| Lawrence Kamin’s Cooperative Alternative Avoids Litigation, Liability for Client Principal Attorneys John Monical Peter Cooper Situation Financial firms are required to have anti-money-laundering procedures. In this case, a major wire house client (“Brokerage Firm”) flagged a wire transfer for additional review under its anti-money-laundering procedures. The wire transfer turned out to be legitimate, made to meet a tax deadline on behalf of the client (“Taxpayer”). The additional time needed to complete the review caused the Taxpayer to miss the deadline, which caused the IRS to impose substantial late fees and a quarter-million-dollar penalty. Challenge The Taxpayer was gearing up for litigation, communicating its intent to sue the Brokerage Firm and to hold it responsible for the tax penalty. Although the Brokerage Firm had appropriately flagged the transfer for additional review, the Taxpayer had relied upon an employee of the brokerage firm who indicated that a wire transfer could usually be accomplished in the short time the Taxpayer needed to meet the IRS deadline. Neither the Brokerage Firm nor the Taxpayer had acted unreasonably, but both were expecting arbitration with a panel that had to blame one of them. Solution The Taxpayer had one opportunity to appeal to the IRS for forgiveness of the penalty. On the advice of Lawrence Kamin, the Brokerage Firm put its stake into that appeal. It offered to take full responsibility for the penalty if one was ultimately imposed, but only if the Taxpayer gave the Brokerage Firm complete control of the appeal. The Taxpayer agreed. In the IRS appeal, Lawrence Kamin prepared a detailed and honest account depicting the good faith by both the Taxpayer and the Brokerage Firm. We detailed the anti-money-laundering procedures and explained how they furthered government goals to hinder criminal and terrorist funding. We depicted both the Brokerage Firm and the Taxpayer as diligent, and showed that neither had acted unreasonably. Outcome The IRS forgave the entire penalty and all late fees associated with the late tax payment. Neither the Brokerage Firm nor the Taxpayer had to pay any fine, and both saved a substantial amount in legal fees. The Taxpayer, pleased with the result, continued the relationship with the Brokerage Firm. Lessons Applied If the only tool you have is a hammer, all of your problems will look like nails. In this case, the solution was not litigation, it was cooperation. |
