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INSIGHT: Tackling the Tax Division’s New Crime-Fraud Strategy

Oct. 2, 2019, 1:01 PM

Will the Department of Justice’s Tax Division be raising the crime-fraud exception earlier and more often? Recent statements by Tax Division representatives suggest that the answer to this question is yes.

In May of this year, during a session of the American Bar Association Section of Taxation Meeting in Washington, a Tax Division section chief remarked that Tax Division attorneys had been tasked with efficiently handling the crime-fraud exception to the attorney-client privilege. He suggested that to maximize efficiency and conserve resources, the Tax Division might bring crime-fraud motions to court even before completing a full taint team review of potentially privileged documents. About a month later, at the New York University Tax Controversy Forum in New York, the head of the Tax Division noted that the Tax Division had filed six to seven crime-fraud motions in the past year and had won each of these motions. He suggested that, going forward, there would be more reliance on the crime-fraud exception by the Tax Division.

Tax practitioners, accordingly, should prepare themselves for earlier and more frequent crime-fraud motions in criminal tax cases. For attorneys who seek to defend against such motions, there are a host of issues to consider. We discuss several of these considerations below.

Challenging Motions Filed by a Taint Team

First, if a crime-fraud motion is filed by a taint team, rather than an investigative team, the taint team’s involvement could potentially be challenged as improper. The Department of Justice (DOJ) frequently relies on taint teams—sometimes referred to as filter teams, privilege teams, or wall teams—which are comprised of DOJ attorneys. The purpose of a taint team is to review potentially privileged documents seized during an investigation, to determine whether and to what extent the documents are, in fact, privileged. In theory, the taint team has no role in the investigation of the case, as that task is handled by an investigative team. But where the taint team, rather than the investigative team, takes the step of filing a crime-fraud motion in a case, there may be a question as to whether the taint team has crossed the line and taken on an impermissibly substantive role.

The court in United States v. Levin expressed precisely this concern. There, it was the taint team, rather than the investigative team, which brought the crime-fraud motion. Although the court ultimately decided to consider the motion and to conduct an in camera review of the documents being challenged, the court nevertheless took care to explain the degree of its “concerns regarding the procedures used by the Government in bringing this motion,” particularly with respect to the taint team. The court noted that the purpose of an ethical wall is to avoid prejudice to the defendant, and not “to give the Government a substantive look into that which it has no right to see.” In the court’s view, the taint team had overstepped its role by filing the crime-fraud motion, because in doing so, it had acted “affirmatively on behalf of the prosecution.” The court was particularly troubled by the fact that the taint team, in that case, had “at least implicitly, base[d] [its] motion on [its] substantive awareness of the contents of the documents at issue.”

In sum, because taint team attorneys review potentially privileged documents, and cannot unlearn information they see that is contained in these documents, there is an argument to be made that the role of the taint team should be as limited as possible. Practitioners should be on guard for situations where the taint team seems to depart from that role and where the line between the taint team and the investigative team becomes blurred.

Advocating for the Use of a Special Master

Second, as noted above, a Tax Division representative recently suggested that bringing crime-fraud motions to court before completing a full taint team review would maximize efficiency and conserve resources. But practitioners should consider whether there are better and fairer ways of maximizing efficiency and conserving resources in document-intensive cases.

For example, following the search of the law offices of Michael Cohen, President Trump’s attorney, the court presiding over the matter decided to appoint an independent special master to review the potentially privileged documents that had been seized during the search. Though the government had initially advocated for the use of a DOJ taint team to conduct the privilege review, the defense protested, and the government ultimately agreed that the use of a special master would be appropriate. The change in the government’s position may be reflective of a recognition that taint teams staffed with DOJ attorneys can be a resource drain and are sometimes inefficient. Moreover, as one court has observed:

"[T]aint teams present inevitable, and reasonably foreseeable risks to privilege, for they have been implicated in the past in leaks of confidential information to prosecutor. That is to say, the government taint team may have an interest in preserving privilege, but it also possesses a conflicting interest in pursuing the investigation, and, human nature being what it is, occasionally some taint-team attorneys will make mistakes or violate their ethical obligations. It is thus logical to suppose that taint teams pose serious risk to holders of the privilege, and this supposition is supported by past experience.” In re Grand Jury Subpoenas 04-124-03 and 04-124-05.

In light of these issues, there may be value in arguing to a court that the use of a special master, rather than a taint team, is the better way to ensure that the privilege review proceeds expeditiously and comprehensively and the defendant’s rights are properly protected. That argument may have particular force if there is a risk that the government will jump to file a crime-fraud motion before a taint team has looked at all the documents that it is tasked with reviewing.

Addressing Fairness Concerns Inherent in Ex Parte Submissions

Finally, when crime-fraud motions are filed early in a case, they are more likely to be filed on at least a partially ex parte basis, with the supporting affidavit being withheld from the defense’s view. That is because the case is still before the grand jury and an indictment has not yet been returned. Crime-fraud motions with ex parte affidavits, which do not afford the defendant a full opportunity to dispute the government’s version of the relevant facts and evidence, present fairness concerns.

In a civil case, “the party opposing a crime/fraud motion is permitted to proffer evidence to be considered in weighing the strength of the movant’s initial showing.” In re Omnicom Group, Inc. Securities Litigation. In criminal cases, by contrast, courts have approved the use of ex parte affidavits setting forth the factual basis for the government’s invocation of the crime-fraud exception, in order to preserve grand jury secrecy. See, e.g., In re John Doe. It is thus effectively left to the government to decide whether to file its crime-fraud motion pre-indictment, and use an ex parte affidavit, or to wait until after indictment, and give the defense a chance to respond to the specifics of its allegations.

This is a fundamental decision that places a great deal of discretion in the hands of the government. Nevertheless, courts have ruled that the government may make ex parte crime-fraud submissions in the pre-indictment context and have rejected defense arguments that these submissions violate due process. Practitioners wishing to confront the fairness concerns inherent in this practice must, therefore, take a more creative approach. They may, for instance, consider pressing for an in camera review by the court of all relevant documents, so that the court is assessing the applicability of the crime-fraud exception on a document-by-document basis, rather than making a categorical ruling that the crime-fraud exception either applies or does not apply to a matter. In pressing for an in camera review, practitioners might note that a careful document-by-document review by the court is especially important when the defense has not had a full opportunity to dispute the government’s recitation of the underlying facts.

Conclusion

As the Tax Division’s crime-fraud strategy changes, practitioners must also think strategically about how to respond. The above issues are just some of the points for tax practitioners to consider when contending with crime-fraud motions that are filed earlier and more often.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Sarah Paul, a partner at Eversheds Sutherland (US) LLP, represents clients in white-collar investigations and tax controversy matters. She previously served as an Assistant U.S. Attorney for the Southern District of New York, where she spent the last two and a half years of her tenure supervising over one hundred prosecutors on all aspects of criminal tax cases.

Daniel Strickland, an associate at Eversheds Sutherland (US) LLP, concentrates his practice in the area of federal and international tax controversy, representing taxpayers in all types of tax controversy matters. He holds an L.L.M. in taxation from Georgetown University Law Center, where he attended on a merit scholarship.

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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