White Collar: IRS Offers Second Amnesty Program

The Internal Revenue Service has created an amnesty program for offshore account holders for the second time in three years. The intent of the amnesty is to lure tax evaders to self report. The penalties to which such self reporting individuals are subject are considerably less than if the government had uncovered the evasion. Additionally, the IRS has announced that it will not refer to the Justice Department for prosecution any of those self reporting.

The amnesty program will last until August 31, 2011. An individual taking advantage of the amnesty will pay a penalty of 25% of the amount in the offshore bank account in the year with the highest aggregate account balance over the eight year period running from 2003 to 2010. This is a substantial saving over the normal penalty of 50% of the greatest amount in the account for each year over a six year period. Moreover, some taxpayers may be eligible for reduced penalties of 5% or 12.5%. Back taxes and interest for up to eight years must also be paid.

Persons with offshore accounts containing $75,000 or less in a year covered by the program will qualify for a lower penalty of 12.5%.

In 2009 the IRS instituted an amnesty program and found it to be very successful. That program resulted in approximately 15,000 tax payers notifying authorities of their tax evasion, accomplished through the use of offshore bank accounts. The penalties at the time of the first amnesty were lower than those announced for the second program. Under the prior program taxpayers paid a penalty of 5% or 20%.

For more about the amnesty, please see The New York Times, "IRS Offers New Amnesty Deal for Offshore Accounts," February 8, 2011, http://www.nytimes.com/2011/02/09/business/09tax.html?ref=business.

White Collar and Securities: New York Federal Court Okays Wiretap Evidence in Insider Trading Prosecutions

In a series of insider trading prosecutions in federal court in New York judges have ruled that wiretap evidence is admissible. The cases have arisen from a three year investigation of the Galleon hedge fund. The best known of the prosecutions is the case against Raj Rajaratnam, founder of Galleon. he is scheduled to go on trial on February 28, 2011, in the Southern District of New York.

In Rajaratnam's case, as well as the companion cases, the Justice Department has sought to introduce evidence of conversations intercepted pursuant to court authorized wiretaps. These cases appear to be the first time that wiretap evidence will be used by the government in an insider trading prosecution.

Wiretaps are authorized by the Omnibus Crime Control Act of 1968. They are an extraordinary investigative tool and are to be used only when the government demonstrates to the court that such wiretaps are necessary to further its investigation. Wiretaps are authorized when other less intrusive investigative techniques have proved insufficient. Courts refer to this as the "necessity" requirement. Affidavits in support of wiretap warrants must contain sufficient information to satisfy the court that other investigative means will not prove effective and that the wiretap requested is necessary to conduct the investigation. In many ways the law views a wiretap as essentially an investigative technique of last resort.

Historically, government has limited its use of wiretaps to investigations of crimes such as drug distribution and racketeering type offenses. Investigators have not used the technique in pursuit of white collar crime such as securities fraud. The probable explanation for this fact is that white collar type cases often have large numbers of documents that investigators can use to investigate economic relationships and the flow of monies. Moreover, business crime investigation typically affords the opportunity to interview witnesses who are not connected to the criminal scheme. Thus, document review, witness interviews, financial forensic analysis, and a grand jury may all be useful in concluding a successful investigation without the necessity of wiretaps. Additionally, wiretaps are most beneficial in the investigation of ongoing criminal activity. Most fraud investigations are retrospective. Thus, there is less likelihood of obtaining relevant evidence from a wiretap during a fraud investigation.

The fact that the government successfully persuaded courts to authorize the wiretaps and then admit the evidence from the taps in an insider trading prosecution suggests that in the future government investigators will seek to use wiretaps in fraud investigations where they believe that the criminal conduct is ongoing.

If you have any questions about this post, white collar enforcement, or securities litigation, please contact me at (954) 761-2902 or at richard.serafini@ruden.com.