United States v. Doyle
| Decision Date | 19 April 2018 |
| Docket Number | 16-CR-506 (ALC) |
| Parties | UNITED STATES OF AMERICA, v. LACY DOYLE |
| Court | U.S. District Court — Southern District of New York |
Before the Court is Defendant's Motion to Strike Allegations From the Indictment and to Preclude Evidence Related to Those Allegations and Motion to Suppress Evidence Obtained Pursuant to a Search Warrant (ECF No. 64). Specifically, the Defendant seeks to preclude two categories of evidence: first, her invocation of her Fifth Amendment privilege on her 2010-2015 tax returns; and, second, her alleged withholding of documents in response to a grand jury subpoena from approximately 2014 to 2017. For separate, but related reasons discussed in further detail below, the first category of evidence at issue is easily subject to preclusion, while the second category, though more analytically rigorous, ultimately must be precluded as well. Thus, Defendant's motion to preclude is GRANTED. For reasons also set forth below, Defendant's motion to strike is rendered academic, and is thus DENIED as moot. In addition, for the reasons set forth on the record at the February 9, 2018 status conference and in subsequent written orders, the Court reserves ruling on the suppression portion of Defendant's motion.
On July 26, 2016, the Government filed a two-count indictment charging the Defendant with obstructing and impeding the due administration of the Internal Revenue Laws (26 U.S.C. § 7212(a)) and subscribing to a false and fraudulent U.S. Individual Income Tax Return (26 U.S.C. § 7206(1)). Indictment (ECF No. 1). On September 14, 2017, a three-count superseding indictment was filed, adding some facts and one count of conspiracy to, among other things, defraud the United States (18 U.S.C. § 371). Superseding Indictment (ECF No. 59-1). These charges allege that Defendant and others unlawfully hid Defendant's foreign bank accounts from the IRS from approximately 2003 to 2017. The following factual summary is, in large part, derived from the brief filed by the Government in opposition to this motion, duplicating significant portions verbatim.
In 2003, Defendant's father died and left her an inheritance of over $4 million. Id. ¶¶ 23-25, 29, 34. The Defendant, who was also executor of her father's estate, made court filings falsely stating under penalty of perjury that the total value of her father's estate was under $1 million when, in fact, it was more than four times that amount. Id. In 2006, the Defendant sought the help of Beda Singenberger, a Swiss citizen who ran a financial advisory firm, to open a Swiss bank account into which the inheritance was deposited. Id. ¶ 34. To conceal the existence of the account, the Defendant and Singenberger established a trust in Lichtenstein named Gestino Stiftung ("Gestino" or "Gestino Foundation") to hold the Swiss bank account in its name. Id. As of December 31, 2008, the account held currency and financial instruments valued at approximately $3,548,380. Id. ¶ 41. In 2010, Gestino re-domiciled from Lichtenstein to Panama. Id. ¶¶ 45, 47. As of December 31, 2016, Gestino maintained assets in various Swiss bank accounts in the amount of at least approximately $3,028,562. Id. ¶ 53.
The Defendant is alleged to have used this arrangement to unlawfully and fraudulently avoid paying over $1.5 million dollars in United States taxes resulting from the inheritance. For each of the tax years from 2004 through 2009, the Defendant failed to report any income from foreign accounts in her tax filings, and also stated in those filings that she did not have an interest in or signatory or other authority over a financial account in a foreign country (the "Foreign Accounts Question"). Id. ¶ 63.
On October 4, 2010, the Defendant was issued a grand jury subpoena (the "2010 Subpoena") seeking records from the period October 5, 2005 to the date of the subpoena relating to, among other things, foreign accounts, "including but not limited to records required to be maintained pursuant to 31 C.F.R. § 103.32 . . ." Affirmation of Frederick P. Hafetz ("Hafetz Aff."), Ex. 6 (ECF No. 66). In response, the Defendant raised a Fifth Amendment objection through her counsel, Alain Liebman, Esq., arguing primarily that the required records exception to the Fifth Amendment privilege does not reach to documents required to be kept pursuant to the Bank Secrecy Act, 31 C.F.R. §§ 103.24, 103.32. Hafetz Aff., Ex. 8 at 1. Counsel further suggested that Defendant did "not concede that [she] possess records which are described in Section 103.32" and that, even if she did possess such records, she did not fall within the regulations' "definitional criteria." Id. at 1-2.
On November 9, 2012, the Government moved to compel compliance with the subpoena. In a reply memorandum in support of its argument, the Government argued, among other things, that Defendant's alternative argument that "she is not required by the applicable regulations to maintain records of foreign bank accounts" should be addressed by the Court now in order to prevent the Government from having to file a second motion to compel. Hafetz Aff., Ex. 10 at 14.In an order dated February 19, 2013, Judge Pauley granted the Government's motion, concluding that, because the Defendant was required to keep certain records pursuant to the Bank Secrecy Act, the "Required Records doctrine negates the act of production privilege[.]" Hafetz Aff., Ex. 14 at 4, 8. Near the conclusion of the opinion, in a short paragraph, Judge Pauley addressed Defendant's argument that she was "not covered by the Bank Secrecy Act regulations" and concluded that "at this point in the investigation, the Government need not prove that the regulation or the Bank Secrecy Act apply" because the precise purpose of a grand jury subpoena is to determine whether probable cause exists. Id. at 14 (citing, inter alia, In re M.H., 648 F.3d 1067, 1071 (9th Cir. 2011)).
On April 23, 2013, Judge Pauley issued an order, based in part upon review of a stipulation signed by the Defendant, acknowledging that she, among others, continued to refuse to comply with the 2010 Subpoena, intended to appeal the Court's prior order, and required a civil contempt finding in order to do so. Hafetz Aff., Ex. 18. Thus, Judge Pauley found the Defendant in civil contempt and stayed the imposition of sanctions pending appeal. Id.
On March 28, 2014, after withdrawing her appeal to the Second Circuit because she could no longer pursue it in good faith on account of a recent decision bearing adversely on the question at issue in her appeal, see In re Grand Jury Subpoena Dated Feb. 2, 2012, 741 F.3d 339 (2d Cir. 2013), the Defendant produced to the Government two e-mails from representatives of a foreign bank sent to her in 2008 and 2010, respectively. Hafetz Aff., Ex. 20-22. Included with Defendant's production was a letter in which defense counsel noted that "[s]ubsequent developments have compelled the conclusion that, while the assertion was believed to be legally founded and correct, and was tendered in good faith, the Fifth Amendment privilege may no longer tenably be asserted to the contested portion of the Subpoena." Hafetz Aff., Ex. 22 at 1. Counsel further informed the Government that, while Defendant did not concede that the relevant parts ofthe Code of Federal Regulations governing record-keeping "encompass any account in any foreign financial institution connected to her," she did "not assert the non-applicability of those regulations" nor any "other privilege as a basis to decline to produce records responsive" to the 2010 Subpoena. Id. at 2.
On October 2, 2014, the Government sent a letter to Defendant's counsel inquiring as to whether the three pages of documents Defendant had produced constituted all documents in her care, custody, or control responsive to the 2010 Subpoena, in light of the above caveat. Hafetz Aff., Ex. 23 at 3. On October 9, 2014, defense counsel responded that the documents produced constitutes her complete production "required by the subpoena to be produced, once the subpoena's verbiage is conformed to that found in [31 C.F.R.] Section 1010.420[.]" Hafetz Aff., Ex. 24 at 1. Counsel elaborated that:
[t]o the extent [the Government] seeks a kind of interrogatory-like answer or attorney gloss, I respectfully decline to provide it, and one is of course not compelled by the subpoena. Contextual understanding and discussion may have its time and place here, but given the Fifth Amendment minefield in this subpoena area, and the very narrow pathway which the Second Circuit has provided to the Government and attorneys to traverse it, it would be especially imprudent to venture gratuitously further in regard to the subpoena.
Not until June 1, 2016 does it appear that the Government contacted Defendant again regarding her production. Between June 1, 2016 and June 8, 2016, counsel conferred about Defendant's production. Hafetz Aff., Exs. 25-26, 28. On June 2, 2016, Defendant was issued another grand jury subpoena (the "2016 Subpoena"), seeking records from June 3, 2011 to the date of the subpoena relating to, among other things, foreign accounts, "including but not limited to records required to be maintained pursuant to 31 C.F.R. § 1010.420. . ." Hafetz Aff., Ex. 27. In letters dated June 8, July 15, August 9, and August 16, 2016, defense counsel, among other things,contested the breadth of the 2016 Subpoena as being beyond the scope of the "Required Records" doctrine (and thus subject to Fifth Amendment objections). Hafetz Aff., Exs. 28, 30-32. Specifically, defense counsel argued that because the 2016 Subpoena "calls for records concerning accounts in which [Defendant], inter alia, has a 'present or future financial interest, [or] legal interest[,]'" the subpoena "expand[ed] the scope of the 'required...
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