Former US Tax Attorney, Now Defense Lawyer Shares Top Trends in Tax Fraud Crimes & Enforcement

Topics: Access to Justice, Client Relations, Financial Crime, Fraud, Government, Government Fraud, Risk Management, Tax Fraud

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As an attorney experienced in prosecuting and defending tax fraud cases, Jeff Setness has seen a lot from both sides of the legal table in his 34 years in law — and sometimes it still surprises him.

After stints in both the Judge Advocate Generals Corps of the Navy and in the US Department of Justice (DOJ) as a Tax Division Trial Attorney and Assistant US Attorney, Setness enter private practice in 1993, defending many of the same types of tax cases he once prosecuted.

“I think when someone’s a prosecutor they may not see — through no fault of their own — what I call the human element or the motivation of the alleged perpetrator, because as a prosecutor sometimes you look at cases in very stark terms,” Setness says. “But as a defense counsel, now you start to see cases in terms of every shade of gray.”

Trends in Fraud Enforcement

Today, Setness works in the Las Vegas office of Fabian VanCott, a 70-lawyer firm with offices in Las Vegas and Salt Lake City. And, over the years, he’s seen interesting trends develop in enforcement of criminal tax crimes, healthcare fraud, money laundering, and currency transaction fraud.

“After moving to Las Vegas as an Assistant US Attorney, I saw an increase in the prosecution of the structuring of currency transactions, and they still pop up on the radar today,” Setness says.

Structuring of currency transactions — which snagged both disgraced US congressman Denny Hastert and several of the defendants in the FIFA scandal that shook the world of organized soccer — is enforced under Title 31 of the U.S. Code § 5324, and it’s that regulation by which the Internal Revenue Service investigates these transactions. In fact, Ratzlaf v. US, which the Supreme Court decided in 1993, really defined how these cases are adjudicated and enforced.

Ratzlaf v. US — The Case that Defined Illegal Structuring Enforcement Actions

In Ratzlaf, defendant Waldemar Ratzlaf ran up a gambling debt of $160,000 to a Las Vegas casino. He tried to pay the casino in cash and added that he did not want any report of the transaction to be made to the Treasury Department. The casino manager initially refused those terms but then offered to send Ratzlaf around (in a casino-supplied limo) to several area banks where he could obtain numerous cashier checks in the amount of $9,900 each, which is below the level of required reporting.

“If a tax return preparer prepares 100 returns that contain incorrect information, for example, think about the fiscal impact!”

“It’s quite a complicated process, but I saw a rise in cases involving structuring of currency transactions and money laundering,” says Setness, who argued the Ratzlaf case before the US Circuit Court of Appeals for the Ninth Circuit prior to it moving to the Supreme Court. (Ultimately, the Supreme Court ruled that Ratzlaf didn’t act with enough “willful” intent in evading the reporting requirements to be found guilty of that crime.)

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Jeff Setness

“And when I moved back to Las Vegas in 2012, I saw a big push in the enforcement of the US Bank Secrecy Act and the reporting of suspicious transactions.”

Interestingly, Setness notes, the Bank Secrecy Act evolved over the years to include Las Vegas casinos, which are now considered financial institutions under the Act. And with about $15 million per day being taken in by Las Vegas casinos, according University of Las Vegas research, the casinos’ designation as financial institutions is not surprising.

Setness has represented casinos as they try to get into compliance with the Bank Secrecy Act and says his first task often is getting the casinos to accept the fact that they are a financial institution for the purpose of the Act, and beholden to all the reporting requirements and paperwork that designation entails. “It’s been quite a development of the law and enforcement for the casinos.”

Beyond Casinos: Tax Crime and Enforcement Trends

Beyond the casinos, Setness says he’s seen developing tax crime and enforcement trends in areas such as tax return preparation, employment taxes, and healthcare fraud. “I’m seeing a big emphasis in enforcement on tax return preparers today,” Setness explains, adding that tax return preparer criminal prosecutions are clearly a focus for the government, especially since 2016 when the uptick began. “And I think the reasons are obvious,” he says. “Because the illicit conduct of a single tax return preparer can impact a huge number of returns. If a tax return preparer prepares 100 returns that contain incorrect information, for example, think about the fiscal impact!”

Enforcement of employment taxes are becoming more a priority for government tax prosecutors as well because employment taxes have to be paid to the IRS by the employer, Setness observes. “So, obviously if they’re not doing so, there is harm to the IRS and there is harm to those employees because their taxes are not being paid in.”

Healthcare fraud is another area where the IRS is becoming more active, because the dollar volume of the fraud is so large, and these prosecutions can be so complex and paper-intensive. “Healthcare fraud can also impact the health of your average citizen,” he says. “So, it’s understandable to see IRS criminal investigators now working in that area.”

Criminal Acts from a Defense Perspective

As defense counsel, Setness says he’s noticed that sometimes good people commit criminal acts, and while that doesn’t mean the case against them should be not be pursued, it’s important to realize there’s many different circumstances that can lead to the commission of a crime. “As a result, I like to look at all the facts and circumstances and find out how this person got to where they’re at.”

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