Murder, bootlegging, bribery, intimidation. All of these are crimes notorious Chicago gangster Al Capone committed. Yet, in the end, what brought him down was a much simpler, much less violent crime -- tax evasion.
Federal law makes it a felony to willfully attempt "in any manner" to evade or defeat any tax. 26 U.S.C. § 7201. One count of tax evasion is punishable by up to five years in prison and a fine of up to $100,000. Id. It's a crime that's proven not by inflammatory exhibits (e.g., guns, drugs, DNA) or damning recordings but by use of good, old-fashioned paper. It is not a "sexy" crime as crimes go. However, tax evasion in particular and financial charges more generally have long been and continue to be incredibly effective in bringing down criminals who might otherwise have eluded law enforcement.
As a result of Special Counsel Robert Mueller's investigation, financial charges like tax evasion, filing false tax returns, failing to disclose offshore bank accounts, and bank fraud have gained renewed prominence in recent months. They have formed the basis of indictments and convictions against a host of high profile defendants, including Paul Manafort and Michael Cohen.
On August 21, 2018, a jury sitting in the Eastern District of Virginia convicted Paul Manafort of five counts of filing a false tax return, in violation of 26 U.S.C. § 7206(1); one count of failure to file reports disclosing foreign bank and financial accounts, in violation of 31 U.S.C. § 5314; and two counts of bank fraud, in violation of 18 U.S.C. § 1344. Like tax evasion, all of Manafort's convictions are federal felonies punishable by multiple years in prison. The evidence presented by prosecutors at trial included extensive bank and financial records, as well as evidence of Manafort's lavish lifestyle -- evidence that is often the only "sexy" evidence in a financial trial.
In September 2018, less than a month after being convicted in Virginia, Manafort pleaded guilty to two additional crimes in the District of Columbia -- conspiracy to commit multiple felonies, including money laundering, filing false tax returns, failing to report foreign bank accounts, and lying to the Department of Justice and conspiracy to obstruct justice by tampering with a witness while he was on pretrial release in the underlying case. Manafort's plea agreement calculates his advisory range under the Sentencing Guidelines to be between 210 and 262 months (or 17.5 to nearly 22 years) in prison -- all based on his commission of white collar, nonviolent felonies.
Finally, at virtually the same time Manafort was being convicted in a Virginia courtroom, Michael Cohen was pleading guilty in Manhattan to perpetrating a five-year scheme to evade taxes on more than $4 million income, a scheme the government alleged resulted in more than $1.4 million in lost tax revenue. The charges against Cohen also included making false statements to a bank and various campaign finance violations. In a separate guilty plea in November of this year, Cohen also admitted to another federal felony -- lying to Congress about President Trump's business dealings with Russia. Cohen recently received a sentence of three years in prison.
One thing that makes the use of tax charges so interesting is that, to prove them, prosecutors must establish that a defendant committed the crime willfully. In other words, the defendant knew about his or her obligations under the tax laws and intentionally violated that known legal duty. See Cheek v. United States, 498 U.S. 192 (1991). Ultimately, to prove willfulness, prosecutors must establish that 1) the law imposed a duty on a defendant; 2) the defendant knew of the duty; and 3) the defendant voluntarily and intentionally violated that duty. See Cheek, 498 U.S. at 201. Willfulness is one of the most difficult mental states to establish, and in a criminal case, it must be established beyond a reasonable doubt. To make matters worse, rarely is there direct evidence of a defendant's willfulness. In most cases, proof of willfulness can only be established through circumstantial evidence -- deciphering a defendant's cryptic statements; examining what he or she reported (or didn't report) on other, non-charged tax returns; investigating what efforts might have been made to hide or conceal income; and examining his or her lavish spending habits.
What tax charges may lack in sexiness or may demand in proof, however, they more than make up for in reliability. Perhaps Jerry McGuire said it best -- in tax cases, "show me the money!" Convictions in financial cases are often obtained after painstaking review and analysis of bank records, credit card receipts, loan applications, and even a defendant's own filings with the IRS. The benefits of this kind of proof are obvious; the documents speak for themselves, and they are difficult to effectively challenge. There are often no cooperating witnesses in tax cases whose credibility can be questioned, and it is hard to cross examine something the jury can see for itself in black and white. The reliability of tax and other financial charges may be particularly attractive in cases involving high profile defendants whose prosecutions are likely to garner media attention. It is difficult to levy a charge of tax evasion as being "politically motivated." And they are hard for defendants to effectively defend against. Even defendants who might otherwise be motivated to fight a fraud case may see tax charges as indefensible, because the evidence is often staring them in the face.
Today's financial indictments have expanded to include not only the old stalwart -- tax evasion -- but also other, more modern financial crimes like failure to report having a foreign bank account. In recent high profile cases, these charges have been paired with other white collar crimes -- e.g., failure to register as a foreign agent. Even lying to the FBI, in violation of 18 U.S.C. § 1001, has become more popular in recent years, though historically this charge was one that was often threatened but rarely charged. The reasons for this shift are simple. Financial charges stick; they are hard to defend against, and they come with prison sentences that can be just as onerous as those imposed in more violent criminal cases. They took down one of the most notorious gangsters in American history -- Al Capone -- and they are continuing to be an effective tool today.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.