United States v. Greenfield
| Citation | 831 F.3d 106 |
| Decision Date | 01 August 2016 |
| Docket Number | August Term, 2015,Docket No. 15-543 |
| Parties | United States of America, 26 U.S.C. Sections 7402(b) and 7604(a): Enforcement of Internal Revenue Service Summons,Plaintiff-Appellee, v. Steven Greenfield, Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Elizabeth M. Johnson(Lawrence S. Goldman, on the brief), Law Offices of Elizabeth M. Johnson, New York, New York, for Defendant-Appellant.
Michael J. Byars (Benjamin H. Torrance, on the brief) Assistant United States Attorneys, for Preet Bharara, United States Attorney for the Southern District of New York, New York, New York, for Plaintiff-Appellee.
Before: CALABRESI, LYNCH, and LOHIER, Circuit Judges.
A remarkable amount of American wealth is held offshore, often in an effort to evade taxation. One recent study estimated that $1.2 trillion—some four percent of this nation's wealth—is held offshore and that this results in an annual loss in tax revenue of $35 billion. Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens 53 (Teresa Lavender Fagan trans., 2015). Such lost income diminishes the Treasury and exacerbates inequality since, generally, only the wealthiest of individuals can take advantage of foreign tax havens. Id. Recognizing this, recent measures, such as the Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471-1474, have sought to strengthen the IRS's efforts to combat tax evasion through the use of foreign shelters. But enforcement presents significant challenges given the sophistication of tax planning and the information asymmetry between taxpayers and tax authorities.
The need to curtail tax evasion, however pressing, nevertheless cannot warrant the erosion of protections that the Constitution gives to all individuals, including those suspected of hiding assets offshore. In the present case, Steven Greenfield was implicated in tax evasion as a result of a document leak from a Liechtenstein financial institution. Years later, the Government issued a summons for a broad swath of Greenfield's records, including documents relating to all of Greenfield's financial accounts and documents pertaining to the ownership and management of offshore entities controlled by Greenfield.
Greenfield opposed production and moved to quash the summons based on his Fifth Amendment right against self-incrimination. But the District Court for the Southern District of New York (Hellerstein, J .) granted enforcement as to subset of the records demanded by the summons. It concluded that the existence, control and authenticity of that subset of documents were a foregone conclusion and, as a result, under Fisher v. United States , 425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976), any Fifth Amendment challenge must fail.
We disagree with the District Court for two reasons. First, we find that, for all but a small subset of the documents covered by the District Court's order, the Government has not demonstrated that it is a foregone conclusion that the documents existed, were in Greenfield's control, and were authentic even in 2001. Second, we find that the Government has failed to present any evidence that it was a foregone conclusion that any of the documents subject to the summons remained in Greenfield's control through 2013, when the summons was issued. Accordingly, because the Government has not made the showing that is necessary to render Greenfield's production of the documents non-testimonial and, hence, exempt from Fifth Amendment challenge, we vacate the District Court's order and remand.
This case stems from a "global tax scandal" that came to light in February 2008 after an employee of Liechtenstein Global Trust ("LGT"), a private financial institution owned by the royal family of Liechtenstein, leaked thousands of documents from accounts held at LGT. S. Hrg. No. 110-614, at 2 (2008). Many of the individuals involved in the accounts had never disclosed the existence of these accounts (or the assets there held) to their domestic tax authorities. The actions of the employee, Heinrich Kieber, set off a wave of enforcement actions across Europe, and Kieber went into hiding after being charged with theft of information under Liechtenstein law.
The effects of Kieber's disclosure were felt in the United States as well. The Permanent Subcommittee on Investigations of the United States Senate ("PSI") began hearings in July 2008 in response to the LGT disclosure and a similar leak from UBS, a Swiss bank. In connection with these hearings, Kieber released more than 12,000 pages of documents from LGT's files to the PSI. Because Kieber's current location and name were unknown to the PSI, Kieber himself did not appear at the hearings, but he did give a recorded interview with PSI counsel for the proceedings.
Defendant-Appellant Steven Greenfield ("Greenfield") was one of the individuals implicated by Kieber's disclosure of LGT documents. Greenfield owns Commonwealth Toy Company, Inc. ("Commonwealth"), a retail marketing and licensing company that operates worldwide. Commonwealth was founded by Greenfield's father, Harvey Greenfield ("Harvey"), who ran Commonwealth as CEO until his death in 2009. The leak suggested that the Greenfields were involved with certain offshore entities that had been used, or were being used, to evade taxation. Indeed, the PSI twice asked Greenfield to appear before them to address the disclosure; Greenfield failed to appear at the first hearing and, at the second, appeared but asserted his Fifth Amendment right to remain silent.
Only a few of the documents disclosed by Kieber addressed the Greenfields' connections to offshore banking directly. These included:
The LGT Memo is the most significant piece of evidence documenting the Greenfields' offshore banking.2 The LGT Memo describes a March 23, 2001 meeting between Greenfield, his father Harvey, LGT employees, and Prince Philip of Liechtenstein, concerning the Greenfields' holdings at LGT. According to the LGT Memo, Maverick was established in January 1992 and, as of the meeting, held $2.2 million in cash as well as all the stock of TSF and Chiu Fu, which had been originally formed to channel assets into Maverick. In the LGT Memo Harvey is described as the "sole beneficiary of the Maverick Foundation"; Greenfield and his sisters are described as "secondary beneficiaries," with Greenfield also holding a "power of attorney to give instructions" over Maverick. App. 145.3 It also states that each of the Greenfields held U.S. passports and lived, part time, in New York City.
The LGT Memo provides the following context for the purpose of the meeting. The Memo states that Harvey had a trust with the Bank of Bermuda in Hong Kong (the "Trust"), with assets of about $30 million in cash as well as the stock of a number of operating companies. The "beneficiary rules for the Trust ... [were] likely stored similarly" to those of Maverick. Id. Also, according to the LGT Memo, the Bank of Bermuda had "indicated to the client that it would like to end the business relationship with him as a U.S. citizen," and that the client was "now on the search for a safe haven for his offshore assets." Id. After that, the group discussed the advantages of banking in Liechtenstein as well as the current structure and asset status of Maverick. The LGT Memo further states that its author proposed meeting Greenfield in Hong Kong at the end of April 2001 to discuss the next steps, that is, whether and how the Trust's assets would be taken over by Maverick. It then concluded:
The clients are very careful and eager to dissolve the Trust with the Bank of Bermuda leaving behind as few traces as possible. The clients received indications from other institutions as well that U.S. citizens are not those clients that one wishes for in offshore business.
The remainder of the LGT Documents largely reflects the information in the LGT Memo. The Maverick account statement, dated as of December 31, 2001, states that it had about $2.2 million under management. The undated account information form also states that Greenfield is "the holder of the power of attorney to give instructions," and notes that LGT held expired passport copies for Greenfield and Harvey, but not Greenfield's sisters. App. 149. The forms for TSF and Chiu Fu state that they are wholly owned subsidiaries of Maverick and, after noting that these entities held no assets, the documents question their function and propose closing the bank accounts held by the TSF and Chiu Fu at Standard Chartered and HSBC.
Greenfield never reported income from or ownership of Maverick, Chiu Fu, TSF, or the Trust. The Internal Revenue Service (the "IRS") subsequently selected Greenfield's 2005 income tax return for civil audit and, on May 17, 2013, issued an Information Document Request for a number of documents in connection with the audit. The IRS issued a summons on June 17, 2013 (the "Summons") that required Greenfield to appear on July 26, 2013 to produce the below-listed materials for examination. On July 25, 2013, the IRS notified Greenfield that it had expanded the examination to the 2006 tax year.4
The Summons called for Greenfield to produce the following documents:
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