Money Laundering Provisions of FERA

I have previously noted that, in enacting the Fraud Enforcement and Recovery Act of 2009 (FERA), Congress, in its wisdom, dropped the Senate proposal to include tax crimes (§§ 7201 and 7201) to transportion money laundering. Of course, the IRS still considers that money laundering is "tax evasion in progress." See IRS Web Page here; for other references to this statement, see the cites at the bottom of this blog. I also cautioned that Senator Grassley seems intent on giving Congress other opportunities to pass the proposal, so stay tuned.

In all events, given the real or perceived connection between money laundering and tax crimes, practictioners are well advised to stay abreast of money laundering developments. The following are the key points from FERA as enacted:

1. The legislation overrides the Supreme Court's restrictive interpretation of the term "proceeds" as meaning the profits rather than gross revenue of specified unlawful activity. For further discussion, see Ellen Podgor's discussion on the White Collar Crime Prof Blog here.

2. Congress stated a "Sense of Congress" [not intended as an oxymoron] and reporting requirement regarding the following subject:

It is the sense of the Congress that no prosecution of an offense under section 1956 or 1957 of title 18, United States Code, should be undertaken in combination with the prosecution of any other offense, without prior approval of the Attorney General, the Deputy Attorney General, the Assistant Attorney General in charge of the Criminal Division, a Deputy Assistant Attorney General in the Criminal Division, or the relevant United States Attorney, if the conduct to be charged as ‘‘specified unlawful activity’’ in connection with the offense under section 1956 or 1957 is so closely connected with the conduct to be charged as the other offense that there is no clear delineation between the two offenses.

I am not sure exactly what Congress perceives the problem to be. From the "sense" of the stated "Sense of Congress," Congress appears to believe that the underlying substantive crime (the SUA) might be so coterminous with the money laundering offense itself that charging both presents a problem. I know courts have expressed concern about that. This have overtones of the doctrine of merger dealing with conviction of a greater and lesser offense with overlapping elements of conviction, and its cousin, the lesser included offense concept. But even if that is the concern, of course, the prosecutors could simply charge the greater offense (here money laundering) without charging the lesser offense, so that merger is not presented and thereby avoid the lesser included offense problem by making sure that the contested elements are overlapping. I will try to find out more on this and fill in later.

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Other references to money laundering as tax evasion in progress. DOJ Press Release; see also TIGTA, The Criminal Investigation Function Provides Adequate Guidance to Field Offices for Money Laundering Investigations, Report No. 2002-10-150 (8/21/02). The IRS likes this catchy phrase and repeats it for emphasis, particularly when justifying its enforcement efforts against money laundering E.g., Richard Speier, IRS Civil and Criminal Enforcement Statement, reproduced at 2006 TNT 8-31 (1/11/06); see also Martin A. Sullivan, Sex, Drugs and Tax Evasion, 115 Tax Notes 1098 (June 18, 2007).

And while we are on catchy phrases, I throw out this one: "The only think to fear is FERA itself,' from this web site. The phrase is a play on FDR's famous line about the depression at the start of his presidency.

Offshore Tax Investigation Files Exempt from FOIA Disclosure

In a nonprecedential summary order in Radcliffe v. IRS & Geithner (2d Cir. 08-1513-cv), issued May 27, 2009, the Second Circuit affirmed the denial Radcliffe's FOIA request for documents related to the IRS's investigation of U.S. taxpayers using offshore credit card accounts. The credit card initiative was launched several years ago well in advance of the current offshore initiative focusing on UBS that we have discussed here which resulted in the current voluntary disclosure initiative which we discussed here. The earlier offshore credit card initiative also used the John Doe Summons to get information and documents and also resulted in a voluntary disclosure initiative (referred to by the initialism OVCI (Offshore Voluntary Compliance Initiative), which followed with another initialisim LCCI (Last Compliance Chance Iniatitive or some such)).

The reason the court summarily affirmed was the rather obvious reason:

We have no doubt that the documents retrieved pursuant to the government's search were exempt from production as "records or information compiled for law enforcement purposes" the production of which "could reasonably be expected to interfere with enforcement proceedings," 5 U.S.C. § 552(b)(7)(A); see also 26 U.S.C. § 6103(e)(7). Radcliffe has essentially conceded as much, asserting that this FOIA suit stems from the Internal Revenue Service's ongoing investigation of whether and to what extent Radcliffe has used undeclared offshore credit card accounts to shelter his income and avoid his federal tax obligations. By letter dated July 25, 2007, Radcliffe, through counsel, stated that his "FOIA suit became necessary due to the IRS' failure to provide [information relating to the tax audit] willingly." Letter from Frank Agostino to Gary A. Nichols, Internal Revenue Service (July 25, 2007).

Scoping the Conspiracy -- Upton Redux

I have previously written here about the First Circuit's decision in Upton. I subsequently refined those comments and publised them in a Tax Notes article, John A. Townsend, Scoping the Conspiracy, 123 Tax Notes 1047 (May 25, 2009), which may be viewed or downloaded here. This publication in Tax Notes, as well as the companion web publication Tax Notes Today, is part of a series that I and the other authors of Tax Crimes (LEXIS-NEXIS 2008) (see here) are publishing in Tax Notes. The other authors are Larry Campagna, Steve Johnson and Scott Schumacher. Articles in this series will come out about once a month and will be posted here as well as being available through Tax Notes or Tax Notes Today.