Emergency Advice for Art Dealers Facing a Sales Tax Investigation

Should you talk to the DA? Not without an attorney by your side.



Photo: Courtesy of NYPD.forumotion.com.

Art dealers facing a sales tax investigation might want to read this story.

Here’s the rub: If you happen to get caught up in the latest art sales tax examination being conducted in secrecy by the Manhattan District Attorney’s Office, or another government agency (see Manhattan DA Launches Secret Art Sales Tax Investigation and What You Need To Know When Art Sales Tax Investigators Knock On Your Door), what do you do? Who do you turn to? We have the answers.

Last time we explored how to respond if —or, for some of our readers, when—you are first contacted by the government. Today we’ll address a thorny issue which often arises in the early stages of these investigations: whether to speak, or not to speak, directly with the investigator or prosecutor.  That, friends, really is the critical question.

The answer, not surprisingly, is. . .it depends. Your status in the investigation will largely determine whether it is in your best interest to sit down with prosecutors for a formal interview (known in the world of criminal law as a “proffer”).   Determining that status, however, may not be so easy.

But first, let’s review some basic legal terminology.  The lucky recipient of a government subpoena falls into one of three categories: witness, subject or target.  A “witness” is a neutral observer who is not involved in the event or transaction in any way.  For example, a pedestrian who sees a car accident.  At the other end of the spectrum lies the “target”, who by definition is the one likely to be charged with a crime; in our example, the driver of the speeding car that hit the blind art handler in the crosswalk.  In the vast middle is the “subject,” who is involved in some manner in the event or transaction and whose actions may or may not be illegal; here, the driver of another car whose actions may or may not have contributed to the accident (for example, by causing the speeding car to swerve).

Most people in a government investigation fall into the category of subject, which is not as comforting as being a witness, but certainly better than being a target.  But here’s the rub:  subjects sometimes turn into targets, and therein lies the risk of agreeing to a proffer.

How, you may wonder, can I determine into which of these three categories I fall?  Fortunately, there is a straightforward solution:  The very first thing your attorney should do (after cashing your retainer check) is to call the prosecutor and ask, “Is my client a witness, subject or target?”  While federal prosecutors may often still answer this query with a direct response, the Manhattan DA’s Office has very recently abandoned that practice and now will generally only say that it does not believe that the recipient of the subpoena was involved in any criminal activity, if that in fact is its belief.  If the DA chooses not to answer your lawyer’s question, then this silence should speak volumes.

Either way, do you agree to meet with prosecutors and investigators at a proffer session? If your lawyer, reading between the lines, determines that you are a target, then the answer is “no”. If you are likely to be charged, then there is no need to give the DA additional ammunition by making statements that would only increase your chances of ending up with a disagreeable cellmate.  Prisons are filled with people who thought they could talk their way out of a bad situation.

If you are truly only a witness without any stake in the investigation, then the answer may similarly be “no thanks”.  You have nothing to gain and everything to lose if, for whatever reason, you knowingly make a false statement during your interview. We know of a number of situations in which a person walked into a proffer session innocent of any crime and later found himself in handcuffs, charged with perjury or obstruction. That said, we don’t mean to discourage good citizenship, and assisting law enforcement in combating crime is always a good thing — provided your rights are protected.

If you are a subject and your lawyer determines that the DA hasn’t quite figured out what to do with you, then you might consider meeting with the prosecutor (with a savvy attorney by your side, naturally) to try to convince the DA that his interest in you is misplaced.  A number of our clients over the years who had credible stories and could back up their statements with solid evidence have effectively used this strategy, and happily for them that was the end of their legal troubles.  If, however, you believe you can persuade the DA to stop investigating you based on your persuasive charm alone or—worse yet—a fabricated tale, we suggest you re-read the preceding paragraph and think twice before committing legal hara-kiri.
If you do agree to be interviewed, then make sure you know the rules.  A proffer session is governed by a complex written agreement that sets forth your rights as well as your risks.  Most importantly, the agreement gives you a limited form of immunity for your statements relating to the investigation at hand, and only that investigation.  As we tell our clients, you can’t go into a meeting about a sales tax problem and admit, by the way, to killing your spouse, with the bright idea that you can now get away with murder.

Incidentally, your attorney’s ability to obtain immunity is the very reason you shouldn’t speak with investigators alone outside of the context of a proffer session.  Investigators are not empowered to grant immunity, and any incriminating statements you make to them will definitely be used against you.
Regardless of your status in the case, the DA can always compel you by subpoena to appear before a grand jury should you turn down the request for a proffer session.  Your grand jury appearance is governed by a completely different set of complex rules, however, which we will touch upon in a following article in this series.

Next up:  Nothing worked, and you have been formally charged with sales tax evasion.  Now what?

(Note: Because each situation is unique, nothing in this article is intended to provide the reader with specific legal advice. We would encourage anyone with a legal issue to contact his or her attorney directly.)

Thomas C. Danziger, Esq. is Managing Partner in the firm of Danziger, Danziger, & Muro, LLP, which specializes in art law. Georges G. Lederman, Esq. spent 10 years in the Manhattan District Attorney’s Office before becoming of counsel to Danziger, Danziger & Muro, LLP, where he specializes in white collar crime and art law litigation.

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