Crime in the Suites: An Analyis of Current Issues in White Collar Defense
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Mar 12
2014

As the Foreign Accounts Tax Compliance Act Takes Hold, U.S. Sees Expatriates at All-Time High

Are you living the American dream … abroad? If so, you may be considering joining forces with Superman[1] and changing your nationality. You face some unique burdens if you earn a cent while soaking up the sun in Saint Tropez or make a rupee while navigating the marketplace in Mumbai. The most obvious, from a financial perspective, is double taxation. America is one of the few countries to tax its citizens on their global income. That means that Americans must contend with tax liability and report requirements of the country where their income is earned. Also, they then must pay Uncle Sam taxes on that same foreign-based income. (The foreign tax credit offsets some of this burden, but it generally does not eliminate all double taxes.)

Now Americans abroad are facing a new financial challenge: finding places to park their money. Thanks to the Foreign Accounts Tax Compliance Act, which Congress passed in 2010, banks in foreign countries are refusing to hold accounts for American citizens. FATCA aims at enforcing American tax law on its citizens and ensuring those citizens are disclosing all income and assets to Uncle Sam. To confirm full disclosure, the law imposes reporting requirements on the foreign financial institutions that do business with Americans. Many of these banks have decided that the regulatory burden and penalties for non-compliance are too onerous so they have opted to refuse Americans’ money. The problem Americans face banking abroad has become big enough that members of Congress have called hearings on the matter. [Of course, unless Congress repeals the reporting mandates that FATCA imposes on foreign financial institutions, what impact could hearings have? Congressional members could acknowledge the problem, but there is really only one solution. Superman, where are you when we need you?]

Of the many concerns Americans have over FATCA, the law is seen as too intrusive, especially to bi-nationals who identify culturally with another nationality. The law requires individuals to file – in addition to FBARs – the already-notorious Form 8938, which demands details on foreign assets such as life insurance contracts, loans, and holdings in non-U.S. companies. Additionally there are the hefty civil and criminal penalties of $50,000 or one-half the value of accounts for individuals who have not complied with all reporting requirements (many Americans abroad, apparently have struggled with compliance).

So as FATCA takes hold (the U.S. is actively negotiating intergovernmental agreements with foreign jurisdictions to ensure enforceability of its laws), Americans abroad increasingly face the question: are the benefits of American citizenship worth the cost? More people are answering “no” and choosing to renounce their American citizenship. In fact, so many are answering “no” that we are breaking renunciation records.  In 2011, more than 1,800 Americans renounced their citizenship, which was more than 2007, 2008, and 2009 combined. In 2013, that number jumped to almost 3,000, which is an all-time record. The number of American citizens wanting to renounce their citizenship is so high in Switzerland there is a waiting list (reported as 18-months long).

Some may think that 3,000 people renouncing their citizenship is a drop in the bucket, nothing to sneeze at, and small potatoes. The number of renouncers doesn’t compare to the 1 million who are legally immigrating to the U.S. every year. “Goodbye and good riddance,” some have commented.

But the trend is more troubling than it may appear. By raw numbers, the U.S. may be averaging a 997,000 surplus in immigrants versus emigrants, but Uncle Sam’s tax roll will not reflect the same surplus. The people who are renouncing their citizenship tend to be on the wealthier side. Not all are Eduardo Saverins (the Facebook co-founder who emigrated to Singapore “for business reasons” i.e. to reduce his tax liability). But expatriates are undergoing the pains of renunciation because they have greater than average networths and they see the writing on the U.S. budget deficit’s wall (many surmise that FATCA is an attempt to curb the deficit). The people who are immigrating to the U.S. tend to be those who are looking for opportunity, education, etc. They are bringing wallets full of hope, not gold. And when you recognize that the top 1 percent of American earners pay about 37 percent of all the federal taxes, a few thousand on the wealthier side become statistically significant.

A very popular phrase bandied about by politicians is that you can tell the health of the nation by the number of people who want to come and stay. That immigration reform is an issue, to many, means we have a good thing going here in the U.S. that others want to be a part of. But when the nation’s wealthy start opting out of the American dream, when they start thinking our borders as made of kryptonite, it’s time to pause and reflect.


[1] See Action Comics No. 900 in which Superman renounces his U.S. citizenship after a clash with the federal government.

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Nov 15
2013

Peugh Ruling Affirms Sentencing Guidelines at the Time of the Crime are Applicable

In a key sentencing decision handed down this year, the United States Supreme Court held that the Ex Post Facto Clause is violated when a defendant is sentenced under provisions of the Federal Sentencing Guidelines promulgated after he committed the crime and those new provisions result in an increased risk of greater punishment. In addition to clarifying the proper application of different versions of the Sentencing Guidelines, this is a particularly significant decision because the Supreme Court has now held that even post-Booker, an error in calculating merely advisory guidelines ranges still invalidates the sentence.

Marivn Peugh and his cousin Steven Hollewell were charged in 2008 with nine counts of bank fraud in connection with a check kiting scheme from 1999 to 2000 that allegedly caused the bank to suffer over $2 million in losses. Hollewell pleaded guilty to one count of bank fraud and was sentenced to one year and one day imprisonment. Peugh pleaded not guilty and went to trial where he testified that he had not intended to defraud the banks. Peugh was nonetheless convicted by the jury of five counts of bank fraud, although he was acquitted of the remaining counts.

At the time of Peugh’s offense (in 1999 and 2000), the 1998 Guidelines were in effect. Under the 1998 Guidelines, the base offense level applicable to his offense was six, and thirteen levels were added for a loss amount of over $2.5 million, creating a total offense level of nineteen. The government argued for an additional two level enhancement for obstruction of justice, which brought the total offense level to 21. Since Peugh was a first time offender in criminal history category I, he had an advisory sentencing range of 37-46 months under the 1998 Guidelines.

When Peugh was sentenced in 2010, the district court applied the 2009 Guidelines which were then in effect. Under the 2009 Guidelines, the base offense level applicable to Peugh’s conduct was now seven, and the enhancement for a loss value of over $2.5 million added an additional eighteen levels. After adding the two level enhancement for obstruction of justice, Peugh’s total offense level under the 2009 Guidelines was 27 – six levels higher than under the 1998 Guidelines.  With a criminal history category of I, the advisory range for sentencing was 70-87 months – roughly double the range under the earlier version of the Guidelines. The district court sentenced Peugh to 70 months imprisonment, at the low end of the advisory Guidelines and he appealed the decision.

The U.S. Court of Appeals for the Seventh Circuit affirmed the sentence from the district court and quickly dismissed Peugh’s argument that the sentence violated the Ex Post Facto Clause. Relying on its own 2006 decision in United States v. Demaree, the Court held that the advisory nature of the Sentencing Guidelines post-Booker makes moot any argument that the application at sentencing of an increased Guidelines range at sentencing was not in effect at the time of the offense violates the Ex Post Facto Clause. This ruling was no surprise given that the Seventh Circuit has reaffirmed this proposition twice since it issued its 2006 ruling in Demaree.

The Supreme Court granted certiorari to resolve a Circuit split on this issue.  On appeal, the focus of the Court’s analysis was on whether the Guidelines – which, post-Booker, are admittedly advisory – are sufficiently material to judges’ decisions about sentencing to warrant application of the Ex Post Facto Clause. In support of his argument, Peugh relied upon empirical evidence showing the judges are indeed influenced in their sentencing decision making by the Guidelines even if those Guidelines are not binding. On the other hand, the government argued that there was no precedential basis for the application of the Ex Post Facto Clause to a provision of law that is merely advisory.

In its holding the Court emphasized that the intent of the Ex Post Facto Clause was that it “ensures that individuals have fair warning of applicable laws and guards against vindictive legislative action.” Even where these concerns are not implicated, the Court held that the Ex Post Facto Clause also “safeguards a fundamental fairness interest.” The Court noted that, while the Guidelines are advisory, judges are still required, under Gall and by statute to begin their sentencing determination by correctly calculating the applicable Sentencing Guidelines range.  The Court noted that continued vitality of the Guidelines in encouraging uniformity in sentencing by creating procedural hurdles that make the imposition of a sentence outside the guidelines range less likely. In doing so, the majority rejected the argument in Justice Thomas’ dissent that the advisory nature of the Guidelines means that do not “meaningfully constrain” a judges’ discretion.

The ruling in Peugh provides clear guidance to district judges that the version of the Sentencing Guidelines to be applied is the one in place at the time that the defendant committed his or her conduct constituting an offense. Of course, the Court’s ruling does not resolve how that principle will apply in cases involving charges such as conspiracy that may occur over a substantial period of time during which there may be multiple versions of the Guidelines. That issue and others will undoubtedly be the subject of litigation to come.

Sep 14
2011

Bribery Case: Another Example of DOJ’s Intent to Expand Reach of Criminal Law

The Department of Justice continues to show that, even when Congress places limits on the reach of federal criminal statutes, prosecutors will concoct novel theories to try to evade those limits. The latest example of that trend is in the case of Juthamas Siriwan, former governor of the Tourism Authority of Thailand, and her daughter, Jittsopa Siriwan.

The Siriwan prosecution arises out of the 2009 indictment of movie producer Gerald Green and his wife, Patricia Green, for violations of the Foreign Corrupt Practices Act – the first case ever filed against individuals in the entertainment business under that statute. The Greens were accused of paying $1.8 million to receive nearly $14 million in business from the Thai tourism authority between 2002 and 2007, including a contract to manage the Bangkok International Film Festival. In 2009, a federal jury in Los Angeles convicted the Greens, who were each sentenced to six months in prison plus six months of home confinement.

The 2009 indictment also charged the Siriwans with crimes, but not under the FCPA. The government could not pursue the Siriwans under the FCPA, because the statute applies only to individuals and entities who give (or attempt, promise or agree to give) bribes, and not to the recipients of those funds. Instead, in an attempt to avoid the limited scope of the FCPA, the government charged that each wire transfer of the bribes by the Greens to the Siriwans’ bank accounts constituted a transaction designed “to promote the carrying on of” the bribes, and therefore constituted violations of U.S. anti-money laundering statutes.

Siriwan’s lawyers have filed a motion to dismiss the charges, noting that “[n]o court has allowed the making of a payment that is an essential element of the predicate unlawful activity – such as a bribe in a bribery case – to constitute ‘promotion’ of that same activity.” The motion is to be argued in October.

This case will be watched closely by criminal defense attorneys – not only those who focus on FCPA cases, but also those who work in other areas involving overseas activity. A decision in favor of the government in this case could signal an opportunity for government prosecutors to assert enormous extraterritorial reach in the application of the money laundering statutes, and an ability to evade the limitations of the FCPA in seeking to prosecute not only those who give bribes but also the foreign officials who receive them.

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Jan 12
2011

Why Is an Assault on Congress Member a Federal Crime?

The charges against Jared Loughner for shooting Representative Gabrielle Giffords put into sharp focus a little-known federal statute, 18 U.S.C. 351. This law provides for a death penalty for killing a member of Congress, a presidential or vice presidential candidate, or a Supreme Court justice, as well as imprisonment up to life for attempting to kill such a person. Loughner is charged under this statute with attempting to kill Giffords.

The background of this law is interesting. When President John F. Kennedy was assassinated in Dallas in 1963, it was not a federal crime to kill a U.S. president. Had alleged assassin Lee Harvey Oswald been tried, the trial would have taken place in a Texas state court. In 1965, Congress passed a law, 18 U.S.C. 1751, making it a federal crime to kill, kidnap, or assault the President or the Vice President.

In 1968, presidential candidate and U.S. Senator Robert F. Kennedy was assassinated in Los Angeles. That was not a federal crime at the time, and Sirhan Sirhan was convicted in California state court for the murder and sentenced to death. (That sentence was commuted to life in prison in 1972, when that state abolished the death penalty, and Sirhan remains in a California state prison.) In 1971, Congress enacted 18 U.S.C. 351, which extended the protection of the Federal criminal law to members of Congress, paralleling that extended to the President and the Vice President.

Of course, in the absence of a federal law, Loughner could have been prosecuted, convicted, and sentenced in an Arizona state court. There has been some recent discussion of this statute in the legal blogs. See the Concurring Opinions blog and Josh Blackman’s blog.

Why did Congress find it necessary or desirable to make this a federal crime? Probably not because it was concerned that state prosecutors and courts would not take this crime seriously or would not hand down appropriate punishments. Most likely, Congress wanted to express a national consensus that an attack on an elected federal representative or similar official is, in effect, an assault on the government and on the nation itself. And it may have desired, in national times of sorrow and anger precisely like the one we are in now, to allow the nation as a whole to take action to ensure justice. The federal courts are such a vehicle for national action.

Oct 11
2010

Banned From the Internet: A Term of Probation That Is Overly Restrictive

The following opinion article by Ifrah PLLC founding partner A. Jeff Ifrah and associate Steven Eichorn appeared in the National Law Journal on October 11, 2010.

Banned from the Internet

Prohibiting a defendant on probation from conducting any business online is overly restrictive and not reasonably related to legitimate sentencing goals.

By A. Jeff Ifrah and Steven Eichorn

The Internet is becoming the town square for the global village of tomorrow.” — Bill Gates, founder of Microsoft Corp.

Given the pervasiveness of the Internet, it is curious to us that some courts have been all too willing to prohibit Internet use for defendants on probation or supervised release. Are such Internet bans narrowly tailored to affect “only such deprivations of liberty or property as are reasonably necessary,” a statutory factor in the conditions of release issued by a judge? Recent cases suggest the answer is no.

Internet bans are most commonly issued by courts as a condition of probation in child pornography cases in which the defendants may have utilized the Internet as a tool to lure their victims. But even when the courts have permitted Internet bans in such cases, they have often noted the harshness of a complete ban and have listed numerous factors to consider before imposing a ban, such as whether it “is narrowly tailored to impose no greater restriction than necessary,” the “availability of filtering software that could allow [the defendant's] Internet activity to be monitored and/or restricted” and the duration of the ban. In such cases, appeals courts are diligent in reminding trial courts that such bans must be reasonably related to the statutory factors and that total restrictions “rarely could be justified” even for child pornography defendants. U.S. v. Burroughs, 613 F.3d 233 (D.C. Cir. 2010).

Given the limitations imposed in child-pornography cases, the growing number of Internet bans in white-collar cases raises our eyebrows. Is an Internet ban appropriate for a defendant who used the Internet to perpetrate a fraud like a telemarketing scheme or investment fraud? Starting with the U.S. Court of Appeals for the 9th Circuit more than 10 years ago in U.S. v. Mitnick, 145 F.3d 1342 (9th Cir. 1998), and much more recently with the 3d Circuit in U.S. v. Keller, 366 Fed. Appx. 362 (3d Cir. 2010), courts seem more than willing to say “yes.” Courts seem to have concluded that such bans are reasonably related to legitimate sentencing goals, are no more restrictive than necessary and do not impermissibly restrict any First Amendment rights. See, e.g,. U.S. v. Suggs, 50 Fed. Appx. 208 (6th Cir. 2002) (computer hacker).

In the most recent case on the topic, U.S. v. Keller, the 3d Circuit upheld the following Internet ban for a defendant convicted of traditional mail fraud: “[T]he defendant shall cease and no longer create or conduct any businesses/websites via the internet for the [three-year] period of supervision.” While this may not on its face sound onerous, it is crucial to know that Eric Keller did not use the Web to perpetrate a fraud on his customers.

Keller had owned and operated a retail candy business through several Web sites. In order to deliver the candy to the customers, Keller shipped the candy via United Parcel Service. Using fraudulent information, Keller set up 12 different UPS shipping accounts. When one shipping account was suspended for nonpayment, Keller just abandoned that account and opened another account. Keller accomplished this by using various aliases and other trickery. Ultimately, UPS suffered a loss of approximately $155,650.

Despite the fact that the Internet was not used to perpetrate a fraud on Keller’s customers, the court saw fit to ban Keller from using the Web in the future for doing business. This lack of a nexus between the fraud at issue and the role of the Internet was also present in an earlier case decided by the 6th Circuit in 2002. In that case, the defendant, Thomas Suggs, was banned from using a personal computer for anything whatsoever. Just like the defendant in Keller, Suggs committed a crime that did not involve perpetrating a fraud on customers over the Internet; Suggs’ crime involved an investment scheme involving the financing of computers.

Clearly, courts would not apply a complete ban on conducting business for a defendant who operated many fraudulent brick-and-mortar companies with separate storefronts. Courts readily understand that banning a defendant from conducting any further business is not reasonably related to legitimate sentencing goals and is much more restrictive than necessary. So why are courts willing to place a complete ban on Internet business for defendants who use the Internet to conduct their business and bar them from “the town square for the global village of tomorrow?” And why are courts handing down more restrictive Internet bans in white-collar cases than those handed out in Internet child pornography cases?

The answer may be related to some judges’ lack of appreciation of the importance of the Internet in today’s society. We hope that, as online commerce becomes universally perceived as being as routine as business conducted in a brick-and-mortar store, courts will be careful to ensure that this critical form of communication with customers is not restricted in the absence of compelling circumstances. Anything less would clearly constitute “deprivations of liberty or property” that are far from “reasonably necessary.”

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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