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28 Agostino[1] - White Collar Criminal Defenses Frank...

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Unformatted text preview: White Collar Criminal Defenses Frank Agostino Bryan Skarlatos Comments and opinions expressed by the speaker do not necessarily reflect the positions, opinions or beliefs of the AICPA and should not be construed or interpreted as such. Speakers retain the copyright for all of the following materials. Any replication without written consent is unlawful. Session 28 AICPA NATIONAL FORENSIC ACCOUNTING CONFERENCE How Do Criminal Investigations Begin At the IRS? Agency Referrals Financial Reporting Forms Independent Criminal Investigations Informant How Does the IRS Civil Division Make a Referral to CI Eggshell Audits Never lie. Misdirection is OK, but never lie. 28-1 During the Examination Forensic accountant will often “front” the examination. Develop alternative approaches to issues. The Freedom of Information Act request. Understand and Preserve All Privileges Kovel Doctrine The attorney-client privilege is extended to the accountant and others under Kovel. U.S. v. Kovel, 296 F. 2d 918 (2nd Cir. 1961) Limitations to Kovel Privilege No Kovel for audit Safeguards to Protect Kovel Privilege 28-2 Work Product Privilege Information Protected FRCP 26(b)(2) Attorney’s Notes of witness interviews Hickman v. Taylor, 329 US 495 (1947) Documents analyzing anticipated litigation but prepared to assist in a business decision. US v. Adlman, 134 F.3d 1194 (1998) Work Product Doctrine (Cont’d) Information Not Protected Tax accural workpapers - U.S. v Textron Inc. et al, Docket No. 07263 28-3 Tax Practitioner’s Privilege IRC § 7525 See Countryside Limited Partnership, CLP Holdings, Inc. v. Tax Matters, Partner, Et. Al. v. Comm’r, 132 T.C. No. 17 (June 2009) (Held that meeting minutes and handwritten notes of partnership’s communications with its federally authorized tax practitioner did not constitute written communications promoting tax shelter.) Tax Practitioner’s Privilege (cont’d) Limitations Criminal tax proceedings Tax shelters Tax Return preparation is not covered. U.S. v. Frederick, 182 f. 3d 496, 500 (7th Cir. 1999) 28-4 Wrongful Disclosure of Taxpayer’s Tax Return Information IRC §7216 - criminal penalties (effective 1/1/09) IRC § 6713 – civil penalties Reg. §301.7216 & Rev. Proc. 2008-35 Rules for obtaining Taxpayer’s consent. Joint Defense Privilege Common Interest/ Joint Defense Privilege Two or more taxpayers can share information. 28-5 Forensic Accountant as an Expert Witness FRE 702 allows experts to assist the trier of fact to understand evidence or determine a fact at issue. Expert must provide the opposing party with a written expert witness report. Report Requirements: The qualifications of the expert witness; The expert’s opinion; The underlying facts supporting the expert’s opinion; and The reasons for the expert’s conclusion. Standard for Admissibility of Expert Witness Testimony Challenges to Admission of Expert Daubert Frye Daubert Standard Daubert Standard –Daubert v. Merrell Dow Pharmaceuticals, Inc. Daubert requires four key factors to be considered : Tested Peer Review and Publication. Potential Error Rate. Widespread Acceptance Within the Relevant Community. 28-6 The Role of the Forensic Accountant in White Collar Crime Defense I. Introduction A. White Collar Crime – The FBI defines “White-Collar Crime” as those illegal acts which are characterized by fraud, concealment, or a violation of trust and which are not dependent upon the application of threat of physical force or violence. 1 B. These acts are committed by individuals and organizations to obtain money, property or services; or to secure a personal, political or business advantage.2 II. Tax Crime Statutes A. Criminal Offenses Under The Internal Revenue Code 1. Tax Evasion – Section 72013 2. Willful Failure to Collect or Pay Over Tax – Section 72024 3. Willful Failure to File Return, Supply Information or Pay Tax – Section 72035 4. False Returns and Preparers of False Returns – Section 72066 5. Submitting False Documents – Section 72077 6. Attempts to Interfere with Administration of Internal Revenue Laws – Section 7212(a)8 III. How Do Criminal Investigations Begin At the IRS? A. Agency Referrals – Law enforcement agencies, federal or state agencies, or other divisions of the Internal Revenue Service (“IRS”) provide information to the Criminal Investigation Division (“CI”) that lead to criminal tax investigations.9 B. The IRS’ Civil Division is the single largest source of CI investigations. 10 C. Financial Reporting Forms – The filing or the failure to file financial forms such as currency transaction reports (“CTR”); suspicious activity reports (“SARs”); Forms 8300, which report receipt of more than $10,000.00 received in a trade or business, or Forms 90.22.1 “Report of Foreign Bank and Financial Accounts” and other foreign financial transaction forms have triggered many criminal investigations.11 D. Independent Criminal Investigations – Special Agents will review local newspapers, court records, and even rummage through a taxpayer’s trash to gather information to begin a criminal probe.12 E. Informant – Referrals by third party informants such as ex-wives or disgruntled employees are a common source for criminal investigation leads.13 F. Under the IRS Whistleblower Program, these tipsters can be rewarded as much as 30% by the IRS for information. 14 IV. What Are the Types of IRS Criminal Investigations? A. Administrative vs. Grand Jury Investigations 1. Administrative – The IRS conducts the investigation on its own, using the administrative summons to compel the production of documents and testimony.15 2. Grand Jury Investigations – The Special Agents work in conjunction with the local U.S. Attorney’s Office and/or the 1 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense Department of Justice Tax Division, and use grand jury subpoenas to obtain the documents and testimony they seek.16 B. Administrative Investigations - The IRS’ stated policy is to use the administrative investigations when possible, and to request that an investigation be conducted by a grand jury only where the IRS is experiencing particular difficulty obtaining the evidence it needs through the use of administrative summonses.17 C. U.S. Attorney’s Office - The U.S. Attorney’s Offices throughout the country also initiate tax-related grand jury probes when investigations being conducted by the offices reveal evidence of possible tax crimes.18 V. How Does the IRS Civil Division Make a Referral to CI A. Examination Division 1. The most frequent source of criminal referrals is the Examination Division, which conducts civil tax audits. 19 2. Revenue Agents have the most contact with taxpayers and it is not uncommon for a Revenue Agent during a routine corporate or individual audit to uncover facts that hint at the presence of fraud. 20 B. Eggshell Audits 1. When tax returns under audit contain the potential for tax fraud to be charged, this is called an “Eggshell Audit.”21 2. The taxpayer is walking on eggshells hoping that the Revenue Agent will not determine tax fraud. 3. Revenue Agents are trained to look for evidence of fraud whenever they audit income, estate, or gift tax returns.22 4. The Internal Revenue Manual contains a Fraud handbook that states that “when the examiner discovers a firm indication of fraud, the examination should be immediately suspended without disclosing to the taxpayer or representative for the action.” 23 C. Reverse Eggshell Audit 1. Once the Revenue Agent suspects fraud during the civil exam and he or she refers the case to CI, CI may conduct a joint criminal and civil investigation.24 a. Alternatively, a joint criminal and civil investigation can be initiated by CI because there is already be an ongoing criminal investigation and CI requests that an examiner be assigned to the investigation. 25 2. Parallel investigation – Certain entities or tax years are subject to a criminal investigation while related entities or other tax years are the subject of a simultaneous civil audit. 26 a. Any information collected by the civil examiner in this circumstance may be used in a criminal referral, again without the taxpayer’s knowledge.27 b. A taxpayer may be under criminal investigation while his closely held corporation is the subject of a civil audit, or he 2 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense may be under criminal investigation for certain tax years and be the subject of concurrent investigation for other years.28 3. Taxpayer will be subject to investigation by both the civil and criminal divisions of the IRS without necessarily being notified of the criminal investigation. 29 4. The benefit to the government of this type of joint investigation is that it allows the government to use the investigative tools of a civil audit, like administrative summonses and examinations of tax returns, without the invocation of due process, the right against unreasonable searches and seizures, the right against self-incrimination, and the right to counsel. 30 5. The danger to the taxpayer is that the taxpayer believing that he or she is complying with the audit may waive his or her constitutional rights and attorney-client privilege. 31 a. In a criminal investigation, the IRS is not required to notify a taxpayer of the issuance of third party summonses.32 b. A Special Agent will delay giving the taxpayer the requisite notice of his or her constitutional rights against incrimination and the availability of an attorney prior to an interview in order for the Revenue Agent to continue to collect information and conduct interviews with the taxpayer. 33 6. Unlike the eggshell audit, where the goal of the practitioner is to seek to avert a criminal investigation by keeping the examiner in the dark about the fraud, in a reverse eggshell audit, the practitioner is the one in the dark, seeking to discover whether there is a simultaneous criminal investigation. 34 D. Taxpayer’s Protection Against Reverse Eggshell Audit 1. The IRS has an affirmative duty to disclose the criminal nature of a civil examination when the taxpayer’s representative directly asks whether a criminal investigation is underway. 35 2. U.S. v. Tweel - In this case, the taxpayer’s accountant asked the examining revenue agent whether a “special agent” was involved in the investigation. The revenue agent answered that no special agent was involved. While the agent answered truthfully that no special agent was involved, the audit was conducted to acquire evidence for a criminal prosecution. The revenue agent’s response to the accountant’s inquiry “materially deceived” the taxpayer into providing incriminating information to the IRS.36 3. Before answering a summons or turning over documents, consider asking the Revenue Agent the following questions:37 a. Is there a parallel or sub rosa criminal investigation? b. Has this matter been referred to the fraud coordinator? c. If so, what guidance has been given by the fraud coordinator? 3 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense d. What information has been provided to the fraud coordinator, and by the fraud coordinator? 4. Taxpayer can also take the Fifth.38 a. The taxpayer can refuse to answer a summons by exercising his or her constitutional privilege not to incriminate himself or herself.39 VI. What is the Forensic Accountant’s Role During the Examination? A. In sensitive audits where there are overtones of fraud, the taxpayer and the return preparer will feel more comfortable retaining an attorney to handle the audit.40 B. The attorney may use a forensic accountant to “front” the examination with the attorney in the background providing strategy and advice.41 C. The forensic accountant provides critical support in an eggshell or reverse eggshell audit by reviewing books and records, organizing the documents, and developing alternative approaches to issues, and computing different tax consequences based on those alternative approaches. 42 D. Understand the Freedom of Information Act. 1. The U.S. Freedom of Information Act (FOIA) is a law ensuring public access to U.S. government records. 43 2. FOIA carries a presumption of disclosure; the burden is on the government - not the public - to substantiate why information may not be released. 44 3. Upon written request, agencies of the United States government are required to disclose those records, unless they can be lawfully withheld from disclosure under one of nine specific exemptions in the FOIA.45 4. This right of access is ultimately enforceable in federal court.46 5. The return and return information of a taxpayer may be disclosed to a designee of the taxpayer pursuant to IRC § 6103(c). 47 E. Understand the IRS’ Broad Subpoena Power 1. The IRS can subpoena documents and compel testimony from a taxpayer, the taxpayer’s representative, or a third party for the purposes of ascertaining the correctness of any return, making a return where none has been made, or determining the liability of any person for any internal revenue tax.48 2. To enforce the summons the IRS must show that the summons49: a. Was issued for a legitimate purpose; b. Seeks information relevant to that purpose; c. Seeks information that is not already within the IRS’ possession; and d. Satisfies all administrative steps required by the United States Code.50 3. The IRS summons is subject to traditional privileges and limitations.51 (i.e., attorney-client privilege) 4 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense F. Produce Documents in File If Its In the Client’s Best Interest To Do So. 1. Unfavorable Inferences - The assertion of privileges such as attorney-client privilege at the audit or tax court level leads to an inference that the taxpayer is hiding something.52 2. Best Evidence - In cases where the IRS questions motives or business purpose for forming a closely held entity, the best evidence of those motives can come from the correspondence prepared in connection with the transaction at issue. That is, well-drafted contemporaneous correspondence outlining the business and financial reasons. 53 G. Understand and Preserve All Privileges 1. Attorney- Client Privilege a. The attorney-client privilege protects communications between the client and the lawyer made for the purpose of enabling the lawyer to provide legal advice or other legal services to the client, as long as both of them intend for the communications to remain confidential and the purpose of the communication is not to further a crime or fraud.54 b. Bills and Invoice – (1) Lawyers’ bills are generally not privileged. 55 (2) Descriptions in the lawyer’s invoices are privileged provided the privilege is not waived. 56 (i) Billing descriptions reveal the motive of the client in seeking representation, litigation strategy, or the specific nature of the services provided.57 c. Corporations/ Partnerships/ Entities, Etc. (1) Counsel’s communications with any corporation employee (though not shareholders) may be privileged under federal law, while some states limit the privilege between counsel and the “control group” of employees. 58 (2) Communications to Shareholders may constitute a waiver.59 (3) Communications with and disclosures to general partners of a partnership client are generally privileged.60 2. Kovel Doctrine - The attorney-client privilege is extended to the accountant under Kovel. 61 a. An attorney may employ individuals including accountants to assist him or her in the effective representation of the client, within the attorney-client and work product privilege.62 b. U.S. v. Kovel – A law firm that employed an accountant on its own staff represented a taxpayer who was the target of a 5 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense grand jury investigation focusing on whether he had committed various income tax offenses. To assist the law firm in advising the taxpayer, the taxpayer communicated information to the in house accountant who, in turn, helped explain the client’s business and tax reporting to a lawyer in the firm. The government subpoenaed the law firm’s 63files on the ground that the communications involving the accountant were not subject to the attorney-client privilege. 64 (1) The law firm responded that the use of the accountant was indistinguishable from the use of a foreign language interpreter because the tax and accounting concepts that the accountant communicated to the lawyer were ever bit as “foreign” to the lawyer as a language that he did not speak. 65 c. Limitations to Kovel Privilege – Under U.S. v. Adlman, 68 F.3d 1495 (2d Cir. 1995), the Court held that attorney-client privilege did not apply because the evidence indicated the taxpayer , a Corporation, consulting an accounting firm for tax advice rather than inhouse counsel receiving accounting advice to assist him in rendering legal advice. The Court noted that the taxpayer did not produce adequate documentation, such as a separate retainer agreement or itemized billings, for the accounting firm’s tax advice, to support a claim of privilege. d. Safeguards to Protect the Kovel Privilege (1) The client’s existing accountant should not be hired to perform forensic accounting services (unless absolutely necessary) because use of the existing accountant makes it more difficult to establish that the accountant was hired primarily to help the attorney render legal advice.66 (2) A forensic accountant engagement letter should state that all documents, including working papers, are the property of the lawyer, and are to be returned at the lawyer’s request.67 (3) The forensic accountant’s work should be labeled “protected by the attorney-client and work product privileges.” 68 3. Work Product Privilege a. Under work product privilege, parties and their lawyers can communicate regarding an anticipated litigation and prepare for litigation and trial without concern that the adverse party can gain access to their analyses and strategies. 69 b. Type of Information Protected 6 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense (1) Factual Work Product - Attorney’s notes of interview with witness. However, the opposing counsel can pierce this work product by showing a compelling need for the information.70 (i) For Example - If the witness dies, the opposing party can obtain the attorney’s notes because the opposing party can not call the witness at trial. 71 (ii) An attorney’s notes of witness interviews. See Hickman v. Taylor, 329 US 495 (1947). (2) Opinion Work Product – Lawyer’s opinion, conclusions, mental impressions and trial strategies are not discoverable.72 (3) Anticipated Litigation – Documents analyzing anticipated litigation but prepared to assist in a business decision. US v. Adlman, 134 F.3d 1194 (1998). (4) Comparison with attorney-client privilege - The work product privilege is more inclusive than the attorney-client privilege because it includes communications prepared by anybody as long as they were prepared with an eye towards the realistic possibility of impending litigation.73 (5) Additionally, it includes materials collected for the attorney such as interrogatories, signed statements, other information acquired for the prosecution or defense of a case, “memoranda, briefs, and communications…other writings prepared by counsel for his own use in prosecuting his client’s case.” 74 (6) However, the work-product privilege is also less powerful than the attorney-client privilege because it can be pierced by a showing of necessity. 75 c. Information Not Protected – (1) Tax accrual work papers prepared by attorneys are not protected under the work product privilege.76 (2) U.S. v Textron Inc. et al, Docket No. 072631 – Tax accrual work papers that describe the potential liabilities for additional taxes explaining the tax reserve entries in corporate financial statements do not constitute work product because the tax accrual papers were prepared for financial statements and not for the purpose of litigation. 4. Common Interest/ Joint Defense Privilege - Persons with the same or highly similar interests can establish confidentiality for their communications with each other. 77 7 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense a. Two or more taxpayers can share information, legal research, settlement or trial strategies, and expert witness opinions with one another in confidence, even if they are at differing stages of the dispute and are in different industries. 78 5. Settlement Offer Privilege - Rule 408 of Federal Rules of Evidence (“FRE”) makes inadmissible at trial any offers to settle the dispute. Its is intended to encourage the settlement of disputes by excluding from evidence conduct and statements made in compromise negotiations, rather than excluding only the offers of compromise themselves. 79 a. Government’s “Deliberative Process” Privilege – Protects government agent’s opinions, conclusions, recommendations, and mental impressions from disclosure under the FOIA request. 80 (1) The privilege can be asserted only for predecisional materials before the IRS asserts its audit position. 81 (2) Once the agency has formulated its opinions and conclusions, any subsequent communications or documents are “post-decisional” and are not subject to the privilege. 82 (3) Even if the document is “pre-decisional” the government is obligated to produce those portions of the documents that do not contain protected opinions, conclusions, recommendations, and mental impressions. 83 6. Tax Practitioner’s Privilege a. IRC § 7525 extends the common law protection of confidentiality to a communication between a taxpayer and any federally authorized tax practitioner.84 (i.e., CPA, EA) b. Meeting minutes and handwritten notes of a partnerships communications with its federally authorized tax practitioner did not constitute written communications promoting a tax shelter. See Countryside Limited Partnership, CLP Holdings, Inc. v. Tax Matters, Partner, Et. Al. v. Comm’r, 132 T.C. No. 17 (June 1009). c. Limitations 85 – (1) Criminal tax proceedings are not protected. (2) Communications concerning tax shelters are not protected. (3) Tax Return preparation is not covered. d. U.S. v. Frederick, 182 f. 3d 496, 500 (7th Cir. 1999) Eviscerated § 7525 holding that: (1) The preparation of tax return is traditional “accounting work” and not the providing of legal 8 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense advice; and (2) the lawyer’s performing non-privileged accounting work destroyed any claim o f privilege relating to documents and communications that referred to both the criminal investigation and the tax return preparation. 86 7. Wrongful Disclosures of Taxpayer’s Tax Return Information a. IRC § 7216 – Imposes criminal penalties on tax return preparers who knowingly or recklessly make unauthorized uses or disclosures of information furnished to them in connection with the preparation of an income tax return. (1) A preparer convicted of violating §7216 faces a maximum $1000 fine and/or up to one year imprisonment for each violation. (2) Reg. §301.7216 and Rev. Proc. 200835 provide authoritative guidance regarding a preparer’s disclosure or use of tax return information. b. IRC § 6713 – Imposes civil penalties for unauthorized uses or disclosures of tax return information. (1) The civil penalty is $250 for each unauthorized use or disclosure, not to exceed a total of $10,000 for a calendar year. H. Waivers 1. Third Party – A communication between a client and attorney is not privileged if it is made in the presence of a third party. 87 a. No privilege attaches to a letter that shows a “cc” to someone outside the attorney-client relationship. 88 2. Inadvertent waiver – Even an inadvertent waiver by the lawyer (or the Kovel CPA) generally constitutes an enforceable waiver. 89 3. The waiver extends to the entire subject matter. 90 4. Witness Waiver – Adverse parties are entitled to inspect anything shown to a witness at any time to refresh his recollection for the purpose of testifying. 91 FRE 612. 5. The advice of counsel can not be used as sword then cloaked with privilege. 92 a. Privilege is waived in its entirety by raising “reliance upon tax counsel” as “reasonable cause” penalty defense under Section 6664. 93 6. When to waive privilege- The client may wish to waive privilege in order to assert the defense that any underpayment of tax was made in good faith and due to reasonable cause. 94 a. Reliance on advice of tax advisors constitutes reasonable cause and good faith if, under all circumstances, such reliance was reasonable and the taxpayer acted in good faith.95 I. Signs of Criminal Referral – Revenue Agent may refer case to CI if 96: 9 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense 1. Undue interest – Revenue Agent (“RA”) shows an undue amount of interest in the sensitive transaction. 2. Excessive copying – RA requests large numbers of copies of documents rather than merely asking to review the documents. 3. Questions on intent – RA poses questions that focus on the intent of the taxpayer. 4. Bank records analysis – RA begins examining in great detail records that can be used to corroborate or impeach items reported on the return. 5. Net worth analysis – RA focuses attention on the balance sheet of the taxpayer for the beginning and ending of each year. 6. The disappearing agent –RA stops discussing the status of the audit or disappears. J. Standards for Referral 1. Firm Indication of Fraud – The fraud handbook instructs agents to refer a case to CI upon discovery of firm indications of fraud. 97 VII. What is the Forensic Accountant’s Role In the Preparation for Trial A. Once a case reaches the stage of trial, the attorney may need the assistance of a forensic accountant to help analyze the evidence presented by the government and attack the positions taken by the testifying government agents. 98 1. Reviewing and analyzing books, records, and transactions; 2. Researching accounting and tax issues; 3. Interviewing; 4. Examining the outside accountant’s or auditor’s work papers; 5. Educating counsel; 6. Reviewing the government’s theory of the case, computations and meeting with the government’s experts; 7. Assisting the attorney to depose or cross-examine witnesses. VIII. What is the Forensic Accountant’s Role As An Expert Witness A. When accountants are called by the prosecution, they generally testify about their investigative findings.99 B. When they are called by the defense, they may testify about the prosecution’s accounting expert, in order to create doubt in the minds of jury members about the credibility or weight to give to the prosecution’s expert. 100 C. Counsel retains an expert accounting witness to review information and documents, to assist counsel in rendering legal advice to the client and to offer opinion testimony at trial. 101 D. The expert’s opinions are usually in the form of a written report. 102 E. Federal Rules of Civil Procedure (“FRCP”) Section 26 , relating to General Provisions Governing Discovery, Duty of Disclosure, provides in FRCP 26(a)(2), Disclosure of Expert Testimony, the following 103: 10 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense 1. Written report prepared and signed by the witness. 2. Written report shall contain a complete statement of all opinions to be expressed; the basis and reasons therefore; the data or other information considered by the witness in forming the opinion. 3. Exhibits 4. Qualifications of the witness, including publications authored within preceding ten years. 5. Compensation. 6. Listing of any other cases in which the witness has testified as an expert at trial or by deposition within the preceding four years. F. Federal Rules of Evidence That Apply To Testimony Given By Experts 1. Rule 702, related to Testimony by Experts, opens the door for individuals having specialized knowledge to assist the trier of fact to understand the evidence presented at trial or to determine a fact in issue during the trial. Usually, counsel will offer to the court an individual as an expert once he or she is ‘qualified’ as expert after voire dire. 104 2. Rule 703, related to Bases of Opinion Testimony by Experts, allows an expert to base his or her opinion on facts or data perceived by the expert or made know to the expert at or before the hearing. Opposing counsel may challenge whether the expert in the particular field or discipline reasonably relied on the facts and data. In ruling on this objection, trial court weighs the probative value of the information against its prejudicial effect. 105 3. Rule 704, related to Opinion on Ultimate Issue, provides for an expert to offer an opinion on an ultimate issue to be decided by judge or jury. It does not, however, allow an expert to testify with respect to the mental state or condition of a defendant in a criminal case. 106 4. Rule 705, related to Disclosure of Facts or Data Underlying Expert Opinion, allows an expert to offer an opinion supported by his or her reasons without first testifying to the underlying facts or data for the opinion. Usually, opposing counsel on cross examination will require the expert to disclose the underlying facts or data for the opinion. Usually, opposing counsel on cross-examination will require the expert to disclose the underlying facts or data. 107 5. Rule 706, related to Court Appointed Experts, provides for a court to appoint an expert on its own or on the motion of any party. 108 G. Standard for Admissibility of Expert Witness Testimony – 1. Challenges to Admission of Expert a. Daubert challenges.109 b. Frye Challenges. 110 c. Does not qualify as an expert by knowledge, skill, experience, training or education. 111 11 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense d. Requires a valid connection to the pertinent inquiry as a precondition to admission. 112 e. Courts remain vigilant against the admission of legal conclusions. 113 f. In Re Paoli Railroad Yard PCB Litigation, 35 F.3d 717 (3rd Cir. 1994) lists others. 114 (1) Relationships of technique to methods already established to be reliable. (2) Existence and maintenance of standards controlling technique’s operation. (3) Expert witness’ qualifications and non-judicial uses to which method has been put. g. Side-taking or result-oriented work.115 h. Conflict of interest. 116 i. Spoliation. 117 j. Name not disclosed within time limit.118 k. Improper expert witness designation. 119 2. Frye Standard – The Frye Standard although no longer used in federal courts, is still used in many state courts. a. The test for admitting expert testimony is: (1) whether the expert’s testimony will assist the trier of fact in understanding the evidence or in determining a fact in issue and (2) whether the theories and/or techniques relied upon by the expert are generally accepted by the relevant professional community; and (3) whether the particular expert is qualified to present expert testimony on the subject at issue. 3. Daubert Standard – Under the Daubert standard, trial judges are the gatekeepers regarding expert witness. They are responsible for excluding unreliable expert witness testimony under Daubert v. Merrell Dow Pharmaceuticals, Inc. 4. Daubert requires four key factors to be considered 120: a. Whether the theory or technique can be (and has been) tested.121 b. Whether the theory or technique has been subjected to peer review and publication.122 c. The theory’s or technique’s known or potential error rate. 123 d. Whether the theory or technique has attracted widespread acceptance within the relevant community. 124 5. Evidence Upon Which Experts May Rely a. Experts may base their opinions on facts or data that they themselves perceived or which were made known to them at or before a judicial hearing. 125 12 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 The Role of the Forensic Accountant in White Collar Crime Defense b. The facts of data need not be admissible in evidence in order for the expert’s opinion to be admitted if the facts or data are of a type reasonably relied upon by experts in the same field in forming opinions. 126 c. Otherwise, inadmissible facts or data may not be disclosed to the jury unless the court determines that their probative value in assisting the jury in evaluating the expert’s opinion substantially outweighs their prejudicial effect. 127 H. Related Offenses Under the Criminal Code 1. Conspiracy – 18 U.S.C. §371 2. False Statements - 18 U.S.C. § 1001 3. False Claims - 18 U.S.C. § 287 4. Money Laundering - 18 U.S.C. § 1956 and 1957 5. RICO Violations – 18 U.S.C. § 19611968 6. Perjury - 18 U.S.C. § 1621 7. Mail Fraud - 18 U.S.C. § 1341 8. Bribery - 18 U.S.C. § 201 9. Aiding and Abetting - 18 U.S.C. § 2 10. Failure to File Currency Transaction Reports and Related “Structuring Violations - 31 U.S.C. §§ 5313 and 5324 13 Calo Agostino, PC, 14 Washington Place, Hackensack, N.J. 07675 www.caloagostino.com tel. 201.488.5400 fax. 201.488.5855 ...
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