Introduction
From @HelenBurggraf: US charges Russian bank exec over false statements in connection to failure to pay expatriation tax AND seeks his extradition from the UK to US https://t.co/qhovFj5enr
— U.S. Citizen Abroad (@USCitizenAbroad) June 14, 2020
This is Part 8 of my series on US extraditions. In Part 7 I discussed the expansion of the range of crimes for which the United States is seeking extradition. I suggested that extradition for tax and form crimes was (at the very least) possible (although I think at the present time unlikely). But “unlikely” does not mean impossible. The purpose of this post is to describe a case where the United States is seeking extradition of a former US citizen for reasons related to the expatriation process.
The previous posts in the extradition series are:
http://isaacbrocksociety.ca/2020/03/26/the-extradition-series-part-1/
Part A – The facts as alleged
Who is Mr. Tinkov?
When it rains it pours. Mr. Tinkov has also been diagnosed with leukemia https://t.co/nDRugXhaOP https://t.co/Ag5NNxKMR3
— U.S. Citizen Abroad (@USCitizenAbroad) June 14, 2020
According various sources on the internet, Oleg Tinkov is a Russian entrepreneur who naturalized as a US citizen in 1996. There is (what appears to be) a comprehensive wikipedia entry describing him.
Notably Mr. Tinkov was apparently not living in the United States but was living in London, UK. The evidence suggests that he had not lived in the United States for many years.
Part B – What was Mr. Tinkov’s alleged crime?
According to the indictment, Tinkov was the chairman and beneficial majority shareholder of Tinkoff Credit Systems (TCS), a branchless online bank that provided its customers with financial and bank services. On October 25, 2013, TCS held its initial public offering (“IPO”) on the London Stock Exchange. TCS’s per share price opened at $17.50. The indictment states s that of TCS’s IPO, Tinkov owned, through multiple British Virgin Islands entities, more than 92 million TCS shares, making him the beneficial owner of more than $1 billion worth of TCS shares. The indictment alleges that three days later, on October 28, 2013, Tinkov, a Russian national, renounced his U.S. citizenship. Tinkov’s decision to renounce his citizenship was a taxable event requiring him to report to the IRS the constructive sale of his worldwide assets, report the gain on the constructive sale of those assets to the IRS, and pay tax on such gain to the IRS. According to the indictment, despite knowing he beneficially owned more than $1 billion of TCS shares at the time of his expatriation, Tinkov filed a 2013 U.S. Individual Income Tax Return with the IRS that reported total income of less than $206,000. In addition, Tinkov filed a 2013 Initial and Annual Expatriation Statement reporting his net worth was $300,000. The indictment charges Tinkov with two counts of tax fraud, in violation of 26 U.S.C. § 7206(1).
(justice.gov/usao-ndca/pr/founder-russian-bank-charged-tax-fraud)
Part C – 26 U.S.C. § 7206(1) – An introductory legal analysis
The actual charges are two violations of 26 U.S.C. § 7206(1) – which are “form crime” violations and NOT tax evasion violations.
Notice that Mr. Tinkov is not alleged to own the shares directly. Rather he is alleged to own the entities which own the shares.
Internal Revenue Code, § 7206. Fraud And False Statements
I.R.C. § 7206(1) Declaration Under Penalties Of Perjury — Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or
A good background discussion, unpacking the elements of this offence is here.
The actual charges are based on the false statements and NOT on the evasion of tax.
The two allegations of “Fraud and False Statements” are based on:
1. Signing a tax return that falsely omitted income from his 2013 tax return. The allegation is that because “Tinkov’s decision to renounce his citizenship was a taxable event”, resulting in the “constructive” sale of his property, that he failed to disclose the gains from the sale of that property; and
2. Signing a Form 8854 that falsely understated his net worth.
Interestingly the government restricted the charges to Fraud And False Statements.
Why was there no charge of actual tax evasion?
Theory 1: An excellent discussion of the charges from US tax lawyer Patrick Martin speculates that:
There is important case law that supports the argument that the government cannot impose taxation until an actual sale or exchange of property occurs. For an excellent review of the 1920 U.S. Supreme Court’s decision of Eisner v. Macomber, see the article prepared by Professor Henry Ordower at Saint Louis University – School of Law –
The Expatriation Tax, Deferrals, Mark to Market, the Macomber Conundrum and Doubtful Constitutionality
Pittsburgh Tax Review, Vol. 15, No. 1, 2017, Saint Louis U. Legal Studies Research Paper No. 2018-3
Maybe the U.S. Attorney’s office did not charge tax evasion ((26 U.S.C. § 7201) in the Tinkov case, because of their concerns that the “mark to market” tax imposed by statute may not even be Constitutional? Maybe they did not want to try to pursue a criminal charge on a tax, the very essence of it, which could be challenged by applying the realization principles set forth by the U.S. Supreme Court?
(tax-expatriation.com/2020/05/21/coronavirus-great-time-to-be-back-from-hiatus-false-8854-and-a-covered-expatriate/)
Hmm….. Very interesting. Is all or part of Section 877A unconstitutional?
Theory 2: Another possible reason for charging 7206(1) …
I suspect that a more likely reason for charging “Fraud And False Statements” was to make the process of extradition less contentious. The Meng extradition was based on fraud and not on violations of sanctions against Iran. The Tikov extradition is based on fraud and NOT on evading the Exit Tax. In both cases the United States is basing the charge on what appears to be the easiest avenue for extradition.
Part D – The extradition request
The advantages of London …
They say that London is the divorce capital of the world – if you want a good divorce settlement, use the London courts. (If you are a wealthy individual who is married, avoid London.)
For the United States, if you want to extradite somebody to the USA, consider the UK. After all, the UK US extradition treaty in its plains terms makes extradition from the UK relatively easy. (This severely diminishes the value of the UK as a place to reside. Residency by investment experts take note.)
The next court date is apparently July 13, 2020. Unlike Julian Assange, Mr. Tinkov (while dealing with his luekemia) is (like Meng Wanzhou) apparently living in comfortable quarters.
Part E – What is the moral of the story?
This is an indictment and extradition request based on “form crimes. It warns that:
Thou shalt NOT file false forms!
What does it mean for the long run?
It’s too early to tell. Most people will ignore this. Some people will rationalize that “Well, he was rich, so he deserves this”. Rational people will take careful note and consider the possibility of this becoming more common.
I suspect that Oleg Tinkov thinks that naturalizing as a US citizen was the worst decision he ever made!
“I suspect that Oleg Tinkov thinks that naturalizing as a US citizen was the worst decision he ever made!”
I suspect you’re 100% correct. I wonder when he connected those dots himself and why he waited?
(Thanking the universe I’m no longer a part of that train-wreck country!)
He only has to return to Russia where there is no extradition agreement with United States as far as I’m aware, and you’ll be safe there! Two can play asshole!
Yes, if he can get there. The problem is that he is stuck in London under conditions similar to those imposed Meng Wanzhou in Canada.
https://www.ft.com/content/be040b3a-5c96-11ea-b0ab-339c2307bcd4
Another dimension to this is …
Like the FATCA IGAs the US extradition treaties obligate the partner country to pay the administrative costs of US policy. Extradition hearings can take a long time. In at least some cases bail may not be possible or there may be other reasons for keeping the accused incarcerated. Note the costs of incarceration, courts, etc. are born by the requested country. In effect this means that the US can actually, “lock people up”, who are not pysically present in the USA, through extradition requests. This (like FATCA) is completely at the expense of the requested country. Would it make sense for future protocols to extradition treaties to require the requested country to build separate jails for those subjected to US extradition requests? Why not?
The genius of the modern extradition treaty is that it allows for a country to expand its prison system at the expense of the other country. We’re not there yet. But, this could be an important evolution.
Extradition treaties are becoming a way for larger countries to bully smaller countries. See the following article from the New York Times which describes China’s attempt to obtain an extradition treaty with Canada. Excerpts include:
https://www.nytimes.com/2016/09/21/world/americas/canada-agrees-to-talks-with-china-on-extradition.html
Sounds like Mr. Tinkov needs the services of the guys that got Carlos Ghosn (of Nissan/Renault fame) out of Japan: https://www.bbc.com/news/world-50964040
The expansion of USA extraterritorial overreach does seem to be growing. As USCitizenAbroad says,
” I suggested that tax and form crimes were (at the very least) possible (although I think at the present time unlikely). But “unlikely” does not mean impossible. ”
Couldn’t agree more with Jane as well:
“(Thanking the universe I’m no longer a part of that train-wreck country!)”
I would bet Mr. Tinkov wishes he was living in Russia right about now instead of being electronically monitored in the UK pending his extradition to the US. Strange twist of fate that becoming a naturalized citizen in “the USA land of the free” has contributed to his troubles.
I wonder if Mr Tinkov would consider financing the few organisations who are fighting against american overreach…
Speaking of extradition , wouldn’t it be interesting that in the case of US Attorney Berman investigation of Prince Andrew’s involvement with Epstein, he would issue Andrew a royal summons(extradition request) and in lieu of that , request royal financial records. Wouldn’t that be loverly ?
I doubt US will ask anyone to be extradited for a bank account but it did happen to Chinese who got naturalized years as a US citizen and had an account in Singapore he never knew had to be reported to IRS left the country in a hurry and closed his Singapore account and left for China. US did request China for him to be extradited for the bank account offense which he obviously did not know he had to file but Chinese govt refused the request. This is on some attorney forum I read years ago.
Regarding Meng and Canada’s ” rule of law “, and taking a case in point, if I lie to the police , It is a crime , even if I was forced at gunpoint to do so. And then one steps back and asks why the lie ,most likely,I would think ,” the rule of law ” would not be applied.
In the case of Meng , she might have lied but when asked the question as to why , the answer is surely politically grounded in the Iran sanctions. and political reasons are not valid in extradition.
In the case of China’ immediate response of grabbing two Canadians in retaliation , their harsh response answered by saying to Canada and the US to not to pull a stunt like that with any other Chinese nationals
Hopefully, Canada will not repeat this experience.
Surely,when Canada complied with the US detention and extradition request , it couldn’t have expected China merely to sit on its hands.
By the way, I am neither a sino- nor yanko- phile.
The Meng case is interminable. One prediction has it being settled at a time well into 2021. Dec 2018 until 2021 !!! Wars were won in less time. Oh well I guess the multiple lawyers and judges need to make a living.
Actually I am hearing on the Meng case more like 2024. I think the danger for the US and Canadian governments is that Meng’s lawyers could do a lot of damage to the Constitutional underpinning of Canadian extradition law and dual criminality the longer this goes on. For example what Meng instead challenged the Fraud section of Criminal Code on Charter grounds which are being applied far more broadly that in any domestic Canadian criminal prosecution to date thus in turn there has never been a really good reason to challenge the Fraud section of the CC.
I do find it interesting all the Mulroney and Chretien era figures now speaking out on the case I would however, really like to hear from two people as to their opinions Kim Campbell and Anne McClellan.
The more sinister explanation for the divergent views between Trudeau Jr and Jean Chretien is Trudeau Jr is actually trying to force a major irrecoverable Constitutional loss on the government. The parallels in this is the reported tension between Trudeau Sr and Chretien during the enactment of the Charter in 1982 when Trudeau Sr was viewing the exercise as his last hurrah and not particularly concerned about the impact of the Charter on future governments and prime ministers while Chretien was thinking about becoming Prime Minister himself in the future are worried about how the Charter would affect him as Prime Minister after Trudeau Sr had left the political scene hence the longstanding Trudeau family tension with Chretien over the notwithstanding clause.