Matter of Extradition of Matus, 91 Cr. Misc. p. 42 (KTD).

• Decision Date: 10 February 1992
• Docket Number: No. 91 Cr. Misc. p. 42 (KTD).,91 Cr. Misc. p. 42 (KTD).
• Parties: In the Matter of the EXTRADITION OF Feliciano Palma MATUS.
• Court: U.S. District Court — Southern District of New York

784 F. Supp. 1052

In the Matter of the EXTRADITION OF Feliciano Palma MATUS.

No. 91 Cr. Misc. p. 42 (KTD).

United States District Court, S.D. New York.

February 10, 1992.

Otto G. Obermaier, U.S. Atty., New York City, for U.S.; Nelson W. Cunningham, Asst. U.S. Atty., of counsel.

Kaplan & Katzberg, New York City, for defendant; Robert F. Katzberg, Mayo Schreiber, Jr., of counsel.

MEMORANDUM AND ORDER

KEVIN THOMAS DUFFY, District Judge:

The Government of Chile seeks to extradite Feliciano Palma Matus ("Palma"), pursuant to the terms of an extradition treaty executed between Chile and the United States on April 17, 1900 (the "Treaty"), for crimes he allegedly committed against the Chilean Government. The defendant is presently in the custody of the United States, having been arrested on July 31, 1991. Bail has been denied.

Palma is a 40 year old citizen of Chile and a successful manufacturer and exporter of Chilean products, principally pottery and ceramics. He has exported such goods to the United States since 1984. His company, Industrias Lozapenco, S.A. ("Lozapenco")¹, at one time employed some 3,000 persons, making it the largest private employer in the Penco region of Chile.

In 1987, a dispute arose between Palma's companies and the Chilean Internal Revenue Service over a certain tax refund that Palma, as an exporter, had applied for and received under the Chilean Value Added Tax law ("VAT"). The Chilean Internal Revenue Service initially charged Palma with tax fraud and evasion in a complaint filed on April 12, 1990 with the 12th Criminal Court in Santiago, Chile. A warrant was issued for Palma's arrest on April 16, 1990 and a search warrant was subsequently executed at his corporate offices. According to the testimony of his wife, Palma disappeared from Chile on April 18, 1990. He was later arrested in New York City on July 31, 1991, upon a warrant issued pursuant to a provisional extradition request from Chile. The formal extradition request, supported by approximately 2,000 pages of documents and records, was filed with this court on September 27, 1991.²

An extradition hearing was held before me on November 19, 1991 pursuant to 18 U.S.C. ž 3181. The sole purpose of the hearing was to determine whether Palma is subject to extradition. There is no real dispute that Palma is the person named in the extradition warrant. No evidence was considered at the hearing, but the various documents received from the Chilean Government were made part of the record along with their translations.

I recognize that there is no direct appeal from the determination of a judicial officer in an extradition hearing. I suspect, however, that there will be a review of my determination by way of a petition for habeas corpus to another judge of this court and thereafter an appeal from the determination made by that judge. Thus, I write not for any immediate need, but rather to explain my decision to the parties and to any judicial officer who may hereafter be interested in the proceeding.

Palma makes several contentions. He asserts that the warrant issued by the Chilean government is premised on the erroneous assumption that the various offenses he allegedly committed are extraditable under the "fraud clause" of the Treaty. He next avers that the Chilean government's evidence is defective and insufficient to hold him for extradition. Finally, Palma suggests that the piecemeal manner in which the Chilean government filed the charges against him, and the way in which the United States government has handled the matter, should be considered in determining whether he should be extradited.

DISCUSSION

The crimes for which extradition may be granted must be specified in the treaty between the United States and the requesting nation. Demjanjuk v. Petrovsky, 776 F.2d 571, 579 (6th Cir.1985). Specifically, "for a crime to be an extraditable offense it must be an offense that is either listed or defined as such by the applicable treaty." Spatola v. United States, 741 F.Supp. 362, 371 (E.D.N.Y.1990), aff'd, 925 F.2d 615 (1991). Further, according to 18 U.S.C. ž 3184:

Whenever there is a treaty ... for extradition ... any magistrate ... may, upon complaint made under oath, charging any person found within his jurisdiction, with having committed within the jurisdiction of any such foreign government any of the crimes provided for by such treaty.... (Emphasis added)

In the instant case, the crimes extraditable under the Treaty include:

Fraud or breach of trust by a bailee, banker, agent, factor, trustee or other person acting in a fiduciary capacity, or director or member or officer of any company, when such act is made criminal by the laws of both countries and the amount of money or the value of the property misappropriated is not less than two hundred dollars.

This provision clearly encompasses the four charges against Palma.

In addition to the above limitation, extradition is only available if the acts charged are criminal in both the requesting and requested countries. See Collins v. Loisel, 259 U.S. 309, 311, 42 S.Ct. 469, 470, 66 L.Ed. 956 (1922). The documents supplied by the Chilean government are prima facie proof that the allegations against Palma constitute crimes in Chile. That these allegations constitute crimes in the United States is also evident. The VAT Indictment charges conduct which would violate, inter alia, 18 U.S.C. ž 287 (false claims to government agency); 18 U.S.C. 1003 (fraudulent demand for money presented to government agency); and, 26 U.S.C. ž 7207 (filing false or fraudulent tax return). The export subsidy scheme would violate, inter alia, 18 U.S.C. žž 287 and 1003. Palma's submission of false documents to a government agency would be prohibited by, inter alia, 18 U.S.C. ž 1001 (false statement to government agency) and 18 U.S.C. ž 1014 (false statement to Federal Reserve Bank). Finally, bankruptcy fraud is specifically prohibited in this country by 18 U.S.C. ž 152. Thus, Palma may be extradited on all four charges.

I. Palma's VAT Fraud Indictment

An indictment issued by the Chilean government on April 19, 1991 charges Palma with fraudulently obtaining refunds of the VAT and with evading payment of that tax. Essentially, the VAT Fraud Indictment charges that Palma obtained the improper refunds by creating phony transactions between his various companies, reporting the transactions and applying for the export refund. At the same time, Palma was secretly cancelling out a substantial portion of the transactions without reporting the cancellations and without giving back the VAT that had already been refunded. By doing this, Palma and his companies made millions and millions of dollars.

Before addressing Palma's arguments against extradition on this charge, I must point out that the Chilean tax offense differs from tax offenses generally charged in the United States. In the U.S., most tax crimes involve evading payment of income tax, either by fraudulently claiming deductions or by refusing to pay. Chilean tax crimes, however, often involve a different kind of tax, generally referred to as a Value Added Tax ("VAT"). The VAT is somewhat like U.S. sales tax in that it is based upon the value of a physical good. Unlike the U.S. sales tax, however, the VAT is imposed at each step in production, from the processing of raw materials to the distribution of finished products.

The seller of goods in Chile must report sales and pay the applicable VAT, which is effectively added to the price paid by the buyer. Intrinsic in the concept of a "value added" tax, however, is the notion that the seller is only liable for the value that he has added to the good. Thus, the seller need only pay VAT on the value that he has added and is entitled to deduct any VAT already paid on the good. The seller calculates and reports his tax liability on a government form which is submitted monthly and lists all sales and purchases for that period. If sales exceed purchases, the seller has a fiscal debit and must pay a VAT of 16% on the excess amount. If purchases exceed sales, more VAT was paid than is owed, and the seller has a fiscal credit which entitles him to a refund after making the appropriate application.

Given the instant facts, it is especially important to highlight how the VAT affects the exportation of Chilean goods. Chilean law encourages exportation by fully refunding all the VAT previously paid on exported goods. An exporter may file an affidavit detailing total exports and the amount of VAT previously paid on the exported goods. The affidavit must include a list of all purchase invoices, showing the amount that the exporter paid for the goods and the applicable VAT, and proof of export. The exporter is then entitled to a full refund of all VAT paid on the exported goods.

The first argument Palma raises against his extradition on this charge is that the Chilean tax offense does not constitute fraud under the Treaty. This contention is without merit. Fraud may be defined as:

A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that another shall act upon it to his legal injury.

Black's Law Dictionary 788 (4th ed. 1968).

That the government is the victim of the fraud does not change the fact that it is a fraud. In any event, it is clear that the Treaty's definition of fraud encompasses fraud against a government in general, and Palma's alleged scheme in particular. Palma's scheme falls within the Treaty's fraud provision as (1) the applications for refunds which he submitted were the false factual representations; (2) according to the indictment, Palma intended to have the government rely upon those statements; and, (3) the government relied upon the statements and issued refunds of millions and millions of dollars.

Palma's additional...