US V Harry Stonehill – America’s Jarndyce V Jarndyce

1962. It was the one yr through which JFK was president for the entire complete yr. World occasions impinged on my household as my massive brother onboard an plane service chasing Soviet submarines when not recovering Mercury astronauts had his 4 yr enlistment prolonged to 5. By some means vivid fourth grader that I used to be, I missed the story of the dramatic raid by the Philippines Nationwide Bureau of Investigation on March 3, 1962. In response to reporter Amando Doronila who lined the raid, 200 brokers seized 35 truckloads of paperwork from 27 places of work and firms managed by American expatriate Harry Stonehill.

The Battle Continues

The raid would have a profound impact on Philippine politics, as a result of included among the many mountain of paperwork was a e book through which Stonehill had recorded bribes that he paid to many distinguished politicians together with then Senator Ferdinand Marcos. There are loads of superb issues about this story together with a little bit sidebar about Stan Lee of Marvel fame, who was a good friend of Harry Stonehill and handed up an opportunity to be a wheeler supplier within the Philippines to proceed his comedian e book profession. The actually superb factor is that the implications of the March 3, 1962 NBI raid are nonetheless being litigated in the USA.

I’ve a little spreadsheet, which is probably going incomplete, of 19 opinions which can be no less than tangentially associated to the raid. The newest is dated February 10, 2022 – Pauline Dale Stonehill v US Division of Justice Tax Division. The opinion will not be the top of the case as varied motions by each side are both granted or denied. Early on the opinion explains what this motion and 4 different at the moment dwell actions (in opposition to the IRS, FBI, CIA and DOJ Felony Division) are about:

In 1962, Henry Stonehill’s enterprise enterprises within the Philippines had been raided by the Philippine Nationwide Bureau of Investigation (“NBI”), purportedly on the course of the U.S. Authorities. The proof seized in these raids, which was offered by the NBI to the USA, was used to pursue each civil and felony tax instances in opposition to Mr. Stonehill and finally resulted in a $17.6 million tax judgment in opposition to Mr. Stonehill and his enterprise affiliate.

The three Freedom of Data Act (“FOIA”) requests at concern on this case are the newest chapter in what’s now over a half-century’s price of litigation as Mr. Stonehill, and Ms. Stonehill on behalf of his property, have sought to uncover the total extent of U.S. authorities involvement and conduct in these raids and the following litigation.

Energy To Tax – Energy To Destroy

Essentially the most passionate protection of Harry Stonehill that I’ve been capable of finding is that of his son Sam Stonehill. Sam contacted me after I wrote a couple of 2011 opinion which appeared to and probably did convey the matter to a detailed. I just lately reached again out to Sam, however haven’t heard from him. Sam is the kid of Harry’s third spouse. Pauline who’s carrying on the case is spouse quantity 4. Harry died in 2002. Sam was born within the late seventies when Harry was round sixty. He devotes an excellent piece of this ten minute autobiography to Harry’s story.

In Sam’s narrative Harry was a superb entrepreneur. By instructing farmers within the Philippines methods to develop to tobacco he threatened US tobacco exports. US officers had been pressuring Harry to make use of his super affect for US pursuits. He refused they usually used their affect to have the Philippines authorities pressure him in another country after which prevented him from ever getting any enterprise going anyplace on the planet for the remainder of his life.

It appears to be undisputed that Harry managed to get loads of his wealth out of the Philippines. It ended up being underneath the cloud of an earnings tax jeopardy evaluation for the years 1958 – 1961. The tax deficiency was $7,869,364.55 with a 50% penalty tacked on. Since in these days the highest marginal charge which kicked in for incomes over $200,000 was 91%, the evaluation is past confiscatory. That does not make it unsuitable, however you may see the way it would look that manner.

Litigation lowered the tab significantly brining the tax deficiency underneath $3 million by the point the district court docket dominated on it in 1976, however the curiosity clock had been ticking all that point making the whole tab then almost $9 million.

Harry’s Different Advocate

One individual crucial to conserving the litigation going is Robert Heggestad, who in addition to being an lawyer has some fame as an artwork and vintage collector. Maybe to not the diploma of son Sam, however Mr. Heggestad looks as if he’s fairly wild about Harry. He wrote me:

I’ve represented Harry Stonehill and his Property for nearly 30 years. As you may think about, I’m intimately conscious of each facet of this case. Primarily based on my involvement, I imagine a gross miscarriage of justice occurred through the unique Stonehill proceedings.

As you understand, to show fraud on the court docket requires clear and convincing proof that the federal government’s misconduct considerably undermined the judicial course of by stopping the court docket from analyzing the case.  In 2011, the Ninth Circuit discovered:

• the FBI Particular Agent in command of the Stonehill investigation, Robert Hawley “lied in his deposition about his information of the raid;” Hawley dedicated perjury through the suppression hearings;
• the statements of John McCarthy, the lawyer who represented the Authorities within the Stonehill investigation and litigation for greater than twenty years, “weren’t forthright. They hid fairly than revealed the true state of affairs recognized to the federal government;”
• the Philippine Nationwide Bureau of Investigation (“NBI”) brokers who carried out the unlawful raids on Stonehill’s companies seemingly “labored for the CIA, particularly in reference to wiretapping actions…,” and
• Stonehill’s lawyer William Saunders, who initially represented Stonehill after the raids, was an informant who cooperated with the federal government.

­­The Ninth Circuit concluded that “the federal government’s misrepresentations or false statements made by authorities witnesses or attorneys had been on largely tangential points and didn’t considerably undermine the judicial course of by stopping the district court docket or this court docket from analyzing the case.”  It additionally concluded that simply because Stonehill’s lawyer was a authorities informer, it didn’t essentially imply that he knowledgeable on Stonehill on the time he was representing him.

Mr. Heggestad indicated that he can not remark additional at this level within the litigation.

The Philippine Supreme Court docket dominated that the raid was unlawful underneath their model of the Fourth Modification. As any common watcher of Regulation And Order will let you know that makes the fabric that NBI turned over to the US IRS “fruit of the poisoned tree” . However the raid was not the work of the US authorities – or so they are saying. Over time, there have been extra bits and items of proof that there was US involvement.

Burden Of Proof

I’m actually disillusioned that I am unable to get my authorized mind belief engaged on this story. The issue is I do not get Mr. Heggestad’s finish sport. The proof they’re looking for would overturn a 1967 ruling on a movement to suppress the proof from the raid. With regards to a tax deficiency although, the burden of proof is on the taxpayer. Mr. Heggestad wrote me that the “presumption of correctness” will not be an impediment to the place he’s headed, however I’m unable to discern the place that’s.

The Al Capone Syndrome

One of many gadgets that seems as an exhibit to complaints within the case is a memo from Robert Chandler the IRS consultant in Manila to the director of worldwide operations. The memo is dated January 10, 1962, virtually two months earlier than the raid. It goes into some element on what a foul man Embassy officers suppose Stonehill is:

….it seems that Stonehill’s particular person affect could also be enough to undermine your entire American effort and maybe destroy democracy right here at a value to the USA which might be immeasurable and far past the a whole bunch of thousands and thousands in assist applications and loans.

It goes on at some size however close to the top we’ve got

….a number of parts within the Embassy are already completely accustomed to the informant’s info and plenty of them are conscious that the perfect, if not the one, assault which could be made on Stonehill is thru the IRS.

Chandler goes on to point that voluntary compliance within the Far East may be very unsatisfactory and {that a} publicized case can be useful in creating an efficient enforcement picture. There’s something unsuitable with having tax enforcement being a instrument that’s used for different ends, which is fairly clearly what was occurring in Stonehill’s case. It’s neither the primary nor final time that it has occurred, in fact, the Al Capone story remaining essentially the most well-known.

Acknowledgement

I wish to thank Manuel L. Quezon III for assist with the background on this story.

Literary Reference

You and I each know that Jarndyce v Jarndyce is the fictional case that goes on for over 100 years that’s the background for Bleak Home by Charles Dickens, however it’s a must to take into account the opposite readers.