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Steven Toscher Quoted in Tax Notes Article on Receiving Non-Prosecution Letters From DOJ


Published by Tax Analysts, Tax Notes Today

Although some practitioners question the potential value of non-target letters available to institutions in categories 3 and 4 of the Justice Department’s Swiss bank program, others point out the value of non-target letters in the general criminal context and the request for the additional categories by the Swiss government.

In August, 2013 the DOJ and the Swiss government announced their agreement on a program to allow Swiss banks to address any potential exposure to U.S. criminal tax liability or lack thereof. The program separated the banks into four categories:

[#186] category 1 banks, which are ineligible for the program
because they were already under investigation when
it was announced;

[#186] category 2 banks, which violated U.S. law but applied
for non-prosecution agreements;

[#186] category 3 banks, which did not violate U.S. law
but may have applied for non-target letters; and

[#186] category 4 banks, which are deemed to be compliant
(that is, “Financial Institutions with Local Client Base” under the Switzerland-U.S. intergovernmental agreement implementing the Foreign Account Tax Compliance Act) and may have applied for non-target letters.

From March 2015 to January 2016, 80 Swiss banks reached 78 non-prosecution agreements with the DOJ under category 2 of the Swiss bank program. As part of those agreements, the category 2 banks paid over $ 1.3 billion in penalties and provided information on over 35,000 U.S.-related accounts. (Prior coverage (Doc 2016-1772).)

Non-target letters under categories 3 and 4 do not come with penalties or require account disclosure or continued cooperation with the U.S. tax enforcement authorities. However, non-target letters under the Swiss bank program require banks to conduct independent investigations and provide reports of those investigations to the DOJ.

Some have questioned the value of the non-target letters available to banks in categories 3 and 4. For example, Mark E. Matthews of Caplin & Drysdale Chtd. said that DOJ non-target letters provide little formal protection because of common exceptions for newly discovered facts or if the bank provides false information. “It is really more of a Good Housekeeping seal of approval,” he said, adding that the professional costs of obtaining the letters may outweigh their
value in many situations.

Sanford J. Boxerman of Capes, Sokol, Goodman & Sarachan PC said that while he does not have any clients seeking non-target letters under the Swiss bank program, he does see them regularly in his general white-collar criminal defense
practice. “We like to get them on behalf of our client, even though a non-target letter is not, in the usual case, a guarantee or binding contract that you can take to a court in the event that something changes down the road,” he said.

Non-target letters provide both peace of mind and strategic value, he said.
Boxerman said that a non-target letter is most useful when the defense lawyer has a high level of trust in the prosecutor and when the lawyer is confident that he or she has a reliable command of the facts in the case.

Steven Toscher of Hochman, Salkin, Rettig, Toscher & Perez PC said that in general non-target letters are less protection than immunity but that “it is a big deal in our practice when the government says that you are not a target.”

He said that the United States Attorneys’ Manual generally refers to three classifications: target, subject, and witness.

There is some reassurance in not being a target, even if that leaves someone as a potential subject, he said.

Kathryn Keneally, former assistant attorney general for the DOJ’s Tax Division and now with DLA Piper, was the author of the DOJ’s Swiss bank program. She told Tax Analysts that during negotiations over the program the Swiss government was primarily concerned with ending the uncertainties surrounding the reputation of the country’s banking industry.

Keneally said that the Swiss were concerned not only with how to resolve issues for banks that may have had some potential criminal liability but also with how other banks could declare that they did not have those issues. “We put the non-target letter provisions into the Swiss bank program to address the concern by the Swiss of the cloud that the government’s investigation had put over an entire industry of another country. It was a unique set of circumstances,” she said.

Tax Division officials have previously said that they are happy to talk to potential targets other than Swiss banks about clearing up potential U.S. criminal tax exposure.

Asked if proactive disclosure might result in non-target letters because the people or institutions coming forward do not believe they have U.S. criminal tax exposure, in contrast to non-prosecution agreements or deferred prosecution agreements for those with criminal exposure, Keneally said, “Simply to have someone come forward and say, ‘I would like to clear my reputation; can I show you that I have no problem, and will you give me a non-target letter?’ would be an unusual and probably not optimal use of law enforcement resources.” She said that a more appropriate use of enforcement resources on unsolicited non-target letters would be in a situation in which the individual or institution coming forward also has information on another investigation or potential investigation.

Bryan C. Skarlatos of Kostelanetz & Fink LLP said that the non-target letters would be valuable to banks believing that their past actions do not provide any basis for prosecution but still wanting assurance. The DOJ is less interested in looking at people and institutions to say that it is not interested in prosecuting them, he said, adding that clearing people is not a normal thing for the DOJ to do and is relatively exclusive to the Swiss bank program.

Keith D. Krakaur of Skadden, Arps, Slate, Meagher & Flom LLP said that non-target letters are useful in the general criminal context, even though they are not binding on the DOJ, because they provide a certain level of reassurance to the recipients. He said that is particularly the case under the Swiss bank program because a precondition to obtaining a non-target letter is that the bank first conduct a fairly extensive investigation that must be shared with the DOJ. The benefit of a non-target letter in that context is that it is predicated on the DOJ having already considered the results of the investigation, he said.

The DOJ declined to comment about the number of banks applying for non-target letters or whether any banks have withdrawn applications for non-target letters. DOJ officials have said both that they expect fewer non-target letters than non-prosecution agreements and that the non-target letters will not be published like the non-prosecution agreements were.

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