US V Harry Stonehill – America’s Jarndyce V Jarndyce

1962. It was the one yr by which JFK was president for the entire complete yr. World occasions impinged on my household as my massive brother onboard an plane provider chasing Soviet submarines when not recovering Mercury astronauts had his 4 yr enlistment prolonged to 5. Someway brilliant 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. Based on reporter Amando Doronila who lined the raid, 200 brokers seized 35 truckloads of paperwork from 27 workplaces and companies 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 guide by which Stonehill had recorded bribes that he paid to many distinguished politicians together with then Senator Ferdinand Marcos. There are a variety of wonderful issues about this story together with slightly sidebar about Stan Lee of Marvel fame, who was a pal of Harry Stonehill and handed up an opportunity to be a wheeler seller within the Philippines to proceed his comedian guide profession. The actually wonderful factor is that the implications of the March 3, 1962 NBI raid are nonetheless being litigated in the US.

I’ve a little spreadsheet, which is probably going incomplete, of 19 opinions which might be not less than tangentially associated to the raid. The latest is dated February 10, 2022 – Pauline Dale Stonehill v US Department of Justice Tax Division. The opinion just isn’t 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 presently dwell actions (towards the IRS, FBI, CIA and DOJ Felony Division) are about:

In 1962, Henry Stonehill’s enterprise enterprises within the Philippines have been raided by the Philippine Nationwide Bureau of Investigation (“NBI”), purportedly on the path of the U.S. Authorities. The proof seized in these raids, which was supplied by the NBI to the US, was used to pursue each civil and felony tax instances towards Mr. Stonehill and ultimately resulted in a $17.6 million tax judgment towards 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 next 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 about a 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 an excellent entrepreneur. By educating farmers within the Philippines find out how to develop to tobacco he threatened US tobacco exports. US officers have been pressuring Harry to make use of his large affect for US pursuits. He refused and so they used their affect to have the Philippines authorities drive him in a foreign country after which prevented him from ever getting any enterprise going wherever on the planet for the remainder of his life.

It appears to be undisputed that Harry managed to get a variety of his wealth out of the Philippines. It ended up being below the cloud of an revenue 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’ll be able to see the way it would look that means.

Litigation lowered the tab significantly brining the tax deficiency below $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 full tab then practically $9 million.

Harry’s Different Advocate

One individual crucial to retaining the litigation going is Robert Heggestad, who moreover being an legal professional has some fame as an art and antique collector. Maybe to not the diploma of son Sam, however Mr. Heggestad looks like he’s fairly wild about Harry. He wrote me:

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

As you recognize, 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 answerable for 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 legal professional who represented the Authorities within the Stonehill investigation and litigation for greater than twenty years, “weren’t forthright. They hid quite 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 have 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’t remark additional at this level within the litigation.

The Philippine Supreme Court docket dominated that the raid was unlawful below 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 can not 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 in search of would overturn a 1967 ruling on a movement to suppress the proof from the raid. In relation to a tax deficiency although, the burden of proof is on the taxpayer. Mr. Heggestad wrote me that the “presumption of correctness” just isn’t 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, nearly 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 ample to undermine the whole American effort and maybe destroy democracy right here at a price to the US which might be immeasurable and far past the a whole lot of hundreds of thousands in support packages and loans.

It goes on at some size however close to the top we have now

….a number of parts within the Embassy are already totally conversant in the informant’s data and plenty of them are conscious that one of the best, if not the one, assault which will 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 could be useful in creating an efficient enforcement picture. There’s something unsuitable with having tax enforcement being a device that’s used for different ends, which is fairly clearly what was happening in Stonehill’s case. It’s neither the primary nor final time that it has occurred, after all, 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 you must think about the opposite readers.