US prosecutors seek tenfold increase in offshore evasion sentences

Monday, 11 December 2017
The US Department of Justice (USDoJ) has announced a significant change in its criminal sentencing policy regarding offshore tax violations.


The new policy was announced in a speech by Mark Daly, senior litigation counsel at the USDoJ's tax division. He gave warning that the department now considers that Part 2S1.3 of the United States Sentencing Guidelines, referring to money laundering and monetary transaction reporting offences, applies to offshore tax cases, and not Part 2T (offences involving taxation), as was previously used.

This means that the USDoJ will, in future, press for tax evaders to be sentenced based on the value of the undeclared offshore accounts, rather than the unpaid tax, as in previous cases. The result could be that penalties will, in some cases, be increased by a factor of ten.

The first case in which this new principle has been applied is United States v Kim. In this case, the Part 2T tax loss was only around USD150,000, but the Part 2S1.3 value, based on the value of Kim's bank accounts at Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann, was USD28 million. In the event, the prosecutors agreed to sentence Kim based on the Part 2T formula, because of a prior agreement with him. However, as a warning to defence counsel in other such cases, it gave notice that it will work on the Part 2S1.3 basis in some future cases. There will be exceptions, said Daly, but no guidance has yet been developed to specify them.

The policy change is also unwelcome because it allows for a two-level enhancement, where a defendant has also been convicted of an offence of filing a false or misleading Foreign Bank Account Report (FBAR). Because an FBAR must be filed each year along with the tax return, the USDoJ will now seek to add charges for this offence to obtain higher sentences.

'This is a major sentencing shift, which can wildly escalate the offence level applicable to such defendants, and one which the defence bar must watch very closely', said law firm Mitchell, Williams, Selig, Gates & Woodyard.

However, it is not certain that the US courts will embrace the USDoJ's change of heart without question. Tax crime specialist Jack Townsend said he would expect defence attorneys to submit detailed charts showing the pattern of sentencing in the past, and urging that the sentences be consistent with that pattern, as was done in the Warner case. 'I am not sure how the courts will react to the government's Eureka moment as to the appropriate guidelines calculation', he added.


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