Another Swiss Bank Enabler is Charged with Tax / Klein Conspiracy

On December 15, 2010, another Swiss Bank enabler, one Renzo Gadola, was charged with a tax / Klein conspiracy to defeat the lawful functioning of the IRS by assisting United States clients evade U.S. taxes through the use of Swiss banks. The U.S. Attorney Press Release (containing a link to the criminal information is here).

At all relevant times, Gadola was a citizen and resident of Switzerland and a registered investments advisor with the U.S. SEC. He was employed as a private banker by UBS from 1995 through August 2008. In February 2009, he began working as an independent investment adviser under the business name of RG Investment Partner AG. For the matters alleged in the indictment, he partnered with an unindicted co-conspirator names in the indictment under the pseudonym SWISS BANKER, who is alleged to have been executive director UBS's North American business until 2003 and then an investment advisor in Switzerland after that. Gadola and SWISS BANKER assisted U.S. clients in establishing and maintaining undeclared accounts (i.e., accounts not declared to the U.S. in the tax returns or FBARs). Gadola and SWISS BANKER had numerous U.S. clients and met frequently with some of these clients in the U.S.
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Sentencing Case on Emphasis on Restitution Rather than Incarceration in Financial Crimes Cases

In United States v. Ciccolini, 2010 U.S. Dist. LEXIS 120292 (N.D. OH 11/11/10), a sentencing opinion, the defendant pled guilty to two felony counts -- 1 each of structuring transactions and tax perjury (Section 7206(1)). The defendant, a 68 year old ordained priest, embezzled substantial monies from a residential drug and rehabilitation center. The following are some key points of the decision:

1. The counts were grouped under S.G. 3D1.4. The structuring count produced that highest offense level (22), so 4 levels were added for the tax count, producing an offense level of 26, The offense level of 26 produced a Guidelines sentencing range of 63 - 87 months incarceration.

2. In reaching the offense level of 26, the court rejected an acceptance of responsibility downward adjustment. Although Ciccolini pled guilty, he equivocated about his guilt and some elements (amounts involved, etc.).

3. The Court then moved to a consideration which it labeled "3553(a) Factors and Payment of Restitution." Under Booker and progeny, the Guidelines calculation of a sentencing range is only advisory. The court noted that the defendant had repaid the charity the $1,288,263 he admitted embezzling (although the court noted earlier in the opinion that he had embezzled substantially more) and that he had made substantial payments toward the tax liability. Nevertheless, the Court moved to a philosophical discussion of the interplay between sentencing and restitution in financial crime cases, reasoning:

In crafting a punishment [*27] that will most adequately deter similar conduct by other individuals in the future, the Court is influenced by the writings of Nobel Prize winning economist Gary Becker. In his seminal article on crime and punishment, 4 Professor Becker recommends more emphasis on fines — and less on incarceration — for many white-collar or financial offenses. Becker theorizes that in financial crimes the incarceration of the specific offender is less important than providing a disincentive to future offenders through financial penalties. The Court generally agrees with these propositions and finds them persuasive here. See United States v. Turner, 998 F.2d 534, 535 (7th Cir. 1993) (agreeing with Becker's theory that fines are often an effective means of increasing deterrence). With Becker's theory in mind, the Court finds that imposing a financial penalty in the current case, rather than prison time, will adequately deter future financial crime.
FOOTNOTE
n4 Gary Becker, Crime and Punishment: An Economic Approach, in Essays in the Economics of Crime and Punishment 1, 24-34 (Gary S. Becker & William M. Landes, eds., 1974).

On this reasoning, the court determined that restitution was rather than incarceration was appropriate in this case. The money had been stolen from the charity which was not directly harmed by the offenses charged -- structuring and tax offenses. The charity was hurt by the uncharged conduct of embezzlement. The court held that Section 3663(a)'s definition of victim of the crime permitted the sentencing court to order restitution for the closely related uncharged crime of embezzlement. The court held:

The Court finds that this case law — particularly Carpenter -- allows for a restitution order that takes the Defendant's entire criminal conduct into account where non-charged conduct is closely related to the charged conduct. Thus, as part of its sentence, the Court orders that the Defendant pay restitution to the Interval Brotherhood Home Foundation in the sum of $3,500,000. Although this is a cautious estimate and likely understates the amount embezzled, the sum is a significant portion of the money that was embezzled by the time the offense conduct occurred in 2003 and 2004. The Court concedes that this restitution order is somewhat unusual. Both Carpenter and Jewett deal with situations where a defendant was charged with fraud and a restitution order was issued covering conduct not itself charged, but that was part of the same fraudulent scheme. Here, the money that was stolen from the foundation is somewhat less related to the charged offenses of structuring financial transactions and tax evasion. However, the Court views the rationale underlying those decisions and Congress's amendment of § 3663 as supporting an order of restitution. The charged offense conduct here was designed to conceal and support the broader scheme of embezzlement and can fairly be viewed as part of the same offense conduct.

The Court finds that imposing a restitution order serves the dual purpose of general deterrence under § 3553(a)(2) — i.e. imposing a monetary fine for a financial crime — and also serves the purpose of providing restitution to the victims of the offense conduct under 18 U.S.C. § 3553(a)(7). Thus, the Court views a significant fine together with a restitution order, rather than prison time, as the most effective and just punishment in this case.

Tax crimes are, of course, financial crimes.  I don't have enough information to know whether this sentencing opinion is an outlier or representative of a trend.  I would appreciate the views of readers with a better observation point.

IRS Considering Another Round of Voluntary Disclosure for Offshore Accounts

The IRS first round of voluntary disclosures for offshore financial accounts ended October 15, 2009  The IRS touts the results of that round as very successful.  Since the end of the program, additional taxpayers have made voluntary disclosures, basically under the same process but without any assurance of what the penalty regime would be.  Practitioners have been concerned that, without some certainty as to the penalty costs, many taxpayers with undisclosed foreign financial accounts will stay underground. 

According to this WSJ Article, Commissioner Shulman has indicated that the IRS is "seriously considering another special Voluntary Disclosure Program.  As expected, he said that the penalties would likely increase over the penalties available under the first program ending October 15, 2009.

There was no indication of what the treatment might be for those making a voluntary disclosure after October 15, 2009.  It seems to me that those coming in before the new program is announced should get a break as well -- perhaps the mid point between the penalties available under the first program and those available under the second.