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April 3, 2008

Feds agree to probation for tax cheat billionaire!?!?!

After seeing this story at Forbes, headlined "U.S. Agrees Guilty Billionaire Shouldn't Go to Jail," I may have to rethink my assumption that federal prosecutors never are willing to go soft on any white-collar criminals.  Here are the details:

[T]he sentencing of billionaire Orange County real estate developer Igor M. Olenicoff, scheduled to take place in a federal court in California April 14, might not make for good scared-straight headlines. In a new court filing, government prosecutors agree that Olenicoff, who pleaded guilty in December to one felony count of filing a false 2002 U.S. individual income tax return, should get off on probation.

In his plea agreement, Olenicoff, 65, admitted he lied on his 1998 through 2004 tax returns when he answered "no" to a question asking if he had ownership or authority over any financial accounts in foreign countries.  In fact, he had accounts in the Bahamas, Switzerland, Liechtenstein and Britain. As part of the plea deal, Olenicoff paid $52 million in back federal taxes, interest and civil fraud penalties and agreed to bring all the money in his foreign accounts (believed to total in the hundreds of millions) back to the U.S.

Forbes estimates the self-made, Russian-born Olenicoff, who came to the U.S. at age 15, is now worth $1.6 billion.  While the false-tax-return charge is punishable by up to three years in jail, Olenicoff's deal with prosecutors, together with federal sentencing guidelines, made it unlikely he would get more than six months.  Then last month, a U.S. probation officer filed a pre-sentencing report recommending Olenicoff get off with just one year of probation and a $3,500 criminal fine.  While that report is not a public document, prosecutors' response to it is.

In a filing this week, prosecutors said they didn't object to probation, but urged that the probation last three years--to ensure Olenicoff's "future compliance with Internal Revenue laws. " The prosecutors noted that while Olenicoff has fully complied with the terms of his plea deal, his "use of off-shore bank accounts and the transferring of assets to these accounts dates back to at least 1992."

Edward M. Robbins Jr., Olenicoff's attorney, said the prosecutors' position makes it "highly unlikely" that the judge will sentence Olenicoff to any prison time, although he still might order home detention. But Robbins, a former federal tax prosecutor who is now a partner with Hochman, Salkin, Rettig, Toscher & Perez, in Beverly Hills, rejected any suggestion that Olenicoff is getting off lightly and insisted the felony conviction alone would indeed have a strong deterrent effect.

I think what irks me about this story is the idea that a defendant apparently worth $1.6 billion is going to only face a fine of a few thousand dollar.  Especially if he is to avoid all prison time, how about a fine of, say, .1% of his worth.  Even letting this fellow keep 99.9% of his fortune could still produce a more fitting fine of $1.6 million.  Also, how about some community service requiring him to help low and middle income tax payers set up lawful tax shelters?

April 3, 2008 at 09:44 AM | Permalink

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Comments

The open question is how much of the $52 million he's paying the IRS is considered a "civil fraud penalty". There isn't a whole lot of meaningful difference between a civil fraud penalty and a fine. So if he's already paying a large penalty, then the $3,500 criminal fine might be fair when you consider it holistically.

Posted by: Marc Shepherd | Apr 3, 2008 11:08:48 AM

He had to pay back $52 million (including penalties). Surely that counts for something punative, even if the purpose is technically only remunerative. I've never seen nor understood any distinction between "civil fines" and "criminal fines". There is no difference. Civil fine is an oxymoron - a fine is punative, no matter what it's called or what court orders it.

This is a rare case of the punishment fitting the crime. Good for the AUSA handling the case, he/she has my respect.

People forget that not every defendant is the same. For some defendants, simply being arrested and having a felony conviction on their record is punatively equivalent to a few years in prison for some other defendant. In other words, sentencing a career criminal gang-banger to 5 years in prison is equivalent to him what being arrested and spending 24 hours in county lock-up is to another defendant. While it's hard to measure punative equivalence, it should not be forgotten.

Posted by: bruce | Apr 3, 2008 11:10:39 AM

Paying back taxes is not punitive. Most tax penalties are not even considered punitive.

It might be worth posting the plea agreement.

Posted by: S.cotus | Apr 3, 2008 11:39:32 AM

Agreed with S. Cotus. One day I hope to be rich enough to be able to buy my way out of prison time if I ever commit a crime.

I'm not sure how this is supposed to have a "strong deterrent effect" -- if you get a bunch of money by improper means, and you get caught, all you have to do is give it back, plus interest and what appears to be a nominal "fine."

If we think that cheating on your taxes is the moral equivalent of returning a movie to Blockbuster a day late, then this seems to be an excellent result. Otherwise, I have some questions and would like to see the plea agreement.

Posted by: | Apr 3, 2008 12:31:57 PM

Do you really think that paying back taxes is punitive?

Posted by: S.cotus | Apr 3, 2008 1:54:04 PM

According to the post, he's paying a civil fraud penalty. This is different from the ordinary penalty that applies when you pay your taxes in good faith, but inadvertently pay too little. A civil fraud penalty means that the taxpayer is admitting he defrauded the IRS. It is, in every meaningful sense of the word, punitive.

Posted by: Marc Shepherd | Apr 3, 2008 2:15:36 PM

Will someone plesae post the @#$$%@ plea agreement.

Posted by: S.cotus | Apr 3, 2008 2:34:32 PM

A civil fraud penalty means that the taxpayer is admitting he defrauded the IRS. It is, in every meaningful sense of the word, punitive.

Not in every meaningful sense. The debate is over just how much the penalty was and just how much it hurt. Sounds like a slap on the wrist so far. According to the article in this post, the Presentence Report recommends that Olenicoff "get off with just one year of probation and a $3,500 criminal fine." Based on what Olenicoff stole and what he's worth, $3500 isn't even a rounding error.

S. Cotus, http://ocbiz.freedomblogging.com/files/2007/12/olenicoff-plea.pdf

Posted by: | Apr 3, 2008 2:52:32 PM

People forget that not every defendant is the same. For some defendants, simply being arrested and having a felony conviction on their record is punatively equivalent to a few years in prison for some other defendant. In other words, sentencing a career criminal gang-banger to 5 years in prison is equivalent to him what being arrested and spending 24 hours in county lock-up is to another defendant. While it's hard to measure punative equivalence, it should not be forgotten.

This only goes so far. It's true that prison affects some people more than others, that some people have more to lose than others, and that some are more easily deterred than others.

On the other hand, there are those who consider it punishment to drink rail liquor or to ride coach when they fly on a plane. Perhaps Olenicoff would be hurt by those sorts of restrictions as much as a gangbanger would be hurt by having to spend a month in prison, but that shouldn't affect Olenicoff's sentence.

Posted by: | Apr 3, 2008 2:58:01 PM

The debate is over just how much the penalty was and just how much it hurt. Sounds like a slap on the wrist so far.

Well...no, it's simply unknown, because we don't know how much of the $52 million is punitive. I seriously doubt that the government would have agreed to the $3,500 fine if he weren't already paying a substantial civil fraud penalty (i.e., more than just back taxes and interest) to the IRS.

Posted by: Marc Shepherd | Apr 3, 2008 5:55:59 PM

Are you certain that the $3500 isn't the "civil fraud penalty?" I'm a bit confused by the whole thing.

Posted by: | Apr 3, 2008 6:22:56 PM

What I dont understand and I hope someone can help me is with that much money involved how is the offense level only 6? this is just from reading the papers but wasnt the Wesley Snipes number less than half and they wanted to put him in jail for a very long time?

Can someone please explain why only an offense level of 6?
Thanks

Posted by: | Apr 3, 2008 6:40:19 PM

So he is a billionaire , 56 million fine?

Thats like convicting me and making me pay less then 1 grand in penalties for 6 years of not paying taxes. Highly unlikely.

Posted by: Mark | Apr 4, 2008 5:28:24 AM

Interesting coming not too long after that story out of Tennessee where the guy got 2 or 3 years in prison for tax evasion that was a total of $13,000 over 4 years (if I remember correctly).

Of course, there is quite a bit of merit to punishing tax evasion with fines only since the main point is to get the revenue and financial crimes can often be deterred by disgorgement of profits plus a fine - however, sending poor people who cheat on their taxes to prison while sending rich people who cheat on their taxes home with slap on their wrist and an agreement to not cheat anymore sends the message that money matters more. I don't think its a good idea to send people to jail for tax evasion for a long time, since the point is to address the fiscal harm to the government and incarceration costs a lot of money and hence seems a pretty dumb way to address fiscal harm to the government - but maybe a 30 day sentence in addition to the financial penalties would provide some deterrence value to the billionaires of the world.

Posted by: Zack | Apr 4, 2008 9:57:27 AM

Zack's points are extremely sensible. It hardly ever makes sense to sentence people to long prison terms for crimes like this one, when you can impose a rather substantial forfeiture instead. A "symbolic" 30 days in jail would also have a significant deterrent effect, since for a guy like Olenicoff even 1 day is pretty scary.

It's always a bit dangerous to say, "Well, the guy in Tennessee got 2 or 3 years, so Olenicoff should too." In a system where sentencing decisions are so widely spread out, you can always find outlying cases. Those cases shouldn't become the new norm, or benchmark, unless of course they deserve to be.

Posted by: Marc Shepherd | Apr 4, 2008 4:03:25 PM

The whole tax fraud thing seems like a lottery. Most tax cheats are never caught at all. Of those who are caught, most are caught by an audit and pay civil fines.

I assume that a big reason this guy did better than Hatch is that he agreed to plead guilty.

Posted by: William Jockusch | Apr 5, 2008 2:35:03 AM

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