By Paul Levine
Swiss banking giant Credit Suisse is set to plead guilty to helping thousands of Americans cheat Uncle Sam in tax evasion schemes. At the same time, the federal government is chasing taxpayers who hid their money overseas. It seems a good time to ask what’s fair and just in tax evasion cases.
You can’t throw a bank in jail. But Credit Suisse will pay a whopping $2.6 billion in penalties. Additionally, eight employees – though not senior executives – have been indicted by the Justice Department. But what about the American tax cheats? Let’s look at two ongoing tax evasion cases involving secret Swiss bank accounts.
Dr. Patricia Lynn Hough, 67, of Sarasota County, and her husband sold their two Caribbean medical schools, deposited $35 million into secret accounts, and didn’t pay taxes. A federal grand jury indicted them both, and the husband, Dr. David Frederick, fled, leaving his wife to face trial alone. (Now, there’s chivalry for you!) A jury convicted Patricia Hough of filing false tax returns; her husband remains a fugitive.
Ty Warner,69, of Oak Brook,IL, the creator of the Beanie Baby and owner of many luxury resorts, has a net worth of $1.7 billion. He deposited $100 million of undeclared income in Swiss banks and failed to pay more than $5 million in taxes. Indicted and facing certain conviction, he plead guilty to tax evasion.
Tax Evasion: Prison or Probation?
In each case, the government sought prison sentences. Now, You Be the Judge. Prison or probation?
1. Because of the huge amounts involved, the longstanding nature of the tax evasion, and as a deterrent effect, both defendants get prison time.
2. Both defendants are elderly. Both have done good works, Warner with substantial charitable donations, Dr. Hough, as a kind-hearted psychiatrist. Probation will do for the non-violent crime of tax evasion.
3. One goes to prison; one gets probation.
If you answered number three, go to the head of the class. But who does the time?
Dr. Hough will spend two years in prison, courtesy of Judge John Steele in Ft. Myers.
Ty Warner gets two years probation (plus 500 hours of community service), as determined by Judge Charles Kocoras in Chicago. The government has taken the rare step of appealing Warner’s sentence as “unreasonable.”
In announcing the probation, Judge Kocoras said that Warner’s charitable giving “trumped” his crime. In its brief to the U.S. Court of Appeals for Seventh Circuit, the U.S. Attorney flatly rejected that reasoning: “A defendant’s acts of charity cannot ‘trump’ his criminal conduct.”
The government’s brief also scoffed at this statement of the trial judge: “The public humiliation the defendant has suffered is manifest. Only he knows the private torment he has suffered.”
Are humiliation and private torment sufficient punishment? Judges are given wide discretion in “downward departures” from Federal Sentencing Guidelines, which in Warner’s case called for a term of roughly four years.
Meanwhile, the government had asked for only one year in prison. Only a year, and the judge wouldn’t give that!
If I were the trial judge, I would have said:
“Mr. Warner, you went to extraordinary lengths to hide your money for years. You flew to Switzerland and switched banks when the Justice Department got close. You could have paid back taxes and penalties in the Amnesty Program and gone free. Was $1.7 billion not enough? Was it necessary to cheat the government out of another $5 million?”
I would have banged my gavel and ordered Warner to prison for far more than a year, perhaps the four years called for by the Guidelines. Let the sentence serve as a deterrent to others in the top one per cent of the one per centers. But I have no prediction as to what the Seventh Circuit might do on the government’s appeal.
Back in Florida, Dr. Hough will start serving her two years shortly. Meanwhile, I can’t help but think of her missing husband. In my mind, I see him reclining on a chaise on a Caribbean beach with several million dollars in a safe deposit box and a young woman in a bikini serving him a mojito. There are some wrongs, it seems, that the Justice System can’t right.
(This post originally appeared May 29, 2014 as an Op-Ed article, entitled “Private Torment Spares Fraudster Time in Prison” in The Miami Herald. Paul Levine’s latest novel is “State vs. Lassiter.”)