook as an invalid exercise of delegated legislative authority.

For more information regarding the AHCA, Medicaid, or administrative agency regulations please contact us at contact@fidjlaw.com.

Dietary Supplement Marketer to Pay $5.5 Million to FTC for Weight Loss and Immunity Claims

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Weight loss, immunity, and cold and flu claims are on the radar of the Federal Trade Commission (FTC), as evidenced by last weeks $5.5 million settlement with supplement marketer, Iovate Health Sciences, U.S.A.  The FTC charged Iovate and two of its Canadian affiliates (Iovate Health Science Group, Inc. (now known as Kerr Investment Holding Corp.), and Iovate Health Sciences, Inc.) with deceptively advertising that its supplements “ Accelis and nanoSLIM “ could help consumers lose weight rapidly.  These same three companies also advertised that their Cold MD, Germ MD and Allergy MD products could treat or prevent colds, flu, allergies and hay fever, claims the FTC alleged were deceptive as well.

The FTC believed that Iovates “clinically proven” efficacy claims for the cold, flu and allergy formulas amounted to deceptive advertising.  Iovates claims that its weight loss products are “scientifically proven to speed up the metabolism,” could allow users to “lose 32 lbs fast” or lose weight at a rate of “one to two pounds per week” were similarly deceptive according to the FTC.  Additionally, the FTC found that some of the claims were deceptively delivered by actors portraying doctors, complete with white lab coats and stethoscopes; and by testimonials touting atypical weight loss results.  The FTC felt the claims were not merely deceptive and misleading but were outright false and further charged that Iovate knew of their falsity at the time the claims were being made. 

In settling with the FTC, Iovate did not admit to any wrongdoing; however, as part of the settlement, Iovate agreed that it would possess two adequate, well-controlled human clinical studies prior to making any future weight loss claim, and procure pre-approval from the U.S. Food and Drug Administration (FDA) before making any claims regarding the diagnosis, treatment, cure or prevention of any disease.

The settlement piques interest for two reasons.  First, it requires that Iovate seek FDA approval on efficacy claims.  While FDA approval can be required for certain health claims, it is an undertaking rarely required under FTC law.  Secondly, it demonstrates that the FTC is keeping a watchful eye on the supplement industry, an industry that has grown and flourished during the recent recession as many people are turning to alternative therapies and supplements rather than incurring the cost of doctors visits and allopathic medical products.

Senate Bill Introduced to Increase FDA Authority

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August 5, 2010

This week Sen. Michael Bennet (D-CO) introduced the Drug Safety and Accountability Act of 2010 to the U.S. Senate. The Bill aims to increase the authority of the U.S Food and Drug Administration (FDA) to regulate drugs manufactured overseas and allow for heightened oversight and regulation of over-the-counter (OTC) drugs.

Bennets Press Release explains, “For too long, the FDA has lacked the proper authority to adequately safeguard our drug supply and protect Colorado consumers. Its time Washington took acting to ensure the medicines Coloradans rely on are safe, and that those entrusted with the responsibility of developing these drugs are equipped to keep consumers out of harms way.”

The Bill was introduced the same day the Pew Prescription Project released poll results indicating that nine in ten voters support new safety measures for prescription drugs. The report also revealed that U.S. consumers have low confidence in the safety of drugs manufactured abroad, especially those produced in China and India.

The FDA has indicated support for the reforms, with Principal Deputy Commissioner Joshua Shafterstein stating that he believes the FDA needs authority to issue mandatory drug recalls. Additionally, The Pew Prescription, AARP, American College of Physicians, Consumers Union, Society of Chemical Manufacturers and Affiliates, the Community Catalyst, and others have issued a joint letter to Congress in support of the Bill. Proponents of the Bill estimate that 80% of active ingredients in U.S. pharmaceuticals are made abroad. Proponents, including the Bills sponsor, also note the 1,742 drug recalls implemented in 2009, which represents a 400 percent increase over 2008.

The new Bill would provide the FDA with additional recall power and enforcement options along with better tools to look into possible drug quality and safety issues including:
¢ Authority to assess civil penalties for Food, Drug and Cosmetic Act violations.
¢ Authority to subpoena documents and witnesses.
¢ Increased ability to exchange information between the FDA and other regulatory agencies.
¢ Ability to protect industry whistleblowers who bring information to the FDA.

The Bill would also increase manufacturer standards by:
¢ Requiring Companies to institute quality management plans to insure quality and safety of their drug components.
¢ Requiring companies to increase supplier oversight and document entities involved in supply chain for drug manufacturing

Finally, the Bill aims to increase oversight of over-the-counter medications by re-assigning them from a lower-risk category for inspection.

This Senate Bill comes only two weeks after House Representative Ed Towns (D-NY), Chair of Committee on Government Oversight and Reform, introduced the FDA Mandatory Recall Bill, also intended to increase FDA power. The House Bill, introduced July 15, would allow for the FDA to implement a quicker and more thorough recall process than the voluntary recall process currently in place. If the House Bill passes, the FDA will have the ability to order mandatory recalls for adulterated or misbranded drugs or drugs which pose a considerable risk of death or serious health consequences. The Bill was referred to the House Committee on Energy & Commerce.

The House Bill was introduced the same day Johnson & Johnson submitted a plan to correct problems at a Tylenol plant. The plan was required by the FDA after an April 30th cite check found numerous violations of good manufacturing conditions. The cite check coincided with recalls issued for Benadryl, Motrin, Tylenol, and Zyrtec for infants and children because of possible metallic particle contamination. The plan included new equipment and operations procedures.

For more information regarding current FDA authority, procedure, or regulations please contact us at contact@fidjlaw.com.

IRS Successfully Prosecuting Tax Evaders

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August 6, 2010

In the past two weeks, the IRS has announced lengthy prison sentences in cases involving conspiracy to defraud the U.S. government and related charges. Acting Assistant Attorney General John A.Dicco of the Justice Departments Tax division believes that recent sentences send a powerful message stating that, “Those who promote tax fraud schemes will be investigated, prosecuted and convicted, and they also face substantial prison sentences.”

On Thursday, July 29, the IRS announced that four out of eight Pinnacle Quest International (PQI) defendants have been sentenced to prison terms for charges relating to tax fraud, wire fraud, and money laundering. These individuals were sentenced between five to twelve years in prison.

PQI was an umbrella organization for a number of businesses operating tax and credit card debt elimination scams. One PQI company sold phony strategies for tax evasion and worked with clients to create sham businesses in the U.S. and Panama. Another provided a “reliance defense” in the form of frivolous correspondence to show good faith if prosecuted. Still other PQI vendors charged customers for ineffective letters to creditors, claiming to reduce credit card debt. Vendor MYICIS operates a “warehouse bank” where customers are able to make deposits into a joint bank account to hide assets from the IRS.

PQI claimed to sell only CDs and tickets to offshore conferences, but the government demonstrated that vendor customers were required to join PQI at a rate of $1,350 to $18,750. Four more PQI defendants are expected to be sentenced in the next two months.

Within a week, the IRS announced that John S. Lipton has been sentenced to 70 months in prison and ordered to pay restitution of $2,915,427.16 to the IRS after pleading guilty to conspiracy to defraud the United States and tax evasion on April 8th.

Lipton was a founder and principle member of the Genesis Fund which operated a ponzi scheme from May 1998 to June 2002. The Genesis Fund lured investors by falsely claiming returns of 4% monthly while actually utilizing investments to make “profit” distributions to its founders and early investors. The Genesis Fund also averred no reporting obligations to the IRS. Members advised investors to create offshore bank accounts, corporations, and trusts in order to conceal disbursements from the IRS and maintained “disclosed” and “undisclosed” accounts.

To obscure their operations, the Genesis fund maintained no financial statements, destroyed electronic data, and relocated its administrative offices and paper documents to Costa Rica. Lipton admitted to personally directing the transfer of 19 boxes of subpoenaed material outside the United States.

Co-defendants Richard B.Leonard, Victor H.Preston and Teresa R.Vogt have entered guilty pleas, and four remaining defendants will face trial in April 2011. A separate trial related to the Ponzi scheme is scheduled for September 2011.

If you are facing criminal tax prosecution or have questions about tax law provisions please contact our attorneys at contact@fidjlaw.com.

Feds Challenge Stem-Cell Treatment

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WASHINGTON (CN) – The Department of Justice says a stem-cell treatment to rebuild hips, knees and other joints has been misbranded by its manufacturer, Regenerative Sciences, and violates standards of the federal Food, Drug, and Cosmetic Act.

Colorado-based Regenerative Sciences calls the cultured stem cells used in the company’s Regenexx procedure a “cultured cell product,” while the FDA claims the cell product should be considered a drug. The Regenexx procedure involves taking cells from a patient’s bone marrow, processing the cells with the patient’s blood, then reinjecting the “product” into the patient.

The cultured cells should be classified as a drug, the government says, as they end up in a syringe to be injected back into the patient.

“Defendant’s cultured cell product is a ‘drug’ within the meaning of the FDCA, because Defendant’s labeling and promotional literature, including information contained on Regenerative Sciences’ website, establish that their cultured cell product is intended to be used in the cure, mitigation, and treatment of diseases in man and to affect the structure and function of the body,” says the government in its complaint.

Dr. Christopher Centeno, Regenerative Sciences’ acting CEO and defendant in the case, disputes the FDA’s claims that the product is a drug.

“This is about patients. We don’t dislike [the FDA] and respect its authority over drug production. However, we also believe a physician has the right to use stem cells or other body parts to help heal the patient, especially when it’s a better alternative to more invasive procedures,” says Dr. Centeno.

He says making a patient’s own stem cells a drug “won’t add measurable safety, but it will hugely increase cost and delay helping patients find better options for their medical problems.”

According to the FDA, if the cultured cell product is a drug, then Regenerative Sciences is not following the guidelines of “current good manufacturing practice.” The agency says its nearly two-month investigation of the company’s Colorado facilities “showed that the methods used in, and the facilities and controls used for, the manufacture, processing, packing, or holding of the cultured cell product do not conform to and are not operated or administered in conformity with current good manufacturing practice.”

Among the violations, the FDA says, Regenerative Sciences failed “to perform appropriate laboratory testing of each batch of drug product required to be free of objectionable microorganisms.”

The government says the company promised to correct some violations, “but they refused to correct many others because they do not believe that Regenerative Sciences is a drug manufacturer.”

“Regenerative Sciences has had an exemplary safety record, showing that our procedure is far safer than the knee replacements it has helped patients avoid,” Centeno says.

The company has sued the FDA four times in two years, trying to get a decision that the cultured cell product is “the practice of medicine” and not a drug, he explained in an interview with Courthouse News.

Colorado Medical Clinic Welcomes Opportunity to Fight FDA in Court

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Clinic Claims FDA Has Repeatedly Overstepped Regulatory Authority

DENVER, Aug. 9 /PRNewswire/ — Regenerative Sciences, Inc., a Colorado medical practice that specializes in the use of a person’s own stem cells to help patients avoid more invasive orthopedic surgery, announced today that the US Food and Drug Administration (FDA) is seeking to enjoin the clinic physicians from practicing medicine using patients’ own stem cells. The lawsuit will allow Regenerative Sciences to question the FDA’s policy that adult stem cells can be classified as drugs when used as part of a medical practice.

“The FDA will finally answer our questions, in court, about their claims and jurisdiction as opposed to doing everything in their power to avoid the issue that we are not a drug manufacturer, but simply a medical practice,” said Christopher Centeno, M.D., Regenerative Sciences’ medical director.

The FDA claims that Regenerative Sciences is using an “adulterated” product because it fails to follow mass manufacture guidelines in its medical practice that is applied to drug factories producing millions of doses. Rather than mass producing drugs, Regenerative Sciences uses the patient’s own stem cells to treat common orthopedic problems. Regenerative Sciences has had an unblemished safety record, recently publishing a large study showing that its procedure is dramatically safer than the traditional surgical procedures it has helped many patients avoid. Regenerative Science’s lab has strictly adhered to the International Cellular Medicine Society’s (ICMS) strict, professional guidelines and has been audited three times by independent third parties with no serious safety concerns.

“ICMS lab guidelines are the best fit for autologous cell processing and provide strong patient protection. If the FDA had any valid concerns about our medical practice not using drug factory guidelines, they knew about that in Spring of 2009 and did nothing. They did nothing because there were no safety issues. Their focus on this now is litigation posturing,” stated Centeno.

Regenerative Sciences has been using its patients’ stem cells to treat orthopedic conditions since 2005 and received an untitled letter from the FDA in 2008 claiming its medical procedure was creating a new biologic drug. The FDA inspected Regenerative Science’s facility in 2009, and found, at that time, that it was not compliant with drug mass manufacture guidelines, but failed to take any action.

Regenerative Sciences has filed two lawsuits against the FDA in an effort to force the organization to respond to questions about their jurisdiction in the matter. The medical practice filed a suit in Denver District Court in 2008 based on the issue that the FDA regulations regarding creating a drug out of the patient’s own stem cells exceeded the FDA’s congressional authority and that the Food, Drug, and Cosmetic Act contains exemptions for physicians using innovative therapies that do not go through FDA approval as part of their medical practice. Last month, Regenerative Sciences was forced to file suit against the FDA again, this time seeking a Temporary Restraining Order (TRO) to prompt the FDA to take “final agency action” or leave its medical practice alone following an exhaustive inspection of Regenerative Science’s facilities and taking no action.

“For two years we’ve been prodding the FDA to respond to our questions about how it has the ability to regulate a medical practice, so we’re encouraged that, as a result of this recent suit, the courts will decide if it the FDA has regulatory authority over the adult stem cells that live in everyone’s body,” stated Centeno. “This is an important case for everyone that suffers from any type of illness, not just patients with orthopedic problems. It will decide, once and for all, if the government has the right to restrict a patient and their doctor from using a person’s own stem cells to treat disease. Regenerative Sciences believes that stem cells are body parts and not the property of the government or big pharma.”

Adult stem cells are those found throughout the patient’s body. Recent medical research has indicated these important cells have as much clinical promise as the more controversial embryonic stem cells (cells taken from an embryo).

“What we’re doing in our Colorado medical practice is no different, in principle, than a fertility clinic that uses the in-vitro fertilization technique. The only difference is that we’re using stem cells and fertility clinics use fertilized eggs,” stated John Schultz, M.D., one of the founders of the Centeno-Schultz Clinic.

The FDA’s lawsuit is being closely monitored by the International Cellular Medicine Society (ICMS), a global nonprofit dedicated to patient safety and education in the medical use of adult stem cells that represents over 1,000 physicians, researchers and patients from over 35 countries on 6 continents. ICMS executive director, David Audley, stated “The Centeno-Schultz Clinic meets our strict criteria for the safe therapeutic use of adult autologous stem cells. There is more medical and scientific evidence supporting this type of medical therapy for orthopedic conditions, for example, than there is for many approved drugs that the FDA allows to be used in off-label or unconventional applications.”

About Regenerative Sciences

Headquartered in Colorado, Regenerative Sciences, Inc. is an extension of the medical practice of the Centeno-Schultz clinic and is focused on the development of the Regenexx┞¢ procedure, a breakthrough non-surgical option for people suffering from various orthopedic disorders. The physicians at Regenerative Sciences have developed a patent-pending procedure that uses a person’s own stem cells and blood growth factors to help regenerate bone and cartilage. Regenerative Sciences believes in educating patients, providing choices, offering options and encouraging people to take an active role in their own treatment. More information can be found at http://www.regenexx.com

SOURCE Regenerative Sciences, Inc.

RELATED LINKS
http://www.regenexx.com

IRS Liens go Un-noticed

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The IRS has begun to automatically issue tax liens to taxpayers with more than $5,000 in “currently not collectable” debt, regardless of their circumstance. This policy led to 966,000 tax liens issued in the 2009 fiscal year; an increase from 1999, where the IRS issued only 168,000 liens. A lien attaches to all of an individuals property including car, home, real estate accounts, and even accounts receivable if the tax payer is a business. The IRS additionally places interest in unpaid tax ahead of future creditors. In her 2009 annual report to Congress, National Taxpayer Advocate Nina Olson expressed her concern, stating that the IRS rarely uses its authority to “withdraw” liens from a taxpayers record. Olson believes that automatic filings may destroy a taxpayers credit score, business and job prospects, thus reducing an individuals ability to repay the government.

In a report titled “Actions Are Needed to Protect Taxpayers Rights During the Lien Due Process” issued on July 9, 2010, Treasury Inspector General for Tax Administration, J.Russell George, expressed his concern over the IRSs recent failure to notify taxpayers or their representatives when a lien has been issued.

The IRS is required to notify taxpayers and their authorized representatives within five days of a lien filing at their last known address.  Yet, the report estimates that in the 12 months ending June 30, 2009, the IRS failed to send notices to taxpayer representatives in 60,675 cases (26% of cases where a representative was on file). In addition, the report estimates that within the above timeframe, 2% of lien notices were mailed late to the taxpayers themselves. Further, the Report indicates that IRS employees failed to perform a required search for a lienees correct address in 84% of 300 cases where the original lien notice was undeliverable. This may have serious implications, because taxpayers only have 30 days to appeal a lien with the IRS; thereafter, a lien may only be contested in the Tax Court.

The IRS believes only 1% of notices have not been sent out on time, but is reconsidering what procedures are needed to deal with undeliverable notices. Officials say that the IRS is working on lien issuance timelines and agree it is, “imperative for both legal and taxpayer rights purposes to timely issue lien notices.” 

For other TIGTA reports, please visit http://www.treas.gov/tigta/
If you have been issued a Notice of Federal Tax Lien or a Notice of Intent to Levy, our attorneys at Fuerst Ittleman, PL can help “ you may contact our attorneys at contact@fidjlaw.com.

Money Laundering charges now require proof that a transaction has the purpose of concealing illegal monies

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Recently two cases involving the amount of proof required to sustain criminal convictions for money laundering were decided before the United States Court of Appeals for the Sixth Circuit, based out of Cincinnati. Money laundering charges in recent years have been a powerful weapon for prosecutors in fraud cases, because money laundering convictions often carried much higher penalties than for fraud from which the money being laundered was derived. These new cases are interesting because they arise after Cuellar v. United States, a case decided in 2008 where the Supreme Court changed the quantum of proof necessary to convict someone of money laundering, and thereby making it harder for prosecutors to sustain money laundering charges.

United States v. Faulkenberry and United States v. Donald Ayers both arose from a prosecution of a securities fraud scheme involving National Century Financial Enterprises. As part of the prosecution of the fraud scheme, the government charged both defendants with money laundering for monetary transactions conducted during the fraudulent scheme with phony documents. Although the Court of Appeals found sufficient evidence that the defendants committed fraud, it found that there was insufficient evidence to prove money laundering under the standards set by the Supreme Court in Cuellar v. United States.

The Supreme Court in Cuellar held that to prove money laundering, the government must prove that a monetary transaction must be “designed in whole or in partto conceal or disguise” the nature and source of the fraudulently obtained money.  The Supreme Court held that this means that the purpose of the monetary transaction must be to conceal of disguise the illegal monies. The Court of Appeals, following the Cuellar case, found in, that although the government proved the defendants knew about the monetary transactions and that they were structured to conceal the funds, there was insufficient evidence that the purpose of the monetary transaction was to conceal the money, as opposed to merely facilitating the fraud.  Engaging in monetary transactions for the purpose of facilitating a fraud, instead of the purpose of concealing the money, is not money laundering according to the Court of Appeals. As stated by the Court in Faulkenberry, “money in motion does not necessarily equal money laundering”.

As Courts construe the new proof requirements of Cuellar, prosecutors will find it more difficult to convict defendants of money laundering unless the government has specific proof that monetary transactions were specifically conducted with the purpose of concealing illegal monies. This removes a potent weapon from prosecutors armory in many fraud cases, but is more in line with the purposes of the money laundering laws: to criminalize the intentional secreting of illegal monies separate and apart from the conduct that earned the illegal monies in the first place.