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In re Various Grand Jury Subpoenas

United States District Court, S.D. New York

January 24, 2017

In re VARIOUS GRAND JURY SUBPOENAS

          OPINION & ORDER

          WILLIAM H. PAULEY, III, District Judge

         The Government moves for additional contempt sanctions against Respondent Subject E on grounds that she violated this Court's previous order compelling her compliance with a 2010 grand jury subpoena seeking foreign bank account records pursuant to the Bank Secrecy Act of 1970. 31 U.S.C. § 5311, et seq. For the reasons that follow, the Government's motion is granted in part and denied in part.

         FACTUAL BACKGROUND

         I. The Compulsion Order and Contempt Order

         This miscellaneous proceeding stems from Subject E's refusal to comply with a grand jury subpoena dated October 4, 2010 seeking “[a]ny and all records created, obtained, and or maintained from October 5, 2005, to the present that are in [Subject E's] care, custody, or control relating” to foreign bank accounts in which she maintained a financial interest (the “2010 Subpoena”). (Declaration of Daniel W. Levy Ex. E.) Subject E asserted the act of production privilege against self-incrimination under the Fifth Amendment as the basis for her refusal to comply.

         On February 19, 2013, this Court ordered Subject E and other accountholders to comply with their respective subpoenas (the “Compulsion Order”). See In re Various Grand Jury Subpoenas, 924 F.Supp.2d 549 (S.D.N.Y. 2013).

         The Compulsion Order directed Subject E to respond to a narrow set of demands under the 2010 Subpoena. Consistent with the Bank Secrecy Act's record-keeping requirements, Subject E was directed to produce only “records [of bank accounts] reflecting the name in which each such account is maintained, the number or other designation of such account, the name and address of the foreign bank or other person with whom such account is maintained, the type of such account, and the maximum value of each such account during each calendar year.” 31 C.F.R. § 1010.420. Because producing these records would not invoke “independent communicative aspects” that risked self-incrimination under the Fifth Amendment, this Court held that Subject E could not resist compliance based on the act of production privilege.

         Separately, to assure Subject E's compliance, this Court entered an order in April 2013 holding her in civil contempt and sanctioning her $1, 000 per day until she complied (the “Contempt Order”). (See ECF No. 12.)

         II. Subject E's Production Under the 2010 Subpoena

         On March 28, 2014, Subject E made a single production consisting of two documents totaling three pages. (See Government's Motion for Additional Contempt Sanctions (“Mot.”) at 9; Memorandum of Law of Subject E in Opposition to Government's Motion for Additional Contempt Sanctions (“Opp.”) at 8.) The two documents reflect communications between Subject E and HSBC France representatives. (Declaration of Jared Lenow (“Lenow Decl.”) Ex. AA.) Subject E represented that her March 28 production constituted a “complete production of records required by the subpoena.” (Lenow Decl. Ex. CC.) The Government never pressed Subject E to pay any monetary sanctions under the Contempt Order. (See Hearing Transcript dated Nov. 3, 2016 (“Tr.”) at 5:20-21, 14:11.)

         III. The Liechtenstein Documents and Other Foreign Accounts

         In December 2015, more than a year and a half after Subject E's production, the Government received documents from the Principality of Liechtenstein in connection with its ongoing investigation (the “Liechtenstein Documents”). The Liechtenstein Documents revealed that Subject E “held foreign bank accounts with millions of dollars in assets through a sham foreign entity, the [Subject E Foundation], during the time period covered by” the 2010 Subpoena. (Mot. at 10-11.)

         More specifically, after reviewing translations of the Liechtenstein Documents, the Government discovered that Subject E was identified as a beneficiary of the Subject E Foundation (the “Foundation”), [1] an allegedly sham foundation organized in Liechtenstein that maintained several foreign bank accounts and had, on several occasions, transferred tens of thousands of dollars directly to Subject E. (Mot. at 13.) The Government also unearthed documents signed by Subject E indicating that she was the “beneficial owner” of the Foundation (Lenow Decl. Ex. DD at 15), possessed all of its assets (Lenow Decl. Ex. DD at 10), and had authorized changes to the listed beneficiaries (Lenow Decl. Ex. DD at 7). Finally, the Liechtenstein Documents provided information regarding several of the Foundation's foreign accounts, each of which held in excess of several million. (Lenow Decl. Ex. DD at 94, 165, 178.)

         While many of the Liechtenstein Documents were responsive to the 2010 Subpoena, Subject E had produced none of them. Based on the discrepancy between Subject E's bare production of three pages and the mass of materials comprising the Liechtenstein Documents, the Government concluded that she failed to comply with the 2010 Subpoena. Additionally, the Government contends that Subject E failed to produce records relating to other foreign accounts-records from a supposed joint account at Credit Suisse that Subject E shared with her former husband, and additional records from the previously referenced HSBC France account. (See Mot. at 23-24.)

         Thereafter, in June 2016, [2] the Government moved for additional contempt sanctions and sought an order increasing the contempt fine to $5, 000 per day. A day later, the Government also served a new subpoena on Subject E, seeking records maintained from June 3, 2011 to the present relating to accounts held in her name, or in the name of or benefit of the Foundation or her two children (the “June 2016 Subpoena”). (Declaration of Alain Leibman (“Leibman Decl.”) Ex. 11.) Subject E has not made any productions in response to the June 2016 Subpoena.

         About a month later, in July 2016, the Government indicted Subject E, charging her with (1) obstructing and impeding the due administration of the internal revenue laws (26 U.S.C. § 7212(a)), and (2) subscribing to a false and fraudulent U.S. individual income tax return (26 U.S.C. § 7206(1)). The indictment asserts many of the same allegations that the Government advances in this contempt proceeding. That criminal action is now pending before another judge in this District. As of the date of this Opinion and Order, the parties are embroiled in several pretrial disputes. No date has been fixed for jury selection and trial.

         DISCUSSION

         I. Standard

         In civil contempt cases, a court has discretion to fashion sanctions which are necessary to “coerce the [Respondent] into compliance with the court's order, and to compensate the complainant for losses sustained.” Local 28 of the Sheet Metal Workers' Int'l Ass'n v. EEOC, 478 U.S. 421, 443 (1986) (citation omitted). In imposing monetary sanctions, courts should consider (1) the character and magnitude of the harm threatened by continued contempt; (2) the probable effectiveness of the proposed sanction; and (3) the financial consequence of the sanction on the contemnor. See United States v. United Mine Workers of America, 330 U.S. 258, 304 (1947). “The ultimate consideration is whether the coercive sanction . . . is reasonable in relation to the facts. That determination is left to the informed discretion of the district court.” New York State NOW v. Terry, 886 F.2d 1339, 1353 (2d Cir. 1989).

         II. Analysis

         The Government contends that Subject E violated the Compulsion Order because she willfully refused to obtain and produce any records relating to the Foundation's bank accounts, the HSBC France account, and the Credit Suisse account, among others. Subject E counters, in essence, that she was required only to produce responsive records in her possession. She further argues that in view of the pending indictment against her, enforcement of the 2010 Subpoena at this time would improperly aid the Government in its trial preparation.

         A. Care, ...


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