If you learn that you may be the target or subject of an IRS criminal tax investigation it is imperative that you not answer any questions and retain a lawyer with extensive criminal tax trial experience. Too often taxpayers attempt to answer questions, posed by the special agents and government counsel conducting the investigation and prosecuting the case, in a misguided effort to show that they have nothing to hide. This is a mistake.
Criminal Tax Cases are based upon the strength of the evidence. IRS Special Agents are trained to get evidence from the taxpayer. This evidence is used to get authorization to indict the taxpayer who voluntarily provide the information. Special Agents are trained to try to get the information they need by surprising the taxpayer by visiting the taxpayer without any prior notice. Often the agents will try to be friendly to encourage the taxpayer to answer their questions. The interview will be conducted by two agents. One agent will ask most of the questions. The other agent will take notes based upon the answers they deem to be important. Taxpayers often try to answer the “easy” questions with the hope that the interview will stop. However, before the agents arrive to interview the taxpayer they generally have done extensive research on the taxpayer and know in advance that they will ask difficult and condemning questions later in the interview. When the interview gets to this critical point taxpayers often feel trapped. They feel required to answer since they have answered all the prior questions.
It is vital that as a taxpayer you do NOT make any false statements. It is important not to get into a dispute as to what you said. The agents will take notes. A year or two later when a dispute as to what was said by the taxpayer arises, those notes become very important. The BEST way to avoid this potentially disastrous situation is to DECLINE all requests to be interviewed. The reply to any question posed by the IRS agents should be “I want to confer with my lawyer. I do not want to discuss this in any way until I have reviewed this with my attorney.” If the agents do not leave, the taxpayer should leave.
The case below is one of many that demonstrate the problems that arise when the taxpayer answers questions during an IRS criminal tax investigation.
United States v. Womack, 2016 U.S. Dist. LEXIS 47833 (W. Dist. Missouri 2016),
Case No. 13-00441 -01-CR-W-GAF. March 14, 2016, Filed
Adopted by the United States District Court for the Western District of Missouri, West DivisionApril 8, 2016 in United States v. Womack, 2016 U.S. Dist. LEXIS 47465, Case No. 13-00441 -01 -CR-W-GAF.
Judge: SARAH W. HAYS, UNITED STATES MAGISTRATE JUDGE.
Opinion
REPORT AND RECOMMENDATION
This matter went before the Court on Defendant Womack's Motion to Suppress Evidence Obtained Pursuant to the Tax Information Exchange Agreement. For the reasons set forth below, the Magistrate Court recommended to the District Court that the motion be denied.
I. BACKGROUND
On December 12, 2013, the Grand Jury returned a ten count indictment against Verna Cheryl Womack. Count One charges that beginning in 1996 and continuing to the date of the indictment, defendant corruptly endeavored to obstruct and impede the due administration of the internal revenue laws of the United States in violation of 26 U.S.C. § 7212(a). Counts Two through Ten charge that on May 19, 2009, defendant, in a matter within the jurisdiction of the executive branch of the Government of the United States, that is, the United States Department of the Treasury and the United States Department of Justice, voluntarily and intentionally made false and fraudulent statements of material fact, while knowing those statements to be false and fraudulent at the time she made them, in violation of 18 U.S.C. § 1001(a)(2).
An evidentiary hearing on defendant's pretrial motions was held on June 2 through 4, June 17 and 18, and July 22 through 24, 2015. Government witnesses pertinent to the pending motion to suppress testified on June 3, June 17 and 18, and July 22 and 23, 2015, and included Revenue Service Representative Raul Pertierra; J.D. Carroll, program manager for the exchange of information in the Office of the Assistant Deputy Commissioner International for the IRS; FBI Special Agent Bryan Witt; IRS Special Agent Adam Jobes; Kindra Mynatt; Brandy Burch; and IRS Special Agent Joseph Schmidt.
II. FINDINGS OF FACT
On the basis of the evidence presented at the evidentiary hearing, the undersigned submits the following proposed findings of fact:
Special Agent Witt had been assigned to an embezzlement case involving Brandy Wheeler in March 2008. Wheeler worked at VCW Holding until December 14, 2007. Wheeler was accused of stealing money from her employer, Cheryl Womack. Special Agent Witt first met with Womack on March 12, 2008. At this first meeting, Special Agent Witt was advised that Wheeler had threatened to report on Womack if Wheeler was reported to the authorities. Special Agent Witt was not familiar with what was meant by that statement and continued to work the case as an embezzlement case.
Special Agent Witt asked Womack to provide him documents to help with the embezzlement case. One of the documents Womack provided was a Master List-Accounts. Another document provided by Womack contained e-mail correspondence in February and March 2008 between Womack and the Bank of Butterfield in the Cayman Islands. This e-mail correspondence references accounts for Lucy Limited, Future Strategies, Eleventh Tr. and Twelfth Tr. The e-mail correspondence also mentions having funds in DAR. In order to figure out how to prove up the embezzlement, Special Agent Witt had a number of questions for Womack concerning Wheeler's employment and companies with which there might have been unauthorized transactions, including the Bank of Butterfield.
Throughout the summer, Special Agent Witt and Womack e-mailed back and forth regarding Wheeler. Special Agent Witt attempted to interview Wheeler in early May 2008. This interview was postponed as Wheeler's attorney negotiated a plea to an information for her and Special Agent Witt was not to speak with Wheeler until after she entered the guilty plea.
Special Agent Witt first met with Brandy Wheeler on August 7, 2008, immediately after her guilty plea to embezzling over $1.1 million from VCW Holding. At that August 7, 2008 interview, Wheeler alleged that Cheryl Womack had engaged in a long-term tax evasion fraud or corporate fraud since maybe 2002, involving the Cayman Islands. Wheeler mentioned the Bank of Butterfield, JoJoDi, and companies called DAR and Lucy. Wheeler also mentioned electronic files that she took before she left VCW Holding. Wheeler tendered her resignation on November 6 or 7, 2007, and her last day of work was December 14, 2007. Wheeler's title at VCW Holding was controller.
Wheeler stated her duties were anything and everything related to Cheryl Womack's personal finances, all of the businesses that she would invest in, any of the companies that she had sold that were rolling off, a claims business. Entailed working with the Cayman Islands companies. It entailed handling personal investments, all banking, anything pretty much that would fall underneath a financial umbrella.
Wheeler testified that she had full access to the office; she had a key to the building and security codes for the alarm up until her last day of work. It was Special Agent Witt's understanding that Wheeler had full access to the records she took as part of her work duties and that she did not have to hack into the system; the files that she copied were on her own desktop and that she only logged in as herself and they included her e-mails and files with which she was familiar. Wheeler testified that in addition to her own e-mails, she had access through her work computer to the network which contained an F drive and an S drive.
The F stood for financial and the S stood for shared. Wheeler accessed the F and S drives as part of her work duties. Wheeler testified that she had full control over files on the F and S drives. Wheeler testified that the majority of the documents in the F and S drives were created by her and even for those documents that she did not create, she knew what the majority were because at some point, she would have had involvement with them. There were, however, some documents in the F and S drives with which Wheeler was not familiar. Wheeler's access to and control over the F and S drives did not change after she tendered her resignation, but before she stopped working for VCW Holding.
Wheeler testified that most of VCW Holding's business was done via e-mail. (Tr. at VI-73) Wheeler did not have access to any other employee's e-mails. Wheeler's control over her VCW Holding e-mail account did not change after she tendered her resignation, but before she stopped working at VCW Holding. Wheeler was expected to continue work as usual during this time and was given additional projects to get done before her last day. One project given to Wheeler after she tendered her resignation was to do a report on any activities with the Caymans and money in the Caymans and then to destroy the report after presenting it to Womack so that only Womack would have a copy. Wheeler was still doing work with Cayman Island entities up to her last day of work. Wheeler advised that she copied her records before she left because she feared being a scapegoat for Cayman-related items and for leverage because she knew she would be in trouble for the embezzlement. Wheeler felt that her e-mails would provide proof of Womack directing her to do things. Wheeler was unsuccessful in copying the files herself so she had her brother help her copy the files. Wheeler's brother, Brandon Burch, came to the office during business hours on November 21, 2007, and he copied her e-mail account onto a disk. Wheeler did not have her brother copy any files that she did not have access to from her own work computer. Wheeler did not have Womack's permission or authorization to copy the records. Special Agent Witt asked Wheeler to get those records to him as soon as possible. Special Agent Witt testified that Womack became a potential target after Wheeler made the allegations against Womack on August 7, 2008.
Special Agent Witt and IRS Special Agent Adam Jobes met with Brandy Wheeler on August 13, 2008. This was Special Agent Jobes' first meeting with Wheeler. Special Agent Jobes was present because some of Wheeler's allegations related to tax allegations. Wheeler continued to provide information about Cheryl Womack and Cayman Island entities. Wheeler again mentioned companies called JoJoDi, DAR and Lucy. Wheeler stated that Lucy was a nominee used to own wine that Womack sold at Sotheby's. (Tr. at II-201) Wheeler mentioned individuals named Steven Gray and Duckworth, the Bank of Butterfield and the Tenth Trust, the Eleventh Trust, the Twelfth Trust, Emerald Trust, Star Trust and DAR Holdings. Wheeler provided details about these entities that are set out in a Memorandum of Interview. Wheeler stated that Womack purchased a condo in the Cayman Islands in 2002 using the company DAR Holdings and then said she was a resident of the Cayman Islands for income tax purposes even though she never spent more than a week there in any year. Wheeler said that in June 2007, Womack leased the condo full-time.
Wheeler also provided information about domestic activities of Womack and Allen Davison. The agents were told all this information before they were handed any electronic media by Wheeler. Wheeler advised the agents that the four disks she brought were copies. Special Agent Witt told Wheeler that he needed all the originals that she had for evidentiary and forensic purposes. Special Agent Witt never looked at those four disks.
The next day, August 14, 2008, Brandy Wheeler brought Special Agent Witt computer disks that were purportedly the originals, as well as an envelope containing various documents written by Wheeler with her attorneys in February 2008 setting out allegations against Womack and also some notes on index cards. Special Agent Witt testified that the Cierpiot memo, which was written by Wheeler with her attorneys, contained an outline of Wheeler's allegations. The note cards listed people and entities involved with Womack. On one of the note cards was: "Butterfield Bank, Katherine Myles, trustee of all non-reinsurance entities in Cayman. Statements for Cheryl and Dean, personal accounts kept at bank." On another note card: "Willis Corroon Management Limited - Cayman, Steven Gray, Director of Reinsurance, James Owen, Secretary of Reinsurance Entities, Ryan Ogden, Accountant for Cayman entity."
The people listed on the note cards became interview subjects in the investigation. It was Special Agent Witt's understanding that the 21 disks were all files related to e-mails, as well as some shared files, to which Wheeler had full access and authority and which would corroborate her allegations. Wheeler signed a consent to search the disks. The disks were sent to the Regional Crime Forensics Lab. The Regional Crime Forensics Lab used a software program called Case Agent Investigative Review ("CAIR") to allow the agents to view the files without modifying the original disks. Special Agent Witt testified that he and Special Agent Jobes had extreme difficulty navigating the software. Special Agent Witt testified that he spent just a couple of hours trying to view the files, before giving up on the software. Special Agent Witt testified that his and Special Agent Jobes' review of the electronic media using the CAIR software resulted in the identification of only three documents, one of which was a picture of Allen Davison. The other two documents did not play any role in Special Agent Witt's investigation; no information off those documents was used for investigative leads.
Special Agent Witt testified that he got no evidence for his case from his review using the CAIR software. Special Agent Jobes testified that, likewise, he recovered no evidence from using the CAIR software. Special Agent Jobes testified that after his attempts to use CAIR, he never personally reviewed any of the original electronic media from Wheeler. In November 2009, Wheeler provided Special Agent Witt with some e-mails from a copy of the disks that she had kept. Wheeler testified that the e-mails that she forwarded to Special Agent Witt were ones that she recalled from memory. Special Agent Witt testified that he was never able to open the file from which these e-mails came.
Later, in 2010, Special Agent Witt requested that selected disks be copied, so that he could review the files in an easier manner. (Tr. at II-222) Special Agent Witt testified that the only disk he was able to review and from which evidence in the case came was Disk 26 and his review of Disk 26 took place after March 2010. Disk 26 contained files from the shared F and S drives that Wheeler copied on her last day of work. Kindra Mynatt, a former employee of VCW, testified that there were no restrictions to access on the shared F and S drives.
Special Agent Witt obtained a laptop owned by Womack from Wheeler. Special Agent Witt did not search the laptop until years later in preparation for the motions in this action. Wheeler had found the laptop in her travel bag. The laptop had been used by people associated with CARD Aeronautics. Wheeler testified that she never logged onto the laptop or accessed that information.
On December 2 and 4, 2008, Special Agent Witt spoke again with Brandy Wheeler to get more information. These verbal debriefs, along with paper documents that Wheeler had provided, formed the basis for questions that Special Agent Witt wanted to ask Cheryl Womack.
Special Agent Witt and Special Agent Asher met with Cheryl Womack at her office on December 15, 2008. Special Agent Witt showed Womack the affirmative defenses and counter-allegations that Brandy Wheeler had filed in Womack's civil action against her and went through those point by point. These affirmative defenses and counter-allegations included:
Plaintiff is barred from obtaining any equitable relief because plaintiff and its alter ego, V. Cheryl Womack, have committed tax evasion on a massive scale, and therefore have unclean hands in the following respects, provided by way of example and not by way of limitation:
a. V. Cheryl Womack paid no federal or state personal income taxes on the sale of her insurance business VCW, Inc. for over $32 million in April 2002 (in fact, V. Cheryl Womack's 2002 federal income tax return claimed $168,000 in losses);
b. V. Cheryl Womack paid no federal or state personal income taxes o $5.8 million of earnouts received in April 2003 from the sale of VCW, Inc. (in fact, V. Cheryl Womack's 2003 federal income tax return claimed $6,380,752 in losses);
c. By maintaining a basket of approximately 50 companies with VCW Holding Company LLC which are all wholly owned by V. Cheryl Womack, and only a small percentage of these are legitimate "venture capital" type holdings. The true purpose of these companies is twofold, with both purposes having a tax-evasion ambition: (i) to accumulate bogus "losses" to use to sop up whatever income there might be realized by plaintiff, in order to avoid income taxes, and (ii) to be able to create intra-company balance sheet activity, to obscure the source of funds and to hide revenues to avoid income taxes;
d. by hiding funds from the sale of the insurance companies in a basket of Cayman Islands companies.
e. by creating fraudulent inter-company balance sheet activity among the companies to generate bogus losses and expenses to sop up all income (for example, carrying forward millions of dollars in Net Operating Losses for years and years);
f. by utilizing fraudulent indemnity contracts between the Cayman Island companies and the U.S. based companies in order to create false "premiums" for the US companies to pay out and use to sop up income, and then to generate false "losses" which the Cayman-based companies then indemnified in order to move money from Cayman to the U.S. tax-free;
g. by utilizing fraudulent loan contracts between the Cayman Island companies and the U.S. based companies in order to fraudulently "borrow" money to move money from Cayman to the U.S., even though the loans are not repaid, to evade taxes;
h. by fraudulently claiming on her tax returns a Cayman Island residence at "The Sovereign" even though in fact she resides in Johnson County, KS and only uses The Sovereign as a vacation home and, in fact, the condominium is actually possessed by a tenant;
i. by personally enjoying the use of a vast wine collection stored in a custom cellar within her Johnson County, KS home, even though ostensibly the collection was owned by Lucy Ltd., a Cayman Islands company, and selling the wine at a Spring 2008 auction through Sotheby's, wherein the collection was blatantly represented to be the personal collection of V. Cheryl Womack; and
j. by purchasing losses of a target company to be able to claim the losses to absorb income to avoid tax.
Special Agent Witt asked Womack about the Cayman entities that Wheeler had talked about. Special Agent Witt asked Womack about the master list of accounts that Womack had provided to Witt in March. Special Agent Witt's questions were formed from his verbal debriefs with Wheeler and the paper documents that Wheeler had provided. The electronic evidence provided by Wheeler did not form the basis for any questions.
Special Agent Jobes testified that an official criminal investigation of Cheryl Womack by the IRS began in April 2009. Special Agent Jobes testified that the case was initiated as a criminal tax evasion case. Special Agent Jobes became involved with Womack in late 2008, when he became aware of an ongoing investigation that he later joined. Special Agent Jobes was initially contacted by John Osgood, a criminal defense attorney in Kansas City, Missouri, who said he had a client, Brandy Wheeler, who had information to share with IRS Criminal Investigations. In September 2010, Special Agent Jobes requested assistance from IRS Exchange of Information in obtaining information from businesses and financial institutions in the Cayman Islands. Special Agent Jobes was looking for evidence of foreign bank accounts, ownership of those accounts, management agreements and trust documents which were associated with Womack in order to evaluate information that he had already received and to further his investigation.
The United States has two general types of vehicles for exchange of information with foreign jurisdictions in the tax context—a Tax Information Exchange Agreement ("TIEA") and a tax treaty. A TIEA is a standalone document that is just for exchange of information purposes. A tax treaty encompasses other things, such as the prevention of double taxation, along with exchange of information. TIEAs are administered through the Internal Revenue Service. Since 2005, Raul Pertierra has been involved in making TIEA requests for the United States. Mr. Pertierra stated that his goal in drafting a request for assistance is to paint the picture for the foreign jurisdiction as to what we need, what we have done and what the linkage is to the information that is being solicited. Mr. Pertierra stated that he also has to give the foreign jurisdiction what they need to use the mechanisms under their laws to obtain the information. Requests related to criminal tax matters are common under TIEAs. While a TIEA may require that particular conduct be described, it is not required that violations of a particular United States Code section be described.
A TIEA provides the rules of how an exchange of information takes place. The TIEA in effect between the United States and the Cayman Islands when the original request for information pertinent to this case was submitted (the "2001 TIEA") provides in part:
Article 1 Scope of the Agreement
The competent authorities of the parties shall provide assistance through exchange of information relating to the administration and enforcement of the domestic laws of the parties concerning the taxes and the tax matters covered by this Agreement, including information that may be relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons. The territorial scope of this Agreement, in respect of the United Kingdom, is the territory of the Cayman Islands.
Article 3 Taxes Covered
The taxes covered by this Agreement are federal income taxes; provided that the types of tax covered may be extended by agreement between the parties in the form of an exchange of letters.
Article 4 Definitions
In this Agreement—
* * * "criminal tax evasion" means willfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party.
Article 5 Exchange of Information Upon Request
1. The competent authority of the requested party shall provide upon request by the requesting party information for the purposes referred to in Article 1. Such information shall be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested party if it had occurred in the territory of the requested party. * * *
5. The competent authority of the requesting party shall provide the following information to the competent authority of the requested party when making a request for information under this Agreement in order to demonstrate the relevance [22] of the information sought to the request:
(a) the identity of the taxpayer under examination or investigation;
(b) the nature of the information requested;
(c) the tax purpose for which the information is sought;
(d) reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party;
(e) to the extent known, the name and address of any person believed to be in possession or control of the information requested;
(f) a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under this Agreement. * * *
Article 7 Possibility of Declining a Request
1. The competent authority of the requested party may decline to assist
(a) where the request is not made in conformity with this Agreement;
(b) where the requesting party has not pursued all means available in its own territory, except where recourse to such means would give rise to disproportionate difficulty; * * *
Article 8 Confidentiality
* * * 2. Information provided to the competent authority of a requesting party may not be used for any purpose other than for the purposes stated in Article 1,without the prior consent of the requested party.* * *
Article 11 Mutual Agreement Procedure
Where difficulties or doubts arise between the parties regarding the implementation or interpretation of this Agreement, the respective competent authorities shall use their best efforts to resolve the matter by mutual agreement.
Article 12 Entry into Force
1. This Agreement shall enter into force when each party has notified the other of the completion of its necessary internal procedures for entry into force. Upon entry into force, it shall have effect for criminal tax evasion beginning on 1 January 2004, and with respect to all other matters covered in Article 1 beginning on 1 January 2006.
2. Upon entry into force, the provisions of the Agreement shall have effect with respect to criminal tax evasion for taxable periods commencing from 2004, and shall have effect with respect to all other matters for taxable periods commencing from 2006. * * *
11. The Competent Authority Arrangement, executed in 2006, provides in part:
4.2 In any criminal tax request, the phrase "criminal tax evasion," as defined in Article 4 of the TIA ["Tax Information Agreement"], in interpreted as follows:
(1) criminal tax evasion includes, but is not necessarily limited to, acts constituting the following tax offences under US law:
A. attempting to evade or defeat the assessment or collection of a tax; * * *
D. corruptly obstructing or impeding, or endeavoring to obstruct or impede, the due administration of tax assessment and collection; * * *
Mr. Periterra testified that this provision provides the two countries' agreed interpretation of criminal tax evasion; it does not change the definition. The two countries agree that an obstruction of tax assessment and collection could be one way to make out criminal tax evasion as defined under the TIEA.
12. The September 7, 2010 memo to Raul Pertierra, which requested his assistance in obtaining foreign based evidence with respect to a criminal investigation of Verna Cheryl Womack, provided, in part:
Years under Examination:
2004, 2005, 2006, 2007, 2008, 2009
Information regarding the examination or investigation:
The investigation to date indicates that WOMACK has been involved in a number of schemes, including the evasion of her 2004-2009 personal income tax liabilities.
Information developed during the course of the investigation indicate[s] that WOMACK is using companies/entities and trusts that are based in the Cayman Islands and have bank accounts at the Bank of Butterfield, located in the Cayman Islands.
Information obtained from email records and a reliable source state that WOMACK has signature authority and/or control of these bank accounts and that she ultimately controls the flow of at least some of the money in and out of these accounts. WOMACK has created loan documents to enable Cayman entities she controls to "loan" funds back for her use in the United States.
Special Agent Jobes was looking for records from banks and management companies located in the Cayman Islands relative to Womack and the following companies controlled by Womack: JoJoDi, DAR, DAR Holdings, Lucy Limited, Future Strategies Consulting, Tenth Trust, Eleventh Trust, Twelfth Trust, Thirteenth Trust, Star Trust and Emerald Trust.
13. Mr. Pertierra needed a nexus or linkage for the information Special Agent Jobes was soliciting from the foreign jurisdiction and the case under investigation. As Mr. Carroll testified, "If we get something that does not tie together or does not ... seem to me that they match up, we will do ... more digging with the field personnel that want us to go get information ...." Special Agent Jobes provided additional information to support his requests, including a copy of a wire transfer and the following e-mails obtained from Brandy Wheeler:
James Owen at Willis Management (Cayman), Ltd. stated the following in an email dated 11/05/2007: "... Bank of Butterfield are the Trustee for each of the Trusts and also prepare their accounts. From a Cayman operational perspective Bank of Butterfield act as the Trust Manager (in the same way as we act as the Insurance Manager for JoJoDi) and can advise on all aspects of the Trusts. We cannot get involved in the Trust work. As previously discussed our Insurance Manager's License does not permit us to carry out any work with respect to "non captive" entities such as Trust work. It is for this reason that we can not be involved in the execution of the said agreements. As the Insurance Manager we will be happy to coordinate the payment of a dividend from JoJoDi if that is the preferred course of action. As we have discussed JoJoDi could now obtain approval for all of its unencumbered cash to be paid out in the form of a dividend. Please let us know how you would like to proceed in this matter ..."
Owen stated the following in an email dated 10/17/2007: "... Kathryn would be a good starting point in respect to establishing how to deal with the "non JoJoDi" business of Dar, Lucy, Future and the 10th, 11th and 12th Trusts given that Butterfield are the Trustee for each of the trusts and prepare the accounts for each of the entities. Butterfield are also the Trustee of The Emerald STAR trust. Anton Duckworth ... acts on behalf of International Trust Protector being the Primary Enforcer of The Emerald STAR Trust ..."
The Source [Wheeler] identified the following emails as pertaining to Cayman transactions:
11/14/2007 RE: Cayman Trip Womack requested preparation of Cayman financials and then requested that they be destroyed after Womack's review. Womack also discusses opening a safe deposit box.
11/7/2007 RE: Fax From 024046807310815600 Womack authorized payment and discussed services related to Womack's New York, Trump Tower Condominium.
11/2/2007 RE: Something to discuss Womack discusses Cayman Trusts and bringing Rachel Bizzell on next trip to Cayman to fill director/executor roles.
10/2/2007 RE: NAIT Sell Off of Claims Womack discusses with FFIC the sell off of JoJoDi's open claims.
03/05/2007 RE: Butterfield asked Womack for collateral for Womack's Credit Cards in the names of Future Strategies, DAR and Lucy Limited.
14. In late September 2010, Mr. Pertierra submitted a draft request to the Cayman Islands. Mr. Pertierra received feedback on the request from Duncan Nicol, the Competent Authority in the Cayman Islands. Mr. Nicol provided information as to what was needed to satisfy the conduct of criminal tax evasion under the 2001 TIEA. One of the code sections cited which would meet the definition of criminal tax evasion in the TIEA was section 7212. (Tr. at II-41) Engaging in a scheme to obstruct and impede the administration of the tax laws was another way to charge criminal tax evasion under the TIEA. Yet another way to meet the definition of criminal tax evasion in the TIEA was the making of false statements to Internal Revenue Service personnel regarding various tax topics.
15. Special Agent Jobes provided additional information to Mr. Pertierra to fulfill the elements of the conduct of criminal tax evasion under the 2001 TIEA. Under the bullet point that says "that the conduct is willful with dishonest intention to defraud the public revenue," Special Agent Jobes wrote: "Womack has made statements to multiple witnesses that she does not intend to pay any tax from the sale of her insurance business." On October 5, 2010, Mr. Pertierra submitted a revised draft to Mr. Nicol. This revised draft contained the assertion that "Womack has made statements, to multiple witnesses that she does not intend to pay taxes from the sale of her insurance business." Mr. Pertierra testified that if he had known at the time that there was only one witness, he would have corrected this assertion to say one witness. Mr. Pertierra testified that a statement by Womack to one witness would have been sufficient to provide the nexus. Mr. Nicol found the revised draft sufficient to begin gathering information. Mr. Pertierra sent a formal TIEA request on October 8, 2010. (Tr. at II-47; Government's Ex. 58) That request stated that "[t]he requesting party has pursued all means available in its own territory in relation to the request." Mr. Pertierra believed that a request for the subject information had been made to Womack and that Womack had not provided the requested information.
16. Nathan Hochman testified:
So, if you're talking about a particular source and you're vouching effectively for the source by referencing them as the basis for which you are establishing in this case reasonable grounds, I believe it's incumbent to provide the information about the source so that the Competent Authority in the Cayman Islands can evaluate the information.
According to Mr. Pertierra and Mr. Carroll, if the source is judged reliable by the agent who is providing the information, additional information about the source does not matter and would not be put into a TIEA request. Based on his experience implementing TIEA agreements with the Cayman Islands, Mr. Pertierra testified that information about the background of a source would not be material to the Cayman Islands.
17. Ultimately, records were received from Butterfield Bank, Caledonia Bank, Walkers Global and Willis Management, third-party records custodians.
18. Special Agent Jobes testified that he had grounds to believe that records were located in the Cayman Islands without the electronic evidence provided by Brandy Wheeler and that he would have sought assistance to obtain records from the Cayman Islands even if he had never been provided electronic records from Wheeler. Special Agent Jobes testified that he had evidence independent of Wheeler's electronic evidence in his file at the time of the TIEA request to make the request for the same materials. The references to e-mails that Special Agent Jobes included in his request for assistance to get foreign records came from a report prepared by Special Agent Witt pertaining to his interview of Wheeler and then later e-mails received from Wheeler through Special Agent Witt. Other than this, Special Agent Jobes received no electronic evidence from Wheeler and the electronic evidence played no other role in his investigation.
19. In the summer of 2011, the investigation of Cheryl Womack was transferred to Special Agent Joseph Schmidt when Special Agent Jobes was promoted to a supervisor position. Special Agent Schmidt took proffers from Brandy Wheeler. Special Agent Schmidt corroborated what Wheeler had to say with documents received pursuant to the TIEA request as well as other evidence. The criminal case against Womack was charged in December of 2013.
20. On January 28, 2014, Mr. Pertierra received a request for assistance in obtaining information from the Cayman Islands pursuant to a TIEA for the years 2010 through 2013 regarding Verna Cheryl Womack. Criminal charges had been filed against Womack. A request was submitted to the Cayman Islands on March 10, 2014. A new TIEA between the Cayman Islands and the United States was coming into effect, the 2013 TIEA, so there was a delay and the request was not fulfilled at that time. The March 10 request was withdrawn and resubmitted on April 14, 2014, the first day the 2013 TIEA was in effect. The 2013 TIEA expanded the criminal matters covered to the prosecution of any tax matter. There was an error in the submitted request; it stated that Womack had been charged with one count of evasion of income tax in violation of 26 U.S.C. § 7206(1). Mr. Pertierra testified that this was basically a typo and that his office was not trying to deceive the Cayman Islands as to the code section under which Womack was charged. On April 25, 2014, Mr. Pertierra sent Mr. Nicol a letter which stated in part: "Ms. Womack has been indicted for false statements to a government official under 18 U.S.C. § 1001 and for attempting to interfere with the administration of internal revenue laws under 26 U.S.C. § 7212(a)." In response to the 2014 TIEA request, on July 3, 2014, records with respect to Butterfield Bank, Caledonia Bank, Willis Management and Intertrust Corporate Services were transmitted from the Cayman Islands Competent Authority to the United States Competent Authority.
21. J.D. Carroll took over supervisory responsibilities for the exchange of information with the Cayman Islands in June 2014. (Tr. II-121, II-139) Mr. Carroll was contacted regarding the 2010 TIEA request to the Cayman Islands for information related to Cheryl Womack. (Tr. at II-139) Challenges were being made to the references to e-mails17Link to the text of the note in the TIEA request. (Tr. at II-140) Mr. Carroll testified that he believed that the request to the Cayman Islands was sufficient without the references to e-mails. (Tr. at II-140) Mr. Carroll reached out to the Cayman Islands Competent Authority to discuss the matter. (Tr. at II-141) The Cayman Islands Competent Authority decided to prepare a letter to state that they would have provided the same information if the treaty request had been written without the e-mail [35] language. (Tr. at II-147; Government's Ex. 88) On October 13, 2014, the Cayman Islands Competent Authority sent a letter to the United States Competent Authority which stated:
In response to the clarification which you seek, I confirm that the Cayman Islands competent authority would have taken information gathering measures to obtain the requested records pursuant to a request that omitted all reference to the existence or content of emails that were included in the request dated October 8, 2010, or any subsequent requests. I have reviewed a request that does not include any reference to emails and find the facts sufficient to act pursuant to my obligations under the TIEA then in effect to obtain the requested records and to transfer those records to the United States in accordance with the TIEA. Had the original request relating to Verna Cheryl Womack lacked any reference to emails, I confirm that we would not have acted in any different manner and would have obtained and produced to the United States precisely the same records that were obtained and produced pursuant to the original and subsequent requests for records concerning Verna Cheryl Womack. Mr. Carroll testified that in his experience, the Cayman Islands Competent Authority would not have signed something like this if he did not believe it.
22. Special Agent Schmidt testified that no cautionary instruction was given to the grand jury with respect to the use of TIEA documents before the grand jury. Special Agent Schmidt testified that the nine counts charged under 18 U.S.C. § 1001, False Statements, in the indictment brought against Cheryl Womack are considered tax counts by the IRS. Special Agent Schmidt further testified that although the specific charge of tax evasion is not charged in the indictment, the underlying purpose of the indictment is to charge an overall evasion scheme under section 7212. The purpose of the nine section 1001 counts is to show where Womack lied under oath in a tax proceeding (a deposition in the civil tax case against Al Davison) to conceal her control over back accounts and entities in the Cayman Islands.
III. DISCUSSION
Defendant Womack seeks to suppress "evidence obtained by the government under the Tax Information Exchange Agreements ("TIEA") between the United States and the Cayman Islands." First, defendant argues that the evidence should be suppressed because the documentary evidence utilized in the TIEA applications stems from the illegal search and seizure by the government of electronic evidence stolen from defendant by Brandy Wheeler and, thus, the documents produced in response to the TIEA applications are fruits of the government's unconstitutional search and seizure. Next, defendant argues that the evidence should be suppressed because the IRS included material falsehoods and omissions in the TIEA applications. Finally, defendant argues that the documents obtained pursuant to the government's initial TIEA application may only be admitted in a criminal trial with a charge of tax evasion and defendant has not been charged with tax evasion.
Initially, the government responds that defendant has no standing to suppress records that were obtained from third parties through an international agreement to which defendant is not a party. The government goes on to state that putting the standing issue aside, defendant's claims also fail as a matter of law. While the Court finds the government's cases compelling on the standing issue, the Court will address defendant's arguments for suppression.
A. Search and Seizure of Electronic Evidence
As set forth above, defendant argues that evidence obtained by the government pursuant to TIEA requests should be suppressed because the documentary evidence utilized in the TIEA applications stems from the illegal search and seizure by the government of electronic evidence stolen from defendant by Brandy Wheeler and, thus, the documents produced in response are fruits of the government's unconstitutional search and seizure. The Court found against this argument.
Further, even if the Court had found that there was an unconstitutional search and seizure of electronic evidence (which it did not find), Special Agent Jobes testified that he had grounds to believe that records were located in the Cayman Islands without the electronic evidence provided by Brandy Wheeler and that he would have sought assistance to obtain records from the Cayman Islands even if he had never been provided electronic records from Wheeler. The references to e-mails that Special Agent Jobes included in his request for assistance to get foreign records came from a report prepared by Special Agent Witt pertaining to his interview of Wheeler and then later e-mails received from Wheeler through Special Agent Witt. Other than this, Special Agent Jobes received no electronic evidence from Wheeler and the electronic evidence played no other role in his investigation. The Cayman Island Competent Authority advised that "[h]ad the original request relating to Verna Cheryl Womack lacked any reference to emails, I confirm that we would not have acted in any different manner and would have obtained and produced to the United States precisely the same records that were obtained and produced pursuant to the original and subsequent requests for records concerning Verna Cheryl Womack." The electronic evidence at issue in this case does not provide a basis for the suppression of evidence obtained pursuant to the TIEA requests.
B. The TIEA Applications
Defendant next argued that evidence should be suppressed because the IRS included material falsehoods and omissions in the TIEA applications. With regard to material falsehoods, defendant argues that the 2001 TIEA limited the tax purposes for which information may be sought to requests in criminal investigations for tax evasion, so the government mischaracterized its investigation as tax evasion, even though the IRS never referred a request to the Tax Division for prosecution authorization of defendant Womack under the tax evasion statute. In the second TIEA application in 2014, the government represented that Womack was indicted with evasion of income tax in violation of 26 U.S.C. § 7206(1). Finally, defendant argues that the government misrepresented the scope of its domestic investigation prior to executing the TIEAs by stating that it had pursued all means available in its own territory in relation to the request. With regard to omissions, defendant argues that the government failed to inform the Cayman Authority that the referenced confidential informant was a convicted felon who embezzled over one million dollars from Womack; that the government incentivized the informant to lie by promising her a substantially reduced sentence; that the government had no reasonable basis for believing that the informant's assertions were true; and that the referenced e-mails were stolen from Womack by the informant.
1. Material Falsehoods
With respect to defendant Womack's argument that because the 2001 TIEA limited the tax purposes for which information may be sought to requests in criminal investigations for tax evasion, the government mischaracterized its investigation of Womack as an investigation of tax evasion, the Court first notes that Article 1, Scope of the Agreement, of the 2001 TIEA does not appear to be limited to the investigation of criminal tax evasion. Article 1 provides:
The competent authorities of the parties shall provide assistance through exchange of information relating to the administration and enforcement of the domestic laws of the parties concerning the taxes and the tax matters covered by this Agreement, including information that may be relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons. The territorial scope of this Agreement, in respect of the United Kingdom, is the territory of the Cayman Islands.
While the investigation of criminal tax evasion is one listed use of the information provided through exchange of information, another listed use is "the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes."
Further, the definition of "criminal tax evasion" given in the 2001 TIEA, as well as the interpretation of that phrase in the Competent Authority Arrangement which was executed prior to the first TIEA request in this case, appears broad enough to include the conduct with which defendant Womack was being investigated. Criminal tax evasion is defined in Article 4 as follows:
"criminal tax evasion" means willfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party.
The Competent Authority Arrangement provides in part:
4.2 In any criminal tax request, the phrase "criminal tax evasion," as defined in Article 4 of the TIA ["Tax Information Agreement"], in interpreted as follows:
(1) criminal tax evasion includes, but is not necessarily limited to, acts constituting the following tax offences under US law:
A. attempting to evade or defeat the assessment or collection of a tax; * * *
D. corruptly obstructing or impeding, or endeavoring to obstruct or impede, the due administration of tax assessment and collection;
With respect to defendant Womack's argument that evidence should be suppressed because the government misrepresented that defendant was indicted with evasion of income tax in violation of 26 U.S.C. § 7206(1) in the second TIEA application, the Court notes that the government corrected this error on April 25, 2014, by advising the Cayman Islands Competent Authority that: "Ms. Womack has been indicted for false statements to a government official under 18 U.S.C. § 1001 and for attempting to interfere with the administration of internal revenue laws under 26 U.S.C. § 7212(a)." This correction was made shortly after the TIEA request was made and months before any documents were obtained pursuant to this request.
With respect to defendant Womack's argument that evidence should be suppressed because the government misrepresented that it had pursued all means available in its own territory in relation to the request prior to making the first TIEA request, the Court notes that Mr. Pertierra and Mr. Carroll gave numerous examples of records that could not be obtained in the United States, including that a foreign bank's or business' actual documents as well as document certifications from foreign document custodians would not exist in the United States. Mr. Carroll also testified that if a person one might seek records from had denied a relationship with the subject businesses or banks, that would be a reason to use a TIEA to obtain the records. According to Mr. Carroll, when information is requested for these reasons, it is appropriate to represent that one does not have the means available in the United States to obtain the records and that is the reason for making the request. As set forth above, Special Agent Jobes was looking for records from banks and management companies located in the Cayman Islands relative to Womack and companies controlled by Womack.
As alleged in the Indictment, Womack denied knowledge about and/or a relationship to these companies. Special Agent Jobes testified that he needed records from the foreign banks and businesses along with authentication certifications and to his knowledge, the records would only be kept by those companies outside the United States and the authentications could not be obtained in the United States. Therefore, it was appropriate to represent that the government did not have the means available in the United States to obtain the records. The wording used in the TIEA request was that "[t]he requesting party has pursued all means available in its own territory in relation to the request." Given that there were no means available in the United States in relation to the request, the statement was not false.
The Court found that Defendant's argument as to material falsehoods provides no basis for suppression.
2. Omissions
With regard to omissions, defendant argues that the government failed to inform the Cayman Authority that the referenced confidential informant was a convicted felon who embezzled over one million dollars from Womack; that the government incentivized the informant to lie by promising her a substantially reduced sentence; that the government had no reasonable basis for believing that the informant's assertions were true; and that the referenced e-mails were stolen from Womack by the informant.
Both Mr. Pertierra and Mr. Carroll testified that the case agent makes the determination of whether a source is reliable. Special Agent Jobes testified that based on his investigation, he found Brandy Wheeler to be reliable. According to Mr. Pertierra and Mr. Carroll, if the source is judged reliable by the agent who is providing the information, additional information about the source does not matter and would not be put into a TIEA request. Based on his experience implementing TIEA agreements with the Cayman Islands, Mr. Pertierra testified that information about the background of a source would not be material to the Cayman Islands.
Special Agent Jobes found Brandy Wheeler to be a reliable source. Based on the evidence presented to the Court, it appears that Special Agent Jobes had a reasonable basis for finding Wheeler reliable. No competent evidence was presented that the Cayman Islands should have been provided any specific information about the source. Defendant's argument as to omissions provides no basis for suppression.
C. Absence of Tax Evasion Charge
Defendant argues that the TIEAs prescribe limits for the use of information obtained under them. Thus, defendant argues that the documents obtained pursuant to the government's initial TIEA application may only be admitted in a criminal trial with a charge of tax evasion and defendant has not been charged with tax evasion. Further, defendant argues that evidence obtained pursuant to the first TIEA application should not have been admitted in front of the grand jury at all because the government did not allege tax evasion. According to defendant, even if Count One had fallen under tax evasion, a limiting instruction should have been given to the grand jurors because Counts Two through Ten, charges under 18 U.S.C. § 1001, are not any type of tax offense.
As set forth above and contrary to defendant's argument, Article 1 of the 2001 TIEA does not appear to be limited to the investigation of tax evasion. Article 1 provides that:
The competent authorities of the parties shall provide assistance through exchange of information relating to the administration and enforcement of the domestic laws of the parties concerning the taxes and the tax matters covered by this Agreement, including information that may be relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons.
Mr. Pertierra testified that Article 1 merely states that information exchanged under the agreement has to be relevant to certain tax purposes. Further, according to Mr. Pertierra, a violation of 26 U.S.C. § 7212, engaging in a scheme to obstruct and impede the administration of the tax laws, is a charge of criminal tax evasion under the TIEA. Mr. Pertierra also testified that yet another way to meet the definition of criminal tax evasion in the TIEA is the making of false statements to Internal Revenue Service personnel regarding various tax topics. Special Agent Schmidt testified that although the specific charge of tax evasion is not charged in the indictment, the underlying purpose of the indictment is to charge an overall evasion scheme under section 7212. (See Fact No. 22, supra) Further, the purpose of the nine section 1001 counts is to show where Womack lied under oath in a tax proceeding (a deposition in the civil tax case against Al Davison) to conceal her control over back accounts and entities in the Cayman Islands. According to Special Agent Schmidt, the nine counts charged under 18 U.S.C. § 1001, False Statements, in the indictment brought against defendant Womack are considered tax counts by the IRS.
Given the language of the TIEAs, the interpretation of the phrase "criminal tax evasion" in the Competent Authority Arrangement and the testimony provided by those persons who routinely work with and interpret the TIEAs, the Court finds that information obtained pursuant to the TIEAs may be used in the investigation and prosecution of the charges against defendant Womack. The Court found that defendant's argument as to the absence of a tax evasion charge provides no basis for suppression.
IV. CONCLUSION
Based on the foregoing, The Court RECOMMENDED that the District Court enter an order denying Defendant Verna Cheryl Womack's Motion to Suppress Evidence Obtained Pursuant to the Tax Information Exchange Agreement.
SARAH W. HAYS UNITED STATES MAGISTRATE JUDGE
