T he United States enjoys the world s most stable. Turning the Tide: The US Addresses Its Role as a Tax Haven

Transcription

1 Alex Graphic F AdobeStock Turning the Tide: The US Addresses Its Role as a Tax Haven T he United States enjoys the world s most stable currency and financial system. Even in the most challenging of times, this nation also offers one of the most stable political environments, with built-in checks and balances and a long history of free elections and the peaceful transition of power. These core principles attract global investors and those who seek a safe haven for their funds outside home countries with less security and less stable histories. The U.S. banking and financial system, and other U.S. investments such as real estate, are also prime targets for those who would seek to evade the tax systems of their home countries, and for those looking to hide the proceeds of unlawful conduct. For the past eight years and counting, the U.S. government has looked abroad to enforce U.S. laws against those who use the banking systems and secrecy laws of other countries to facilitate U.S. tax evasion. In response, much of the world has commented that the U.S. laws, which allow for corporate and trust structures that may obscure the identity of beneficial owners, offer the same opportunity for non-u.s. persons to conceal their assets here. It is increasingly clear that the United States is now turning its attention to these issues. Through some new tools and some long-standing legal principles, the government is implementing new disclosure requirements and conducting investigations aimed at the use of U.S. entities, bank accounts, and investments to evade foreign taxes. Recent Heightened Disclosure Requirements: Real Estate Investments The new disclosure requirement that has drawn the most public attention concerns short-term Geographic Targeting Orders (GTOs) issued by the Financial Crimes Enforcement Network (FinCEN) in connection with high-end real estate purchases in specific geographic regions of the United States. FinCEN is an agency within the Department of Treasury charged with safeguarding the financial system from illicit use and combat[ing] money laundering and promot[ing] national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. 1 FinCEN has the authority to issue GTOs to target financial transactions in specific geographic regions. 2 FinCEN s database is broadly available for federal law enforcement, 3 and FinCEN recently established its own investigative arm. 4 In January 2016, FinCEN issued two GTOs that required certain U.S. title insurance companies to identify beneficial owners of entities that are used in all cash, high-end real estate transactions in Manhattan and Miami-Dade County. 5 This is the first time that the government has required real estate companies to disclose names behind cash transactions. By their terms, these two GTOs were to be in 26 W W W. N A C D L. O R G B Y K AT H R Y N K E N E A L LY A N D M I C H A E L J. S C A R D U Z I O T H E C H A M P I O N

2 effect for 180 days, from March 1, 2016, through August 27, On July 27, 2016, FinCEN announced that it would expand the geographic reach beyond Manhattan and Miami as well as extend the effective dates of the GTOs. The new GTOs will continue to cover Manhattan and Miami, but will also now cover (1) all boroughs of New York City; (2) the surrounding counties of Miami (Broward and Palm Beach counties); (3) Los Angeles; (4) San Francisco; (5) San Diego; and (6) San Antonio. By virtue of this expansion, FinCEN aims to gain more insight in these areas as well as build on the useful data generated thus far. 7 The information we have obtained from our initial GTOs suggests that we are on the right track, FinCEN Acting Director Jamal El-Hindi said in a press release. 8 By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course. 9 The new GTOs took effect on August 28, 2016, and will be effective for 180 days thereafter. Under the GTOs, certain title companies are required to collect and disclose the beneficial ownership information of legal entities purchasing residential real estate with an all-cash purchase price above a certain monetary threshold depending on the jurisdiction. 10 The title companies are required to (1) identify a purchasing entity s beneficial owners, defined as each individual who owns 25 percent or more interest in the entity, (2) retain a copy of each beneficial owner s identification documentation, (3) if the purchaser of the real estate is an LLC, then provide each member s name, address, and taxpayer identification number (TIN), and (4) provide details about the transaction, including the property s address, purchase price, and the transaction s closing date. 11 The goal of these GTOs is to identify the individuals behind companies that purchase real estate without creating any trail through bank financing. 12 The GTOs are notable in demanding information from title companies, demonstrating an expansion in the government s view of international gatekeepers when combatting financial crimes. A statement made by the former director of FinCEN made clear that the FinCEN s attention is directed to the use of U.S. investments to conceal a broad range of crimes: We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector. 13 It appears from FinCEN s decision to expand the GTOs and statements made by its acting director that the original GTOs corroborated FinCEN s concern that transactions covered by the GTOs are highly vulnerable to abuse by money laundering. During a press call to discuss the announcement of the new GTOs, a FinCEN official elaborated on the results of the original GTOs, observing that [o]ver a quarter of transactions (covered by the January GTOs) involve a beneficial owner or purchaser representative that is also the subject of a suspicious activity report, which is required when a financial institution suspects an incident of money laundering or fraud. 14 The suspicious transactions identified by FinCEN include the following: v v v a beneficial owner that engaged in $16 million in suspicious cash withdrawal activity; a beneficial owner possibly involved in dealing with counterfeit checks; and a beneficial owner connected to a network of shell companies that received about $7 million in suspicious wire transfers from businesses in South America. 15 Addressing Entity Ownership More Broadly FinCEN s GTOs were expressly aimed at entity structures that allow for the concealment of the identity of the individuals behind real estate investments. There are of course many reasons why individuals may seek anonymity in their financial matters. Nonetheless, in addition to these fairly narrow GTOs, the government is taking other, more broadly aimed action toward transparency and disclosure. Another recent initiative undertaken by FinCEN was the promulgation of new rules that clarify and strengthen the so-called customer due diligence (CDD) rules. The CDD rules require a covered financial institution to obtain information from its customers to identify the beneficial owners of certain accounts held in entity names. 16 Covered financial institutions include banks, brokers or dealers in securities, mutual funds, and futures commission merchants and introducing brokers in commodities. 17 FinCEN estimated that this rule would cover approximately 21,500 institutions in the United States. 18 Historically, the CDD rules did not require covered financial institutions to know the identity of the individuals who own or control holding companies that were customers. Under the new rules, covered financial institutions are required to identify natural persons who own 25 percent or more of a legal entity customer owning a domestic financial account as well as natural persons who have significant responsibility to control, manage, or direct such an entity. 19 A legal entity customer includes all domestic and foreign corporations, limited liability companies, partnerships and similar business entities and trusts that are formed by a filing with a state office. 20 The new CDD rules apply to accounts opened after the effective date of July 11, Covered financial institutions must be in compliance with these rules by May 11, Covered financial institutions are required to trace through all intermediary entities to verify the natural persons who are the ultimate owners of the accounts. According to FinCEN, requiring financial institutions to verify the beneficial owners of domestic accounts serves several purposes, including assisting law enforcement in its investigations of financial crimes and assisting the United States in fulfilling its obligations to share information with foreign tax authorities regarding their own taxpayers. 22 In a separate development, on May 20, 2016, the Treasury Department proposed regulations that, if promulgated, would impose new disclosure obligations on single-member limited liability companies owned by foreign persons. A limited liability company, formed under state law, functions like a partnership or sole proprietorship. A limited liability company with only one member is treated for federal tax purposes as if the business is operated directly by that member. As a result, a single-member limited liability company does not file a separate tax return and has largely been invisible to the government for reporting requirements. Under the proposed regulations, when a single-member of a limited liability company is not a U.S. person, the entity would be required to identify its beneficial owner to the Internal Revenue Service on an annual basis. 23 Under cur- W W W. N A C D L. O R G S E P T E M B E R / O C T O B E R T H E U S A D D R E S S E S I T S R O L E A S A T A X H A V E N 27

3 T H E U S A D D R E S S E S I T S R O L E A S A T A X H A V E N rent law, U.S. corporations that are at least 25 percent foreign owned must file IRS Form 5472 to report the identities of its owners and each related party with which the reporting corporation has had any reportable transaction. 24 The new regulations propose to extend this reporting requirement to include singlemember limited liability companies owned by foreign persons. 25 A reportable transaction for this purpose is defined broadly to include almost every type of business transaction, such as a sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any property or money, as well as the performance of any services. 26 The proposed regulations also specifically provide that any contributions or distributions made by the affected entity would be considered a transaction subject to disclosure. 27 An affected entity would also be required to maintain permanent books of accounts and records sufficient to establish the accuracy of the information annually reported on the Form Failure to file a Form 5472 or maintain the supporting records as required could result in civil or even criminal penalties. 29 A White House press release hailed these proposed regulations as critical to preventing criminals from using the global financial system to launder proceeds from corruption or other illegal activities, finance criminal activity or even terrorism, evade international sanctions regimes, or evade taxes. 30 These proposed regulations are another step in the government s efforts to enhance its abilities, through disclosure and transparency, to investigate and prosecute the use of U.S. financial systems and investments to commit transnational crime, money laundering, and foreign tax evasion. In addition to these measures, Treasury Secretary Jacob J. Lew called on Congress to swiftly pass meaningful beneficial ownership legislation that would build[] on Treasury s action by requiring companies to know and disclose the real person behind a company at the time of its creation. 31 The Prosecutor s Tool for Pursuing Foreign Tax Evasion In addition to these new tools, and likely more disclosure requirements to come, the government appears to be dusting off an older tool as well: the ability to charge foreign tax evasion as a U.S. crime under the reasoning of Pasquantino v. United States. 32 Through Pasquantino, the government may reach for money laundering and other charges that will give rise to forfeiture actions. In Pasquantino, the defendants were convicted of wire fraud for carrying out a scheme to evade Canadian excise taxes. At trial, the court found that the defendants, while in New York, used a telephone to order discount liquor from a store in Maryland on numerous occasions. 33 They would then employ several individuals to conceal the liquor in their cars and drive it over the Canadian border, thus avoiding paying the required excise taxes to the Canadian tax authority. 34 The initial question before the Court was whether a plot to defraud a foreign government of tax revenue violates the federal wire fraud statute. 35 The wire fraud statute prohibits the use of interstate wires to effect any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises. 36 The Court held that Canada s right to excise taxes constituted a property interest that can serve as the object of a fraud within the meaning of the wire fraud statute. 37 The defendant s plot was found to be a scheme or artifice to defraud Canada of tax revenue, as the evidence showed that the defendants regularly concealed, and failed to declare to Canadian officials, imported liquor. 38 The defendants had argued that their prosecution contravened the common law revenue rule 39 because it required the Court to recognize and assist in the collection of taxes arising out of the revenue laws of Canada. 40 Additionally, the defendants argued that enforcement of the wire fraud statute in connection with foreign tax matters intruded on the executive branch s domain of establishing international tax policy. In particular, the defendants cited to multiple provisions of the U.S.- Canada Income Tax Treaty (the Treaty), including one provision in the Protocol Amending the Treaty that provides that the United States and Canada agree to ensure comparable levels of assistance to each of the Contracting States. 41 According to the defendants, this provision demonstrates that the United States and Canada have expressed a policy preference for reciprocity in the level of each other s tax judgments and claims. 42 The Court rejected these arguments and held that the common law revenue rule prohibited the U.S. government from enforcing foreign penal law, but not from enforcing domestic criminal law. 43 In this case, the Court ruled the offense was complete the moment they executed their scheme intending to defraud Canada of tax revenue inside the United States. Therefore only domestic conduct is at issue here. 44 The dissent, on the other hand, was convinced that because the wire fraud statute required prosecutors to provide evidence that defendants deprived the victim of money or property, an unadjudicated Canadian tax claim does not sufficiently satisfy this requirement, and the Treaty provisions and revenue rule safeguards prevent a U.S. court from adjudicating the claim on Canada s behalf. 45 The use of a telephone, the internet, or mail in the United States in pursuit of a scheme to evade foreign taxes by means of filing a false tax return might be seen by prosecutors as a means to charge wire or mail fraud. Under the reasoning of Pasquantino, it is also possible that a federal prosecutor may assert that active concealment of income or assets in the United States to avoid foreign tax through, for example, formation of a holding company to conceal the foreign person s identity may be sufficient to constitute fraud. In United States v. Yusuf, the Third Circuit relied on the Supreme Court s holding in Pasquantino to affirm a conviction under the federal money laundering statute. 46 To establish the criminal offense of money laundering, the government must prove that the defendant engaged in a financial transaction using proceeds of a specified unlawful activity while knowing that the proceeds were earned through an unlawful activity. 47 The term specified unlawful activity includes wire fraud and mail fraud. 48 Conspicuously absent from the long list of offenses that may constitute specified unlawful activity under the money laundering statutes are violations of the U.S. tax laws under Title 26. In addition to the above elements, the government must also prove that the defendant acted with one of four intentional proscribed purposes: (1) to conceal or disguise the nature, location, source, ownership, or control of the proceeds of the specified unlawful activity; (2) to promote the specified unlawful activity; (3) to further the crimes of tax evasion, or subscribing to and filing materially false federal tax returns; or, (4) to avoid state or federal currency transaction reporting requirements, such as a Suspicious Activity Report W W W. N A C D L. O R G T H E C H A M P I O N

4 In Yusuf, the defendants engaged in a scheme to defraud the U.S. Virgin Islands out of a gross receipts tax. 50 The defendants in Yusuf were required to comply with statutorily mandated monthly reporting of gross receipts and payment of a four percent tax on those receipts to the Virgin Islands. 51 The defendants, however, engaged in a scheme to avoid reporting approximately $60 million in gross receipts on the monthly tax returns. 52 The scheme included purchasing cashier s and traveler s checks and money orders made payable to third parties to disguise the proceeds as legitimate financial instruments. 53 The grand jury returned a 78- count indictment, charging various counts relating to mail fraud, tax evasion, and international money laundering. 54 The trial court dismissed the money laundering counts, finding that the tax savings cannot be considered proceeds of mail fraud because such amounts were merely retained, rather than obtained, money resulting from defendants noncompliance with the Virgin Islands gross receipts reporting statute. 55 The issue on appeal to the Third Circuit was whether unpaid taxes owed to the Virgin Islands that were retained by means of the filing of false tax returns through the U.S. mail are proceeds of mail fraud for purposes of sufficiently stating an offense for money laundering. 56 The Third Circuit reversed the district court s pretrial decision to vacate the international money laundering indictment. The court relied on the Supreme Court s reasoning in Pasquantino, finding that for purposes of the mail fraud statute the defendants scheme was that of concealing certain gross receipts from the Virgin Islands government through the mailing of fraudulent tax returns in order to defraud, cheat, and deprive the government of the four percent gross receipts taxes it was owed, thus enabling the defendants to unlawfully retain such government property and profit from their scheme. 57 Therefore, the court concluded that the unpaid taxes, which are unlawfully disguised and retained by means of the filing of false tax returns through the U.S. mail, constitute proceeds of mail fraud for purposes of supporting a charge of federal money laundering. 58 Under Yusuf, prosecutors arguably have a basis for charging money laundering predicated on underlying mail or wire fraud violations, which in turn rests on evading taxes owed to a foreign jurisdiction. Moreover, the Third Circuit s decision in Yusuf suggests that legal source income (i.e., in the case of Yusuf, the gross receipts of the grocery business) can be transformed into the proceeds of specified unlawful activity for purposes of money laundering after the funds are concealed or disguised through a tax scheme to defraud. Thus, a foreign person who structures a transaction in which funds that have evaded foreign taxes are used may risk prosecution under the money laundering statute. A Potential Expansion Beyond the Enforcement of U.S. Tax Laws In some ways, the potential use of the mail, wire, and money laundering statutes to prosecute acts of foreign tax evasion is consistent with other law enforcement efforts. For example, courts have long supported the use of these statutes to prosecute the fraudulent evasion of state taxes. 59 It is well established, however, that the government cannot use the more general mail or wire fraud statutes as a substitute for prosecuting conduct that also violates the criminal tax provisions in the Internal Revenue Code. The criminal tax statutes incorporate the element of willfulness, which is defined as voluntary, intentional violation of a known legal duty. 60 The mail and wire fraud statutes do not contain this heightened scienter requirement. It is a bedrock principle of criminal tax enforcement, however, that the more general statutes (such as mail or wire fraud) cannot be used to subvert this statutory requirement. 61 It is a long-standing policy of the Tax Division of the Department of Justice that it will not authorize the use of mail, wire, or fraud charges to convert routine tax prosecutions into RICO or money laundering cases. 62 Federal tax crimes have long been viewed as a bad fit for a money laundering prosecution. There is too great a risk that, if a defendant under-reports taxable income, the government could seek to freeze and forfeit legally earned income and ordinary bank accounts. If the underlying unreported income is the result of other criminal activity, then other provisions of the money laundering statute may apply. However, if the income is from legal sources, then all that arises is a tax debt to the U.S. government, which can be redressed through the civil tax laws. Additionally, the federal tax statutes also address inchoate offenses of attempted evasion, willfully nonfiled returns, and materially false statements that may not necessarily give rise to a tax liability. 63 There are sound reasons for the heightened scienter requirement for tax crimes, which may easily result from a lack of knowledge or a misunderstanding of the complexities of the Internal Revenue Code. There are similarly sound reasons to tread carefully when considering using U.S. enforcement tools to move against those from other countries who use U.S. banks and other investment structures. The laws of other countries are not always fair on their face, and may not be fairly and equally applied. While the U.S. may want to avoid serving as a global haven for foreign tax evasion and the concealment of criminal proceeds, it should also seek to avoid acting as the enforcer for foreign laws that are used more for persecution than prosecution. The same reasons foreign investors are legitimately drawn to the United States the currency and financial systems are sound, and the democratic government offers stability and due process are the reasons one should tread carefully when asked to vindicate foreign crimes. Notes 1. U.S. Dep t. of Treas., FinCEN, What We Do: Mission, _fincen/wwd/mission; see also Treasury Order , Establishment of the Listen in to NACDL s Podcast as host Ivan J. Dominguez... highlights state and federal criminal justice news Interviews leaders in law and public policy Available free on itunes and at thecriminaldocket W W W. N A C D L. O R G S E P T E M B E R / O C T O B E R T H E U S A D D R E S S E S I T S R O L E A S A T A X H A V E N 29

5 Membership Application SPECIAL INTRODUCTORY OFFER: 15 months of NACDL membership for the price of 12! (New members only) YES! Sign me up as a new member of NACDL and start my subscription to The Champion today! Applicant Name: Referred By: Firm Name: Address: City: State: Zip: Date of Birth: Gender: Phone: Fax: State Bar(s) & Admission Date(s): Bar Number(s): o I certify that I meet the criteria for the membership category to which I am applying. o Attorneys: I am a member of the bar in good standing and I am not subject to suspension or disbarment in any jurisdiction. I understand that prosecutors are not eligible to be NACDL members. Signature: Date: I qualify for the following membership category (Please check one) Membership Categories: Annual Dues: o Regular $329 o New Lawyer* $185 o Law Professor $169 o Fedl. or State Public Defender** $139 o Judge $195 o Military $169 o Law Student $65 o Associate $195 o International $185 o Sustaining $479 o President s Club $699 o Life Member*** $6,500 * New Lawyer Membership for members of the bar for less than 5 years ** Public Defender Membership for full-time attorney at government PD office or legal services nonprofit *** Life Membership a one-time contribution; or 5 installments over 5 consecutive years Credit Card #: Expiration Date: Card Type: Billing Address: Name on Card: Signature: / memberservices@nacdl.org Membership Hotline: Use Promo Code: IP154 Return by FAX to: (202) , Attn: NACDL Membership Director Or Mail with Check Payable to NACDL : 1660 L St. NW, 12th Fl. Washington, DC Financial Crimes Enforcement Network, (Apr. 25, 1990). Among other responsibilities, it is the agency that collects and analyzes the data from currency transaction reports (CTRs) filed at banks, reports collected from international travelers who carry cash in excess of $10,000 (CMIRs), suspicious activity reports (SARs) filed by financial institutions, and similar information reporting mechanisms. 2. See 31 U.S.C. 5326(a); 31 CFR ; Treasury Order , Federal Crimes Enforcement Network, (Sept. 26, 2002). 3. U.S. Dep t. of Treas., FinCEN, Support of Law Enforcement, gov/law_enforcement/les. 4. U.S. Dept. of Treas., FinCEN, What We Do: Mission, supra note See Press Release, U.S. Dep t of Treas., FinCEN, FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami (Jan. 13, 2016), available at news_room/nr/html/ html. 6. See U.S. Dep t of Treas., FinCEN, Geographic Targeting Order: Certain Transactions in the Borough of Manhattan in New York, New York (Jan. 13, 2016), available at files/real_estate_gto-nyc.pdf; U.S. Dep t of Treas., FinCEN, Geographic Targeting Order: Certain Transactions in Miami-Dade County (Jan. 13, 2016), available at /files/real_estate_gto-mia.pdf. 7. See Press Release, U.S. Dep t of Treas., FinCEN, FinCEN Expands Reach of Real Estate Geographic Targeting Orders Beyond Manhattan and Miami (July 27, 2016), available at room/nr/html/ html. 8. Id. 9. Id. 10. The purchase price threshold differs for each jurisdiction. For Manhattan the threshold is $3,000,000 and for the boroughs of New York City other than Manhattan (i.e., Brooklyn, Queens, Bronx, and Staten Island) the threshold is $1,500,000. For Miami and its surrounding counties, the threshold is $1,000,000. For San Francisco, Los Angeles, and San Diego the purchase price threshold is $2,000,000. And for San Antonio, the purchase price threshold is $500,000. See U.S. Dep t of Treas., FinCEN, Geographic Targeting Order Covering Title Insurance Companies Major Metropolitan Areas and Monetary Threshold, available at gov/news_room/nr/files/title_ins_gto_ta ble_ pdfs. 11. Id. 12. FinCEN Press Release, supra note Id. 14. James F. McClister, FinCEN T H E U S A D D R E S S E S I T S R O L E A S A T A X H A V E N 31

6 T H E U S A D D R E S S E S I T S R O L E A S A T A X H A V E N Expands Luxury Real Estate Money Laundering Investigation, CHICAGO AGENT MAGAZINE (July 27, 2016), available at 07/27/fincen-expands-luxury-real-estatemoney-laundering-investigation/. 15. Id. 16. Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg (May 11, 2016) C.F.R (e)(1). 18. Customer Due Diligence Requirements for Financial Institutions, 79 Fed. Reg (Aug. 2014) (to be codified at 31 C.F.R ) C.F.R (d)(1). 20. Id. at (e)(1). State filing requirements for trusts more typically apply to the formation of business trusts About the Authors Kathy Keneally serves as the Chair of the Civil and Criminal Tax Litigation Group in the New York office of DLA Piper LLP (US). Before joining the firm, she was the Assistant Attorney General for the Tax Division of the U.S. Department of Justice. Kathryn Keneally DLA Piper LLP New York, New York WEBSITE kathryn.keneally@ dlapiper.com Michael Scarduzio is an Associate in the Civil and Criminal Tax Litigation Group in the New York office of DLA Piper LLP (US). Previously, he clerked for the Hon. Karen L. Hayes, U.S. District Court for the W.D. of Louisiana. Michael J. Scarduzio DLA Piper LLP New York, New York WEBSITE michael.scarduzio@ dlapiper.com rather than trusts used for estate planning purposes Fed. Reg Id. at Treatment of Certain Domestic Entities Disregarded as Separate From Their Owners as Corporations for Purposes of Section 6038A, 81 Fed. Reg (to be codified at 26 C.F.R A-1, A- 2, ) C.F.R A Fed. Reg , supra note Id. at (citing 26 C.F.R (i)(2)) Fed. Reg , supra note Id U.S.C. 6038A(d). 30. Fact Sheet, The White House, Office of the Press Secretary, Obama Administration Announces Steps to Strengthen Financial Transparency, and Combat Money Laundering, Corruption, and Tax Evasion, (May 5, 2016), available at o u s e. g o v / t h e - p r e s s - o f f i c e / / 05/05/fact-sheet-obama-administrationannounces-steps-strengthen-financial. 31. Letter from U.S. Dep t. Treasury Sec. Jacob J. Lew to Speaker Paul D. Ryan, (May 5, 2016), available at treasury.gov/press-center/press-releases/ Documents/Lew%20to%20Ryan%20on%2 0CDD.PDF U.S. 349 (2005). 33. See id. at 352 (citing United States v. Pasquantino, 336 F.3d 321, 325 (4th Cir. 2003)). 34. Id. 35. Pasquantino, 544 U.S. at U.S.C See Pasquantino, 544 U.S. at Id. at Historically the common law principle known as the revenue rule prevented U.S. courts from recognizing or enforcing foreign tax laws. The revenue rule is traditionally traced to Lord Mansfield s holding in Holman v. Johnson that no country ever takes notice of the revenue laws of another. (1775) 98 Eng. Rep. 1120, 1121 (K.B.). The modern day revenue rule is narrower, preventing courts of one sovereign [from] enforc[ing] final tax judgments or unadjudicated tax claims of other sovereigns. Att y Gen. of Can. v. R.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103, 110 (2d Cir. 2001) (observing that the revenue rule originated in English courts in the 18th century and that the rule has entered United States common law [and] international law ). 40. See Brief for the Petitioners at 16, Pasquantino v. United States, 544 U.S. 349 (2005) (No ). 41. Protocol Amending the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital, U.S.-Can., Mar. 17, 1995, 2030 U.N.T.S. 237, art Brief for the Petitioners, supra note 40, at See Pasquantino, 544 U.S. at Pasquantino, 544 at U.S. at See Pasquantino, 544 U.S. at (Ginsburg, J., dissenting) (finding that there is scant room for doubt about Congress general perspective: Congress has actively indicated, through both domestic legislation and treaties, that it intends strictly [to] limit the parameters of any assistance given to foreign nations ) F.3d 178 (3d Cir. 2008) U.S.C Id. at 1956(c)(7). 49. Id. at 1956(a). 50. See Yusuf, 536 F.3d at 181 (citing 33 V.I.C. 43). 51. See Yusuf, 536 F.3d at Id. 53. Id. 54. Id. at Id. at 184 (emphasis in original). 56. Id. at Id. at 189 (citing Pasquantino, 544 U.S. at ). 58. Yusuf, 356 F.3d at See, e.g., United States v. Porcelli, 404 F.3d 157 (2d Cir. 2005). More recently, a prominent Manhattan energy investor was indicted in a tax fraud scheme that involved the evasion of over $45 million of state income and sales tax. See United States v. Zukerman, 1:16-cr (May 25, 2016). 60. United States v. Pomponio, 429 U.S. 10, 12 (1976); see also Cheek v. United States, 498 U.S. 192 (1991) ( Willfulness, as construed by our prior decisions in criminal tax cases, requires the government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty. ); 26 U.S.C. 7201, 7203, 7206 (all requiring willfulness as an element of the crime). 61. See United States v. Henderson, 386 F. Supp (S.D.N.Y. 1974). 62. Department of Justice, Tax Division Directive, No 128 (Oct. 29, 2004). 63. See, e.g., 26 U.S.C ( Any person who willfully attempts in any manner to evade tax shall be guilty of a felony. ), 7203 ( Any person required under this title to make a return who willfully fails to make such return shall be guilty of a misdemeanor. ), 7206 (criminalizing various conduct, including willfully making a materially false statement under penalties of perjury and assisting or aiding the preparation of a return, affidavit, claim or other document that is fraudulent or is false as to any material matter). n 34 W W W. N A C D L. O R G T H E C H A M P I O N