Photo: “LAX-International-checkin” by TimBray at en.wikipedia.
Developments in law are sluggish compared to the rapid rate of technological advancement, and courts must constantly apply old legal principles to technologies which were not contemplated at the time the laws were enacted. Recently, technology has been at the forefront of privacy rights debates, in light of revelations that the government has access to online communications, personal data storage and extensive monitoring via technology. The Fourth Amendment of the United States Constitution establishes a privacy right by prohibiting unreasonable search and seizure, but the extent to which that applies to technology is largely untested. Last week, a federal judge upheld this fundamental right as she ruled that our client’s rights had indeed been violated by an unreasonable search and seizure of a laptop computer conducted by the government.
U.S. District Court Judge Amy Berman Jackson granted a motion which we filed on behalf of our client, South Korean businessman Jae Shik Kim, to suppress evidence seized from his laptop as he departed the country from Los Angeles International Airport in October 2012. The decision severely cripples the government’s case alleging that Kim conspired to sell aircraft technology illegally to Iran, in United States of America vs. Jae Shik Kim, Karham Eng. Corp. (Crim. Action No. 13-0100 in the U.S. District Court for the District of Columbia).
The seizure of Mr. Kim’s laptop presents a unique challenge in an undeveloped area of law. The government claimed that because Mr. Kim’s laptop was seized at the border, it was free to search the computer without having any suspicion that he was presently engaged in criminal activity, the same way the government is free to search a piece of luggage or a cargo container. Yet anyone who owns a laptop, smartphone, tablet, or any other personal mobile device, knows that the breadth and depth of private information stored within these gadgets are intimately tied to our identities and should be entitled to a heightened level of privacy.
Judge Jackson, who understood this aspect of modern mobile devices, wisely rejected the government’s argument that a computer is simply a ‘container’ and that the government has an ‘unfettered right’ to search. In her memorandum opinion and order, she wrote, “…given the vast storage capacity of even the most basic laptops, and the capacity of computers to retain metadata and even deleted material, one cannot treat an electronic storage device like a handbag simply because you can put things in it and then carry it onto a plane.”
In her decision, Judge Jackson also repeatedly referred to “reasonableness” as the “touchstone for a warrantless search.” She keenly balanced the government’s imperative to protect our borders with individuals’ privacy rights. Judge Jackson found that the nature of the search — including that the government conducted the search as Kim departed the country (and not as he entered) to gather evidence in a pre-existing investigation, and that it made a copy of the entire contents of Kim’s laptop for an “unlimited duration and an examination of unlimited scope” — amounted to an invasion of privacy and an unreasonable search and seizure.
While the search of Mr. Kim was technically a border search, his laptop was not searched at the airport. Instead, it was transported 150 miles to San Diego and held until government agents were able to find and secure information they deemed valuable to their case. In fact, Mr. Kim was deemed so little of a threat to national security that he was permitted to board his flight. Judge Jackson noted that if the government’s asserted justification for the search were to stand, it “would mean that the border search doctrine has no borders.”
In this case, unfortunately, the government overstepped the boundaries established by Fourth Amendment of the Constitution, however the checks and balances imposed by the same foundational document proved to correct this error, and rightly so, as our laws continuously strive to adjust to the reality of rapidly evolving technology.
Many small business government contractors may have to rethink the way they do business. The Small Business Administration issued a proposed rule at the end of December to implement provisions of the National Defense Authorization Act of 2013. The NDAA, which was signed into law in January 2013, requires several significant modifications to the rules for small business concerns, including changes to the Limitations on Subcontracting Rule (13 C.F.R. 125.6).
The proposed rule suggests a number of changes that would impact small businesses qualifying under one or more of the size or socioeconomic categories for set-aside contracts. These changes would (1) require companies to change how they determine compliance under §125.6, (2) require them to certify compliance in the bidding process, and (3) impose steep monetary penalties for delinquencies.
The Limitations on Subcontracting rule limits the extent to which prime contractors may subcontract obligations to outside entities, say to large companies that would not themselves qualify for a government set-aside. Under the current rule, a cost-based metric controls what prime contractors on set-aside contracts can subcontract to other entities: the prime must incur a certain percentage of the contract costs. For instance, for services contracts, a prime contractor must “perform at least 50 percent of the cost of the contract incurred for personnel with its own employees.” Section 125.6 currently provides different cost-base ratios based upon the type of contract (e.g., services, supplies, construction) and the type of set-aside (e.g., 8(a), SDVOB, HUBZone).
The proposed rule, if implemented, would alter how limitations are calculated, using an income-based, as opposed to a cost-based, metric. Under the proposed rule, prime contractors on set-aside contracts would be required to keep in-house a certain percentage of income—including passive income—paid by the government. For services and supply contracts, no more than fifty percent of the amount paid under the contract could be passed on to subcontractors; for construction no more than eighty-five percent; and for specialty trade, no more than seventy-five percent. (note that these are the same ratios used under the current cost-based metric, but now apply to the income-based metric). There no longer would be a distinction in ratios based upon type of set-aside, however.
An important exception to the rule would exist for “similarly situated entities.” Maintaining the philosophy behind the set-aside program, the proposed rule would allow prime contractors to contract out to companies who also qualify under their set-aside category without that relationship counting towards the income limit. In other words, the entities would be treated the same for purposes of the Limitations on Subcontracting rule. For instance, an SDVOB could subcontract out a services contract to another SDVOB and that contract relationship would not count towards the fifty percent income limit. However, the subcontractor must qualify under the same set-aside category as the prime in order to take advantage of this exception.
Another exception is that the rule would not apply to contracts valued under $150,000.
Closing a former loophole, the revised §125.6 would count all levels of subcontractor relationship, not just to the first prime-sub relationship. So companies could not get around the subcontract limitation through subcontracting out under the subcontractor.
In order to satisfy the new Limitations on Subcontracting rule, companies would need to address the rule in their contract bids for set-aside contracts. They would be required to certify that they can satisfy the rule. They would further be required to identify any similarly situated entities they planned to subcontract with and to what extent (percentage) they planned to subcontract with them. Any post-award changes would need to be presented to the contracting officer.
Unlike in the past, the proposed rule would institute steep penalties for non-compliance with the Limitations on Subcontracting rule. Companies found violating the rule would be subject to fines “the greater of either $500,000 or the dollar amount spent in excess of the permitted levels for subcontracting.”
The SBA’s proposed changes may seem staggering to small businesses that have carefully defined their business relationships to remain compliant under the current cost-based regime. But the changes could ultimately help to ensure the viability of the SBA’s set-aside programs. When small and disadvantaged prime contractors subcontract the bulk of their work to large businesses, they call into question the purpose of the set-aside structure. Those interested in presenting comments on this proposed change may submit their comments through regulations.gov by February 27, 2015.
When it comes to a conviction, or even an arrest, the collateral consequences that are sometimes overlooked by client and counsel can be extremely damaging, especially when dealing with government agencies and programs.
One such set of consequences is unique to contractors who do business with federal or state governments. Because even a plea to a criminal conviction represents a person’s affirmative statement of the underlying facts, that can lead to a proceeding to suspend or debar (that is, prohibit) the contractor from federal or state business. A government agency may issue a notice of suspension or debarment based on the criminal conviction alone, if the statute provides for such a basis of debarment. Moreover, in some circumstances, a government agency may issue a notice of suspension or debarment based on the underlying conduct (which the plea or conviction affirms as true) that poses a risk to the integrity of government contractors. Thus, even if a government contractor facing serious charges and a lengthy trial enters a plea to a less serious charge, that plea may cause the debarment of the government contractor and possibly deal a fatal blow to its business based on the conduct on which it was based.
Another example of an unforeseen consequence is when a person applies for one of the various government programs that are a “privilege” and not a right. The U.S. Customs and Border Protection (CBP) has implemented Trusted Traveler Programs, such as the Global Entry program, which allows expedited clearance for pre-approved, low-risk travelers upon arrival in the United States. There is no right to participate in that program; rather, it is a privilege granted to individuals upon acceptance by the CBP. There is an application process for entry into the program, and, the CBP explicitly warns that applicants may not qualify if they have been convicted of any criminal offense or have pending criminal charges or outstanding warrants. Notably, as with similar statutes or prohibitions, there is no end date for when the CBP will stop considering the criminal conviction. Therefore, the criminal conviction will likely act as a lifetime bar to gaining acceptance into this program and into similar types of programs.
Collateral consequences are increasingly becoming an important area of law due to the fact that the total number of collateral consequences has increased tremendously in recent years. This requires a broad understanding of many areas, which is contrary to the trend in law practice of specialization in niche practice areas. Unfortunately, counsel are often completely unaware of the potential collateral consequences in practice areas outside their scope of practice. With funding provided by a DOJ grant and other sources, the ABA has developed an interactive tool called the National Inventory of the Collateral Consequences of Conviction (available at www.abacollateralconsequences.org), which provides a database of the sanctions and restrictions in each state. This is a useful tool for both counsel and client in understanding the full gamut of collateral consequences resulting from a criminal conviction.
Photo Credit: Meinzahn
Three more casinos are set to close in Atlantic City. Unions, politicians and lobbyists are pointing fingers. One thing is for certain, newly introduced online gaming legislation is not to blame. If experts had been paying attention to the trends, they would have introduced regulated online gaming into New Jersey years ago…
Want to know more? Read the full post on Ifrah Law’s new iGaming Blog
Today, the United States Supreme Court denied New Jersey’s petition for a writ of certiorari to hear an appeal from lower court decisions that invalidated its sports wagering law. This ends a three year fight to bring sports betting to New Jersey’s casinos and racetracks, but NJ State Senator Raymond Lesniak, who has spearheaded efforts to bring sports betting to the state has vowed to continue on.
Last September, the U.S. Court of Appeals for the Third Circuit, in a 2-1 vote with a strong dissenting opinion, affirmed the decision of the district court striking down the state’s sports wagering law as conflicting with the federal Professional and Amateur Sports Protection Act of 1992 (“PASPA”). In February of this year, the state of New Jersey filed a petition for a writ of certiorari asking the Supreme Court to hear the case, which today the Court denied.
The case has far reaching implications, well beyond the future of legalized state sponsored sports betting in the United States, but the Court decided the time was not right to hear the case. In the Supreme Court, the states of West Virginia, Wisconsin, and Wyoming filed an amici curiae brief in support of New Jersey’s petition because of the belief that the Third Circuit decision “raises serious federalism concerns” by forcing states to implement federal policy. The states of Georgia, Kansas, Virginia, and West Virginia filed a similar amici brief in the Third Circuit.
This case raised numerous interesting constitutional issues regarding federalism and the federal government’s ability to dictate state policy, something that the Supreme Court has considered recently in other cases. Last June, in a Voting Rights Act (“VRA”) case, the Supreme Court struck down a provision of the VRA that provided a formula for determining which states are subject to the provisions of the VRA, as unconstitutional. The dissenting opinion in that case specifically recognized PASPA as a statute that treats states disparately and that its validity may now be in question under the equal sovereignty principles that the Court outlined in its opinion.
This is a temporary setback in the fight to bring legalized state sponsored sports betting to states other than Nevada, but the fight will continue. Senator Ray Lesniak has said that he will introduce legislation quickly with the goal of offering sports betting in the state by the start of the NFL season. Although unsuccessful thus far, Congress may also step in to author legislation to amend or eliminate PASPA.
Last month police raided the home of an Illinois man who created a parody Twitter account of his city’s mayor. No charges were brought against the man because the prosecutor determined that no crime had been committed, however the man’s roommate has been indicted for possession of marijuana that was found during the overzealous raid of their residence.
Jon Daniel created the Twitter account @peoriamayor that mocked Peoria, Illinois, Mayor Jim Ardis. The Twitter account originally included a photo of Ardis, his official email address, and a brief biography. Later, the account explicitly stated that it was a parody account.
The Peoria Police Department submitted search warrants to Twitter, Google and Comcast in order to determine who was behind the Twitter account. Using the information obtained from those warrants to investigate a potential misdemeanor false personation offense, the police obtained a warrant to search Daniel’s home. During the raid police seized several computers, phones, and a bag containing a “green leafy substance.”
The Peoria County State’s Attorney’s office later concluded that they could not bring charges against Daniel for false personation because the offense could not be committed over the Internet. The false personation statute at issue in this case is a new Illinois law that went into effect earlier this year. The law makes it a misdemeanor offense punishable by up to one year in prison when a person, “knowingly and falsely represents himself or herself to be . . . a public officer or a public employee or an official or employee of the federal government.” The State’s Attorney’s Office has defended the decision of the police to obtain a search warrant stating that the police acted in good faith believing that they had probable cause to believe that a crime had been committed.
The American Civil Liberties Union of Illinois has said that it anticipates bringing litigation against the city of Peoria over the police raid on Daniel’s house.
Daniel’s roommate, Jacob Elliot, was charged with felony marijuana possession as a result of marijuana that police found during the raid of their home. Elliot spent two days in jail before he was able to make bail, and was also suspended from his job. Despite the police being misguided in their belief that Daniel had committed a crime which served as the basis of the warrant that led to the discovery of the marijuana, the Peoria County State’s Attorney’s Office is moving forward with charges against Elliot. Elliot was indicted last week on two charges of marijuana possession, including one felony charge.
Public officials have long been the target of parody, and social media has made it even more prevalent. If anything, this is an issue that could have been resolved civilly, though given the high standard for a public official to bring forth a defamation claim that avenue would most likely have been unsuccessful. More importantly, valuable police resources were wasted at the behest of a public official who was the subject of parody and this could have a potentially chilling effect on free speech. Statutes like the one responsible in this case are unnecessary and lead to the encroachment of an individual’s First Amendment rights.
Social media has opened a Pandora’s box of information about just about everyone today, including jurors, witnesses, opposing counsel, defendants and plaintiffs. As lawyers we want to leave no stone unturned in pursuing a client’s interest, but just how far can we go without jeopardizing our case? For instance, can counsel (or someone acting at counsel’s direction, such as a paralegal) review a publicly available Facebook page to learn about the background and likes of a potential witness or party? (Most likely, yes). May attorneys “friend” that witness to gain access to the witness’s full Facebook page? (It depends). Can an in-house lawyer advise an employee to remove posts from the employee’s Facebook page because the lawyer thinks the post could be damaging in an ongoing lawsuit? (Most likely, not). Can a lawyer “friend” a potential juror? (No). All counsel need to be cognizant of evolving trends in ethics rules on social media use and contacts.
The New York State Bar Association recently released extensive “Social Media Ethics Guidelines” to address lawyers’ utilization of social media, particularly as to interactions with clients, prospective clients, witnesses, and jurors.[i] The Guidelines are a non-binding advisory publication based on New York’s Rules of Professional Conduct (and precedent in other states) and issued by the Social Media Committee of the New York State Bar Association’s Commercial and Federal Litigation Section. While the Guidelines provide instruction to New York lawyers, they represent the most comprehensive statements on the ethical constraints on lawyers’ use of social media to gather information in litigation. Consequently, other states will likely use the Guidelines in crafting their own policies.
Several other states have either provided some limited guidance as to social media accounts and parties/witnesses/jurors, or are reviewing these issues. This article provides a brief summary of recent developments, utilizing the New York Guidelines as a guide and an example of how other states may view similar situations.
Reviewing Public Posts
New York Guideline No. 3.A provides that a lawyer may review the “public portion” of a person’s social media profile or public posts, even if that person is represented by counsel. Under the Guidelines, such access is permissible for obtaining information about the person, including impeachment material for use in litigation. “Public” means: “information available to anyone viewing a social media network without the need for permission from the person whose account is being viewed.” (Comment to New York Guideline No. 3.A). The Guideline cautions, however, that attorneys should be aware that some social media automatically notify a person when someone views that person’s account.
Reviewing Restricted Posts – Unrepresented Parties
Going one step further, New York Guideline No. 3.B allows a lawyer to request permission to view the restricted portion of an unrepresented person’s social media account. The lawyer must use his or her full name and an accurate profile. Attorneys may not create fake or different profiles to mask their identities. If the person asks for additional information in response to the request, the lawyer is required to accurately provide that information, or withdraw the request. Earlier, the New York City Bar Association, in Formal Opinion 2010-2, ruled that an attorney or agent may ethically “friend” an unrepresented party without disclosing the true purposes, but may not use trickery.[ii]
Reviewing Restricted Posts – Represented Parties
New York Guideline No. 3.C bars lawyers from contacting represented persons to seek to review the restricted portion of a person’s social media profile unless the person (presumably, through counsel) furnished an express authorization. This includes persons represented individually or through corporate counsel. Interestingly, the Guideline advises that lawyers should use caution before deciding to view “a potentially private or restricted social media account or profile of a represented person which a lawyer rightfully has a right to view, such as a professional group where both the lawyer and represented person are members or as a result of being a ‘friend’ of a ‘friend’ of such represented person.”[iii]
Lawyers may not direct others, such as paralegals and office staff, to engage in conduct through social media in which the lawyer may not engage. (New York Guideline No. 3.D). The comment to the Guideline makes clear that this prohibition includes a lawyer’s investigator, legal assistant, secretary, other agent, or even the lawyer’s client.
Using Information Provided by Clients
In situations where a client provides to his lawyer the contents of a restricted portion of a represented person’s social media profile, that the lawyer may review the information, provided certain criteria are met. (Guideline No. 4.D). The lawyer may not have caused or assisted the client to: inappropriately obtain confidential information from the represented party; invited the represented person to take action without the advice of his or her lawyer; or otherwise overreach regarding the represented person. “Overreaching” in this context means situations where the lawyer is “converting a communication initiated or conceived by the client into a vehicle for the lawyer to communicate directly with the nonclient.” Lawyers should be very careful not to advise a client to “friend” a represented person to obtain private information.
Deletion of Social Media Information
The New York Guidelines also address whether a lawyer can advise a client to remove content on the client’s social media account (whether posted by the client or someone else). A lawyer may advise a client as to what content may be taken down or removed, as long as there is no violation of law – whether statutory or common law – or of any rule or regulation relating to the preservation of information. If the party or nonparty is subject to a duty to preserve, he or she may not delete information from a social media profile unless an appropriate record of the data is preserved.
Special Considerations Regarding Jurors
The New York Guidelines allow lawyers to research and view a prospective or sitting juror’s public social media website, account, profile and posts. However, Guideline No. 5.B cautions that lawyers should be careful to ensure that no communication with the juror takes place – including automatic notices sent by social media networks. The Guidelines also preclude attorneys from making misrepresentations or engaging in deceit to be able to view a juror’s social media account, profile, or posts, or directing others to do so. An earlier opinion of the New York City Bar, Formal Opinion 2012-2, concluded that attorneys may use social media websites for juror research as long as no communication occurs between the lawyer and the juror as a result of the research. Attorneys may not research jurors if the result of the research is that the juror will receive a communication. Further, neither the lawyer, nor anyone acting at her direction, may use deception to gain access or to obtain juror information.
New York Principles Followed and Expanded in Other Jurisdictions
Other states take a similar approach to public information, generally permitting a lawyer to review the public information of a party, witness, or juror, and prohibiting a friend request or similar request to access non-public information of a juror. As to witnesses, some Bar authorities (such as those in New Hampshire) specifically allow lawyers to request access to the non-public social media profiles of witnesses, provided the attorney does not use deception. Virginia bar rules prevent lawyers from “pretextually ‘friending’ someone online to garner information useful to a client or harmful to the opposition,” as pretexing violates Virginia Rule 8.4(c) prohibition against “dishonesty, fraud, deceit or misrepresentation.” In New Hampshire, a lawyer must also inform the witness of the lawyer’s involvement in the matter. In Oregon, the State Bar Ethics Committee ruled that a lawyer may access an unrepresented individual’s publicly available social media information but “friending” a known represented party is impermissible absent express permission from party’s counsel.[vi] The San Diego Bar opined that an attorney attempting to access the non-public Facebook pages of certain high-ranking employees of the opposing party without disclosing the motivation of the friend request violates California Rule of Professional Conduct 2-100 (prohibiting communication with a represented party unless the attorney has the consent of the other lawyer). Interestingly, the opinion concluded “high-ranking employees” of a represented corporate adversary are considered “represented parties” for purposes of the rule.[vii]
As a general rule, deceptive practices used to gain access to private social media pages may result in proceedings by bar authorities or other adverse actions. An Ohio prosecutor was fired after his office found out he had created a fake Facebook profile and “friended” a defendant’s alibi witnesses, seeking to influence them against the defendant.[viii]
On the subject of deleting social media pages, a Virginia court sanctioned a plaintiff and his attorney for deleting a Facebook profile and pages that contained photographs that could have negatively impacted a widowed husband’s claim for damages from the wrongful death of his wife in an automobile accident.[ix] While counsel denied having instructed his client to delete the postings, testimony supported a claim that the attorney directed his paralegal to tell the Plaintiff to “clean up” his Facebook entries. The court sanctioned the Plaintiff $180,000, and the Plaintiff’s counsel $542,000. Plaintiff’s counsel later agreed to a five year suspension. The suspension order stated that the attorney violated ethics rules that govern candor toward the tribunal, fairness to opposing party and counsel, and misconduct.[x]
The New York Guidelines provide a useful reminder to practitioners that social media communications cross state lines and may implicate other states’ ethics rules. Counsel should consider Bar rules in states where counsel is admitted, as well as the jurisdiction of any pending case. In the case of misconduct in a state where counsel is not admitted, it is certainly possible for that state to make a referral to a state where an attorney is barred. While social media presents a trove of potentially useful information, all counsel need to be aware of, and abide by the ethical restrictions and to tread carefully, particularly as to non-public information. Bar rules and opinions in this area continue to develop to keep pace with technology trends. Counsel should continue to monitor further ABA and state bar rulings, particularly before conducting any research pertaining to non-public social media profiles and pages or seeking to communicate with parties, witnesses or jurors.
[i] The Guidelines are available at: https://www.nysba.org/Sections/Commercial_Federal_Litigation/ Com_Fed_PDFs/Social_Media_Ethics_Guidelines.html.
[ii] See “Obtaining Evidence from Social Networking Websites,” Formal Opinion 2010-2, available at http://www.nycbar.org/pdf/report/uploads/20071997-FormalOpinion2010-2.pdf.
[iii] Comment to New York Guideline No. 3.C.
[iv] Formal Opinion 466 is available at: http://www.americanbar.org/content/dam/aba/administrative/ professional_responsibility/formal_opinion_466_final_04_23_14.authcheckdam.pdf/ (“ABA Formal Opinion 466”).
[v] ABA Formal Opinion 466 at 4.
[viii] See Ifrah Law’s blog coverage at http://crimeinthesuites.com/prosecutor-fired-for-lying-on-facebook-to-wtinesses-in-murder-case/.
[ix] Lester v. Allied Concrete Co., Case No. CL09-223 (Va. Cir. Ct. Sep. 1, 2011); Lester v. Allied Concrete Co., Case Nos. CL08-150, CL09-223 (Va. Cir. Ct. Oct. 21, 2011).
Are you living the American dream … abroad? If so, you may be considering joining forces with Superman 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.
 See Action Comics No. 900 in which Superman renounces his U.S. citizenship after a clash with the federal government.
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.
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.