DOJ Tax is on a public relations blitz to drum up business / revenue by incentivizing taxpayers with unreported offshore bank accounts to join the IRS voluntary disclosure initiative ending 10/15. A key facet of the blitz is the high profile indictments recently obtained. At last week's ABA Tax Section meeting, DOJ Tax rolled out its mouthpiece, Kevin Downing himself at the forefront of the prosecution side of this juggernaut, to remind practitioners and, through them and the press attendin, the public that they should pony up in the voluntary disclosure program. Here are a few highlights from the ABA Tax Section meeting (which I will supplement as more come to my attention):
1. Announcements of new prosecutions -- probably coupled with guilty pleas -- will be "a few every couple of weeks," according to Downing. Obviously, DOJ Tax wants to keep the matter in the public eye to encourage the mass of offshore account holders to open their pocketbooks and come into the fold of the voluntary disclosure initiative which expires October 15.
2. DOJ Tax and the IRS will target U.S. enablers such as banks and financial advisors. Reuters reports that, "on the sidelines," Downing advised Reuters specifically "that U.S. banks that helped U.S. clients hide money off-shore are a target."
3. The U.S. is making headway with a lot of foreign banks other than UBS. He is reported to have said: "Let your clients know if they think it's just UBS they are mistaken."
Items beginning at par. 4 were added on 9/29/09
4. Another good snippet reputedly from Downing consistent with his man on a righteous mission persona is: "I want to go after the privileged people who've had the benefits of this country and are cheating their taxes, get them in front of local juries and convict them." Lee A. Sheppard, The UBS Endgame, 2009 TNT 186-1 (9/29/2009). Even the crusty Lee Sheppard is enthralled by Himself, following up with: "It is reasonable to assume that the blasé Swiss and the complacent rich American tax cheats never counted on meeting up with a guy like Kevin Downing, senior trial counsel in the Justice Department's Tax Division, who has been leading the prosecutions against Swiss bank UBS AG. Downing, a former Marine."
5. Jeff Neiman, an AUSA for SD Florida who is prominently involved in these prosecutions, said that he wanted to "avoid technical tax issues." Sheppard paraphrased: "Whether the defendant is lying, cheating, and stealing is what the argument to the jury boils down to for Neiman." See my earlier blogs on The Lie. This statement echoes the theme of the Enron prosecutions: "This is a simple case. It is not about accounting. It is about lies and choices." John C. Hueston, Behind the Scenes of the Enron Trial: Creating Decisive Moments, 44 Am. Crim. L. Rev. 197, 207 (2007). See also Stuart P. Green, Lying, Cheating, and Stealing: A Moral Theory of White Collar Crime 246-48 (2006).
6. DOJ "has 150 UBS customer cases headed to grand juries." Sheppard, supra. JAT Comment: I guess non-UBS customers should get some comfort from this -- at least UBS customers are keeping them busy. And perhaps all of the other regular tax cheats should be happy that the Government is devoting a major portion of its criminal tax enforcement efforts elsewhere.
7. Banks other than UBS will be targeted. This includes both Swiss banks and non-Swiss banks such as Hong Kong, Panama and Singapore (mentioned specifically). Sheppard, supra. See my point above; is this just a token threat designed to incentivize those non-UBS tax cheats to get into the program? How many cases like this can the Government really prosecute?
8. Downing countered the rumor that some non-UBS Swiss banks are actively seeking the tax cheat business by touting their lack of U.S. presence which brought UBS down. "Downing reported the opposite -- that some Swiss banks are coming forward proactively, offering to push American account holders to disclose in order to protect their qualified intermediary status." Sheppard, supra.
9. Further, Downing reported: "The Swiss government is now willing to be much more cooperative. They really appear to be committed, at least at this point in time." Sheppard, supra. As I have reported previously, the key is whether the Swiss Government will use the UBS template for disclosures under the treaty by the other Swiss banks.
10. Downing announced that DOJ honors voluntary disclosures, although it does not have to do so. Sheppard, supra. Now, isn't that nice. But, I wonder whether DOJ can really prosecute a tax crime if the IRS does not approve? Maybe the man on the mission will test that notion some time.
11. On the subject of quiet disclosures, Sheppard reports:
Practitioners and government speakers agreed that choosing quiet disclosure is risky. The IRS is mining returns to look for quiet disclosures to pursue for civil violations. And quiet disclosure does not protect the filer from criminal prosecution -- that is the promise of the IRS amnesty program. "You might as well go noisy," said [Mark] Matthews.One of the key points to note is that the quiet disclosures are being mined "for civil violations." Does that mean the quiet disclosure is still effective for avoiding criminal prosecution, with the only risk of the quiet disclosure in the current context being no certainty as to the quantum of civil penalties? See my prior blog here. And, of course, the IRS's panoply of civil violations alternatives may be limited. At least as to the returns, aren't these qualified amended returns subject to penalty only if the IRS establishes fraud (a very difficult burden that would require even greater use of limited IRS resources)? And to get the more onerous FBAR penalties, the IRS would have to prove the equivalent of civil fraud -- willfulness (same standard) -- although resource intensive.
12. Downing also warned that U.S. UBS clients who invoke Swiss legal procedures to try to stave off disclosure of their names to the U.S. should not be tempted to forego notifying the U.S. of that action (which, of course, would defeat the major purpose of taking the Swiss action). He is reported to have announced: "We'll prosecute that as an overt act of conspiracy or an affirmative act of evasion." Id. Ah, the ubiquitous conspiracy charge. Permit me one final quote: In United States v . Reynolds, 919 F.2d 435, 439 (7th Cir. 1990), Judge Easterbrook lamented that the conspiracy add-ons are “inevitable because prosecutors seem to have conspiracy on their word processors as Count I; rare is the case omitting such a charge.”
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