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IRS Doesn't Protect Whistleblower Privacy, Letter Writer Says

Dated Apr. 22, 2021

SUMMARY BY TAX ANALYSTS

An undisclosed IRS whistleblower in an April 21 letter to Senate Finance Committee member Chuck Grassley, R-Iowa, said the IRS and Justice Department have continually broken promises of privacy to whistleblowers and asked for support for a rehearing on the D.C. Circuit Court’s decision to deny his or her motion for anonymity.

21 April 2021

The Honorable Charles Grassley
Senate Committee on Judiciary
United States Senate
135 Hart Senate Office Building
Washington, DC
#20510-1501

Dear Senator Grassley,

Re. Anonymity and Confidentiality of Offshore IRS Whistleblowers
In Re. Sealed Case No. 18-1321. Federal Court of Appeals, DC Circuit.
Whistleblower 7107-16W Petitioning for a Panel Re-hearing or En Banc Hearing.

On January 19, 2021 the Federal Court of Appeals DC Circuit issued a decision, denying my motion for anonymity as a US Government informant registered in the IRS Whistleblower Program. I'm proceeding pro se, 'on the papers' without hearings, 5 years into a judicial review of my 26 U.S.C. § 7623(b)(1) whistleblower case. From 4700 miles away outside the US. In what was very clearly a case of first impression, the DC Circuit provided no opinion, dicta or rationale with the Court's decision. Confirming amongst other things, that the DC Circuit had not properly considered the supporting factors in favor of my anonymity.

The DC Circuit's decision (January 19, 2021), substantially undermines and threatens not only the US Government's ability to effectively implement fiscal policy, but also the effectiveness of US law enforcement to identify (1) unreported income (2) offshore money laundering, and (3) unreported bank accounts.

In what was clearly a case of first impression, the Court only provided a very cursory, 'bare bones' 1 page decision with 2 short paragraphs, citing a general public interest 'balancing test', in which the inherent presumption is in favor of disclosing the identity, into the public domain, of US government informants who have assisted US law enforcement in criminal investigations. Opposing me was the Department of Justice, who take the consistent position of constant antagonism, towards all whistleblowers, irrespective of whether they are assisting US law enforcement or not.1

As you may remember, some 7 years ago, you wrote, as Chairman of the Senate Judiciary Committee (February 28, 2014) to the then IRS Commissioner John Koskinen, raising your concerns about the way my case had been handled. Both by the IRS Criminal Division and subsequently by the IRS Whistleblower Office. Including, raising your concerns about the IRS's “failure to protect whistleblowers' confidentiality”. As you acknowledged, in my particular case I was given assurances by the IRS Criminal Division of confidentiality, memorialized in emails from IRS special agents and in a US Treasury “Confidentiality Agreement” (March 8, 2008) on US Treasury letterhead complete with seal, issued by IRS Counsel based at the IRS headquarters, Washington DC. Which specifically cited, invoked and claimed the protections of confidentiality and anonymity for me. Asserting as a term and condition of that US Treasury “Confidentiality Agreement” (March 10, 2008);

“The identity of confidential informants is legally protected under the Freedom of Information Act (FOIA). Exemption(b) (7)(D) of the FIOA provides for the protection of records or information that can disclose the identity of a confidential source.”

As a non-US national, permanently resident and domiciled outside the United States in the European Union, I acted in good faith and assisted the IRS Criminal Division for over 3 years. Beyond the protection of both US law enforcement and US anti-retaliatory legislation. The documentary evidence that I provided the IRS Special Agents operating out of the US Embassy London, initiated that 3 year investigation. Initially, I voluntarily provided documentary evidence. As the case progressed the IRS special agents instructed me to retrieve sensitive and confidential documents about the commercial activities of US Citizens overseas, from the London law firm where is was employed. Without the need for the US government to obtain a subpoena or warrant, contrary to the 4th amendment. Disclosing (1) money laundering (2) unreported offshore income, and (3) unreported offshore bank accounts. A close family member of one of the US target taxpayers had served a 7 year jail term in a US Federal penitentiary for money laundering and drug trafficking and had close links to organized crime in the US.

Senator, I would be grateful if you would assist me once again and in doing so help other “whistleblowers”, “informants” and “confidential sources” who are assisting US law enforcement, by submitting an amicus curiae brief in support of my petition for a panel rehearing and en banc hearing on the issue of my anonymity. Pursuant to Federal DC Circuit Appellate Rule 35(f), only the D.C. Court can invite amicus curiae briefs in the matter of a petition for panel re-hearing. I will, therefore, be asking the DC Circuit Court to invite Amicus Curiae brief(s) in my petition for en banc hearing.

On the issue of opposing IRS Whistleblower's anonymity and confidentiality, when seeking a judicial review in the Federal Tax Court, both the IRS office of Chief Counsel and the Department of Justice representing the IRS Commissioner in the Federal Court of Appeals, continue to exploit a further opportunity to undermine the IRS Whistleblower program. Arbitrarily denying whistleblower anonymity and confidentiality in court proceedings in order to prejudice IRS whistleblower cases going forward by dissuading, discouraging and intimidating IRS whistleblowers from appealing their respective award determinations pursuant to 26 U.S.C. § 7623(b)(1).

Initially, when I first filed for judicial review in the US Tax Court in March 2016 together with a motion of anonymity disclosing supporting factors in favor of anonymity, the US Government by way of responsive motion on May 7th 2016, stated in Federal Tax Court; “Respondent [US Government] hereby notifies the Court that he has no objection to petitioner [Whistleblower] proceeding anonymously pursuant to T.C. Rule 345(a)”

Going onto state in the same motion “Respondents concedes that petitioner [Whistleblower] has submitted information sufficient to provide a basis for granting anonymity”.

Two and half years later in the same litigation, without lawful explanation, the US government completely contradicted itself and opposed my anonymity citing the public interest 'balancing test' with its inherent presumption of disclosure of government informants identity into the public domain.

I hope that the example of my case will act as salutary warning to all other US Government “Informers”, “Whistleblowers” and “Confidential Sources”, that the US government is not to be trusted when it comes to preserving confidentiality and anonymity. Particularly, those US government informants who are non-US nationals residing outside the United States. US Treasury Confidentiality Agreements confirming the anonymity and confidentiality of US government informants, pursuant to various statutory protections, are effectively worthless. As are the alluring and illusory promises made on US Government websites.

“The IRS treats whistleblower claimants as confidential informants. Internal Revenue Manual (I.R.M) 25.2.2.7 (12-20-2008); See also I.R.M. 25.2.1.5.4 (01-11-2018), Ex.25.2.1-1 (Debriefing Checklist). The IRS will use its “best efforts” to protect the identity of a whistleblower claimant. Treasury. Reg 301.7623-1(e) (26 CFR)”

The D.C. Circuit decision referenced a general formulaic 'balancing test' for establishing anonymity and confidentiality usually applied in NON-law enforcement cases which don't involve criminal investigations. The DC Circuit relied primarily on United States v. Microsoft, 56 F.3d 1448 (D.C. Cir. 1995), stating that the appropriate way to determine whether a litigant may proceed anonymously is “to balance the litigant's legitimate interest in anonymity against countervailing interests in full disclosure.” A presumption, that permits an overly wide discretion that the whistleblower argues “cynically favors disclosing the identity of US Government informants into the public domain once the government informant usefulness in assisting a criminal investigation is at an end.”

Such an overly wide discretion in applying the presumption in favor of outing government informants appears to be applied inconsistently in the Federal Courts. Had for example my case been before Judge Kaplan last July in the Federal Court of Claims, Washington DC, I would have perhaps stood a better chance of being granting permanent anonymity. In a remarkably similar case to my own, an IRS Whistleblower had assisted the IRS Criminal Division for two years in providing documentary evidence of tax evasion at his place of work. In John Doe v. United States, No. 1:19-cv-00720 (Ct. Fed. Cl. 7-29-2019) Judge Kaplan saw no problem in granting anonymity to an IRS Whistleblower, despite the objections of IRS Counsel who wanted to out him.

Similarly, the DC Circuits decision in my case also seems to be at odds with other circuits in the Federal Court of Appeals. In particular, the U.S. Court of Appeals for the Fifth Circuit has previously held that revealing the identity of a confidential whistleblower “constitutes an adverse personnel action”, giving rise to damages. The Court reasoned as follows: “it is inevitable that such a disclosure [of the whistleblower's identity] would result in ostracism, and, unsurprisingly, that is exactly what happened to [the whistleblower] following the disclosure.” The Court went on to explain: “no one volunteers for the role of social pariah.” See, Halliburton v. Administrative Review Board, 771 F.3d 254 (5th Cir. 2014).

Putting aside the 'balancing test' of factors reflecting the public's interest in open judicial proceedings which the DC Circuit recited in its 'bare bones' decision, (in which I more than met by providing substantial factors for anonymity) when the IRS Criminal Division quoted, invoked and cited as a condition of my US Treasury “Confidentiality Agreement (March 10, 2008) Exemption 7D FOIA, the IRS invoked, asserted and claimed my rights as a confidential informant. Accordingly, the DC Circuit by analogy, inference or otherwise were obligated and required to apply and enforce my rights as a US Government Informant. i.e. a presumption in favor of anonymity. The rights of US government informants whether they're an (1) implied in fact Confidentiality Agreement or indeed (2) an Express Confidentiality Agreement, are well established in the large body of case law cited in the DOJ's own guide to Exemption 7D. I quote directly;

“The applicability of exemption 7(D) focuses on the circumstances upon which the information is provided, and not on the harm resulting from disclosure (in contrast to Exemptions 6 and 7(C)). Therefore, no 'balancing test' is applied under the case law of Exemption 7(D). See Roth v. DOJ, 642 F.3d 1161, 1184 (D.C. Cir. 2011) declaring that "[u]nlike Exemptions 6 and 7(C), Exemption 7(D) requires no balancing of public and private interests") (citing Parker, 934 F.2d at 375). Affirming Jones v. FBI, 41 F.3d 238, 247 (6th Cir. 1994) Exemption 7(D) "does not involve a balancing of public and privateinterests; if the source was confidential, the exemption may be claimed regardless of the public interest in disclosure". See also; McDonnell, 4 F.3d at 1257 (stating that Exemption "7(D) does not entail a balancing of public and private interests"); Nadler, 955 F.2d at 1487 n.8 (holding that "[o]nce a source has been found to be confidential, Exemption 7(D) does not require the Government to justify its decision to withhold information against the competing claim that the public interest weighs in favor of disclosure").

Moreover, that the "judiciary is not permitted to undertake a balancing of conflicting interests, but is required to uphold a claimed 7(D) exemption so long as the statutory criteria are met" Irons v. FBI, 811 F.2d 681, 685 (1st Cir. 1987. See also Brant Constr. Co. v. EPA, 778 F.2d 1258, 1262-63 (7th Cir. 1985) confirming that "[n]o judicial 'balancing' of the competing interests is permitted" under Exemption 7(D). Also; Bretti v. DOJ, 639 F. Supp. 2d 257, 265 (N.D.N.Y. 2009) where the plaintiff had not articulated any publicbenefit, the court stated that "information furnished by a confidential source requires no balancing test and no consideration of the public interest in disclosure" in order to qualify for protection.

Little of substance has transpired in my case to implicate the public's interest in knowing my identity, the public's interest is relatively weak in open proceedings as, despite being in the Federal Tax Court for 4 years, my case is at very early stage. After 4 years, without any significant formal or informal discovery taking place, the very core of judicial review, due directly to the prevarication and obfuscation of IRS Counsel in Federal Tax court. Currently 3 motions to compel are outstanding, held in abeyance by Federal Tax Court judges, because I'm currently appealing the lifting of my anonymity in the Federal Court of Appeals DC Circuit which does not depend to any appreciable extent the disclosure of my identity.

During my first debriefing at the US Embassy, London by IRS Special Agent Kevin Sophia on February 14, 2008 I emphasised to special agent Kevin Sophia that I not only wanted the protection of a “Confidentiality Agreement” in order to (1) ensure my employer and other law firms couldn't find out I was an IRS Whistleblower. But also (2) because the brother of the main US national that the IRS were investigating had spent time in a Federal Penitentiary in California for drug trafficking and money laundering, and was allegedly connected to organised crime in the US. Nevertheless, once special agent Kevin Sophia gave me a US Treasury “Confidentiality Agreement” (March 10, 2008) he immediately turned around and outed me as an IRS Whistleblower to my employer law firm. I subsequently lost my job and have never been employed in the legal profession since.

You will note that the same IRS Special Agent Kevin Sophia who outed me to my employers is the same IRS Special agent who outed John Cruz the HSBC IRS Whistleblower

As you may remember on Wednesday February 18, 2015 a Senate Judiciary Committee hearing chaired by you conducted a two-hour session with IRS whistleblower John Cruz with regards the investigation of attorney general nominee Loretta Lynch's role in the decision not to prosecute the HSBC for laundering funds for Mexican drug cartels and Middle Eastern terrorists. John Cruz confirmed to your staff that Special agent Kevin Sophia had been instrumental in disclosing his identity as an IRS Whistleblower to HSBC despite telling John Cruz his identity would remain confidential. Despite John Cruz providing the IRS with more than a 1,000 pages of evidence and secret audio recordings. The Congressional investigators of the Senate Judiciary Committee focused on John Cruz's allegations, that Loretta Lynch, acting in her capacity as the U.S. attorney for the Eastern District of New York, engaged in a Department of Justice cover-up of HSBC unlawful money laundering and tax evasion. The attorney general nominee allowed HSBC to enter into a “deferred prosecution” settlement in which the bank agreed to pay a $1.9 billion fine and admit “willful criminal conduct” in exchange for dropping criminal investigations and prosecutions of HSBC directors or employees

John Cruz a former HSBC vice president and relationship manager initially confirmed with the US news provider, WND, that he handed over evidence at a meeting in April 2012 to supervisory Special Agent Kevin B. Sophia and Special Agent David Wagner of the Department of Treasury's IRS Criminal investigation division. Among the evidence handed over was about 19 to 20 hours of recorded discussions with HSBC employees concerning his allegations. John Cruz stated, “They told me that if the information on the computer disk and in the audio files was as I represented, the IRS agents were talking about arresting HSBC bank employees,”

Nevertheless, John Cruz expressed his disbelief and anger because of the betrayal of trust with the IRS special agents stating, “It's a circle,” “I turn over the information to law enforcement, and law enforcement turns around and gives the information right back to the bank [HSBC] for the bank [HSBC] to conduct their own internal investigation.” Nevertheless, despite special agent Sophia promising confidentiality to John Cruz, by handing the evidence back to HSBC, John Cruz was identified as the whistleblower and lost his job at HSBC New York. Consequently, the Justice Department took no action against HSBC. John Cruz has never been employed by any bank since and the IRS denied him a reward pursuant to 7623(b).

The IRS's and Justice Department's preparedness to disclose the identity of IRS Whistleblowers at every opportunity is part of a systematic abuse of discretion and general policy during the last 13 years of both the IRS and Department of Justice to undermine, limit and reduce the effectiveness of the IRS Whistleblower Program. By, amongst other things, discrediting IRS Whistleblowers and disclosing their identity despite the promises of confidentiality.

Looking forward to hearing from you in due course.

Yours sincerely,

* * *

Cc:
Senator Ron Wyden
Chairman Senate Finance Committee

Sri Srinivasan
Chief Judge Federal Court of Appeals. DC Circuit.

Richard E. Zuckerman
Principal Deputy Assistant Attorney General
Tax Division Department of Justice

FOOTNOTES

1Bradley Birkenfeld, Bradley Manning, Edward Snowden et al.

END FOOTNOTES

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