INTERNATIONAL TAX, INFORMATION EXCHANGE
AND FORFEITURE AGREEMENTS
International agreements for mutual cooperation in collecting taxes and for forfeiting the proceeds of crime follow the U.S. lead in seeking to eliminate the conflict of laws that is the essence of privacy and asset protection. They also establish global surveillance authorities and export to foreign jurisdictions the U.S. civil forfeiture concept and laws that:
(i) permit hearsay evidence to "establish reasonable suspicion" (i.e. any squalid slander or scuttlebut, innuendo and rumour); and
(ii) shift the burden of proof instantaneously to the property owner or defendant; and
(iii) enable the confiscation of substitute untainted assets; and
(iv) allow for informant commissions, informant sharing in forfeited property and sting and entrapment operations; and
(v) induce the commission of a crime!
The Cornerstones of Freedom sting against Royal Lamarr Hardy and his subsequent acquittal in 1992 of money-laundering and tax evasion. This was a failure to file and "structuring money transactions". Hardy had not filed since 1976 and still does not. His Reliance Defence is a solid defense for the "Wilfull Failure to File" issue, which is of course in all countries is a criminal issue. This two-year intensive Federal Court battle in the District of Hawaii (Case # CR-No.990 - 012166 ACK (01). It is these agreements that also require financial institutions to begin "know your customer"programs to identify suspicious transactions.
Some of these agreements are listed with restricted commentary!
(A) Council of Europe / CECD Convention on Mutual Administrative Assistance in Tax Matters (1988) - the Convention covers all taxes, income tax, capital gains tax, value-added tax etc. even "a tax which does not exist in the requested State"! It pushes for (global and) regional harmony in tax rates and in "concessionary allowances." This agency can seize property and assets for tax delinquencies anywhere in the world.
(B) United Nations Convention against Illicit Traffic in Narcotics and Psychotropic Substances (1988) a.k.a. the U.N. Vienna Narcotics Convention which requires among a host of other things, the setting aside of secrecy laws in laundering investigations and the forfeiture of laundered proceeds.
(C) The Financial Action Task Force (1988) formed by the then G-7 (U.S., U.K., France, Italy, Japan, Germany and Canada). The OECD provides staffing and support for the FATF. The FATF is pushing for the extension of predicate laundering offenses to "all serious crimes including insider trading, environmental offenses, economic fraud, kidnapping, terrorism, negligent laundering and any economic advantage derived from any "serious criminal offense". Global strategies, already pushed with some success, mirror in every case, legislation proposed or in effect in the the United States.
FATF initiatives providing for greater transparency in electronic money movement resulted in this response by the Society for Worldwide Interbank Financial Telecommunications (SWIFT) which as you well know is the largest international electronic funds transfer network. It asked its users to identify payors, payees, intermediaries and the purpose of payments in messages sent over the network.
(D) Council of Europe Laundering Convention (1990) prepared by the councilís "Select Committee of Experts" - an anti-laundering and forfeiture treaty based on FATF recommendations which became effective in 1993 and which provides a more comprehensive set of rules covering all stages of forfeiture than the U.N. Vienna Narcotics Convention. Signatories must enforce asset restraint orders from a requesting state even in civil and administrative proceedings. Once seizure has occurred, applying whatever burden of proof appropriate in the seizing jurisdiction, the burden now shifts to the claimants to demonstrate that they are innocent, are bona fide purchasers or are lienholders. The Laundering Convention allows governments to enter reservations on all serious criminal activity and to restrict its application to certain other offenses.
Switzerland,like most ratifying states, chose to apply the Convention without reservation to everything that it defined as "all serious criminal activity".
The investigative techniques which are encouraged by these international agreements for mutual cooperation include covert observation, continuous monitoring of all transactions in financial institutions, monitoring of communications including wiretaps and the use of computerized investigative aids.
It must be pointed out that there are, as always, significant contradictions between the language of the Laundering Convention and that of Protocol Number 1, of the European Convention on Human Rights which guarantees to all "natural and legal persons" (youíve encountered that wording before in Constitutions) the right not to be deprived of their possessions. Most European nations (remember former Yugoslavia and its dismembered fractions and displaced populations that have ratified the Laundering Convention have also ratified Protocol Number 1, but this is surely an interaction which would escape most international jurists!
BILATERAL INFORMATION EXCHANGE AND FORFEITURE AGREEMENTS.
To expedite information exchanges and forfeitures between governments under mutually agreed conditions.
To expand the surveillance structure globally and to make the laws in one jurisdiction apply in other jurisdictions, thereby reducing conflict of law.
The U.S. government enters into several types of such bilateral agreements, including Tax Treaties, Tax Information Exchange Agrements, Memoranda of Understanding and Mutual Legal Assistance Treaties ("MLATís"). Lacking a bilateral agreement or one comprehensive enough to obtain information sought, authorities simply approach another country to do their work:
In 1992 German authorities sought information concerning a tax file held by the Dutch. Under the German-Dutch tax treaty they werenít entitled to it. So the Germans asked the Canadians to ask the Dutch for this file, and obtained it through Canada.
Tax Treaties require information exchange for civil and administrative enforcement of revenue laws. Recent ones, and they are numerous and voluminous, authorise the exchange of documentary and other information on dividends, interests, rents and royalties and capital gains. There is no US tax treaty with Panama.
Tax Information Exchange Agreements require the exchange of similar information to Tax Treaties PLUS information relating to the beneficial ownership of trusts and corporations. TIEAís may also call for bank-deposit information to be exchanged between tax authorities. Often used in conjunction with Kerry Agreements (1989 Act introduced by Sen. John Kerry requiring machine readable bar codes on all U.S. currency).
TIEAís in conjunction with Kerry Agreements could instantly and strategically be used by the signatories to eliminate capital flight out of (or into) the United States.
One incentive to enter into TIEAís with the U.S. is eligibility for tax and tariff concessions under the Caribbean Basin Initiative - there is no TIEA in effect with Panama, though there are with neighbouring Costa Rica and Honduras.
Kerry Agreements. Sen. John Kerry inserted in the Anti-Drug Abuse Act (1988) provisions requiring the Treasury Secretary to negotiate international agreements requiring other nations to implement their own currency reporting laws, and share resulting data with the United States. This, together with amendments to the Money Laundering Control Act (19...) stipulating that a financial transaction involving felony or fraud against a foreign bank are specified unlawful activities, this may force U.S. financial institutions, in effect, to enforce the tax and currency laws of other nations, never envisaged under the Constitution! It probably forces non-U.S. financial institutions in signatory nations to enforce U.S. tax and currency laws. As such, Kerry Agreements globalise tax and currency laws. Kerry Agreements enforced to their logical potential will eliminate the United States, the premier destination for flight capital, as a haven for foreign persons seeking protection from corrupt governments and inflated currencies.
The Annunzio - Wylie Anti-Money Laundering Act (1992) authorises governments to seize U.S. assets of foreign banks allegedly involved in illegal activity and permits any Federal District Court to file an order for a forfeiture in another country. The Act also permits the Treasure Secretary to issue regulations that require financial institutions to report suspicious transactions that could involve a violation of any law or regulation, not just anti-laundering laws. These are now issued! Extension of these was vigorously resisted some months ago - the Federal agencies are however persisting. This is the act that requires institutions transmitting funds by wire to maintain records of international transactions and make them available for "warrantless inspection" ("WI").
The Actís extra territorial civil forfeiture provisions are particularly powerful.
In 1994 a U.S. District Court ordered that bank accounts in the United Kingdom belonging to an accused (not convicted) money launderer be forfeited to the federal government. United States v. Meza, 856 F. Supp. 759 (E.D.N.Y.). This case subjected non-U.S. accounts in non-U.S. banks to civil forfeiture, in a jurisdiction (the U.K.) in which civil forfeitures are otherwise non-enforceable!
Of vital importance is that U.K. law permits courts there to issue restraining orders to aid foreign civil proceedings in "narcotics investigations". The English High Court of Justice concluded that there was no requirement that the foreign civil proceeding correspond to a proceeding permissible under English law. In re. Drug Trafficking Offenses Act 1986 (Designated Countries and Territories), Order 1990, DTA 76/90 (unreported)!
U.S. courts are already exercising their authority to order forfeitures in the U.K. in cases not relating to drug trafficking. The US. - U.K. Mutual Legal Assistance Treaty for example covers all non-misdemeanour U.S. criminal investigations. Further the U.K. Crown can and has extended this treaty to its dependent territories: (Bermuda, Caymans, Gibraltar, Montserrat, The Turks & Caicos Islands etc.) Investors in these offshore financial centres should presume that U.S. civil forfeiture laws might well be applied to their holdings.
Mutual Legal Assistance Treaties (MLATís) provide for information exchange in the investigation of suspected criminal activities. Most MLATís do not require any judicial or administrative finding of probable cause to be invoked. Reasonable suspicion is sufficient. They also may provide for extradition of criminal suspects and do provide for "equitable sharing" of forfeited property. Always assume therefore that "dual criminality" is not required.
The MLAT between the U.S. and the Crown of the Cayman Islands, which was a model for those with many other offshore financial centres, covers offenses which are illegal in the U.S. but not in the Caymans! these include insider trading and the bribery of foreign officials. Pure tax offences are excluded but not if committed in conjunction with any other crimes.
MLATís also override local confidentiality laws. That between the U.S. and the Turks & Caicos Islands states that those divulging confidential information or giving any testimony in conformity with the MLAT shall be "deemed" not to be committing an offence under the Confidential Relationships Ordinance 1979 or the 1981 Companies Ordinance.
Note also that MLATís may be used to enforce certain government civil judgments including civil forfeitures.
In 1993 the United States and Switzerland expanded the U.S. -
Switzerland MLAT to include civil proceedings under the U.S. securities fraud statutes.
There is a noticeably weak MLAT in effect with Panama. However, MLATís with most of the Caribbean havens with the exception of Belize, and Costa Rica, are very much fiercer.
Memoranda of Understanding ("MOUís"). These are administrative agreements which under U.S. law do not have to be ratified by the Senate. As might therefore be expected they cover a wide variety of subjects!
MOUís assented to by the Crown of the Cayman Islands in 1994 and most of the other Crown dependent territories (read "common law jurisdictions") give the FBI [and the RCMP] quite extensive investigative authority in Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat and The Turks & Caicos Islands. The FBI and RCMP, ostensibly working with local police, may now investigate all white-collar crime in these jurisdictions. Any assets forfeited are split between the respective government and that of the dependent territory!
MLATís WITH NATIONS THE U.S. CONSIDERS BANK SECRECY HAVENS.
The Financial Action Task Force (FATF previously discussed) was another initiative utilising the excuse of "devestating proportions of the drug epidemic" to impress upon the banking and financial services industries domestic and international restrictions. Part of this effort was the push to sign MLATís with nations it considered bank secrecy havens, such as the Bahamas, Bermuda, Barbados, The Turks & Caicos Islands and the Cayman Islands, together with many other countries. Let us stress again that the crimes with which most MLATís deal are limited to drug trafficking, laundering strictly related to drug trafficking and insider trading, but the Treasury has been relentlessly expanding the list.
The MLAT signed with Venezuela in 1990 focussed primarily on the exchange of currency information, but it obliged Venezuela to release records on individuals whose alleged crimes have nothing whatsoever to do with narcotics. The IRS sent a team of enforcement officials to Venezuela to help train bankers and to compel obedience, to new banking laws, and to conduct seminars.
In 1991 The Treasury tried to consummate a similar agreement with Panama. Under immense pressure, and even the implied threat of a second invasion, Panama refused to permit U.S. authorities routine access to confidential bank records. The final MLAT agreement gives the U.S. government access to Panamanian bank records ONLY when investigating murder, kidnapping and money laundering explicitly tied to drug trafficking. Tax evasion is NOT included in the agreement.
FULFILL ALL REPORTING REQUIREMENTS OF THE I.R. CODE AND THE I.T. ACT
It is vital to comply with IRS reporting regulations on foreign accounts and to pay any tax due. We repeat: It is vital to report all reportable foreign transactions and transfers, all foreign bank or financial accounts and all reportable foreign investment accounts.
However, be aware that the Treasury often uses subterfuge to obtain information that it would not otherwise be entitled to acquire.
In a fairly recent case, Swiss banking authorities authorized the release of bank records of a man the IRS claimed was suspected of racketeering, an offence that under the U.S. - Swiss MLAT calls for such release (U.S. v. Sturman, 951 F.2nd 1466, 6th Circuit, 1991). However Sturman was actually suspected of tax evasion which under Swiss law at that time - things changed dramatically in early 1996 - was insufficient cause for the release of records. Sturman was convicted of the crime of tax evasion based on the information released under these false pretenses. So, once again, comply with all IRS reporting regulations.
The good news is that, as yet, few of these anti-laundering initiatives have had an impact on the resourcefulness and determination of ordinary Americans and Canadians seeking private investment alternatives.
THE INTERNATIONAL WAR AGAINST BANKING
SECRECY AND "MONEY LAUNDERING"
Although the U.S. government has for many years tried to discourage its citizens from investing overseas, particularly in tax or bank secrecy havens, behind the scenes a much larger and more sinister effort is taking place. The U.S. governmentís implementation of the bilateral and multilateral treaties and agreements outlined above, permit the exchange of confidential banking and investment records. While most of these agreements appear on the surface to relate only to insider trading, money laundering ostensibly linked to drug trafficking, and of course drug trafficking itself, the Treasury Department continues with success to push hard for the inclusion of "tax offences" in the list of crimes for which information may be exchanged.
In passing note that President Reaganís Caribbean Basin Initiative which was matched by Prime Minister Mulroneyís similar activity a few years later, was a clever effort to pry the lid off offshore banking - the deal was this: Open up your banking records to IRS and to Revenue Canada inspection and weíll continue to allow U.S./Canadian businessmen attending conventions in your jurisdictions to write off their expenses as business travel deductions. Barbados, the Dominican Republic and Costa Rica soon signed agreements. However, most Caribbean nations hesitated before signing because the U.S. was driving a very hard bargain. Others, such as the Cayman Islands rejected the U.S. offer out of hand!
The start of such international effort by the United States can be traced back to the Anti-Drug Abuse Act of 1988 which required the Treasury Department to set up a co-ordinated international effort to discourage money laundering worldwide. The milestone was the Basle Conference in December, 1988. Here 10 nations published a set of principles (the well known Basle Agreement) that they felt bankers should adhere to in discouraging laundering and washing activity. These principles dealt with such items as customer identification, compliance with "international law," and cooperation with law enforcement authorities.
Linked to this initiative, and referring back for a moment to the "Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances", it was in that same month, December 1988, that 67 member nations of the United Nations signed the Convention with its 34 articles. This treaty has now been signed by upwards of 80 nations and ratified by more than 30 countries including the United States. The Senate ratified the treaty in 1990. Like all treaties, it might be noted in passing, it contains language that violates the recent U.S. Constitution, as well as the Canadian Constitution Act (this has never concerned recent legislators or draftsmen!) but it does contain and omit certain key definitions:
Money laundering is here defined as "the concealment or disguise of the true nature, source, disposition, movement or ownership of proceeds and includes the movement or conversion of proceeds by electronic transmission." Note that the treaty does not define "proceeds" as being derived exclusively from drug sales or from any other illegal activity. Hiding your own lawfully earned money under the U.N. definition is money laundering!
Finally, referring back again to the U.N. treaty titled the "Draft Convention on Mutual Administrative Assistance in Tax Matters", although not in effect as of the time of this writing, this latest Convention is calling for:
Automatic and spontaneous" exchanges of taxpayer data between nations without notifying the taxpayer
Extensive cooperation between authorities to recover taxes (allegedly) owed in another country, including taxes on "income and profits, capital gains, net wealth, estates passing and death, and compulsory social security contributions"
Granting tax agents in one nation access to records of corporations and individuals in another nation, even if no crime has been alleged
Tax agents in one nation are being empowered to confiscate property owned by a taxpayer in another nation, even if the dispute is not with the latter nation
The treaty does not distinguish between tax avoidance and tax evasion. As a result of this purposeful obfuscation simply to bank, invest, work or carry on a genuine foreign business in an area where tax treatment is more favourable than at home would expose you to investigation. Additionally, the treaty does not proscribe witch-hunts or fishing expeditions against taxpayers innocent of any illegal act.
Besides facilitating the establishment of an international currency control agency, two of the treatyís other provisions include:
(i) Article 17 permits the use of mail to serve documents in another treaty country, and the documents need not be translated (Note: why not now in 1999 serve them in English by E-mail?) (ii) Article 9 permits foreign tax officials to be present during tax and financial audits.
Again, to paint a picture and letís revisit the fate of another German Jew who smuggled cash to Switzerland this time to escape the Nazi terrors of the 1930ís and early 40ís. Had this treaty been in effect then, Switzerland would hae been required to notify German authorities of suspected "foreign exchange violations" (now do you understand the importance of exchange controls? Executive Orders empower the President of the U.S. to impose these at any time; plus legislation relating to the confiscation/required surrender of gold in 1933 has never been repealed. Similar legislation in Canada, Bill C124 and the almost passed infamous C57 empowers the Minister of Finance - for which read The Crown - to impose such controls and confiscate many types of investments including Registered Retirement Savings Plans. Bill C124 became law in January, 1996).
The German government would then have seized the assets in any account he had set up in Switzerland. The German Jewish national would then be arrested in Switzerland and would have been turned over to the Gestapo. Whatever the "punishment" for the crime of possessing an (unreported) foreign bank account, the Jew would be accused of one more crime - failing to fill out a government form to take money out of Germany - money laundering!
By the way, the delay in its U.S. ratification of the U.N. Convention Against Illicit Traffic in Narcotic Drugs and Psychpathic Substances by the Senate till 1990 was due to vigorous opposition from many countries, including Austria, Belgium, Ireland, Italy, Portugal, Liechtenstein, Switzerland, Germany, and Luxembourg. The United States, the United Kingdom and Scandanavian nations (the U.S./Anglo Axis) and France strongly supported this treaty (Question: Will Britain remain outside the European Monetary Union and its flagship Euro currency, and if so, why?).
The most recent assault on international banking secrecy (a.k.a. money laundering when not explicitly tied to drug trafficking) was the 1991 adoption by the European Community of legislation criminalising money laundering. Beginning January, 1993, anyone wanting to deposit more than approx $20,000 in cash or monetary instruments in a bank in any EC member state, has to identify the source of the money. Banks are also now obliged to report to their banking supervisory agency any "suspicious transaction." As is well known in recent years, the deposit in a bank within the United States or Canada of "large" cash or instruments triggers a flurry of reporting form requirements.
WHY DID THE U.S. LAUNCH THIS WORLDWIDE ATTACK?
BECAUSE INBOUND INVESTMENT IS NEEDED! THE U.S.A. IS A GREAT PLACE TO BE IN BUSINESS, ESPECIALLY FOR FOREIGNERS
For foreigners, the USA is one of the best places in the world to live or to invest and make a buck. [Foreigners are not treated badly as locals. Why? Several reasons: One is that they have some protection against arbitrary injustice from their diplomatic representatives. More importantly, foreigners have their non-US passports and can leave!]
Why is the USA such a great cash cow, such a great place to make money? There is an excellent infrastructure in the USA. Laws are generally favorable to business. Well-regulated securities markets, and a very good road communication system completes the picture. By world standards, service and quality is high. Workers are non-militant. Prices on everything (except competent workers) are quite low, making the USA in general a cheap place to live. As to climate, everyone agrees that California has no equal. Florida is good in season. San Francisco is a beautiful and livable city, while New York is still the Big Apple. The American telephone system is the most competitive and cheapest in the world. Every consumer product or service including ethnic items from all over the world is available in the larger cities. The government is stable, unemployment is low, and outside of ghetto areas, violent crime is not really a serious risk. Illicit drug use is a problem only because the government has had fifty years of political posturing instead of a common sense approach. Legalization and control - as with alcohol and cigarettes would do more in 48 hours to eliminate the whole underworld system and the corrupt law enforcement people than 48 years of drug wars.
Capital markets are mature and well organized. This means that good business ideas have no trouble finding financial backers and any successful small business can go public. Compared to everywhere else in the world, the USA is an entrepreneurís paradise. The only thing wrong is that lawyers, bureaucrats and cops in the USA are able to target any person they please for his political activities, or "suspicion" of anything. With a few scribbles, they make that personís life into hell. Salaried working people do not have too much to worry about, but local entrepreneurs with original ideas are in very dangerous waters.
Starting a new business, buying real estate, trading in any product or service is vastly simpler in the USA than in most other countries where licensing, high entry fees, state owned enterprises or monopolies keep new people out of competition with established enterprises. The USA surely does treat a small percentage of selected citizens very badly by subjecting them to unreasonable risks in criminal proceedings, lawsuits and by imposing taxes that seem excessively high. But other countries give their own citizens just as bad a time in different ways.
UPDATE ON THE WAR AGAINST BANKING PRIVACY AND
THE ESCALATING PSEUDO "WAR ON CRIME".
The OECDís (the Rich Countriesí Club comprising the wealthiest 29 nations in the world - what irony!) Financial Action Task Forceís continuing information leaks about its work on a blacklist of 34 "tax and secrecy havens" lead us to believe that it will be published next year. They have said that the worst culprits are "the Channel Isles, Caribbean nations (excluding Central America) and several countries in the South Pacific." The OECD itself proposes to expose, shun and punish these and other nations that "do not respond to requests for assistance from other countries for expatriate activities in their economies, and that do not uphold mutual assistance, tax or extradition treaties and agreements". So the Offshore Industryís anxiety was allayed in June when the FATFís progress report was presented at the Cologne G-8 (enlarged from G-7) Summit in Cologne, Germany. Their 1998 report, acknowledged the cooperative efforts of some jurisdictions but concluded that identifying the true owners or beneficiaries of offshore registered businesses remains the "primary obstacle" confronted by transnational investigations.
The OECDís Forum on Harmful Tax Practices!, is currently involved in list-making as well, though it appears to have missed its self-imposed deadline of May 1999 to complete its to be famous blacklist of tax, banking and business havens. The U.N. Global Program Against Money Laundering, a unit within the Office for Drug Control and Crime Prevention (the "ODCCP" sounds like overdosing on the former Union of Soviets) was also remoured to be making a "white list" of offshore jurisdictions that were complyig with an approved set of anti-laundering standards. A spokesman however denied list-making. Finally the work of the FATFís Egmont Group of Financial Intelligence Units has been cited as a possible channel for increased co-operation.
With some degree of optimism we can with renewed faith hope that the FATF and other "agencies" is becoming more interested in the prevention of criminal activity than in challenging the sovereignty of offshore jurisdictions that enact privacy laws and that offer innovative solutions to family and international business.
THE INFLUENCE OF RICO AND ITS EXTRA-TERRITORIAL REACH (Racketeering and Corrupt Organisations Act )
A bit of background; until the advent of RICO no U.S. statute made it illegal to operate a "Corrupt Organisation", nor could prosecutors attack an organisation per se or directly. RICOís criminal provision made it possible to seize all a defendantís assets prior to trial and legitimized the governmentís financial interest in maximising forfeiture to raise revenue. Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (1989). RICOís civil provisions provide for triple damages. The term "racketeering" is undefined in the RICO statute, which is a purposeful oversight - however the "Travel Act" defines it as:
"................... the intent to distribute the proceeds of any unlawful activity ...... or otherwise promote, manage, establish, carry on, or facilitate ...... any unlawful activity".
Most readers wholeheartedly believe they are not racketeers. However, under RICOís broad and ever-broadening (by federal appellate courts, and the Supreme Court) definitions most U.S. businesses are now corrupt organisations.
RICO makes it unlawful for any person (an individual, corporation, trust, etc.) to use a pattern of predicate offenses or the proceeds of such offenses to invest in, acquire control over, or conduct the affairs of, any interstate enterprise. A corrupt organisation is one engaging in such a pattern. Amongst the many, many federal and state "offences" constituting RICO predicate crimes, these deserve readersí attention for reasons which will soon become apparent (a pattern of predicate offenses = a pattern of racketeering activity!)
Any offense involving fraud connected with a case under Title 11 (bankruptcy), or with securities fraud
Certain acts under state law - there is no requirement that a defendant be convicted of the predicate offense. The defendant need not be indicted; it is sufficient that he "could have been indicted!"
Allegations of fraud under state law (schemes to defraud include any trickery, deceit, half-truth, concealment of material facts, affirmative mis-representation or breach of fiduciary duties; intent to defraud, which may be inferred by a pattern of conduct and which includes recklessness or from the nature of the scheme itself. Recklessness is conscious disregard of a substantial and identifiable risk or an extreme indifference to the consequences of oneís acts) ... allegations of fraud under state law are easily transformed into a federal racketeering charge. As a result every financial transaction should be reviewed in the light of of private civil RICO actions and their proliferation. Plaintiffs have in the past sought to apply civil RICO in contract disputes, religious conflicts, divorces, and invasion of privacy claims:
In Religious Technology Center v. Wallersheim, a 1987 case, the Church of Scientology brought a RICO suit against a splinter church alleging spiritual harm from alleged theft and distribution of religious manuscripts.
In 1990 a wife in a divorce case made a claim under RICO her husband and the officers of a corporation had conspired to misrepresent the value of stocks subject to community property laws.
In 1987 Princeton/Newport a private hedge fund operating in Princeton, New Jersey was raided and the company indicted. Why? As a way of increasing returns to investors, Princeton/Newport engaged in sophisticated tax avoidance strategies involving complex financial instruments. Legal advisors retained by the firm approved these strategies. Prosecutors obtained pre-trial restraint of $ millions. After the defendants were initially sentenced to jail, convictions were eventually reversed. This prosecution shows the risk to U.S. persons, and corporations of relying on professional advisors to address tax, compliance and ethical issues in their businesses. Under RICO it is the client, not the lawyer, who risks fines, forfeiture and imprisonment.
Criminal forfeiture, the deeming of linked assets, and the substitution of untainted assets; pre-trial restraint and the seizure of assets that could be used to mount a defence; the proportionality in assessment of fines, all these relate to awesome powers available to prosecutors, who can and do deny a defendant the use of his assets to pay living expenses and invariably the costs of hiring defence counsel.
Extra-territorial Application and reach - RICO predicate offenses committed anywhere in the world may trigger the statute if they can be made to appear to affect U.S. interstate or foreign commerce:
RICO may apply in jurisdictions that have signed MLATís with the United States, as there is a widespread mis-understanding that these treaties cover only specific "mutually-recognized crimes" - this is not true. For instance, while the U.S. - Swiss MLAT generally requires dual criminality, Switzerland has no racketeering statute. Yet many RICO predicate offenses continue to be stipulated as grounds for invoking the treaty in Switzerland!
International investors may ask what investment and "structures" will stand against RICO. Attorneys in the United States who form such structures emphasize that they are designed to protect assets against civil judgments. A criminal RICO investigation or conviction can likely attack assets in any regulated offshore structure. Regulated persons in the United States - bankers, attorneys, trustees etc., might invoke the structureís anti-duress or flight provisions, but in a criminal or quasi-criminal investigation they would risk fines, license revocation or even jail for so doing.
Continued in part five of ten
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