United States enforcement entities continue to exert pressure on illicit financial activity in Cayman
United States enforcement entities, including the Department of Justice and the Internal Revenue Service, continue to direct investigative efforts at the Cayman Islands financial sector in order to detect evasive tax maneuvers and other illicit activity.
While financial activity in the Cayman Islands has always interested United States law enforcement, in the wake of UBS in 2008, law enforcement scrutiny remains significant.
As the chief of the IRS criminal division stated, the commitment to these investigations “reinforce[s] our commitment to investigate and prosecute criminals worldwide who conduct illegal financial transactions, launder money or attempt to conceal the true source of their income in order to evade paying taxes.”1
On March 6, 2014, in a sealed indictment, the United States Department of Justice charged Eric St-Cyr, Joshua Vandyk, and Patrick Poulin with conspiracy to commit, and actual, money-laundering.
The indictment, which was unsealed after the defendants were arrested in Miami, and subsequent plea deals resulted in each defendant receiving a term of imprisonment consistent with sentencing trends in this area, which show that although federal judges in the United States have more latitude and authority to consider an offender’s characteristics as well as the nature and circumstances of the offense, multi-year sentences for money-laundering and tax offenses remain common.
Moreover, these offenders – as do all offenders sentenced in the United States – face significant collateral consequences as a result of their convictions.
The case against St-Cyr, Vandyk, and Poulin began in 2011 as an investigation into possible tax evasion. Vandyk, who at the time was not working with St-Cyr, was contacted by an undercover agent pretending to be a wealthy American interested in investing offshore because of worry about the “U.S. dollar, the general health of the U.S. economy, and increased government debt and regulation.” Contact was resumed in 2013, by which time Vandyk was working with St-Cyr, and a meeting in Miami was arranged for March 2013.
At that meeting, two more undercover agents discussed their desire to “evade paying federal income taxes.” A third undercover agent, shortly after the meeting began, explained to Vandyk, and later to St-Cyr and Poulin, that he had $2 million in proceeds from a bank fraud scheme that he wanted to keep hidden from the defrauded bank and law enforcement. The undercover agent also explained that he hoped to invest the “clean” money with Vandyk and St-Cyr’s company.
In September 2013, two of the undercover agents met with Poulin in Canada at which time Poulin explained to them how to set up the necessary offshore accounts, complete with offshore foundations, to further facilitate the laundering process. It was agreed that the undercover agents “test the waters” with an initial investment of $200,000.
In December 2013, the two undercover agents met with a partner of Poulin, and Poulin via teleconference, in the Turks and Caicos. The undercover agents stressed again that the $200,000 initial investment was “sensitive” as it came from the bank fraud proceeds and that they wanted it “separated as much as possible from them.” They were told not to worry and that the “IRS or FBI would not invest time in investigating a $200,000 fraud.”
In January 2014, the undercover agents met with Vandyk and St-Cyr in the Cayman Islands to discuss the investing, cleaning, and obtaining of the laundered initial $200,000. Over the course of the week the two undercover agents spent in the Cayman Islands they continued to meet with Vandyk and St-Cyr on the scheme. At a dinner, St-Cyr joked that he and Vandyk had done a “background check” on the two undercover agents and determined that “the U.S. is never going to pay for [you] to spend one week here. They don’t have the budget for that.” By February 2014, the initial $200,000 had been cleaned and returned to the undercover agents in Virginia.
Vandyk, Poulin, and St-Cyr were indicted in March 2014 for conspiracy to commit and commission of money-laundering. Vandyk pleaded guilty on June 12, 2014. St-Cyr pleaded guilty on June 27, 2014; and Poulin pleaded guilty on July 11, 2014.
Federal sentencing in the United States
Federal offenders in the United States are subject to a rather complex sentencing process upon conviction. Defense counsel have greater opportunities to provide meaningful input on behalf of a defendant in hopes of mitigating a sentence, but they also have greater burdens. Even if a defendant receives a sentence that appears reduced when compared to that called for by the Federal Sentencing Guidelines, for example, imprisonment is likely, and defense counsel must be cognizant of the collateral consequences that follow a federal conviction.
The Federal Sentencing Guidelines are drafted by the United States Sentencing Commission, a bipartisan agency in the judicial branch of government created by Congress in 1984 to establish sentencing policies and practices to ensure that certainty, fairness and proportionality exists in federal sentencing.
After reviewing thousands of cases across many types of offenses, the Sentencing Commission developed a system by which an offender’s criminal history and the nature and circumstances of the offense were reduced to a table, the intersection of which provides a guideline range from which a judge chooses the appropriate sentence. Under the original guideline system that took effect in 1987, judges could, in limited circumstances, choose a sentence outside the proposed guideline range but the Commission expected that to happen infrequently.
The Federal Sentencing Guidelines try to capture what happens in a typical offense by a typical offender and adjust for specific circumstances. For example, if a money-laundering scheme involved “sophisticated means” the guidelines call for additional “points” or levels to be added to an offender’s guideline calculation. Additional points also are added depending on the amount of money laundered.
Conversely, an offender may have points deducted from the guideline calculation if the cooperate with the government, such as agreeing to plead guilty, or demonstrating they played a minor role in the offense. An offender’s criminal history, or lack thereof, also is used to determine the final applicable guideline range: The more criminal history an offender has, the more lengthy is the term of imprisonment called for by the guidelines.
Almost immediately, the guidelines were criticized as being overly harsh and having the effect of reducing the sentencing process to merely a series of mathematical calculations that resulted in significant sentences, including those for tax, fraud and money-laundering crimes.
In 2005, the United States Supreme Court, in United States v. Booker,2 determined that imposition of an “enhanced” sentence pursuant to the Federal Sentencing Guidelines based on the sentencing court’s determination of facts, other than the existence of a prior conviction, that was not found by a jury or admitted to by the defendant violated the Sixth Amendment of the United States Constitution.
To remedy the constitutional problem, the Supreme Court rendered the Federal Sentencing Guidelines advisory. In several subsequent cases, the Supreme Court further defined the role of the Federal Sentencing Guidelines emphasizing that the guidelines were but one factor for judges to consider at sentencing and noting that a sentence within the applicable range could not be presumed “reasonable.”
In the post-Booker era, judges are required to calculate the applicable guideline range and consider it, along with any requests for departures from the applicable guideline range, but that is only the first step in the process.3
The judge must also consider any additional mitigating or aggravating circumstances, including a defendant’s personal history and characteristics, which includes their criminal history or lack thereof; the nature and circumstances of the offense, including its seriousness; the need to protect the public from such offenses; and the need to deter the type of conduct generally, and the conduct by the defendant specifically. After these considerations, a judge is required to impose a sentence that is “sufficient but not greater than necessary” to meet the purposes of sentencing set forth in the considerations above.
The average sentence length for money-laundering offenses has increased slightly over the last decade, as has the overall number of cases in which a money-laundering offense was primary. In 2004, for example, there were just over 600 money-laundering cases reported to the United States Sentencing Commission.
The average sentence length for those cases was just under 37 months. By 2008, there were 880 cases, and the average sentence length was just over 43 months. In 2013, the last fiscal year for which complete information is available, there were 829 money-laundering cases with an average sentence length of 42 months, the same length as the average money-laundering sentence in 2012.
The general uptick in the average sentence length for money-laundering offenses is consistent with the general uptick in average sentence length for all federal offenses. In 2004, the average sentence length for the 70,068 cases reported to the Sentencing Commission was approximately 50 months. In fiscal year 2013, the average sentence length for all federal offenses was 53 months.
But the actual terms of imprisonment are only one part of a federal offender’s sentence. In addition to paying court-imposed fines, almost all federal offenders are required to complete terms of supervised release at the end of their terms of imprisonment. Moreover, they are subject to significant collateral consequences including such things as being barred from working in the financial industry, from obtaining small business or other federal loans and assistance, as well as residency restrictions.
With the increased reliance on criminal background checks prior to employment – even outside the financial industry – former federal offenders can be prohibited from obtaining meaningful employment and thus reintegrating successfully into society as a result of their convictions.
Each of the defendants pleaded guilty in this case. As a result, prosecutors dropped all but one conspiracy charge against each of the defendants.
Vandyk received his sentence in September 2014. The court agreed that the applicable guideline sentence called for a term of imprisonment somewhere between 41 and 51 months. The government requested the lower end of the range but indicated that such a sentence was important for deterrence purposes and to reflect the “sophisticated means” used during the offense, and the intended loss of $2 million that was the proposed amount to be laundered. Defense counsel asked for a departure contending that the actual loss was only $200,000 and requested that the court consider the fact that the defendant had a new baby.
The court denied counsel’s requests; however, considering the totality of the circumstances as now required post-Booker, the court concluded that a 30-month sentence was sufficient but not greater than necessary. The court also imposed a $5,000 fine.
The court imposed a three-year term of supervised release, including special conditions that Vandyk not open any new lines of credit without approval from his probation officer, that he provide his probation officer with all of his financial information regularly, and that he pay $500 per month during his supervised release.
Both St-Cyr and Poulin were sentenced in October 2014. The court imposed a fourteen-month sentence on each. The court also made a special request that St-Cyr be committed to a minimum security facility “as close as possible to Canada” so he could be close to his family.
Each defendant also received the same three-year term of supervised release, as did Vandyk. Unlike Vandyk, however, they were not subject to the same special conditions of supervised release. For example, St-Cyr’s special conditions required that he not possess unlawful substances and submit to regular random drug testing.
The defendants may have their sentences further reduced within the next few months. The Federal Rules of Criminal Procedure give prosecutors the authority to file a motion for a reduction of sentence with the sentencing court within a year of a defendant’s sentence imposition if the defendant has provided “substantial assistance” to the government.
While these motions are available in any federal case, the government more frequently files these types of motions in the Eastern District of Virginia, the district in which Vandyk, St-Cyr and Poulin were charged, convicted and sentenced.
The indictment and sentencing of St-Cyr, Vandyk and Poulin demonstrate United States law enforcement’s commitment to investigating and prosecuting entities that aid U.S. citizens in tax evasion schemes and money-laundering.
While the individuals received significantly lower sentences than they would otherwise have, had they not pleaded guilty and cooperated with the government, they were still significant. Moreover, the convictions and concomitant sentences will have lasting collateral consequences for the individuals, including being unable to continue residency in the Cayman Islands and prohibitions on working within the financial services industry. Theirs remains a cautionary tale that the Cayman Islands remain an area of significant interest for United States law enforcement.
- Richard Weber, Chief-Criminal Division, IRS, on the sentencing of Eric St-Cyr, available at http://www.justice.gov/tax/2014/txdv141087.htm.
- 543 U.S 220 (2005).
- Typically, it is the probation officer who calculates the applicable guideline range for the court. The parties are then afforded an opportunity to dispute the calculation. Because virtually all United States federal criminal cases are handled by plea agreement, pleas often will include whether a defendant will challenge a guideline calculation or whether the government will support or oppose a request for a sentence below the applicable guideline sentence.