Articles on ICIJ's Panama Papers and Ramifications (4/25/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Andrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Panama Papers: Mossack Fonseca raids seize 'large amount of evidence' (ABC News 4/22/16), here.

Panamanian investigators have raided a property used by Mossack Fonseca, the law firm at the centre of a massive leak of offshore financial data, removing bags full of shredded documents as evidence, a local prosecutor said. 

"We have secured a large amount of evidence found in the location," said organised crime investigator Javier Caraballo. 

He said they also found many shredded papers, which they removed as evidence.
In a statement, Mossack Fonseca said it had digitised all its documents and that the shredded papers taken from its premises were bound for recycling. 

The law firm added that as a result of a previous search, prosecutors already had copies of all the documents they removed on Friday (local time).

Charles (Chuck) Rettig, US Launches Criminal Inquiry Into 200 US Citizens Named In The Panama Papers (Forbes 4/23/16), here.

The Panama Papers. A massive law firm data breach of otherwise secretive financial information identifying numerous high-ranking government and public officials around the world was recently disclosed online by the International Consortium of Investigative Journalists. (ICIJ). Almost forty years of confidential information from 1977 to December 2015 was somehow obtained by an anonymous source from the internal database of Panama-based law firm Mossack Fonseca & Co. and apparently includes approximately 11.46 million files comprising approximately 2.6 terabytes (the equivalent of approximately 600 DVDs) of otherwise confidential financial data. 

US Launches Criminal Inquiry into Several of the 200 US Citizens Named in the Panama Papers. The ICIJ has now confirmed that it received an email (published by the Guardian) from U.S. Attorney Preet Bharara for the Southern SO +0.00% District of New York indicating that his office had “opened a criminal investigation regarding matters to which the Panama Papers are relevant.” Further, his office would greatly appreciate the opportunity to speak as soon as possible with any ICIJ employee or representative involved in the Panama Papers Project in order to discuss this matter further.” 

* * * * 

ICIJ Will Name Names in May.  In early May ICIJ will release the names of the more than 214,000 offshore entities incorporated by Mossack Fonseca and the people connected to them (as beneficiaries, shareholders or directors). The names – with links to more than 200 countries – will be added to the Offshore Leaks database (published in 2013), which already contains more than 100,000 companies that ICIJ obtained in a previous leak. 

But ICIJ Will NOT Share the Panama Papers with Governments.  The long-standing policy of ICIJ, and the parent organization, the Center for Public Integrity, is not to turn over such material. The ICIJ is not an arm of law enforcement and is not an agent of the government. Their statements affirm they are an independent reporting organization, served by and serving their members, the global investigative journalism community and the public.

Simon Bowers, Former PwC employees face trial over role in LuxLeaks scandal (Guardian 4/24/16), here.

Two former employees of PricewaterhouseCoopers accused of being behind the biggest ever leak of confidential corporate tax deals face criminal trial in Luxembourg on Tuesday. 

Antoine Deltour and a second man, who is expected to be named in court this week, are charged with carrying out the LuxLeaks theft, violating the Grand Duchy’s strict professional secrecy laws and other offences. Their criminal prosecution follows a complaint to Luxembourg’s public prosecutor by PwC. 

The LuxLeaks scandal, which transformed the debate on international tax reform, exposed how Luxembourg had for years been secretly sanctioning, on an industrial scale, aggressive cross-border tax avoidance by some of the world’s largest businesses.

Articles on ICIJ's Panama Papers and Ramifications (4/22/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Julia Harte, Journalists will not share Panama Papers with Justice Department (Reuters 4/21/16), here.

The media group that coordinated the Panama Papers investigation into offshore companies said on Thursday it would not participate in a criminal probe by the U.S. Department of Justice. 

"ICIJ, and its parent organization the Center for Public Integrity, are media organizations shielded by the First Amendment and other legal protections from becoming an arm of law enforcement," said Gerard Ryle, director of the consortium, in a press release on the group's website.

Martha M. Hamilton and Hamish Boland-Rudder, Banks Ordered to Provide Info on Panama Dealings to NY Regulator, here.

More than a dozen banks will have to turn over details of their dealings with Panama law firm Mossack Fonseca to New York’s banking regulator, as authorities continue to respond to revelations from the Panama Papers investigation.

The order came from the New York Department of Financial Services and was sent to 13 foreign banks identified in articles published by ICIJ and its media partners, including Deutsche Bank AG, Credit Suisse Group AG, Commerzbank AG and ABN Amro Group NV, Bloomberg reported. 

The banks have been given 10 days to respond, and were asked to provide communications, phone logs and records of transactions between their New York branches and employees or agents of Mossack Fonseca, as well as any subsequent communication with shell companies formed as part of these transactions. According to Bloomberg, the regulator has also asked banks to identify any New York-based personnel who may have held positions at the shell companies. 

The regulator is reportedly searching for potential violations of rules or regulations related to the law firm. The banks have not been accused of wrongdoing.

Panama Papers: About 80 serious Australian criminals named in leaked documents, ATO says (ABC News 4/21/16), here.

About 800 Australians were in the 11 million documents leaked from the law firm Mossack Fonseca, which revealed widespread tax evasion. 

Tax Commissioner Chris Jordan told a parliamentary inquiry into corporate tax evasion the ATO had already been investigating some of the companies and individuals named in the papers.

He said the ATO had linked 120 of those named to an offshore company in Hong Kong — although he did not name the company. 

Mr Jordan said he was particularly concerned by the number of people on the list who were also involved in organised crime. 

"Around 80 names match the Australian Crime Commission's serious and organised crime intelligence holdings," he said.

Why does this matter? Is it illegal? How do they operate? These questions and more are answered in our explainer. 

"These are not people with outstanding parking fines or traffic notices. They are in the database of serious and organised criminal holdings." 

The ATO's Michael Cranston said the list covered a wide range of offences, "from very serious — the bikie gangs, etc — all the way through to promoters of tax schemes".

9 questions you were too embarrassed to ask about the Panama Papers (Vox 4/21/16), here.  I am not posting excerpts.  I recommend the whole article. Vox has pretty good coverage.

Jen Wieczner, Here’s Why the Panama Papers Spared the U.S. (Fortune 4/20/16), here.

The Panama Papers, the largest data leak in history, were very bad news for a lot of very rich people. Switzerland launched a criminal investigation, the prime minister of Iceland resigned, and UK’s David Cameron was forced to defend the word “wealth” in front of parliament. American banks and politicians, though, have so far remained mostly untainted by the documents. 

You couldn’t say the same for the U.S. itself, which was a top locale for shell companies and middlemen revealed in the leak. States like Nevada (home to 1,260 companies named in the Panama Papers) and Wyoming, with lax incorporation laws, are almost as good a haven as someplace like Panama. 

“It is a major loophole in the system that allows the laundering of money,” says Berkeley economist Gabriel Zucman, who believes that U.S. banks and citizens are likely involved in extensive tax evasion schemes—even if they didn’t have to go offshore to do it.
But even absent criminal activity, Americans are complicit in other forms of legal tax avoidance, Zucman says. “A lot of tax dodging takes place not via offshore bank accounts and shell companies,” he says, “but by big, multinational corporations” like Google  and Apple  —and by extension, their shareholders. 

Indeed, the U.S. ranks third among countries in terms of financial secrecy, above even the Cayman Islands, according to the Tax Justice Network, which estimates that up to $32 trillion is stashed away in such tax havens. 

But the good times for tax avoidance in the U.S. might not last forever. The Treasury is in the final stages of issuing a new rule that has been in the works for years to require banks to find out who the people behind the businesses they work with are—theoretically preventing terrorists and other criminals from hiding behind shell companies to open bank accounts.

Panama Papers and Pakistan PM Nawaz Sharif (BBC 4/21/16), here,

The leaks reveal that three of his children own offshore companies and assets not shown on his family's wealth statement. 

The companies identified so far include three British Virgin Islands-based companies Nescoll Ltd, Nielsen Enterprises Ltd and Hangon Property Holdings Ltd, incorporated in 1993, 1994 and 2007 respectively. 

These companies have been used to channel funds to acquire foreign assets, including some apartments along Park Lane in London's Mayfair area. 

The insinuation that the companies were meant to hide or launder ill-gotten wealth or to avoid taxes has called his credentials into question.

Articles on ICIJ's Panama Papers and Ramifications (4/20/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Josh Meyer, Panama Papers: Federal Prosecutor Looking for Crimes By U.S. Citizens (NBCNews 4/10/16), here.

The Justice Department has opened a formal criminal investigation into potentially widespread illegalities exposed by the Panama Papers, the massive leak of financial details about secret offshore accounts, federal law enforcement officials told NBC News Wednesday -- and its first priority will be finding wrongdoing by U.S. firms and individuals. 

The U.S. Attorney for the Southern District of New York, Preet Bharara, confirmed the investigation in a letter written to the International Consortium of Investigative Journalists (ICIJ), which has led a worldwide effort to report on suspected money laundering, tax evasion and other criminal activity exposed in the documents.
Many financial transactions related to global money laundering, drug trafficking and other illegal activity involve New York-based banks. A senior federal law enforcement official said the initial focus will be identifying illicit activity by American citizens and corporations. 

Bharara's efforts are the first evidence that criminal prosecutors from the Justice Department have become involved in the Panama Papers and will be looking for wrongdoing by U.S. companies and citizens. NBC News reported Sunday that IRS and U.S. Treasury officials have met with their counterparts from around the world in an effort to analyze and use the data about more than 214,000 offshore companies listed by Panamanian law firm Mossack Fonseca. 

In his brief letter, Bharara simply said that his office -- which has jurisdiction over many of the world's largest banks and financial firms -- has "opened a criminal investigation regarding matters to which the Panama Papers are relevant." 

* * * * 

Federal law enforcement officials are eagerly waiting for access to the documents, saying they will be enormously helpful in bolstering existing cases and also in launching new ones, especially as the names of people hiding behind thousands offshore companies are revealed. 

So far, though, U.S. authorities can only go on what has been reported by the media. More than 300 reporters from around the world have been working on the joint Panama Papers effort, and they have disclosed a wealth of information about corrupt officials, criminals, celebrities and others who have set up offshore firms with the help of Mossack Fonseca.

Rupert Neate, Panama Papers: US launches criminal inquiry into tax avoidance claims (Guardian 4/19/16), here.  This article has a copy of the USAO SDNY letter to ICIJ.

Bharara, who as US attorney general for the southern district of New York has led several crusades against criminal wrongdoing in the financial sector, is already investigating several of the more than 200 US citizens named in the papers.
Among them is Wall Street financier Benjamin Wey, who has been charged with securities fraud, wire fraud, conspiracy and money laundering for using family members to help him amass ownership of large blocks of stock in companies through so-called “reverse merger” transactions between Chinese companies and US shell companies. He made tens of millions of dollars of illegal profit by manipulating the companies’ stock prices, according to the indictment. 

The Panama Papers leak shows that Mossack Fonseca helped set up the offshore companies used in the stock manipulation. 

“Ben Wey fashioned himself a master of industry, but as alleged, he was merely a master of manipulation,” Bharara said when he announced the indictment against Wey in September. Wey, the chief executive of New York Global Group, denies the charge.

James Alm & Jay A. Soled, Did you cheat on your taxes? Here’s why your days may be numbered (The Conversation 4/17/16), here.

One of the results of the [Panama Papers] release is greater transparency. And this trend – along with the move toward a cashless society and other economic changes – explains why the U.S. could one day soon close its “tax gap,” or the difference between what taxpayers are legally supposed to pay and what they actually pay. The U.S. Internal Revenue Service (IRS) estimated the tax gap at US$450 billion for 2006. 

Just for comparison, the tax gap is roughly equal to the current U.S. budget deficit. If the tax gap were eliminated, then the federal government would be able to balance its books. Everything else constant, the government could borrow less, spend more, cut taxes or some combination of each. 

A politician’s dream come true? Believe it or not, over the course of the coming decades, this dream may blossom into reality.

Does A Standard Willfulness Instruction Adequately Inform the Jury of the Good Faith Defense? (4/19/16; 4/21/16)

Note:  I have made significant revisions to this blog entry on 4/20/16 and 4/21/16.

Often, the only defense to the standard Title 26 tax crimes (as well as a Title 18 USC offense conspiracy to commit a Title 26 tax crime will willfulness as an element) is whether the Government proved beyond a reasonable doubt that the defendant acted willfully.  Title 26 tax crimes generally require that the defendant act willfully.  The offense conspiracy to commit such a tax crime imports the mens rea element that the defendant act willfully.  Generally, a subjective good faith belief, other than one based on constitutional claims, that the defendant does not owe the tax means that the defendant did not act willfully, which is defined as an intentional violation of a known legal duty.  See Cheek v. United States, 498 U.S. 192, 203 (1991).  A standard instruction in such cases is basically that the defendant may be convicted only if the Government proves beyond a reasonable doubt that the defendant acted willfully.  A defendant whose sole defense to a tax crime is that he did not act willfully will often claim that he acted in the subjective good faith belief.  Cheek held that the jury should not have been instructed that the good faith belief much be objectively reasonable.  If the jury believes that the defendant had such a good faith belief or, more importantly, that the Government did not prove beyond a reasonable doubt that he did not have such a belief and thereby acted willfully, the instructions will require that the jury acquit.

The question that often arises is whether the defendant is entitled to a jury instruction in addition to a standard willfulness instruction.  The defendant whose defense is good faith will want to rivet the jury's attention on that claim of good faith.  Basically, the desired good faith instruction will be some variation of:

The defendant has raised the defense that he acted in the good faith belief that his conduct was legal.  A good faith belief that the conduct was legal means that the defendant act willfully, for acting willfully requires that the defendant know that he is violating the law.  Therefore, since the government must prove beyond a reasonable doubt that the defendant acted willfully, the government must prove beyond a reasonable doubt that the defendant did not have a good faith belief that his conduct was legal.   If you find that the government did not so prove beyond a reasonable doubt, you must acquit.

Note that I have stated the instruction in perhaps the best way for the defendant (although I would appreciate hearing from readers as to alternative formulations).

Is the trial court required to give such as instruction where the defendant has introduced evidence of good faith (usually, but always, requiring that the defendant testify to assert his good faith belief)?  Where the defendant has not properly put the issue of his good faith belief in play, then such an instruction is not required.  But where the defendant has put the issue of his good faith belief in play, is the court required to give a good faith belief instruction or, stated differently, will a court reverse if it does not?

The Sixth Circuit addressed that issue in United States v. Rae, 2016 U.S. App. LEXIS 6845 (6th Cir. 2016) (nonprecedential), here.  The Court said no to the question but it is critical to note that, ultimately, the Court said that he had not properly raised the issue.  Here is the relevant portions of the opinion (bold face supplied by JAT):

First, Rae alleges that the district court erred by failing to give a good faith jury instruction regarding the tax evasion charge in Count 1, based on his belief that he was not required under the Internal Revenue Code to pay income taxes. Rae contends that the record supported a good faith defense. Challenges to a district court's decision not to give a requested jury instruction are reviewed under an abuse of discretion standard rather than de novo. United States v. Blood, 435 F.3d 612, 623 (6th Cir. 2006). "An omission, or an incomplete instruction, is less likely to be prejudicial than a misstatement of the law." Henderson v. Kibbe, 431 U.S. 145, 155, 97 S. Ct. 1730, 52 L. Ed. 2d 203 (1977). When reviewing a district court's decision not to give a jury instruction, we must reverse only if we find that the proposed instruction is correct, not substantially covered by the actual jury charge, and "so important that failure to give it substantially impairs defendant's defense." United States v. Sassak, 881 F.2d 276, 279 (6th Cir. 1989). 

The district court instructed the jury that as to Count 1, tax evasion in violation of § 7201, the government was required to prove that: (1) Rae owed the income tax, (2) Rae committed an affirmative act constituting an evasion or an attempt to evade or defeat his tax obligation, and (3) that in evading or attempting to evade or defeat his tax obligation, Rae acted willfully. The district court defined "willfully" as follows: 

An act or failure to act is willful. For purposes of tax evasion . . . it is voluntary, intentional violation of a known legal duty rather than the result of an accident, mistake or negligence. (Emphasis added.)  [JAT Note:  bold-face is supplied by me; italics were supplied by the Court.]

The district court effectively and correctly instructed the jury as to willfulness, which "in this context simply means a voluntary, intentional violation of a known legal duty." United States v. Pomponio, 429 U.S. 10, 12, 97 S. Ct. 22, 50 L. Ed. 2d 12 (1976) (per curiam) (explaining the statutory definition of willfulness in the Internal Revenue Code); see also United States v. Damra, 621 F.3d 474, 502 (6th Cir. 2010) (holding [7]  that the district court "effectively and correctly" instructed the jury on willfulness element by matching the language used in Pomponio). Because "the good faith-requirement is effectively bundled into the willfulness instruction," no separate instruction regarding good faith is required. Damra, 621 F.3d at 502; see also Sassak, 881 F.2d at 280 (holding that substance of proposed good faith belief instruction was fully covered by willfulness instruction given). Thus, a jury's finding of willfulness under this definition "'would necessarily negate any possibility' that the defendant acted in good faith." Damra, 621 F.3d at 502-03 (quoting United States v. Tarwater, 308 F.3d 494, 510 (6th Cir. 2002)). As the Supreme Court explained in Cheek, "one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe the duty does not exist." Cheek, 498 U.S. at 201; see also id., at 205 (rejecting constitutional as-applied challenge under the Pomponio line of cases because such claims "reveal full knowledge of the provisions at issue and a studied conclusion, however, wrong," and not from "innocent mistakes caused by the complexity of the Internal Revenue Code"). 

Contrary to Rae's assertion, Cheek does not require a separate good faith instruction. Rather, Cheek merely held that the trial court in that case erred in instructing the jury that good faith was measured by an objective rather than a subjective standard, and that an unreasonable belief did not negate willfulness. See Cheek, 498 U.S. at 202 ("Characterizing a particular belief as not objectively reasonable transforms the inquiry into a legal one and would prevent the jury from considering it.") In short, the district court did not abuse its discretion by declining to provide an additional good faith instruction. 

Rae alleges that his "various correspondence through the years" to the IRS and State of Michigan as well as his failure to respond to district court order directing him to comply with the IRS summons "show that he had a history of disbelief as to what he was told by government officials and agencies, supporting the position of his good faith belief that he did not have to pay the taxes." Reply Br. at 1. He claims that the jury instruction given was "not sufficient for the jury to adequately consider Dr. Rae's intent as displayed through his good faith defense in this case." Reply Br. at 3. But, as noted, the Supreme Court and this court have held that an instruction like the one given by the district court in this case is sufficient because it incorporates the concept of subjective good faith belief. 

Furthermore, as the district court held, an additional instruction was not warranted on this record. Rae did not testify, and he did not offer any evidence at trial. And, in both opening statements and closing arguments, Rae's attorney told the jury that Rae's "theory of defense" was that he researched the law and "drew conclusions" that he was not subject to taxes, and that "even if eccentric, he held the belief in good faith." In short, Rae's argument is without merit, because the proposed good faith instruction was substantially covered by the instruction given and its omission did not substantially impair the defense. See Sassak, 881 F.2d at 279.

At the outset, the "standard" good faith instruction as quoted by the court has something that appears to me aberrational.  Note the first sentence bold-faced above.  It is a short declarative sentence complete into itself:  "An act or failure to act is willful."  That statement for a crime requiring that the defendant act willfully is blatantly incorrect.  It is true that the sentence immediately following does give a standard willfulness instruction, but that is no excuse for including the first sentence in the instruction as a positive affirmative statement of the law.  For example, the DOJ Tax CTM provides the proper instruction as follows (GOVERNMENT PROPOSED JURY INST. NO. 26.7206(2)-7), here:

An act or failure to act is “willful” if it is a voluntary and intentional violation of a known legal duty.

I don't know whether the presentation of this instruction was an error of the trial judge or of the court reporter or of the Court of Appeals.  But if that instruction was given as quoted, it is wrong.

The holding that the good faith belief defense is subsumed in a standard willfulness instruction is often repeated by the courts in order avoid having to reverse the case for retrial.

I believe that defendants who go to trial in these cases should make the record that the defense has been put in play.  This may require the defendant to testify -- often viewed as a no, no by defense counsel.  But, if it is the only defense one has, if the defense is not otherwise prominently presented in the record, the defendant just may have to testify.  Of course, if the defendant lacks credibility, then you just may have to take the risk that the court will determine that the issue has not been put in play sufficiently to warrant a separate instruction.  And, because of holdings like Rae, the time to win this issue is at the trial level.

Addendum on the good faith instruction issue 4/20/16 3:30pm:

I also direct readers to this case to United States v. Kottwitz, 614 F.3d  1241 (11th Cir. 2010), here,  opinion revised and expanded on accountant reliance jury instruction, 627 F.3d 1383 (11th Cir. 2010), here, which I discuss in this blog entry:  Kottwitz -- a Long Rambling Tax Opinion Covering Most of the Major Tax Crimes (Federal Tax Crimes 8/28/10), here.  I cut and paste the relevant part of my blog entry::

4. Failure to Give the Requested Good Faith Instruction. 

Now we come to something a bit more meaty. The defense asserted a good faith reliance defense and the record had sufficient evidence to establish that it was a defense to be submitted to the jury. The defense thus properly requested a good faith jury instruction drawn from the Eleventh Circuit's pattern jury instructions. The Per Curiam held that the defense was entitled to that instruction and failure to give it upon proper request was reversible error. 

In the course of its glittering generalities and string quotes, the Per Curiam says some curious things. It says, for example, "The requested good faith reliance jury instruction was based on our pattern jury instructions and was, therefore, a correct statement of the law." The Per Curiam cannot be serious in that statement read on its face. Congress never passed the pattern jury instructions nor has the Supreme Court put its imprimature on it, so if the pattern jury instructions misinterpret the law, the pattern jury instructions do not become the law. Cf. United States v. Svete, 521 F.3d 1302, 1310(11th Cir. 2008), reversed en banc 556 F.3d 1157 (11th Cir. 2009) (although reversed because the pattern was found correct, the key point is that pattern jury instructions are not the law). 

Once you work past the fluff, the bottom line is that there was sufficient evidence to support the requested jury instruction. 

The opinion, including the short dissent, is 70 pages long. Reminds me of the quote attributed to Blaise Pascal (and others), "I would have written a shorter letter, but I did not have the time." 

Addendum: 

In the subsequent opinion on petition for rehearing in Kottwitz, 627 F.3d 1383 (11th Cir. 2010), here, the Court expanded its discussion on the reliance on good faith and expanded it to the conspiracy charge.  The opinion on rehearing is short, so I quote it in full:  I have bold-faced certain portions of the opinion to draw the readers attention in light of the earlier discussion in this blog.

PER CURIAM: 

Defendants/Appellants have petitioned for rehearing. We have considered Defendants' arguments and the Government's reply. And we have looked at the record again. We stand by our decision, United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010),  except on the issue of the accountant-reliance jury instruction for Count One. 

Defendants contend that the district court erred in refusing to give Defendants their requested jury instruction about reliance on an accountant's advice. In our original decision, we concluded that this refusal constituted reversible error on Counts Three, Four, and Five. Then, we remanded the case to the district court for retrial with the requested instruction on those counts only. Now, we conclude that the district court was also similarly incorrect to deny Defendants' accountant-reliance jury instruction on the Count One conspiracy charges. 

To receive a requested jury instruction in this Circuit, a defendant's burden is light: "any foundation in the evidence" is sufficient. United States v. Opdahl, 930 F.2d 1530, 1535 (11th Cir. 1991). On reflection, we accept that Defendants met this burden. Sufficient evidence was introduced to allow the conviction of Defendants on Count One on the basis of several alternative interpretations of the facts. 

Even though no evidence directly showed that Defendants' accountant was involved in initially entering/hiding transactions on the corporate books (for example, the personal-expense transactions), Defendants introduced enough circumstantial evidence to warrant an instruction that -- at some pertinent point -- Defendants may have relied on the accountant's advice. 

Virtually all of the suspect transactions occurred after Defendants' accountant was hired in mid-1999; and the accountant had authority to (and in fact did) review and reclassify some entries in the corporate books. In addition, the accountant prepared the tax returns that resulted in underpayment of taxes. Even if it was not the only and not the most likely explanation of events leading to the guilty verdicts on Count One, an evidentiary basis existed for conviction under Count One that could have involved Defendants, in fact, relying on the advice of their accountant. For example, the jury might have believed that Defendants acted with the accountant's tacit approval of Defendants' accounting methods. n2
|   n2 The correct test in this Circuit for the "act" element in an 18 U.S.C. section 371 conspiracy (including the subset of Section 371 conspiracies against the Internal Revenue Service known as Klein conspiracies) is "the commission of an act in furtherance of the agreement." United States v. Adkinson, 158 F.3d 1147, 1153 (11th Cir. 1998). A "failure to properly report income," id. at 1154, is one example of conduct that could satisfy the act element of a Klein conspiracy. But it is not the only possible act that could do so: for example, intentionally making false entries in corporate books could be an act in furtherance of the agreement. Because we cannot know the precise act(s) on which the jury relied for the Count One conspiracy convictions, we cannot rule out that the jury relied on an act that involved -- in a material way -- advice from Defendants' accountant. 

For these reasons, we vacate Kottwitz's, Junior's, and Senior's convictions for conspiracy to defraud the IRS (Count One) and remand the case to the district court for a new trial with an accountant-reliance jury instruction. We withdraw all language in our opinion, United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010), inconsistent with this present order. n3
   n3 To be clear, as a result of our original decision and this present order, we have vacated or reversed each of Defendants' convictions and sentences at issue on appeal. 

Otherwise, Defendants' petitions for rehearing are DENIED. And, no judge of the Court having requested a poll, Defendant Kottwitz's suggestion for rehearing en banc is DENIED. 

Petitions DENIED, except Defendants' convictions and sentences on Count One are VACATED; the case is REMANDED.

The point is that a reliance on accountant instruction is essentially a good faith instruction.  By relying on the accountant in good faith, they did not have the requisite Check willfulness intent to violate the law.  Where the record permits that inference of reliance / good faith, they are entitled to the instruction.

Here are some other blog entries that have dealt with this issue before

• Fifth Circuit Sustains Convictions Despite Trial Judge's Refusal to Give Proper Cheek Willfulness Instruction (Federal Tax Crimes Blog 11/21/15; 11/22/15), here.
• After Guilty Verdict, District Court Denies Motions for Dismissal and New Trial in Tax Crimes Case (Federal Tax Crimes Blog 11/13 /15; 11/15/15), here, at point 3
• D.C. Circuit Affirms Preparer Convictions Over Ineffective Assistance Claims (Federal Tax Crimes Blog 7/30/15), here.
• Making a Cheek Good Faith "Defense" Without Testifying (Federal Tax Crimes Blog 11/24/11), here.
• Fourth Circuit Reverses Tax Obstruction Conviction Because of Bad Instruction and Affirms Denial of Good Faith Instruction for False Claim Conviction (Federal Tax Crimes Blog 11/20/13), here.

Articles on ICIJ's Panama Papers and Ramifications (4/17/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Nicholas Shaxson, Five myths about tax havens (WAPO 4/15/17), here. I think the author uses the term myth to be falsehoods (or not truthoods).  The first myth is:

1. Tax havens protect vulnerable people against despotic governments, unjust laws and political turmoil.

The author addressed this myth:

One benefit of tax havens, to listen to economists such as Cato Institute senior fellow Daniel Mitchell, is that they help shield oppressed groups from greedy and corrupt regimes. The “financial privacy laws” that govern tax havens make them especially “attractive to people who live in nations plagued by incompetent and/or venal governments,” Mitchell argued in a 2008 Cato-produced video titled “The Moral Case for Tax Havens.” The most famous version of this myth was first peddled in 1966 by the Schweizerische Kreditanstalt (today’s Credit Suisse), suggesting that Swiss bank secrecy was set up to protect Jewish money from the Nazis. 

In reality, Switzerland’s famous banking secrecy law of 1934 was triggered by a French tax-evasion scandal involving several wealthy elites, and Swiss secrecy wound up protecting a ton of Nazi loot. Tax havens shield the money of rich people, not vulnerable ones. Indeed, the Panama Papers revealed offshore accounts associated with several dictators and members of oppressive regimes from around the globe, and few linked to ordinary citizens. When tax havens assist kleptocratic elites in hiding their cash with impunity, they don’t guard against corruption and despotism — they help perpetuate them. Tax havens provide an escape route from laws that is available only to a rich minority that can afford to use it, thus removing from the equation the constituency with the greatest power to push for reform.

There are four more.  Enjoy!

David Lawder, U.S. Treasury readies new tax rules as G20 vows to fight evasion (Reuters 4/16/16), here.

The U.S. Treasury Department is finalizing new tax rules aimed at combating the use of shell companies to evade taxes, U.S. Treasury Secretary Jack Lew said on Saturday amid increased pledges by global finance leaders to cooperate on tax issues. 

In a statement to the International Monetary Fund's steering committee, Lew said the Treasury was finalizing a rule that would require banks to identify the beneficial owners of new customers that are companies. 

"In addition, we are about to propose a regulation that would require the beneficial owners of single-member limited liability companies to identify themselves to the Internal Revenue Service, thus closing a loophole that some have been able to exploit," Lew said. 

In the wake of controversy stirred by the so-called Panama Papers, which revealed widespread use of tax havens and shell companies by wealthy global elites, officials from the Group of 20 major economies on Friday threatened to penalize tax haven countries that do not comply with new information-sharing efforts and moves to reduce tax mismatches between countries. 

They called for criteria by July to identify non-cooperative jurisdictions. 

"Defensive measures will be considered by G20 members against non-cooperative jurisdictions" if progress toward tax goals is not made, the group said in its statement.
Lew said the United States fully supports calls for all countries to automatically exchange financial account information.

Josh Meyer, IRS Urges Americans: Come Clean Now, Before We Read Panama Papers (NBCNews 4/17/16), here.

U.S. officials revealed to NBC News that they have taken part in two global meetings about the Panama Papers to plan how to use the huge trove of leaked documents to catch criminals — and urged Americans to come clean now before illegal activity is discovered. 

Last week's discussions in Paris and Washington between IRS and Treasury officials and their counterparts from around the world are the first evidence of U.S. involvement in the growing international coalition eager to analyze and use the data about more than 214,000 offshore companies listed by Panamanian law firm Mossack Fonseca. 

In a statement to NBC News, the IRS acknowledged participating in a "special project meeting" of JITSIC, the Joint International Tax Shelter Information and Collaboration network, about the papers in Paris last week. 

The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to contact the agency now before any possible illegal activity on their part is identified. According to media reports, the documents contain information on potentially thousands of U.S. citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. Many other firms provide similar services, and the Treasury Department estimated last year that more than $300 billion dollars of illicit proceeds are generated in the United States annually, with criminals using such companies here and abroad to launder funds. 

"People hiding assets offshore should recognize the continued changes and progress in the international tax arena," the IRS said. "More than ever, their best option remains to come forward voluntarily and participate in the IRS Offshore Voluntary Disclosure Program."

 Jon Schwarz, Here’s a Way to Shut Down Panama Papers-Style Tax Havens — If We Wanted To (The Intercept 4/17/16), here.  The argument in this offering is based on Gabriel Zucman's book, the Hidden Wealth of Nations, here.  Since Zucman's book is the jumping off point, I offer first this summary of Zucman's book from the Amazon site for the book:

We are well aware of the rise of the 1% as the rapid growth of economic inequality has put the majority of the world’s wealth in the pockets of fewer and fewer. One much-discussed solution to this imbalance is to significantly increase the rate at which we tax the wealthy. But with an enormous amount of the world’s wealth hidden in tax havens—in countries like Switzerland, Luxembourg, and the Cayman Islands—this wealth cannot be fully accounted for and taxed fairly. No one, from economists to bankers to politicians, has been able to quantify exactly how much of the world’s assets are currently hidden—until now. Gabriel Zucman is the first economist to offer reliable insight into the actual extent of the world’s money held in tax havens. And it’s staggering. 

In The Hidden Wealth of Nations, Zucman offers an inventive and sophisticated approach to quantifying how big the problem is, how tax havens work and are organized, and how we can begin to approach a solution. His research reveals that tax havens are a quickly growing danger to the world economy. In the past five years, the amount of wealth in tax havens has increased over 25%—there has never been as much money held offshore as there is today. This hidden wealth accounts for at least $7.6 trillion, equivalent to 8% of the global financial assets of households. Fighting the notion that any attempts to vanquish tax havens are futile, since some countries will always offer more advantageous tax rates than others, as well the counter-argument that since the financial crisis tax havens have disappeared, Zucman shows how both sides are actually very wrong. In The Hidden Wealth of Nations he offers an ambitious agenda for reform, focused on ways in which countries can change the incentives of tax havens. Only by first understanding the enormity of the secret wealth can we begin to estimate the kind of actions that would force tax havens to give up their practices. 

Zucman’s work has quickly become the gold standard for quantifying the amount of the world’s assets held in havens. In this concise book, he lays out in approachable language how the international banking system works and the dangerous extent to which the large-scale evasion of taxes is undermining the global market as a whole. If we are to find a way to solve the problem of increasing inequality, The Hidden Wealth of Nations is essential reading.

Now, I turn to key excerpts from Swchwarz's offering:

Conservatives like to argue that it’s impossible to shut down the dizzyingly complex world of shell corporations and tax havens — a position that supports their argument that there’s no point in raising taxes on the wealthy. As George W. Bush proclaimed in 2004, “Real rich people figure out how to dodge taxes.” 

However, Zucman makes a persuasive case that it wouldn’t be technically difficult to crush the tax haven industry. The enormous challenge would be mustering the political will — and not just in one country, but on a global level. 

Tax havens serve two functions: tax evasion, which involves hiding assets and is illegal, and tax avoidance, which is done by multinational corporations in the open and is legal (since the same corporations have conveniently made sure the laws work that way). Eliminating them requires different strategies. 

* * * * 

For Americans who aren’t super-rich, there’s no way to hide your income from the government. Employers and banks automatically report your wages, interest from savings accounts, and any meager dividends and capital gains to the IRS. (In fact, the government knows so much that there’s no need for most people to do their own taxes — the IRS could just send you a tax return already filled out for your approval, as is done in Sweden, Denmark, and Spain.) 

The main service provided by tax havens is simply that — since they’re not bound by other countries’ laws — they don’t report the income of foreigners to the relevant tax authorities. 

Based on the history of previous attempts to crack down on tax evasion, successful and not, Zucman argues that the U.S. and European Union could stop most of it with a two-pronged attack: concrete consequences for tax havens, and an international financial register. 

* * * * 

While FATCA has flaws, it’s been successful in making it more difficult for Americans to evade taxes. What’s needed, says Zucman, is even stronger measures to force tax havens to automatically report the income of all foreigners, not just Americans, to the tax authorities in their countries. 

The U.S. can force tax havens to comply because we’re so big and powerful. But smaller countries could also bring tax havens to heel if they act in coalition, especially since tax havens themselves are generally tiny and dependent on exports. Zucman calculates that if Germany, France, and Italy slapped a tariff of 30 percent on Swiss goods, this would cost Switzerland more than it makes as a tax haven — and such a tariff would be legal under World Trade Organization rules, since it would enable the three countries to recover approximately the amount in tax revenues that Switzerland is costing them. 

Of course, as with the hypothetical Definitely Not an Illegal Tax Shelter LLC, bankers may be able to honestly say they don’t know who owns many assets. That’s where an international financial registry comes in. 

Zucman contends that a global registry of who owns which assets is “in no way utopian.” Countries have long had national registries of who owns all their land and property. More recently, corporations have set up private, large-scale registries: the Depository Trust Company (which keeps track of the ownership of all stock issued by U.S. companies), Euroclear Belgium and Clearstream (bonds issued by U.S. companies but denominated in European currencies), Euroclear France (French corporate stock), and other national repositories. 

Thus it’s not hard to imagine the databases being merged under the supervision of a public, international institution with financial expertise — and fortunately we already have one of those, the International Monetary Fund. 

Of course, the registry would in many cases record that assets are owned by corporations or trusts whose owners are unknown. Tracing the financial chain through many layers of obfuscation back to the actual human beings who hold the assets would require an enormous, costly, and possibly ineffective IMF bureaucracy. 

Zucman proposes a fiendishly clever solution: the global registry should impose a small, refundable wealth tax to make it in the financial interest of anyone with hidden wealth to disclose it.

I love databases, so I think this has to be at least part of the solution.

Now turning to tax avoidance by multinational corporations:

However, there’s a feasible solution suggested by Zucman (and many others): Completely throw out our current corporate tax system and begin using something far simpler called “formulary apportionment.” 

Formulary apportionment starts by discarding the weird fiction that a multinational corporation’s subsidiaries are separate companies. Instead, it treats the corporation as what it is, one unitary company, with one unitary amount of profit. Next, a formula based on the location of three concrete factors — the corporation’s payroll, physical capital like factories, and sales — is used to apportion percentages of the multinational’s profits to the different countries in which it operates. The IRS would get 35 percent of the U.S. apportionment. 

This isn’t a untested daydream. Individual American states have long used formulary apportionment to determine tax rates for multi-state corporations. The principle would be exactly the same for multinational companies. 

There’s no “right” formula, though for decades most U.S. states placed an equal weight on each factor. For example, a manufacturing multinational might have 66.6 percent of its payroll, 33.3 percent of its physical capital, and 50 percent of its customers in the U.S. Added together and divided by three, that means that half of its profits should be apportioned to the U.S. and can be taxed here. 

Thus a formulary apportionment system would make corporate inversions and the fictitious booking of profits in low-tax countries pointless — neither would change a corporation’s U.S. tax liability.

Schwarz concludes:

So, as Zucman writes at the end of The Hidden Wealth of Nations, this is “above all a battle of citizens against the false inevitability of tax evasion and the impotence of nations.” Money launderers, crooked politicians, and huge corporations want the system to be so complicated that only their shady bankers and lawyers can comprehend it. But if regular people worldwide can educate ourselves about the costs the current system imposes on all of us, and mobilize to agitate for possible solutions, there’s a path in front of us to a tax system for everyone that’s far simpler, fairer, and more transparent.

Articles on ICIJ's Panama Papers and Ramifications (4/16/16)

Introduction:  The following Wikipedia entries may offer updated information from time to time:

• Wikipedia entry on Panama Papers, here.
• Wikipedia list of people named in Panama Papers, here.

In addition, this searchable list from the Sunday Times might be worth consulting from time to time.  Josh Boswell, Tom Wills, Aendrew Rininsland, Panama papers: the names: Search our database of 37,000 names linked to Mossack Fonseca companies in the tax haven of Panama (Sunday Times 4/10/16), here.  The linked page offers at the bottom a downloadable zip file with the data, here, which includes a csv file which is apparently 102.54 MB in size (presumably this could be imported into an MS Excel file, although I have not yet done that) and a "README.TXT" file to explain certain matters about the data.  Apparently this file lists the companies and directors, shareholders, and legal agents for the companies.

Leonid Bershidsky, Were the Panama Papers Planted? Who Cares (Bloomberg View 4/15/16), here.

The opening salvo

Last week, a respected Russia scholar in the U.S. speculated that the Kremlin might be behind the so-called Panama Papers, the big dump of data about offshore accounts that has implicated several countries' officials in shady dealings. And on Thursday, President Vladimir Putin of Russia blamed the U.S. for the leak.

And the closing:

But I would argue that, in the end, that the provenance isn't important -- only the accuracy of the data is. 

Putin has confirmed that the Russian part is accurate. The information is, of course, more damaging than Putin is willing to admit: It exposes the inner workings of Russia's crony capitalism. he material also has proved accurate regarding accounts of people from Iceland, Spain, the U.K. and elsewhere. So why get hung up on its source? It makes much more sense to applaud the work of the investigative journalists who checked and developed the leak. It's an extraordinary collective performance by a much-maligned professional community that has proved convincingly that it has an important social role to play. 

Andrew Mayeda and Mark Deen, G-20 Threatens Penalties on Tax Havens After Panama Papers (Bloomberg 4/15/16). here.

Group of 20 economies threatened to penalize havens that don’t share information on their banking clients after the leak of the Panama Papers provoked a global uproar over tax evasion. 

The G-20 will consider “defensive measures” against financial centers and jurisdictions that don’t commit to an international standard requiring the exchange of information about account holders, the group’s finance ministers and central bankers said Friday in a statement after meeting in Washington. 

The group said it would work with the OECD to come up with criteria for identifying “non-cooperative jurisdictions” by July, adding that improving the transparency on who controls legal tax entities is vital to the international financial system. 

* * * * 

Global Standard 

The statement refers to a global standard developed by the OECD and endorsed by the G-20. The standard calls on tax jurisdictions to share information on an annual basis about their banking systems, including the names and tax identification numbers of account holders. 

The language on tax and financial transparency amounts to a victory for major European nations including the U.K., France and Germany, who a day earlier agreed to automatically share information on the ultimate owners of companies and trusts.
China put up the most resistance to the tax-related part of the G-20 statement, and the U.S. was also reluctant, according to two G-20 officials familiar with the talks; one person said China was the main reason why the statement didn’t single out Panama. The officials asked not to be identified because the meetings were private. 

* * * * 

Bright, Dark

“With the Americans, there’s always a bright side and a dark side. They have helped us a lot to move things forward,” German Finance Minister Wolfgang Schaeuble told reporters on Friday, citing the automatic exchange of account information. “The Americans have a slightly different system and it’s very difficult to win majorities in the U.S. Congress to adapt to the international system.” 

U.S. Treasury Secretary Jacob J. Lew said at a press briefing that the G-20 made a “very strong statement in the communique on our collective view that we need to act to deal with tax shelters and the problem of an international tax system permitting havens to develop.”

Juliette Garside, Panama Papers: inside the Guardian's investigation into offshore secrets (4/16/16), here.  An excellent story of the secret investigation of the Panama Papers.

ICIJ, Panama Papers The Power Players, here, an ongoing site to

Sign up to ICIJ’s mailing list, and receive a guided email tour of the Panama Papers investigation featuring the project’s biggest findings, background information and exposing how the offshore finance industry impacts lives around the world. We’ll also keep you up to date with the latest news from ICIJ’s investigations.

Peter Ford, The deeper cost of the Panama Papers: angry publics and unbuilt schools (Christian Science Monitor 4/15/16), here.

Reforms under way 

The world’s governments are paying attention. The Group of 20 has tasked the Paris-based Organization for Economic Cooperation and Development (OECD), the rich countries’ club, with designing a system for the automatic exchange of information among national tax authorities, to improve cooperation among them. 

This is due to take effect next year, but its reach will be limited by the fact that the United States will not be part of it. 

The OECD has also come up with a new international accounting standard that will prevent multinational corporations from reporting all their profits in a low-tax country such as Luxembourg. Instead they will have to break their income down country by country, and pay taxes in each location. 

That should help developing countries collect more money, but the new rules will bind only companies with more than $750 million in annual turnover, which will limit their impact. 

At the same time, activists are pushing for a public registry in every country of all companies and their real owners; Britain is setting up such a registry, but is not requiring any of its overseas dependencies – most of which are tax havens – to sign up. 

Activists and reform-minded governments are strengthened by rising public awareness and outrage. “Protests against tax havens are happening around the world, from Iceland to Nigeria,” points out Shaazka Beyerle, author of a recent book on “people power” movements against corruption. “There is potential for their development into organized nonviolent resistance.” 

Tax havens “have rocketed really fast to a significant place on the international agenda,” says Ms. Clough of Global Financial Integrity.

Nicholas Lemann, The Panama Papers and the Monster Stories of the Future (New Yorker 4/14/16), here. A really interesting discussion of how these and future stories get from leaker to the public, including why the New York Times and the Wall Street Journal did not participate in the effort to analyze and present the Panama Papers.

Is Good Faith a Defense to False Claim Charges (4/16/16)

In United States v. Croteau, 2016 U.S. App. LEXIS 6547 (11th Cir. 2016), here, the taxpayer was convicted or "ten counts of making false, fictitious, or fraudulent claims on his tax returns, in violation of 18 U.S.C. § 287 and 2, and one count of corruptly interfering with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a)."  Section 287(a), false claims, is one of the panoply of charges that the Government can make for tax crimes.  Today's blog entry will deal with the § 287(a) charges.

Crouteau's misconduct was repeatedly claiming false OID withholding and filing related forms with the IRS, resulting, he claimed, in refunds of well over $3.8 million.  Early on, the IRS caught on and advised him to file corrected returns.  Nevertheless, the taxpayer did not correct and repeated the behavior, which the IRS caught.  And he "Croteau created, submitted, and recorded various fictitious and fraudulent documents claiming rights to millions of dollars owed him by the U.S. Treasury and various government agencies and officials." Finally he "recorded several false, fictitious, and fraudulent liens and documents in the Lee County Clerk's office asserting that the IRS and various IRS officials owed him hundreds of millions of dollars in total."

After several years of trying to get him to behave, the Government had enough:

On August 21, 2013, a grand jury indicted Croteau with ten counts of filing false, fictitious, and fraudulent tax returns with the IRS, in violation of 18 U.S.C. § 287 and 2. Croteau was charged for ten of the false and fraudulent tax returns he filed between September 2008 and September 2010 for tax years ranging from 2006 to 2009, in which he claimed total refunds in excess of $3.8 million. Separately, the grand jury indicted Croteau with one count of corruptly interfering with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2. This charge was based on the alleged false and fraudulent tax returns covered by Counts One through Ten as well as the supplementary submissions supporting the tax refunds including the 1099-OID forms, the separate fictitious and fraudulent instruments Croteau submitted to the U.S. Treasury Department, and the fictitious and fraudulent liens and documents he recorded in the Lee County Clerk's office.

As in many, perhaps most tax cases, there is little or no defense to the objective elements of the crimes charged, so that the defendant is left to the defense that he did not have the requisite mens rea for the defense.  For the usual tax crimes in the Code, the mens rea is the highest -- that the defendant acted willfully, meaning that he intended to violate a known legal duty.  The defense often deployed in such cases is that the defendant did not act willfully because he acted in good faith belief that what he was doing did not violate the law.  This is commonly referred to as the Cheek defense, based on the leading case of Cheek v. United States, 498 U.S. 192 (1991). Technically, where this good faith defense is properly raised in a criminal case with an element that the defendant have acted willfully, the Government must prove that he acted willfully, which requires that the Government disprove the good faith claim.  I have discussed previously the dicey issue of how the defendant puts good faith in play in order to get a jury instruction on good faith to supplement the standard jury instruction on willfulness.  Bottom line it will usually require the defendant to testify, but sometimes there can be sufficient other evidence to raise the defense, thus permitting the defendant to forgo testifying.

Some crimes deployed for tax misconduct, particularly the Title 18 offenses, do not have a textual element that the taxpayer act willfully.  The crimes for which Crouteau was charged do not have a textual willfulness requirement.  I have previously noted that tax obstruction, § 7212(a), although not having a textual willfulness element might have elements which, as interpreted and applied, rise to the same level as willfulness. But I focus today on the 18 U.S.C. § 287, here, charges.  Section 287 provides

False, fictitious or fraudulent claims
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.

In support of his good faith defense, the defendant introduced testimony that he had joined a "a tax protester and sovereign citizen group called the Little Tribe of the Pembina Nation. This group advocated that its members did not need to submit to governmental authority or pay taxes."  He then obtained other information  from which "he came to believe that he had a secret Federal Reserve bank account containing money to which he was entitled. He also testified that he learned from Shrout that he could access his 'principal money' by using '1099-OID.'"

He also submitted the testimony of two witnesses.  The First was

Walker Todd, an attorney and tax-preparer who had worked for the Federal Reserve Bank. Todd discussed a number of the sovereign citizen theories, such as the idea that taxpayers can access secret accounts and the "redemption theory." Todd explained that these theories lacked "historical basis," were "not real," and were "totally fantasy." Todd explained that the IRS scam involving the use of 1099-OID forms emerged in the late 2000's and is considered one of the top tax scams in recent years. Todd testified that these ideas are promulgated through the Internet, seminars, DVDs, and YouTube videos, with Winston Shrout being one of the main proponents.

It is not clear exactly how this testimony furthered his defense.

The second witness was a psychiatrist who testified that Croteau suffered a delusional disorder. Further,

Croteau's delusional condition caused him to persist in filing frivolous tax forms and documents despite repeated warnings and instructions by the IRS and others that what he was doing was unwarranted. Dr. Toomer testified that Croteau's response to these IRS warnings was to conclude, "[T]hat's wrong, that's not correct." Dr. Toomer could not say, however, whether Croteau had truly believed what he had said.

That defense psychiatrist's credibility was substantially attacked on cross-examination.

And the Government called a rebuttal psychiatric witness who disagreed with the defense psychiatrist.

The Court summarized the § 287 jury charge as follows:

When charging the jury, as to the first element, the district court instructed that the jury must find that Croteau "knowingly presented a false claim." The court explained that the word "knowingly" means "that an act was done voluntarily and intentionally and not because of a mistake or by accident." As to the second element, the court instructed that the jury must find that the "claim was based on a false or fraudulent material fact." As to the third element, the court instructed that a "claim is false or fraudulent if it is untrue when made or presented and the person making or presenting it knows it is untrue." The court added that "the government does not have to show that the governmental department or agency was, in fact, deceived or misled."

The Court concluded that "In this case, the evidence sufficiently proved that defendant Croteau knew the tax returns he filed with the IRS were false, fictitious, or fraudulent."

As to the good faith defense, the Court said (emphasis supplied):

Both parties agree that good faith is a defense to charged violations of § 287. Defendant Croteau argues that "a good faith belief that the tax laws [have] been satisfied, even if the belief is not reasonable," is a complete defense to false tax return crimes. The government does not contest Croteau's assertion. We note, however, that it is not clear whether good faith is a defense to a § 287 violation because all of the cases the parties cite involve not only different tax statutes but also statutes where "willfulness" or "specific intent" was an element of the charged crime. See Cheek v. United States, 498 U.S. 192, 193, 199-201, 111 S. Ct. 604, 606, 609-10, 112 L. Ed. 2d 617 (1991) (construing 26 U.S.C. § 7201, which requires proof of willfulness, and indicating that where willfulness is an element, a defendant's asserted good faith belief that he has complied with the tax laws—even if unreasonable—if believed by the jury, is a defense); United States v. Morris, 20 F.3d 1111, 1115 (11th Cir. 1994) (construing 26 U.S.C. § 7206(1), which requires proof of specific intent or willfulness, and recognizing good faith to be a viable defense to such a charged crime). 

Even assuming arguendo that a good faith defense were applicable in the context of § 287 violations, defendant Croteau has not shown that no reasonable jury could have failed to find that he had established that defense. Indeed, as outlined above, the evidence abundantly showed Croteau did not act in good faith. Furthermore, the decisions Croteau cites are cases where courts reversed a conviction and remanded on the basis that the defendant was denied a proper good faith jury instruction to which he was entitled. Cheek, 498 U.S. at 203-04, 207, 111 S. Ct. at 611-13; Morris, 20 F.3d at 1115-18; United States v. Heller, 830 F.2d 150, 154-56 (11th Cir. 1987). In contrast here, the district court gave a good faith jury instruction for all of Croteau's charged crimes. In convicting Croteau, the jury was free to disbelieve his testimony. See Williams, 390 F.3d at 1325. In sum, the evidence was more than sufficient to support Croteau's § 287 convictions.

I offer the following from the DOJ Tax Criminal Tax Manual, here:

22.04[3] Knowledge -- Intent -- Willfulness 

Section 287 requires the government to prove that a false claim against the government was made, “knowing such claim to be false, fictitious, or fraudulent . . . .” A Section 287 indictment should allege such knowledge, and the proof that the defendant knew the return was false is part of the government’s burden of proof. United States v. Holloway, 731 F.2d 378, 380-81 (6th Cir. 1984). 

It is not necessary to allege willfulness in the indictment. The term “willfully” is ot used in § 287 and is not “an essential element” of § 287. United States v. Irwin, 654 F.2d 671, 682 (10th Cir. 1981). 

The circuits vary, however, on the proof of intent necessary to convict for a violation of Section 287. In United States v. Maher, 582 F.2d 842, 847 (4th Cir. 1978), the Fourth Circuit approved a jury instruction stating that, under § 287, criminal intent “could be proved by either a showing that the defendant was aware he was doing something wrong or that he acted with a specific intent to violate the law.” In United States v. Milton, 602 F.2d 231, 234 (9th Cir. 1979), the court held that no instruction on “intent to defraud” is necessary where a false claim is charged (because it is not an element of the offense), but left open whether an “intent to deceive” is an element of a charge of submitting a “fraudulent” claim. Id. at 233 n.7. The Eighth Circuit, in Kercher v. United States, 409 F.2d 814, 817 (8th Cir. 1969), did not draw a distinction between false and fraudulent claims, but held without elaboration that § 287 requires proof of criminal intent.

 Obviously, if proof of criminal intent is required, the good faith defense would be available.

I note also that on both of the types substantive charges, in addition to the substantive charge (§§ 287 and 7212(a)), the defendant was charged and convicted under the aiding and abetting statute.  (The causer liability under 18 U.S.C. § 2(b) is not applicable.) The Government typically includes the aiding and abetting charge with the substantive charge.  As charged, it really is not a separate crime but solely to make the person charged guilty as a principal if he is not otherwise guilty of the substantive crime.  In this case, that is nonsense.  See Townsend, John A., Theories of Criminal Liability for Tax Evasion (May 15, 2012). Available at SSRN: http://ssrn.com/abstract=2060496 or http://dx.doi.org/10.2139/ssrn.2060496.  and Even More on Principals, Accomplices, Causers and Pinkerton Conspirators - the Daugerdas Case (Federal Tax Crimes Blog 5/10/11), here.