Source: https://federaltaxcrimes.blogspot.com/2016/05/
Timestamp: 2019-04-24 20:04:43+00:00

Document:
The Supreme Court has pronounced that the interpretation of the defraud element in the defraud conspiracy merely means a conspiracy to impair or impeded the lawful function of the IRS. I have noted before that this Supreme Court expansion of the meaning of the textual element of defraud has been subject to question. United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), here, cert. denied 134 S.Ct. 71 (2013); See Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here. Basically, the Second Circuit panel majority opinion questioned the Supreme Court's prior interpretations culminating in Hammerschmidt v. United States, 265 U.S. 182 (1924) that expanded the scope of the defraud conspiracy beyond the usual meaning of the word fraud or defraud. The Second Circuit panel stated that, in view of the Supreme Court's holding in Hammerschmidt and its own holding in Klein, it could do no more than express the concern that the Supreme Court's interpretation went beyond the text of the statute.
Fitzpatrick and Morosco complain that section 371's defraud clause — criminalizing any conspiracy "to defraud the United States, or any agency thereof in any manner or for any purpose" — is unconstitutionally vague as applied to them. For those not in the know, a law is unconstitutionally vague if it fails to give ordinary people fair notice of what is forbidden, or if it fails to give the designated enforcers (police, prosecutors, judges, and juries) explicit standards (thus creating a risk of arbitrary enforcement). See Welch v. United States, 136 S. Ct. 1257, 2016 WL 1551144, at *3 (2016). Of course the requisite fair warning can come from judicial decisions construing the law. See, e.g., United States v. Lanier, 520 U.S. 259, 266, 117 S. Ct. 1219, 137 L. Ed. 2d 432 (1997). And judges have no business junking a statute simply because we could have written it "with greater precision." Rose v. Locke, 423 U.S. 48, 49, 96 S. Ct. 243, 46 L. Ed. 2d 185 (1975).
Helpfully, both sides agree — rightly — that Fitzpatrick and Morosco preserved their vagueness claim below (via a motion to dismiss the indictment) and that our review is de novo. See, e.g., United States v. Hussein, 351 F.3d 9, 14 (1st Cir. 2003). Also helpfully, both sides concede that binding precedent squarely forecloses this claim.1Link to the text of the note And we second that assessment.
Start with Fitzpatrick's and Morosco's most loudly trumpeted point. As they tell it, section 371's "defraud" clause only bans conspiracies to deprive the government of property and money by dishonest schemes, a reading (they add) that jibes with the common-law understanding of "defraud." And such a reading would help them (they continue) because they never scammed the government out of property or money. Unhappily for them, years' worth of Supreme Court precedent holds that section 371 "is not confined to fraud as that term has been defined in the common law," see Dennis v. United States, 384 U.S. 855, 861, 86 S. Ct. 1840, 16 L. Ed. 2d 973 (1966); that defrauding the government under section 371 means obstructing the operation of any government agency by any "deceit, craft or trickery, or at least by means that are dishonest," see Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S. Ct. 511, 68 L. Ed. 968 (1924); and that the conspiracies need not aim to deprive the government of property or money, see id., because the act is written "broad enough . . . to include any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any" government "department," see Haas v. Henkel, 216 U.S. 462, 479, 30 S. Ct. 249, 54 L. Ed. 569 (1910). Ever faithful to high-Court holding, our caselaw rejects the idea that section 371 only bars conspiracies to defraud the government out of property or money. See United States v. Barker Steel Co., 985 F.2d 1123, 1136 (1st Cir. 1993) (relying on Supreme-Court cases interpreting section 371 and its basically "similar predecessors"); Curley v. United States, 130 F. 1, 6-10 (1st Cir. 1904) (explaining that "defraud" in section 371's forerunner has a broader meaning than the common-law definition — and justifiably so because the statute's aim is to protect the government, and deceit can impair the workings of government even if the conspiracy does not take the government's property or money). Obviously then, this facet of Fitzpatrick's and Morosco's vagueness thesis goes nowhere.
READERS SHOULD NOTE THE CLARIFICATION BELOW AS OF 6/6/16 AT 3:45 AM.
3. One of the obstructions charged relates to Zukerman passing false information to IRS Appeals through two attorneys at a Washington Law Firm. That alone made me curious as to which firm and attorneys were used in the scheme, but I have not been able to find out that information. And, the Government seems to have gotten access to the communications between Zukerman and the attorneys. Since I assume that such information and documents were not given to the Government with Zukerman's consent, As the press release indicates, the attorney-client privilege was pierced by the Government pursuant to district court and Second Circuit opinions. The Second Circuit opinion is In re Grand Jury Subpoenas Dated March 2, 2015, 628 F. App'x 13 (2d Cir. 2015), here. I discussed that Second Circuit opinion in a prior blog entry, Second Circuit Affirms Application of Crime-Fraud Exception to the Attorney-Client Privilege (Federal Tax Crimes Blog 10/10/15), here.
At that conference, the Government will request that the Court address potential conflicts issues relating to the defendant's current counsel, from the law firm of Williams & Connolly. More specifically, we will request that Your Honor conduct a Curcio proceeding, see United States v. Curcio, 680 F.2d 881 (2d Cir. 1982), which requires the Court to address with the defendant directly his desire to proceed with defense counsel who face potential waivable conflicts of interest - here, James Bruton and James Fuller, partners from Williams & Connolly, both of whom currently represent the defendant in this criminal case, and both of whom are potential witnesses against the defendant at any future trial or hearing. Mr. Bruton and Mr. Fuller are potential witnesses as a result of the defendant's use of those attorneys to convey false information to the Internal Revenue Service during a civil audit - offense conduct that is not only described at length in the Superseding Indictment (See Ind. ¶¶ 28-34) but was also the subject of a grand jury ''crime-fraud'' ruling by Judge Caproni that was affirmed by the Second Circuit Court of Appeals. See In re: Grand Jury Subpoenas, 2015 WL 5806060 (2d Cir. 2015) (upholding district court's crime/fraud ruling requiring attorneys for Zukerman to disclose attorney/client communications that resulted in submission to IRS of tax protest letter that included false facts).
In sum, we believe that the potential conflict can be waived by the defendant, but only after the Court conducts a proceeding pursuant to Curcio and its progeny. Consistent with the approach we have taken in prior proceedings of this sort, the Government expects to submit to Your Honor by early next week a set of questions that should be asked of the defendant at the Curcio hearing, in order to determine that the defendant understands the nature of the potential conflicts and that he knowingly desires to proceed with his counsel, notwithstanding the potential conflicts.
James A. Bruton, III, Esq.
Messrs. Bruton and Zinn are with the firm of Williams & Connolly ("W&C"), headquartered in Washington, DC. I infer from the designation of Mr. Putzel, who is not with W&C, that he is an independent attorney advising Zukerman of the potential conflicts.
Most readers will already know of the indictment of Morrris E. Zukerman, an affluent alleged tax cheat. The indictment is here and the Press Release from the USAO SDNY is here. One of the news items about this indictment is: Jesse Drucker, Oil Investor Zukerman Dodged $45 Million in Taxes, U.S. Says (Bloomberg News 5/23/16), here.
MORRIS E. ZUKERMAN, a Manhattan businessman who owns companies involved in energy investments, was charged today in a three-count Indictment with engaging in multi-year tax fraud schemes pursuant to which he evaded over $45 million in income and other taxes.
ZUKERMAN, the principal of M.E. Zukerman & Co. (“MEZCO”), an investment firm located in Manhattan, schemed to evade taxes based on income received from the January 2008 sale of a petroleum products company (the “Oil Company”) he co-owned (through a MEZCO subsidiary) with a public company. ZUKERMAN schemed to evade the reporting of the sale – which resulted in the receipt by the MEZCO subsidiary of $130 million in gross sales proceeds – by falsely telling his accountants in mid-2008 that he had transferred ownership of the MEZCO subsidiary to a family trust in early 2007. In support of the story he gave to the accountants, ZUKERMAN created backdated documents such as promissory notes and a board resolution purporting to show the transfer of the subsidiary to his family trust in 2007. The false documents allowed ZUKERMAN to remove the MEZCO subsidiary from the consolidated tax reporting being handled by the accountants for MEZCO and thereby evade the reporting to the IRS of the sale of the Oil Company, as well as the payment of over $35 million in corporate income taxes.
Following the sale of the Oil Company, ZUKERMAN transferred the proceeds of the sale from the MEZCO subsidiary to his family trust and various corporations he controlled, including a company called Zukerman Investments. Between 2008 and 2013, ZUKERMAN directed that over $50 million of the funds transferred to Zukerman Investments be used to purchase paintings by European artists from the 15th through the 19th centuries (the “Old Master paintings”), which ZUKERMAN used to decorate his Upper East Side apartment and the apartments of two family members – Family Member-1 and Family Member-2.
There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly. Many people and entities have the same or similar names. We suggest you confirm the identities of any individuals or entities located in the database based on addresses or other identifiable information. If you find an error in the database please get in touch with us.
The page has links and allows users to download the database (or subsets of it in csv format) here. I love databases but am not familiar with the database ICIJ uses: Neo4j, here, a graph database engine that structures data in nodes (the icons you see in the visualization) and edges (the links between nodes). I plan to try to dig into the database later, but will probably first poke around the cvs files (viewable in Excel) to see the scope of what is there.
ICIJ releases database revealing thousands of secret offshore companies (ICIJ 5/9/16), here.
Scott Shane and Eric Lipton, Panama Papers Source Offers to Aid Inquiries if Exempt From Punishment (New York Times 5/6/16), here.
The anonymous source behind the huge leak of documents known as the Panama Papers has offered to aid law enforcement officials in prosecutions related to offshore money laundering and tax evasion, but only if assured of protection from punishment.
“Legitimate whistle-blowers who expose unquestionable wrongdoing, whether insiders or outsiders, deserve immunity from government retribution,” the source, who has still not revealed a name or nationality, said in a statement issued Thursday night.
John Doe noted that journalists who have viewed the papers have said they will not turn over the full archive of 11.5 million documents. “I, however, would be willing to cooperate with law enforcement to the extent that I am able,” the source wrote.
The statement, which was issued Thursday night under the condition that it not be reported until Friday morning, gave some hints about John Doe’s political views and concerns. They include income inequality, the American campaign finance system and the “revolving door” of United States officials who take jobs at banks or other companies they once regulated.
What do today’s actions do to help address this kind of financial abuse?
Today, the Treasury Department took several steps to increase transparency and disclosure requirements.
First, the Treasury Department finalized its “customer due diligence” rule, which requires financial institutions – such as banks , mutual funds, and other financial institutions – to find out and verify who actually owns and profits from the companies that make use of their services, i.e, the “beneficial owner.” Under this rule, if an entity (like a shell company) opens an account at a financial institution, that institution will be required to identify and verify the real people actually behind that entity. And law enforcement can then seek out that information from those institutions.
By requiring disclosure of beneficial ownership information, we will increase financial transparency and give financial institutions and law enforcement the ability to identify the assets and accounts of criminals and national security threats.
Now, while the beneficial owners of shell companies often exploit weak rules in offshore tax havens, gaps also exist in U.S. tax rules that foreigners can currently exploit to set up and hide their assets or financial activity in an anonymous shell company in the United States.
So the second step Treasury took today is to propose a rule that would plug this gap by requiring certain foreign-owned companies to obtain a tax identification number from the IRS, thereby requiring these entities to report ownership and transaction information to the IRS.
Taken together, these steps go a long way in helping to combat money laundering and tax evasion, but additional tools are needed to promote transparency and strengthen law enforcement. And only Congress can help on that front.
Readers interested in DPAs likely will want to read the opinion in United States v. Fokker, ___ F.3d ___, 2016 U.S. App. LEXIS 6176 (DC Cir. 2016), here. Bottom line, the decision gives wide deference to prosecutiorial discretion in charging decisions and limits the district court's discretionary oversight in accepting DPAs. The opinion is notable for its content, but also notable because it is written by Judge Srinivasan, Wikipedia here, who was recently on the short list for appointment to the Supreme Court and who, likely, will be on the short list for the next President, to use President Obama's phrase, "whoever she is." I focus in this blog only on the content of the opinion limiting the district court's discretion.
The Constitution allocates primacy in criminal charging decisions to the Executive Branch. The Executive’s charging authority embraces decisions about whether to initiate charges, whom to prosecute, which charges to bring, and whether to dismiss charges once brought. It has long been settled that the Judiciary generally lacks authority to second-guess those Executive determinations, much less to impose its own charging preferences. The courts instead take the prosecution’s charging decisions largely as a given, and assume a more active role in administering adjudication of a defendant’s guilt and determining the appropriate sentence.
In certain situations, rather than choose between the opposing poles of pursuing a criminal conviction or forgoing any criminal charges altogether, the Executive may conclude that the public interest warrants the intermediate option of a deferred prosecution agreement (DPA). Under a DPA, the government formally initiates prosecution but agrees to dismiss all charges if the defendant abides by negotiated conditions over a prescribed period of time. Adherence to the conditions enables the defendant to demonstrate compliance with the law. If the defendant fails to satisfy the conditions, the government can then pursue the charges based on facts admitted in the agreement.
This case arises from the interplay between the operation of a DPA and the running of time limitations under the Speedy Trial Act. Because a DPA involves the formal initiation of criminal charges, the agreement triggers the Speedy Trial Act’s time limits for the commencement of a criminal trial. In order to enable the government to assess the defendant’s satisfaction of the DPA’s conditions over the time period of the agreement—with an eye towards potential dismissal of the charges—the Speedy Trial Act specifically allows for a court to suspend the running of the time within which to commence a trial for any period during which the government defers prosecution under a DPA.
We vacate the district court’s denial of the joint motion to exclude time under the Speedy Trial Act. We hold that the Act confers no authority in a court to withhold exclusion of time pursuant to a DPA based on concerns that the government should bring different charges or should charge different defendants. Congress, in providing for courts to approve the exclusion of time pursuant to a DPA, acted against the backdrop of long-settled understandings about the independence of the Executive with regard to charging decisions. Nothing in the statute’s terms or structure suggests any intention to subvert those constitutionally rooted principles so as to enable the Judiciary to second-guess the Executive’s exercise of discretion over the initiation and dismissal of criminal charges.
In vacating the district court order, we have no occasion to disagree (or agree) with that court’s concerns about the government’s charging decisions in this case. Rather, the fundamental point is that those determinations are for the Executive—not the courts—to make. We therefore grant the government’s petition for a writ of mandamus and remand for further proceedings consistent with this opinion.
Frederik Obermaier, Bastian Obermayer, Vanessa Wormer and Wolfgang Jaschensky, About the Panama Papers (Süddeutsche Zeitung), here. A great report (with links) from the newspaper and reporters that originally obtained the data.
Coming Soon: ICIJ to Release Panama Papers Offshore Companies Data (ICIJ 4/26/16), here.
The International Consortium of Investigative Journalists will release on May 9 a searchable database with information on more than 200,000 offshore entities that are part of the Panama Papers investigation.
While the database opens up a world that has never been revealed on such a massive scale, the application will not be a “data dump” of the original documents – it will be a careful release of basic corporate information .
ICIJ won’t release personal data en masse; the database will not include records of bank accounts and financial transactions, emails and other correspondence, passports and telephone numbers. The selected and limited information is being published in the public interest.
Meanwhile ICIJ, the German newspaper Süddeutsche Zeitung which received the leak, and other global media partners, including several new outlets in countries where ICIJ has not been able to report, will continue to investigate and publish stories in the weeks and months to come.
Meta S. Brown, Why Panama Papers Journalists Use Graph Databases (Forbes 4/30/16), here.

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