The Justice Department press release  also notes that the U.S. Government seized more than $16 M from Wegelin’s U.S. correspondent bank accounts, pursuant to a civil forfeiture complaint.  The press release details the allegations in the criminal indictment, the thrust of which are succinctly summarized as follows:

In the wake of the IRS investigation of UBS, members of Wegelin’s senior management affirmatively decided to capture the illegal business that UBS exited.   To capitalize on the business opportunity this presented and to increase the assets under management, along with the fees earned from managing those assets, Berlinka, Frei, Keller and others, acting on behalf of Wegelin, told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to U.S. authorities because the bank had a long tradition of secrecy.   They also persuaded U.S. taxpayer-clients to transfer assets from UBS to Wegelin by emphasizing, among other things, that unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to U.S. law enforcement pressure.   Members of the Swiss bank’s senior management approved efforts to capture the clients who were leaving UBS and also participated in meetings with U.S. taxpayer-clients who were fleeing UBS.

However, the timing of indictment is conspicuous.  On January 30, 2012, eight Swiss banks (Credit Suisse, Julius Baer, and Basler Kantonalbank, among others) handed over to the United States government data on U.S. clients  suspected of evading U.S. income taxes.  This disclosure was made in order to avoid prosecution in the United States.  However, remarkably, the data was encrypted at the Swiss government’s request, and Switzerland has indicated that it will not provide the encryption key to unlock the data  until the Swiss and the United States reach a broader agreement on exchange of information.

The clear implication of the Wegelin indictment is that the Department of Justice is making good on its threats of prosecution.  Indeed, in taking the unprecedented move to indict a foreign bank that has no branches to the United States, the Justice Department is sending a clear message to foreign banks, and U.S. taxpayers, that income tax evasion, and assisting those that evade income taxes, will not go unpunished.

The press release is available here.

The attorneys at Fuerst Ittleman have extensive experience dealing with IRS audits and Justice Department prosecutions.  You can reach an attorney by emailing us at contact@fuerstlaw.com.

The indictment alleges that the Defendants sought to take advantage of the UBS investigation by offering to allow American taxpayers to open bank accounts that would not be disclosed to the IRS.  American taxpayers maintaining financial accounts abroad have an obligation under Title 31 of the United States Code to file Form TD90-22.1 (Report of Foreign Bank and Financial Accounts (“FBAR”)), available here, with the United States Treasury Department.  The willful failure to file an FBAR form is a felony.  The Defendants, according to the indictment, gave as part of their sales pitch to prospective clients assurances that the bank accounts would not be disclosed because the bank had a long tradition of bank secrecy and did not have offices outside of Switzerland.   The Defendants opened accounts at the bank in the name of sham corporations and foundations in jurisdictions that the IRS considers to be tax havens.

In order to ensure that the accounts would remain secret, account holders names were not used, statements  were not mailed to the United States, and emails were sent from personal accounts instead of business email accounts, all with the aim of reducing the risk of detection by U.S. law enforcement.  To that end, according to the indictment, the Defendants used a third-party website called “SwissPrivateBank.com” to solicit new business from American taxpayers.  The indictment goes on to detail, without naming, various individuals who had accounts opened by the Defendants with the aim of avoiding IRS detection and to avoid income tax obligations.     

A full copy of the indictment is available here. 

The attorneys at Fuerst Ittleman have experience with IRS and Department of Justice investigations of U.S. taxpayers who have unreported income and undeclared foreign bank accounts.  You can reach an attorney by emailing us at:  contact@fuerstlaw.com, or by calling us at  305.350.5690.

A copy of the indictment can be found here

The Bank Secrecy Act (BSA) is codified at Title 31 of the United States Code and prohibits, among other things, the structuring of transactions with financial institutions in order to avoid the $10,000 reporting requirement for cash transactions. The indictment alleged that the Defendants used various business entities to attempt to conceal earned income by causing personal debts to be paid through the business entities.

The significance of the indictment is that the U.S. Department of Justice has now turned its eye on those U.S. citizens residing in the U.S. Virgin Islands who are in violation of the BSA and for related tax crimes.

The attorneys at Fuerst Ittleman have extensive experience defending against criminal violations of the BSA and the Internal Revenue Code throughout the country and in the U.S. Virgin Islands. Additionally, Joseph A. DiRuzzo is licensed to practice in the U.S. Virgin Islands and has litigated dozens of criminal cases there. You can reach an attorney by emailing us at: contact@fuerstlaw.com.

According to the DOJ, the defendants sent bribes to officials in the Argentine government in order to secure a coveted contract for the Documento Nacional de Identidad ("DNI Project"), a project to replace the country’s national identity booklets with national identity cards. In addition to the alleged bribes to secure the contract, Siemens AG executives allegedly made further corrupt payments when the DNI Project was suspended and later pursued fraudulent arbitration in Washington D.C. against the Argentine government in an effort to recover profits that the company would have received had the Project not ultimately been terminated. In sum, the DOJ alleges that the conspiracy spanned almost two decades, from 1996 to 2009, and involved the commitment of over $100 million in bribes.

The FCPA makes it a crime for U.S. persons or companies, along with their subsidiaries and agents, to bribe officials of foreign countries in return for some business advantage. As we previously reported, the U.S. government has made it a priority to prosecute individuals and companies for violations of the FCPA, having secured lengthy prison sentences as well as hefty fines for offenders in 2011 alone. The DOJ has emphasized that heightened enforcement efforts aimed at thwarting corrupt payments to foreign officials will continue. This indictment against senior executives of a huge multi-national corporation with worldwide operations showcases the high profile of FCPA enforcement and prosecutions within the DOJ.

For more information about the FCPA or Fuerst Ittleman’s experience in defending against criminal investigations and prosecutions for white collar offenses, please contact us at contact@fuerstlaw.com.

The indictment against Mr. Desai provides as follows:

“[The Defendant] who during the calendar year 2008 was married, did willfully attempt to evade and defeat a large part of the income tax due and owing by him and his spouse to the United States of America for the calendar year 2008, by preparing and causing to be prepared, and by signing and causing to be signed, a false and fraudulent joint U.S. Individual Income Tax Return, Form 1040, on behalf of himself and his wife, which was filed with the Internal Revenue Service. In that false income tax return, it was stated that their joint taxable income for the calendar year 2008 was $69,917.84 and that the amount of tax due and owing thereon was $6,156.88. In fact, as DESAI then and there knew, their joint taxable income for the calendar year was in excess of the amount stated on the return, and, upon the additional taxable income an additional tax was due and owing to the United States of America, and he had an interest in, and signature or other authority over, bank accounts located in India during calendar year 2008.”

The significance of this criminal indictment is that the IRS’s and the U.S. Department of Justice’s investigation of those holding unreported foreign bank accounts at HSBC have now started to produce tax evasion and FBAR failure to file cases against U.S. citizens who have attempted to use HSBC to avoid paying taxes to the U.S. government. This appears to be the first of many such cases as Title 31 violations are the criminal charge of the moment.

The attorneys at Fuerst Ittleman have experience defending against IRS investigations/audits and Department of Justice investigations and criminal prosecutions for those with unreported foreign bank accounts and unreported/under-reported income. You can reach an attorney by emailing us at: contact@fuerstlaw.com.

While internet pay-for-play poker remains very popular, generating $5.1 billion in revenues last year alone, Beckley’s prosecution stems from a larger effort by Federal prosecutors to target internet gambling websites for violations of federal law. Although the law does not specifically address internet pay for play poker sites, UIGEA defines “unlawful internet gambling” as: 1) placing, receiving or transmitting a bet, 2) by means of the Internet, even in part, 3) but only if that bet is unlawful under any other federal or state law applicable in the place where the bet is initiated, received or otherwise made. However, since UIGEA’s passage, debate has raged over whether pay for play poker actually violates federal law with poker sites and federal prosecutors reaching opposite conclusions. Internet poker site operators have argued that UIGEA does not apply because poker should be classified as a game of skill, not a game of chance, and thus beyond the reach of UIGEA.

As we previously reported, on April 15, 2011, federal prosecutors indicted eleven people, including Mr. Beckley, in connection with their involvement in running internet poker websites PokerStars, Full Tilt Poker, and Absolute Poker. Prosecutors alleged that after the passage of a 2006 law which prohibited banks from processing payments to offshore gambling websites, the defendants engaged in a fraudulent scheme to deceive US banks and financial institutions as to the true identity of the funds being transferred by using third party payment processors to make funds appear as payments for goods and services to non-existent online merchants and fake companies.

Beckley is scheduled to be sentenced on April 19, 2012 and is expected to receive between 12 and 18 months imprisonment as punishment. If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittleman’s experience litigating white collar criminal cases, please contact us at contact@fuerstlaw.com.

The facts of the case are somewhat complex, and are, in relevant part, as follows:  Mr. Crim founded the Commonwealth Trust Company (“CTC”), and according to the Government used CTC to assist taxpayers in evading their federal income tax obligations.  CTC allegedly marketed both domestic and offshore trusts to be used to siphon off income and profits from domestic taxpayers and advised taxpayers not to file federal income tax returns.  CTC also allegedly advocated the use of liens to avoid IRS seizures and tax liens.

The Government indicted Crim, Brownlee, Taylor, and Trimble and charged violations of 18 USC section 371 (conspiracy to defraud the United States), commonly referred to as a Klien conspiracy and 26 USC section 7212 (the “omnibus clause” prohibiting the administration of the Internal Revenue Code) in the Eastern District of Pennsylvania.  Crim, Brownlee, Taylor, and Trimble were convicted at trial of all counts.  

On appeal, Mr. Crim raised various issues, such as the improper admission at trial of evidence concerning CTC’s celebrity client Wesley Snipes (who was convicted of failing to file income tax returns as a result of heading CTC’s advice); that the restitution order was improperly entered; and that the 96 month sentence on both counts was procedurally improper.

The Third Circuit ultimately held that the sentence imposed against Mr. Crim was improper and vacated his sentence and remanded to the District Court for resentencing.  The Third Circuit also remanded Mr. Crim’s case for clarification of the restitution order. A full copy of the opinion can be found here.

A petition for rehearing en banc was filed and was denied on December 12, 2011.  Joseph A. DiRuzzo, III will be filing a petition on behalf of Mr. Crim before the U.S. Supreme Court early next year.

Among other things, what the Third Circuit’s Decision in the Crim teaches is that having an attorney who is well versed in substantive tax and substantive criminal law is an absolute necessity in a criminal tax case.  Having an attorney who is versed in one area of the law but not the other may result in opportunities being lost for a criminal defendant.  The attorneys at Fuerst Ittleman have proficiency in substantive tax law and criminal law and have experience litigating civil tax cases, criminal cases, and criminal tax cases.  You can contact an attorney by emailing us at contact@fuerstlaw.com.

Generally speaking, the BSA, 31 U.S.C. 5311-5330, and its implementing regulations, found at 31 C.F.R. Chapter X, require financial institutions to keep records of certain financial transactions and report these transactions to the federal government. The BSA was designed to prevent financial institutions from being used as part of illicit activity such as money laundering, drug trafficking, tax evasion, and terrorist financing.

In particular, 31 U.S.C. § 5313 (a) requires domestic financial institutions, including banks, which are involved in a transaction for the payment, receipt, or transfer of United States currency in an amount greater than $10,000.00, to file a currency transaction report (“CTR”) for each cash transaction with the IRS. Additionally, pursuant to 31 C.F.R. § 1010.313, “multiple currency transactions shall be treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 during any one business day.”

Occasionally, depositors will “structure” their transactions so that multiple cash deposits are made each under $10,000, sometimes over the course of several days or at multiple braches of a bank, in an effort to avoid the reporting requirements of the BSA. Such activity is known as “structuring” and is prohibited by federal law. 31 U.S.C. § 5324 makes it a crime for an individual to: a) “cause or attempt to cause a domestic financial institution to fail to file a report under § 5313(a);” b) “cause or attempt to cause a domestic financial institution to file a report required under § 5313(a) that contains a material omission or misstatement of fact;” or c) “structure or assist in structuring, any transaction with one or more domestic financial institutions” for the purpose of evading the reporting requirements of § 5313(a). More information on the BSA can be found on FinCEN’s website.

According to the complaint, between August 13, 2010 and September 22, 2010, Sommer and Engelhart structured a series of deposits into their attorney trust account totaling $118,000. The government alleged that most of these deposits included even dollar amounts each under $10,000 and occurred on the same day or within a short period of time. However, when taken in the aggregate, the deposits should each have exceeded the $10,000 threshold, thus requiring the filing of a report. Additionally, the government alleged that during the same period of time similarly structured deposits were placed into the personal accounts of Sommer, Engelhart and “other individuals associated with [them].” Checks were then drawn from the personal accounts and placed in the defendant’s trust account. In total, authorities allege that $354,000 was structured into the trust account.

The complaint further alleged that during a June 16, 2011 meeting with the IRS both Sommer and Engelhart admitted that they had agreed to structure the deposits into the trust account. Additionally, the complaint alleges that Sommer and Engelhart admitted to receiving the currency from a client of their firm for the purchase of real estate and “inferred that the client wished that the funds would be deposited into a bank without the filing of any forms with the [IRS].” If convicted of structuring, Sommer and Engelhart can face up to five years in prison, a $250,000 fine and forfeiture of the structured funds.

If you have questions pertaining to the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fuerstlaw.com

As previously reported, the ITR, which are found at 31 C.F.R. part 560, were promulgated pursuant to the International Emergency Economic Powers Act and are administered by OFAC.  31 C.F.R. § 560.204 prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States persons, of any goods, technology, or services to Iran unless “otherwise authorized” in 31 C.F.R. part 560. Pursuant to 17 U.S.C. § 1705, persons who willfully violate the ITR are subject to criminal penalties.

There are numerous forms of hawala but the two discussed by the Court were the “paradigmatic” system and the “match” system. The “paradigmatic” system works as follows: person 1 located in country A who wants to send money, for example $100, to person 2 in country B would contact a hawaladar located in country A and would pay the country A hawaladar the $100. Next the country A hawaladar would contact a country B hawaladar and ask the country B hawaladar to pay $100 in country B’s currency, minus any fees, to person 2. In the future, when country B hawaladar needs to send money to country A, he will then contact the country A hawaladar, with whom he now has a credit because of the previous transaction, and the country A hawaladar will complete the transaction. Normally, a number of transactions must be completed in order to balance the books between the two hawaladars and periodic settlement of the imbalances occurs via wire transfers or more formal money transmission methods. In this way, people can remit money to others without any actual money crossing the border between country A and country B.

The “match” system works on a similar premise. Under the match system, country A’s hawaladar seeks out a country B hawaladar looking to transmit money to a third party in country A. Once a “match” occurs, country B’s hawaladar would pay person 2 and then, upon knowledge of payment to person 2, country A’s hawaladar would pay the third party. Hawaladars derive their profits from the difference in the “buy” and “sell” exchange rates on completed transactions.

The use of the hawala system in the United States to remit funds to and from Iran is problematic for several reasons. First, transferring funds through a hawala qualifies as “money transmitting” under 18 U.S.C. § 1960. Therefore, hawaladars, which typically operate without licenses, are operating illegal money transmitting businesses and are thus in violation of 18 U.S.C. § 1960. As such, U.S. patrons of hawaladars may also be charged for using hawala in the U.S. Second, because money transmission is considered a “service” under the ITR, it is a violation of the Iranian sanctions to transfer money to Iran unless the transfer arises as part of an underlying transaction that is not prohibited.

In Banki’s case, authorities alleged that Banki’s family members in Iran engaged in 56 money transfers using a match hawaladar to transfer assets to Banki in the United States. Authorities further alleged that for each deposit made into Banki’s U.S. bank account, a corresponding payment was sent to Iran for a third party. Additionally, although the funds being transferred into Iran were not Banki’s, authorities alleged that Banki knew that for each deposit he received there was a corresponding payout in Iran. Thus, based on this knowledge, authorities alleged that Banki facilitated an American hawaladar in violating the IRT and in operating an unlicensed money-transmitting business.

Authorities charged Mr. Banki with: 1) conspiring to violate the ITR and operate an unlicensed money-transmitting business; 2) violating or aiding and abetting the violation of the IRT; 3) conducting or aiding and abetting the conduct of an unlicensed money-transmitting business; and 4) two counts of making materially false representations in response to an OFAC administrative subpoena. In May of 2010, Banki was found guilty of all counts and was sentenced to 30 months imprisonment and ordered to forfeit $3.4 million.

On appeal, Banki argued his conviction should be overturned for several reasons. First, Banki argued that executing money transfer to Iran on behalf of others only violates the ITR if undertaken for a fee. Second, he argued that even if hawala transfers are considered a service, non-commerical remittances, including family remittances like the ones in this case, are exempt from the service ban. Third, Banki argued his aiding and abetting of an unlicensed money transmitting business should be overturned because the trial court failed to instruct the jury that participation in a single, isolated transmission of money does not constitute a money transmission business.

In its decision, the Second Circuit provided a detailed analysis of Banki’s arguments which will guide future IRT and 18 U.S.C. § 1960 cases. First, the Court found that because the IRT was designed to be a broad and overinclusive sanctions scheme designed to isolate Iran, “the transfer of funds on behalf of another constitutes a ‘service’ even if not performed for a fee.”

Although money transmittal for no fee is still considered a “service” under the ITR, the Court went on to find that 31 C.F.R. § 560.516, which provides that non-commercial remittances, such as family remittances, are exempt from the services ban, is ambiguous as to whether it applies to all instances of non-commercial remittances or only those which take place in depository institutions. In so holding, the Court found that the government’s argument that U.S. depository institutions have exclusive authority to process family remittances is inconsistent with the language of the regulation. However, the Court also found that, based on the statutory and regulatory sanctions scheme in place, Banki’s argument that anyone, including hawalas, could process a non-commercial remittance is inconsistent with the ITR scheme as a whole. Thus, based on the ambiguity of the breadth of the non-commercial remittance exemption, the Court overturned Banki’s convictions for conspiracy and violations of the ITR.

The Court also vacated Banki’s conspiracy and aiding and abetting of an unlicensed money transmitting business and remanded for a new trial. In so ruling, the Court agreed with Banki and stated that “to find a defendant liable for operating [or aiding and abetting] an unlicensed money transmitting business, a jury must find that he participated in more than a ‘single, isolated transmission of money.’” The Court found that because the evidence presented at trial only showed Banki’s knowledge of “match” funds moving to Iran in one transaction, a jury instruction stating that participation in a single, isolated transmission of money does not constitute a money transmission business was appropriate. The trial court’s failure to provide the jury with such an instruction was reversible error.

The Second Circuit further held that the lower court also erred in instructing the jury that hawala is both an informal money transfer system and a money transmitting business. The Court found that by so instructing the jury, the district court relieved the government of its burden of proving that Banki had knowledge that more than one transmission had occurred. As explained by the Court, “by later instructing the jury that ‘a hawala is a money transmission business,’ the district court arguably was instructing the jury that if it found that Banki operated a hawala, then he necessarily operated a money transmitting business, thereby taking the latter issue away from the jury.” Thus, the Second Circuit’s opinion distinguishes between the use of a system of money transmission and the operation of a money transmission business.

Although the Court overturned Banki’s convictions for conspiracy and aiding and abetting, it disagreed with Banki’s argument that he was entitled to an “mere customer or beneficiary” instruction. In his appeal, Banki argued that he should not be held liable for conspiracy or adding and abetting because he was “mere customer or beneficiary” and thus exempt from criminal liability. However, the Court found that Banki was charged with aiding and abetting the facilitation of funds to Iran and not with receiving funds from Iran. Thus, because Banki was charged as the facilitator of the transfer he was an intermediary, not a customer, and thus the instruction would be inappropriate. As explained by the Court, “put simply, where the crime charged is transmitting money to Iran without a license, the ‘customer’ is the wire originator and/or the intended recipient” not the intermediary.

The opinion is noteworthy not only because it is illustrative of the potential criminal charges Iranian sanction violators may face, but also because of the Court’s detailed analysis of the Iranian Transactions Regulations (“ITR”) and the federal money transmitting laws. If you have questions pertaining to the OFAC sanctions on trade with Cuba and Iran, the BSA, anti-money laundering compliance, or how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fuerstlaw.com.

The Foreign Corrupt Practices Act makes it unlawful for certain classes of U.S. persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit any willful or corrupt offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that such money or thing of value will be offered to a foreign official to influence the foreign official in his or her official capacity to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business.

According to the government, the executives committed several FCPA violations by funneling money into shell companies in order to use these monies to bribe Haitian government officials at the state-owned telecommunications company, Telecommunications D’Haiti S.A.M. (Teleco). In particular, Esquenazi and Terra vice president Carlos Rodriguez bribed Hatian officials in exchange for business advantages, including “the issuance of preferred telecommunications rates, reductions in the number of minutes for which payment was owed, and the continuance of Terra’s telecommunications connection with Haiti.” For more information about the case or the FCPA, see our previous report here. 

The government is trumpeting the harshest sentence ever against executives for violating the FCPA as a warning and deterrent against others who would violate the FCPA by bribing foreign government officials in return for business advantages. The government has made it a priority to prosecute FCPA violators and allocated substantial resources and created a task force at Department of Justice headquarters in Washington for such prosecutions. In fact, this case is one of the few FCPA prosecutions that proceeded to jury verdict, making the government’s victory and the harsh sentence all the more significant.

Fuerst Ittleman lawyers are experienced with handling white collar investigations and the defense of criminal prosecutions for white collar offenses. In addition, Fuerst Ittleman also can perform due diligence and compliance audits in order to assist businesses in their efforts to comply with the FCPA.