The Department has long recognized that effective law enforcement includes parallel criminal, civil, and administrative proceedings. It is in the government's best interests to punish the wrongdoers through criminal prosecution, maximize financial recoveries, and stop ongoing conduct that harms the government. The Tax Division advocates the use of the following civil proceedings, where appropriate, even when parallel criminal proceedings are underway or are contemplated:
- civil injunction proceedings to stop abusive tax scheme and scam promoters and false return preparers, when the promotion or preparation is ongoing or likely to recur and the harm to the government is significant
- civil examination and collection proceedings (e.g., audits, collection actions, erroneous refund suits) against customers of abusive scam and scheme promoters or against clients of false return preparers
- civil collection proceedings against criminal defendants
- jeopardy or injunction proceedings to prevent the dissipation or dilution of assets
- forfeiture proceedings to seize the proceeds of a crime
- Generally, courts have approved of parallel proceedings. Nonetheless, when pursuing them, attorneys should take care to use process appropriately and to comply with all procedural and substantive laws. The following issues are properly considered.
- Use of Process for Proper Purposes
An overarching principle that must be followed in parallel proceedings is the use of process for proper purposes. Agents and/or attorneys may conduct investigative and litigation tasks when justified by genuine case purposes. However, civil processes may not be used as a pretext to obtain information for a criminal investigation and criminal processes may not be used as a pretext to obtain information for a civil investigation. See Section VIII, infra.
- Case Strategy and Theories
Consistency. The government's theories in the civil and criminal cases should not be inconsistent. To this end, it may be necessary to review drafts of pleadings to be filed (complaints, motions for summary judgment, discovery responses, and indictments/ informations), subject to disclosure limitations.
Timing. The timing of actions should be considered so as to maximize the government's effectiveness, while avoiding or minimizing harm to any of the proceedings. For example, generally, a criminal investigation or prosecution should not delay or forestall most parallel civil proceedings. However, it may be necessary to temporarily delay overt actions in a civil case until covert actions being conducted in a criminal case (e.g., undercover operations, surveillance, search warrants) are completed.
Limitations on Communications. At all times during coordination communications and document reviews, attorneys and agents should take care to abide by limitations on the disclosure of information. Prohibited disclosures do or may include: matters occurring before a grand jury under Federal Rule of Criminal Procedure 6(e); tax returns or return information under the Internal Revenue Code, 26 U.S.C. § 6103; information obtained under certain foreign treaties; and matters that have been sealed by the court (e.g.,search warrant affidavits). See Sections V-VII, infra.
- Information Sharing
Taking into account the overriding requirement that civil and criminal processes be used for proper purposes and other disclosure constraints, information obtained as the result of legitimate civil or criminal investigations or proceedings may be shared between criminal and civil agents and attorneys. To maximize appropriate sharing, attorneys should consider developing as much evidence as possible before the grand jury is used. For example, witness interviews, undercover operations, surveillance, trash runs, and publicly available information usually may be used to develop evidence in a criminal case prior to the use of the grand jury. In turn, grand jury limitations on the disclosure of such evidence would not come into play.
- Grand Jury Information
Federal Rule of Criminal Procedure 6(e) prohibits the disclosure of "matters occurring before the grand jury" to civil agents and attorneys, unless an express exception is applicable and, in some instances, a court order is obtained. Information which is not deemed to be "matters occurring before the grand jury" may be disclosed.
There are two types of disclosures to civil attorneys and agents that may arise during parallel proceedings: 1)limited consultation disclosures —made for purposes of furthering and protecting the criminal grand jury proceeding through appropriate coordination when there are parallel cases; and 2) substantive use disclosures—made for the purpose of using grand jury information in a parallel civil proceeding. Two exceptions under Rule 6(e) apply to these two types of disclosures. The exception applicable to first type—disclosures in furtherance of the criminal case—is found in Rule 6(e)(3)(A)(i) and (ii); the exception applicable to the second type of disclosure—substantive civil use—is found in Rule 6(e)(3)(C).
Rule 6(e)(3)(A) provides for disclosures of grand jury matters to government attorneys.
Rule 6(e)(3)(A)(i) permits disclosure of grand jury matters to a government attorney for the performance of his or her duty in enforcing the criminal law or assisting the grand jury. Rule 6(e)(3)(A)(ii) permits grand jury matters to be disclosed as is necessary for an attorney to perform his duty to enforce the criminal law. Under these sub-sections, an attorney handling the criminal case may disclose limited grand jury matters to a DOJ attorney who is handling a parallel civil proceeding for consultation purposes—in order to insure that actions taken by civil attorneys and/or personnel are not inconsistent with and do not adversely affect the criminal investigation and prosecution. See USAM 9-11.250 and Criminal Resource Manual 156.
Because the issue of disclosures of grand jury matters to civil attorneys and agents for coordination purposes has not been decided by the courts, attorneys should proceed with care. Thus, when there are parallel cases, attorneys should take care to disclose only such limited information under Rule 6(e)(3)(A), as is necessary for purposes of protecting and furthering the criminal grand jury proceeding through appropriate coordination of the parallel proceedings. In this regard, disclosures, to the extent necessary, should be narrowly tailored to effect coordination. Further, while disclosures under Rule 6(e)(3)(A) are properly made for the limited purpose of protecting and furthering the criminal case, it is best practice to avoid or limit the disclosures of grand jury matters whenever possible. Practically speaking, this may mean that civil attorneys and agents will provide most of the information about the theories of their cases, expected investigative steps, potential witnesses and exhibits, etc., while criminal attorneys and agents will evaluate that information and then provide only limited and necessary information about the criminal case.
Disclosures for Civil Use
Civil attorneys and agents are not automatically entitled to disclosure of grand jury matters for use in their civil proceedings. When disclosure of information that is deemed to constitute matters occurring before the grand jury is sought for purposes of using the information in the civil matter, a court order permitting such disclosure must first be obtained. A court will permit disclosure under these circumstances only if the government meets the exception requirements set forth in Rule 6(e)(3)(C)(i)(I): that the disclosure is "preliminarily to or in connection with a judicial proceeding...." and a showing of "particularized need" for the requested material has been made.
- Search Warrant Materials
A search warrant is one method of obtaining evidence necessary for the criminal case. Courts have approved the sharing search of warrant information with attorneys and agents handling a parallel civil matter, absent a showing of bad faith, an abuse of process or grand jury disclosure limitations.
Attorneys also should consider whether materials obtained through a search may be deemed by a court to have been obtained through the grand jury process—for example, in situations where search warrants are executed during a grand jury investigation or after evidence has been presented to the grand jury.
Additionally, even if materials seized pursuant to a properly issued warrant may be shared with civil attorneys and agents, the warrant affidavit may or may not be appropriately shared. This is so if the affidavit has been sealed or if it contains grand jury matters or other information which cannot be disclosed to or used by civil attorneys or agents.
Finally, in situations where the civil proceeding goes forward before the criminal proceeding and search warrant information is used in the civil proceeding, a defendant may seek to unseal a search warrant affidavit in order to challenge the constitutionality of the search and admissibility of evidence in the civil proceeding. In such cases, the government may argue that a challenge to the search warrant is not appropriate in the civil proceeding because the exclusionary rule does not apply there.
- Section 6103 Disclosures
Section 6103 (26 U.S.C.) protects all returns and return information collected or gathered by the IRS from unauthorized disclosure. These disclosure provisions are not an impediment to the government's ability to use parallel proceedings for effective enforcement of the tax laws.
Under Section 6103 (h)(3), the IRS is permitted to disclose returns and return information to DOJ if the IRS has referred a matter of tax administration to DOJ under Section 6103(h)(2). Further, disclosures within the DOJ must be made in accordance with 26 U.S.C. Section 6103(h) and Treasury Regulation 26 C.F.R. Section 6103(h)(2)-1(a) and (b).
DOJ attorneys (e.g., Tax Division Criminal Section Attorneys and Assistant United States Attorneys) who are assigned to handle a criminal matter referred by the IRS (e.g., for prosecution) may disclose returns and return information to seek information from, or confer with, DOJ Civil Section attorneys and employees in connection with the handling of the criminal case or for purposes of coordinating civil and criminal matters.
Misuse of Power or Constitutional Violations
While courts have approved parallel proceedings, they also have recognized that multiple actions against individuals have the potential for abuse. An often-cited case in this area is United States v. Tweel, 550 F.2d 297 (5th Cir. 1977). There, the Fifth Circuit reversed a conviction, finding that evidence elicited from a defendant during a civil audit should be suppressed because the taxpayer's consent was obtained by literally true but "sneaky" and "shocking" assurance by an IRS revenue agent that no "special agent" was involved. According to the court, this created the mis-impression that the inquiry was for a civil, and not a criminal, matter. The Fifth Circuit held that a defendant's consent to a search (during a civil audit or other proceeding) will be deemed invalid if it is induced by deceit, trickery, or misrepresentation about the nature of the inquiry.
Since the Tweel decision, most courts that have considered so- called Tweel violations, have concluded that the government agents had not made affirmative misrepresentations constituting fraud, trickery, and deceit, even where they had failed to warn the taxpayers of a possible or ongoing criminal prosecutions." In two recent cases involving the SEC, defendants have successfully argued that the government abused its power and violated the defendants' due process rights by allegedly using civil proceedings to gather evidence for a criminal prosecution. See United States v. Stringer, 408 F.Supp.2d 1083 (D. Or. 2006); United States v. Scrushy , 366 F. Supp.2d 1134 (N.D. Ala. 2005). In those cases, the courts were convinced that the government had improperly used civil process to develop evidence for the criminal cases and, in so doing, had violated the defendants' constitutional rights and/or departed from the proper administration of justice. Under those circumstances, both courts opined that the government was obligated, but failed, to inform the defendants of the specific criminal investigations that were ongoing. They concluded that the standard warnings given by the SEC attorneys to the defendants—informing them that the government could use the information in any criminal proceeding—did not suffice. Based on the government's conduct, the courts sanctioned the government by suppressing the defendant's deposition testimony (Scrushy) or dismissing the indictment (Stringer).
Such claims of having been manipulated or misled by the government also have resulted in the dismissal of an indictment, under circumstances where the government has made false promises to the detriment of the criminal defendants. See, e.g., United States v. Rodman, 519 F.2d 1058, 1059 (1st Cir. 1975) (indictment dismissed where subject of SEC investigation was induced to cooperate based on representation that SEC would make a strong recommendation against criminal prosecution and no such recommendation was made); United States v. Rand, 308 F. Supp. 1231, 1235 (N.D. Ohio 1970) (criminal case dismissed where it was based on testimony of subject at SEC trial induced by representation that there would be no criminal prosecution).
In short, while conducting parallel proceedings, attorneys and agents must take care not to affirmatively mislead targets about a criminal prosecution in order to obtain information from them, nor use a civil or administrative proceeding as a stalking horse to develop evidence for the criminal case.
- Criminal Discovery and Disclosure Obligations
The government has certain discovery obligations in criminal proceedings (e.g., Fed.R.Crim.P 16, Brady v. Maryland, Giglio v. United States, and the Jencks Act,). To meet those obligations, prosecutors should be sure to obtain information known to agents and attorneys who are working on parallel civil matters, including the statements of defendants and witnesses and exculpatory evidence that may be contained in civil and administrative case files.
- Civil Discovery and Trial Disclosures
At times, a civil proceeding will go forward before the criminal investigation is completed and an indictment is sought. This is particularly true when the government pursues civil injunctions. Given the likely timing of these proceedings, attorneys and agents should consider the impact of civil discovery on the criminal investigation and prosecution.
Discovery under the Federal Rules of Civil Procedure is permitted earlier in the proceedings and is broader than the discovery permitted under the Federal Rules of Criminal Procedure. Initial disclosures of documents that a party "may use to support its claims or defenses" are required under Rule 26(a)(1) of the Federal Rules of Civil Procedure. Further, criminal defendants may attempt to use the liberal civil discovery rules to learn information about the government's criminal case that they would not otherwise obtain or that they would ordinarily not obtain until closer to trial.
There are several ways for the government to meet its civil discovery obligations while protecting the criminal case. First, if the government does not plan to use information in criminal investigative files, that information need not be provided in the Rule 26(a)(1) initial disclosures, because initial disclosures under Rule 26(a)(1) of the Federal Rules of Civil Procedure are limited to information that the disclosing party "may use to support its claims or defenses." Second, if necessary, the government can petition the civil court to limit the defendant's discovery in the civil case in order to prevent a criminal defendant from circumventing limitations on discovery in criminal cases. This is done by moving for a Rule 26 ( c) protective order limiting the scope of discovery in the civil case. Third, if the court is unwilling to enter a protective order, the government could seek a stay of the civil action pending resolution of the criminal case. Finally, as a last recourse, the government can seek to dismiss the civil case without prejudice. This is appropriate only where it is clear that: (1) turning over information from the criminal investigation in civil discovery will substantially prejudice the criminal case, and (2) criminal prosecution is more important than obtaining the injunction or other civil relief.
In addition to the issues raised by discovery in the civil proceeding, the government will be disclosing information in preparation for hearings in the civil proceedings. Disclosure of the government's evidence may result in the defendant's attempting to contact or intimidate witnesses, or attempting to destroy or manufacture evidence. Further, at least some of the government's theories and evidence will be disclosed to a defendant before he or she proceeds to the criminal trial. Moreover, if the information developed in a civil injunction case is similar to information contained in a sealed affidavit for a search warrant, the government's reasons for sealing the search warrant may be eliminated.
Notwithstanding the possibility that some of the government's criminal case may be disclosed earlier than would otherwise occur were there no parallel civil proceeding, the benefits to the government are likely to outweigh the possible harm to the criminal case. Promoters and preparers will be enjoined. Customers and clients will be put on notice and may be more inclined to cooperate with the government once a court has enjoined the abusive activity. The government will not lose significant assets and will be able to recover revenues.
Parallel proceedings present additional challenges and potential benefits and risks to consider. Yet, the benefits gained by comprehensive efforts to punish and deter wrongdoers through effective criminal prosecutions, civil monetary recoveries, and injunctions are well worth the extra efforts made and any additional risks incurred.
[added September 2007] [cited in USAM 6-4.400]