Federal Government Contractor Pleads Guilty to Accepting Kickbacks and Tax Evasion

An Enterprise, Alabama, resident pleaded guilty today in U.S. District Court for the Southern District of Florida to accepting unlawful kickbacks and tax evasion, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

According to court documents and statements made in open court, Victor Villalobos, 47, worked for a federal prime contractor at Fort Rucker in Alabama.  In 2009, Villalobos approached a subcontractor for this company and solicited illegal kickbacks on the federal subcontracts the subcontractor held in connection with the federal prime contractor.  Villalobos agreed that in exchange for kickback payments he would refrain from conduct that would unfavorably affect the subcontractor’s business relationship with the federal prime contractor and help ensure that the subcontractor obtained additional business.

As part of his plea, Villalobos admitted that from June 2009 to December 2014, he received approximately 57 separate wire transfers totaling more than $1.9 million in kickback payments from various foreign and domestic bank accounts controlled by the subcontractor.  At two separate meetings in 2015, Villalobos met with the subcontractor and accepted an envelope containing $5,000 in cash and a bag containing $55,000 in cash as kickback payments.  Between June 2009 and February 2015, Villalobos attempted to conceal his receipt of the kickbacks by incorporating nominee entities and opening nominee bank accounts.  Villalobos also admitted that he attempted to evade income taxes on the kickback payments by causing false federal income tax returns to be filed.

Villalobos faces a statutory maximum sentence of 10 years in prison for accepting the kickbacks and a statutory maximum sentence of five years in prison for tax evasion.  He could also be fined up to $500,000 or twice the gain from his crimes.

Acting Assistant Attorney General Ciraolo commended special agents of IRS-Criminal Investigation, the U.S. Air Force’s Office of Special Investigations and the Department of Defense’s Office of the Inspector General, who investigated this case, and Trial Attorneys Charles M. Edgar Jr. and Jason H. Poole of the Tax Division, who are prosecuting this case.  Ciraolo also thanked the U.S. Attorney’s Office of the Southern District of Florida for their substantial assistance.

Justice Department Announces BHF-Bank (Schweiz) AG Reaches Resolution under Swiss Bank Program

The Department of Justice announced today that BHF-Bank (Schweiz) AG (BHF) has reached a resolution under the department’s Swiss Bank Program.

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, BHF agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute this bank for tax-related criminal offenses.

BHF was established in 1974 as a wholly-owned Swiss subsidiary of BHF-BANK Aktiengesellschaft (BHF-BANK AG), a private bank located in Germany.  Deutsche Bank AG purchased BHF-BANK AG in 2010, and in 2014, BHF-BANK AG was sold to a consortium of investors.  BHF is headquartered in Zurich and has a branch in Geneva.  The name of the group is now BHF Kleinwort Benson Group.

BHF opened and maintained undeclared accounts for U.S. taxpayers.  It chose to continue to service U.S. customers without disclosing their identities to the Internal Revenue Service (IRS) or taking steps to ensure that clients were compliant with U.S. tax laws and without considering the impact of U.S. criminal law on that decision.

BHF offered a variety of traditional Swiss banking services that it knew could assist, and did assist, U.S. clients in the concealment of assets and income from the IRS, such as “hold mail” services, which minimized the paper trail between the U.S. clients and undeclared assets and income, and debit cards, which allowed U.S. clients to access their undeclared accounts without having to visit BHF.

In 1982, Plinius Management Limited, Zurich (Plinius), a trust company, was formed as a wholly-owned subsidiary of BHF to provide special services for wealthy clients, which included advice regarding trusts, foundations, fiduciary agreements and holding companies in order to protect assets and minimize tax liability.  Plinius had no employees, and BHF provided it with staff and infrastructure.

Plinius also assisted with referrals to establish various types of structures, including Liechtenstein Anstalten and Stiftungen, and British Virgin Islands and Panamanian entities.  Plinius did not create the structures; instead, it would contact an external trust company or law firm in Liechtenstein to set up the entity within the agreed-upon jurisdiction.  While Plinius’ relationship managers did not have access to the Forms A held by BHF that identified the beneficial owners, in some cases they were aware of the ultimate beneficial owner(s) of the accounts.  Four subsidiary-related structured accounts were established for U.S. persons, which improperly sheltered U.S. taxpayer-clients and hid their assets from the IRS.

U.S.-related accounts, including offshore structured accounts, came into BHF through its relationship managers, through external asset managers or otherwise.  For example, one account in the name of an offshore entity was referred to a BHF manager from a U.S.-based structuring lawyer prior to 2008, and transferred to BHF from another Swiss bank.  The file contained a Form W-8BEN and certification of non-U.S. persons for the offshore corporate accountholder.  BHF’s management approved opening the account even though the account also held U.S. securities.  There was no Form W-9 completed or provided to BHF for the U.S. beneficial owner.  BHF did not confirm that the U.S. beneficial owner was compliant with U.S. tax obligations.

In the fourth quarter of 2000, BHF signed a Qualified Intermediary (QI) Agreement with the IRS.  The QI regime provided a comprehensive framework for U.S. information reporting and tax withholding by a non-U.S. financial institution with respect to U.S. securities.  The QI Agreement was designed to help ensure that, with respect to U.S. securities held in an account at BHF, non-U.S. persons were subject to the proper U.S. withholding tax rates and that U.S. persons were properly paying U.S. tax.

BHF implemented a policy that every client had to sign either a Form W-9 or a Declaration of Non-U.S. Person Status, which required the customer to declare whether he or she was a U.S. person for tax purposes.  Some U.S. clients who did not want to have their identities disclosed to the IRS could avoid detection by declining U.S. securities.  Approximately five clients refused to sign a Form W-9, but BHF nevertheless continued to service these clients’ accounts and kept them open.

While participating in the Swiss Bank Program, BHF encouraged existing and prior accountholders and beneficial owners of U.S.-related accounts to provide evidence of tax compliance or of participation in any of the IRS Offshore Voluntary Disclosure Programs or Initiatives or to disclose their accounts to the IRS through such a program.  BHF sought waivers of Swiss bank secrecy from all accountholders and obtained waivers for more than 50 percent of its accounts.  BHF has also provided certain account information related to U.S. taxpayers that will enable the government to make requests under the 1996 Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income for, among other things, the identities of U.S. accountholders.

Since Aug. 1, 2008, BHF held a total of 125 U.S.-related accounts, comprising total assets under management of approximately $202,964,006.  BHF will pay a penalty of $1.768 million.

While U.S. accountholders at BHF who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at BHF must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Ciraolo thanked the IRS, and in particular, IRS-Criminal Investigation and the IRS Large Business & International Division for their substantial assistance.  Ciraolo also thanked Charles M. Duffy, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Attorney Kimberle E. Dodd and Senior Litigation Counsel Nanette L. Davis of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Justice Department Announces Swiss Bank Program Resolutions with Two More Banks

The Department of Justice announced today that SB Saanen Bank AG and Privatbank Bellerive AG have reached resolutions under the department’s Swiss Bank Program.

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreements signed today, each bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.

SB Saanen Bank AG is headquartered in Saanen, Switzerland.  It was founded in 1874 and has branches in the neighboring villages of Gstaad, Gsteig and Lauenen, as well as a retail office in Schönried.

Prior to Aug. 1, 2008, and thereafter, SB Saanen accepted accounts from U.S. taxpayers, some of whom had undeclared accounts and wished to take advantage of Swiss bank secrecy laws.  SB Saanen offered a variety of traditional Swiss banking services which could and did assist U.S. clients in concealing assets and income from the Internal Revenue Service (IRS), including numbered or pseudonym accounts and holding mail at the bank.  These services helped U.S. clients to eliminate the presence of documents in the United States that associated the U.S. taxpayer’s name with the undeclared assets and income they held at SB Saanen in Switzerland.  In some instances, SB Saanen permitted accounts to be closed with large cash withdrawals, precious metals or transfers of funds to accounts held by non-U.S. persons.  SB Saanen had reason to believe that such an accountholder was taking that action to avoid detection by U.S. tax authorities.

In December 2008, SB Saanen’s board of directors decided that it should continue to manage U.S. clients and open new accounts for U.S. clients on the condition that they had a “link to our region or one of our relationship managers.”  As a result, SB Saanen opened accounts for some U.S. taxpayers who transferred accounts from other Swiss institutions that were closing such accounts.  SB Saanen knew, or had reason to know, that two of those accounts were undeclared.  SB Saanen continued to service U.S. taxpayers even though it had reason to believe that some of them were evading U.S. taxes.

An SB Saanen procedural manual, dated November 2009 and related to the directive, warned its employees to minimize U.S-related contacts with undeclared U.S. clients.  The manual required relationship managers to obtain an IRS Form W-9 for new U.S. clients and stated, with respect to existing U.S. clients, that “clients who do not want disclosure to the IRS (American tax authority) may not be contacted at all in the U.S.A. and/or other countries!  Contact is only permissible within [Switzerland].”

In 2009, SB Saanen implemented a policy with respect to foreign travel by its relationship managers.  Pursuant to that policy, travel was permitted to the United States to meet with U.S. clients so long as it was approved in advance by SB Saanen’s chief executive officer and subject to restrictions.  For example, under the policy, SB Saanen declared that “No files may be taken abroad,” relationship managers must “complete a training course,” relationship managers “may not actively acquire” new customers, there was to be “no signing of business documents” or “accepting of orders” or providing “investment advice,” and bank employees were prohibited from “handing over cash, securities, or objects.”  In 2010 and 2011, SB Saanen’s then-head of private banking, who is no longer employed by the bank, traveled to the United States to entertain U.S. clients at the U.S. Open tennis championship in Flushing Meadows, New York.

Since Aug. 1, 2008, SB Saanen maintained three U.S.-related accounts for individual U.S. taxpayers who opened the account in the name of a non-U.S. entity, such as offshore corporations or trusts.  Those three accounts comprised an aggregate value of approximately $5 million.  SB Saanen was not involved in creating these entities, but it was aware that some U.S. clients created and used such non-U.S. entities to hold Swiss bank accounts to avoid their disclosure to, or otherwise be concealed from, U.S. tax authorities.

The undeclared U.S.-related accounts maintained at SB Saanen include one instance in 2011 where SB Saanen assisted a U.S. taxpayer-client in the transfer of securities from his undeclared account to that of a Jersey company with a non-U.S. person as its beneficial owner.  SB Saanen allowed the transfer of funds even though the Jersey corporation had not completed all required bank documents.  In January and March 2012, the U.S. accountholder closed his account and transferred an additional $4.3 million to an account at SB Saanen held in the name of his wife, who was not a U.S. citizen.

Since Aug. 1, 2008, SB Saanen maintained 110 U.S.-related accounts with a maximum aggregate value of approximately $62 million.  SB Saanen will pay a penalty of $1.365 million.

Privatbank Bellerive AG was founded in 1988, and its sole office is in Zurich.  Bellerive was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on all of their income, including income earned in accounts that these U.S. taxpayers maintained at the bank.  Bellerive knew that it was likely that some of its U.S. customers who maintained accounts at the bank were not complying with their tax and reporting obligations under U.S. law.  In two instances, U.S. accountholders, with the assistance of their external asset managers, created Panamanian corporations and paid a fee to third parties to act as directors.  The companies’ directors were two trust companies based in Panama.  Those third parties, at the direction of the U.S. accountholder, opened a bank account at Bellerive in the name of the entity.  Bellerive made no effort to determine whether such an entity was valid for U.S. tax purposes.  In those circumstances involving a non-U.S. entity, Bellerive was aware that a U.S. person was the true beneficial owner of the account.

Prior to Nov. 1, 2000, Bellerive required individuals subject to federal income tax under the U.S. Internal Revenue Code and who were beneficial owners of accounts to sign a “Form 1,” titled “W-9 Custodian Waiver.”  The “Form 1” contained two statements from which the beneficial owner could choose one option.  The first of the two options stated: “I would like to avoid disclosure of my identity to the U.S. tax authorities under the new tax regulations.  To this end, I declare that I expressly agree that my account shall be frozen for all new investments in U.S. securities as from November 1, 2000.”  Bellerive knew or had reason to know that the four U.S. accountholders who signed this option were engaged in tax evasion.

An internal Bellerive memorandum dated Sept. 16, 2008, from the then-head of Legal Compliance and Risk, stated that “all Swiss banks have set up the following rules for dealing with U.S. clients:

  • Absolutely no contact as long as the client is on U.S. territory, even if the contact has been initiated by the client, including phone calls, e-mails, etc.;
  • The client may only take up contact with the bank, if he is not in the United States;
  • Assets may only be managed via a discretionary mandate, or not at all (cash on current account); and
  • No mail correspondence allowed, hold mail agreements however are permitted.”

Bellerive had hold-mail agreements with its 20 U.S.-related accountholders both before and after the date of the memorandum.

Since Aug. 1, 2008, Bellerive maintained 20 U.S.-related accounts, comprising a total of $68.9 million in assets under management.  Bellerive will pay a penalty of $57,000.

In accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division thanked the IRS, and in particular, IRS-Criminal Investigation and the IRS Large Business and International Division for their substantial assistance.  Ciraolo also thanked Thomas J. Sawyer and Michael N. Wilcove, who served as counsel on these matters, as well as Senior Litigation Counsel Nanette L. Davis of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

After Nearly 20 Years, International Fugitive in Multi-Million Dollar Fraud Scheme Apprehended in Greece and Extradited to United States to Serve Prison Sentence

WASHINGTON – A former New York businessman, who disappeared the same day a federal jury sitting in the U.S. District Court in Newark, New Jersey, began deliberating in his tax evasion and fraud trial, was caught while in Greece more than 18 years after his conviction, and appeared in federal court in the District of New Jersey on Friday, July 17, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

Gideon Misulovin, 58, whose last known address was in New York City, was extradited from Greece to the United States to serve his 10-year prison sentence.  He has been incarcerated in the United States since his return on July 16.

On March 7, 1996, a jury convicted Misulovin of conspiracy to impede and impair the Internal Revenue Service (IRS) in the ascertainment and collection of more than $6.5 million in federal motor fuel excise taxes, wire fraud and money laundering stemming from a scheme to conceal the unpaid diesel fuel excise taxes from state and federal tax authorities.

During trial, Misulovin was free on $500,000 bail and attended each day of the trial.  He failed to appear in court March 4, 1996, for the parties’ closing arguments.  U.S. Senior District Judge Dickinson R. Debevoise of the District of New Jersey in Newark issued a warrant for his arrest.  On June 25, 1997, Judge Debevoise sentenced Misulovin in absentia to serve 10 years in prison and a three-year term of supervised release, and to pay a $150,000 fine.  The court also ordered Misulovin to pay restitution in the amount of $200,000 to the United States and $100,000 to the state of New Jersey.

The evidence at trial established that from 1988 through Jan. 31, 1993, Misulovin and his co-conspirators sold untaxed diesel fuel in a series of paper transactions using wholesale companies.  Some of the companies were shams and called “burn” or “butterfly” companies.  As part of the scheme, the sham company would assume the federal and state tax liability and then vanish, allowing the conspirators to keep the excise taxes they collected from truck stops and service stations.

The case, part of a then-nationwide motor fuel excise tax enforcement effort, was investigated jointly by the Motor Fuel Task Force and the U.S. Attorney’s Office of the District of New Jersey.  In an effort to infiltrate the bootleg gasoline industry, task force agents set up an undercover business called RLJ Management that competed directly with the defendants’ operation.

At the conclusion of the undercover operation, in November 1992, federal agents seized Misulovin’s assets, including approximately $70,000 in cash from his residence and $277,000 from his business bank account.

Misulovin’s co-defendant and co-conspirator, Arnold Zeidenfeld, of Brooklyn, New York, pleaded guilty prior to trial and testified for the government.  Gurmit Singh and Manbir Singh, of Matawan, New Jersey, who operated truck stops in southern New Jersey, also pleaded guilty for their roles in the scheme.

In August 2014, based on an Interpol Red Notice, Misulovin was detained in a Greek airport using an alias and traveling with an Israeli passport.  He was subsequently arrested pursuant to a U.S. request for a provisional arrest, and after contested extradition proceedings, was found extraditable in 2015.

The task force included attorneys from the Tax Division and agents from the IRS Criminal Investigation and Examination Divisions, the FBI, the U.S. Department of Transportation and the New Jersey State Department of Taxation and Finance.  Seth D. Uram, formerly a Trial Attorney in the Tax Division and now an Assistant U.S. Attorney in Portland, Oregon, and Trial Attorney Charles A. O’Reilly of the Tax Division prosecuted the case.

Acting Assistant Attorney General Ciraolo thanked the Department of Justice’s Office of International Affairs, the FBI’s New Jersey Field Office and the Greek Ministry of Justice for their assistance in apprehending and extraditing Misulovin.  Ciraolo also thanked the U.S. Attorney’s Office of the District of New Jersey for their substantial assistance.

Hawaii Businessman Convicted of Federal Tax Crimes for Failing to Report Millions of Dollars in Income Disguised as Company Expenses

A Hawaii businessman was convicted yesterday following an 11-day jury trial in Honolulu of one count of corruptly endeavoring to obstruct the administration of the Internal Revenue Code and six counts of filing false individual income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Florence T. Nakakuni of the District of Hawaii.

The jury convicted Albert S.N. Hee, 61, of Kailua, Hawaii, of filing false income tax returns for tax years 2007 through 2012, and of obstructing the Internal Revenue Service (IRS) from 2002 through 2012.  According to court documents and the evidence introduced at trial, Hee owned Waimana Enterprises Inc., a telecommunications holding company based in Honolulu.  Over the course of a decade, Hee directed Waimana to pay millions of dollars in personal expenses on his behalf.  He falsely deducted the payments from his corporate tax returns as if they were legitimate business expenses, and failed to report the payments as income on his individual returns.

“The jury’s verdict reflects the department’s unwavering commitment to U.S. taxpayers to aggressively pursue and prosecute individuals like Mr. Hee, who cheat the government to line their own pockets and finance their extravagant lifestyles,” said Acting Assistant Attorney General Ciraolo.

Hee’s lavish spending included paying more than $96,000 for personal massages; paying his wife and children full-time salaries with benefits packages, even though they performed little to no work for the company; and paying more than $736,900 in college tuition and housing for his three children.  Hee also directed Waimana to pay various expenses on his personal credit card, including family trips to Walt Disney World, Tahiti, France, Switzerland, and a four-day vacation at the Mauna Lani resort on the Big Island of Hawaii, which Hee falsely characterized as a “stockholder’s meeting” and deducted as a business expense on the company’s tax return.

In 2008, Hee used company funds to purchase a home in Santa Clara, California, valued at $1.3 million.  Hee told his accountants that the property would be used as an employee retreat in an attempt to disguise it as a legitimate business expense.  However, Hee’s children testified at trial that from 2008 through 2012, they lived in the home while attending college in Santa Clara and did not pay rent to Waimana for their use of the property.  Hee’s son testified that the house was walking distance from the college campus, and that he and his sister rented other rooms of the house to their college friends, but kept the rent that they collected from their roommates and did not give it to their father’s company.

At Hee’s scheduled Oct. 26 sentencing, he faces a statutory maximum sentence of three years in prison for each charge, a fine of up to $250,000 and restitution to the IRS.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Nakakuni commended the special agents of IRS–Criminal Investigation, who investigated the case, and Trial Attorney Quinn P. Harrington of the Tax Division and Assistant U.S. Attorneys Les Osborne and Larry Tong of the District of Hawaii, who are prosecuting the case.

New York Tax Return Preparer Pleads Guilty to Preparing False Tax Returns

A Staten Island, New York, tax return preparer and business owner pleaded guilty today in U.S. District Court in the Eastern District of New York to preparing false federal income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

According to court documents and statements, Alabi Gbangbala, 51, was the operator of Broadfield, a tax return preparation business located in Staten Island.  For tax years 2008 and 2009, Gbangbala prepared false individual income tax returns for Broadfield clients by, among other things, falsifying self-employment business receipts and losses on Schedules C and inflating or fabricating charitable contributions and unreimbursed employee expenses on Schedule A.  Gbangbala was responsible for filing false tax returns on behalf of his clients that resulted in at least a $178,000 tax loss to the U.S. Treasury. Gbangbala also filed false personal individual income tax returns for tax years 2008 through 2010, in which he failed to report his total income for each calendar year.

Gbangbala faces a statutory maximum sentence of three years in prison and a fine of $250,000 for one count of aiding and assisting the preparation of a false return at his Sept. 24 sentencing.

Acting Assistant Attorney General Ciraolo commended the special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Christopher O’Donnell and Mark McDonald of the Tax Division, who are prosecuting the case.  Ciraolo also thanked the U.S. Attorney’s Office of the Eastern District of New York for their assistance.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Alabama Woman Pleads Guilty for Involvement in Stolen Identity Refund Fraud Ring

A Phenix City, Alabama, resident pleaded guilty today in the Middle District of Alabama for her role in a stolen identity refund fraud (SIRF) scheme, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney George L. Beck Jr. of the Middle District of Alabama.

According to court documents, between March 2011 and May 2014, Teresa Floyd conspired with her daughter, Lasondra Miles Davis, and others to defraud the United States by filing false federal income tax returns using stolen identities.  Miles Davis obtained the means of identification of individuals without their authorization and provided the stolen identities to Floyd.  Floyd and her co-conspirators obtained Electronic Filing Identification Numbers (EFINs) from the Internal Revenue Service (IRS) in the names of tax preparation businesses, which Floyd then used to file false tax returns with the stolen identities.  All of the false returns included fraudulent claims for tax refunds.  Floyd, Miles Davis and others cashed the refund checks at several companies in Alabama and Georgia, and Floyd deposited refund checks into her bank account.

Floyd faces a mandatory statutory sentence of two years in prison for the aggravated identity theft count and an additional statutory maximum sentence of 10 years in prison for the conspiracy count.  Both counts include a statutory maximum fine of $250,000.  Miles Davis pleaded guilty on April 10 to one count of aggravated identity theft and is scheduled to be sentenced on Aug. 12.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Beck commended special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Michael C. Boteler and Michael P. Hatzimichalis of the Tax Division and Assistant U.S. Attorney Jonathan Ross of the Middle District of Alabama, who are prosecuting the case.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Kentucky Businessman Sentenced in New York Federal Court for $53 Million Tax Scheme and Massive Fraud that Involved Bribery of Bank Officials

Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice’s Tax Division and U.S. Attorney Preet Bharara of the Southern District of New York announced that a Kentucky businessman was sentenced today to serve 12 years in prison.

Wilbur Anthony Huff, 53, of Caneyville and Louisville, Kentucky, was also ordered to pay more than $108 million in restitution for committing various tax crimes that caused more than $50 million in losses to the Internal Revenue Service (IRS), and a massive fraud that involved the bribery of bank officials, the fraudulent purchase of an insurance company, and the defrauding of insurance regulators and an investment bank.  In December 2014, Huff pleaded guilty before U.S. District Judge Noemi Reice Buchwald of the Southern District of New York, who imposed today’s sentence.

“The department is committed to vigorously pursuing and prosecuting those individuals who violate the employment tax laws of the United States,” said Acting Assistant Attorney General Ciraolo.  “Today’s significant prison sentence sends a loud and clear message to those engaged in such criminal conduct, including owners and operators of professional employer organizations like Mr. Huff, who steal employment taxes collected from their business clients to line their own pockets, instead of paying over those funds to the IRS.”

“Anthony Huff and his co-conspirators stole millions of dollars from taxpayers and engaged in extensive frauds, all in the pursuit of additional property, luxury cars and the like,” said U.S. Attorney Bharara.  “His crimes have earned him 12 years in prison.  I would like to thank our law enforcement partners for their assistance on this case.”

According to the information, plea agreement, sentencing submissions and statements made during court proceedings:

Huff was a businessman who controlled numerous entities located throughout the United States (Huff-Controlled Entities).  Huff controlled the companies and their finances, using them to orchestrate a $53 million fraud on the IRS and other schemes that spanned four states, involving tax violations, bank bribery, fraud on bank regulators and the fraudulent purchase of an insurance company.  As part of his crimes, Huff concealed his control of the Huff-Controlled Entities by installing other individuals to oversee the companies’ day-to-day functions and to serve as the companies’ titular owners, directors, or officers.  Huff also maintained a corrupt relationship with Park Avenue Bank and Charles J. Antonucci Sr., the bank’s president and chief executive officer, and Matthew L. Morris, the bank’s senior vice president.

Tax Crimes

From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (PEO) located in Tampa, Florida.  Like other PEOs, O2HR was paid to manage the payroll, tax and workers’ compensation insurance obligations of its client companies.  However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS and $5 million to Providence Property and Casualty Insurance Company (Providence P&C) – an insurance company based in Oklahoma – for workers’ compensation coverage expenses for O2HR clients, Huff stole the money that his client companies had paid O2HR for those purposes.  Among other things, Huff diverted millions of dollars from O2HR to fund his investments in unrelated business ventures and pay his family members’ personal expenses.  The expenses included mortgages on Huff’s homes, rent payments for his children’s apartments, staff and equipment for Huff’s farm, designer clothing, jewelry and luxury cars.

Conspiracy to Commit Bank Bribery, Defraud Bank Regulators and Fraudulently Purchase an Oklahoma Insurance Company

From 2007 through 2010, Huff engaged in a massive multi-faceted conspiracy in which he schemed to bribe executives of Park Avenue Bank, defraud bank regulators and the board and shareholders of a publicly-traded company, and fraudulently purchase an Oklahoma insurance company.  As described in more detail below, Huff paid bribes totaling hundreds of thousands of dollars in cash and other items to Morris and Antonucci in exchange for their favorable treatment at Park Avenue Bank.

As part of the corrupt relationship between Huff and the bank executives, Huff, Morris, Antonucci and others conspired to defraud various entities and regulators during the relevant time period.  Specifically, Huff conspired with Morris and Antonucci to falsely bolster Park Avenue Bank’s capital by orchestrating a series of fraudulent transactions to make it appear that Park Avenue Bank had received an outside infusion of $6.5 million, and engaged in a series of further fraudulent actions to conceal from bank regulators the true source of the funds.

Huff further conspired with Morris, Antonucci and others to defraud Oklahoma insurance regulators and others by making material misrepresentations and omissions regarding the source of $37.5 million used to purchase Providence Property and Casualty Insurance Company, an insurance company based in Oklahoma that provided workers’ compensation insurance for O2HR’s clients and to whom O2HR owed a significant debt.

Bribery of Park Avenue Bank Executives

From 2007 to 2009, Huff paid Morris and Antonucci at least $400,000 in exchange for which they: provided Huff with fraudulent letters of credit obligating Park Avenue Bank to pay $1.75 million to an investor in one of Huff’s businesses if Huff failed to pay the investor back himself; allowed the Huff-Controlled Entities to accrue $9 million in overdrafts; facilitated intra-bank transfers in furtherance of Huff’s fraud; and fraudulently caused Park Avenue Bank to issue at least $4.5 million in loans to the Huff-Controlled Entities.

Fraud on Bank Regulators and a Publicly-Traded Company

From 2008 to 2009, Huff, Morris and Antonucci engaged in a scheme to prevent Park Avenue Bank from being designated as “undercapitalized” by regulators – a designation that would prohibit the bank from engaging in certain types of banking transactions and that would subject the bank to a range of potential enforcement actions by regulators.  Specifically, they engaged in a series of deceptive, “round-trip” financial transactions to make it appear that Antonucci had infused the bank with $6.5 million in new capital when, in actuality, the $6.5 million was part of the bank’s pre-existing capital.  Huff, Morris and Antonucci funneled the $6.5 million from the bank through accounts controlled by Huff to Antonucci.  This was done to make it appear as though Antonucci was helping to stabilize the bank’s capitalization problem, so that the bank could continue engaging in certain banking transactions that it would otherwise have been prohibited from doing, and to put the bank in a better posture to receive $11 million from the Troubled Asset Relief Program.  To conceal their unlawful financial maneuvering, Huff created, or directed the creation of, documents falsely suggesting that Antonucci had earned the $6.5 million through a bogus transaction involving another company Antonucci owned.  Huff, Morris and Antonucci further concealed their scheme by stealing $2.3 million from General Employment Enterprises Inc., a publicly-traded temporary staffing company, in order to pay Park Avenue Bank back for monies used in connection with the $6.5 million transaction.

Fraud on Insurance Regulators and the Investment Firm

From July 2008 to November 2009, Huff, Morris, Antonucci and Allen Reichman, an executive at an investment bank and financial services company headquartered in New York City (the Investment Firm), conspired to defraud Oklahoma insurance regulators into allowing Antonucci to purchase the assets of Providence P&C and defraud the Investment Firm into providing a $30 million loan to finance the purchase.  Specifically, Huff and Antonucci devised a scheme in which Antonucci would purchase Providence P&C’s assets by obtaining a $30 million loan from the Investment Firm, which used Providence P&C’s own assets as collateral for the loan.  However, because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, Huff, Morris, Antonucci and Reichman made and conspired to make a number of material misstatements and material omissions to the Investment Firm and Oklahoma insurance regulators concerning the true nature of the financing for Antonucci’s purchase of Providence P&C.  Among other things, Reichman directed Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan, and Huff, Morris and Antonucci conspired to falsely represent to Oklahoma insurance regulators that Park Avenue Bank – not the Investment Firm – was funding the purchase of Providence P&C.

After deceiving Oklahoma regulators into approving the sale of Providence P&C, Huff took $4 million of the company’s assets, which he used to continue the scheme to defraud O2HR’s clients.  Ultimately, in November 2009, the insurance company became insolvent and was placed in receivership after Huff, Morris and Antonucci had pilfered its remaining assets.

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In addition to his prison sentence, Huff was sentenced to three years of supervised release, and ordered to forfeit $10.8 million to the United States and pay a total of more than $108 million in restitution to victims of his crimes, including, among others, the Federal Deposit Insurance Corporation (FDIC) and the IRS.

In imposing today’s sentence, Judge Buchwald said Huff’s crimes were “truly staggering” and “eye popping.”  Judge Buchwald described Huff’s conduct, which was preceded by a federal conviction and failure to pay millions in civil judgments, as “a living example” of “chutzpah,” which she defined as “shameless audacity and unmitigated gall.”

Morris and Reichman pleaded guilty for their roles in the above-described offenses on Oct. 17, 2013, and Feb. 20, 2015, respectively.  Reichman is scheduled to be sentenced before Judge Buchwald on July 15, and Morris is scheduled to be sentenced before Judge Buchwald on Aug. 19.

Antonucci pleaded guilty to his role in the crimes described above on Oct. 8, 2010, and is scheduled to be sentenced on Aug. 20, also before Judge Buchwald.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara thanked the Special Inspector General for the Troubled Asset Relief Program, the FBI, IRS-Criminal Investigation, the New York State Department of Financial Services, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Office of Inspector General of the FDIC, for their work in the investigation, and the Tax Division and the U.S. Attorney’s Office of the Southern District of Florida, for their assistance in the prosecution.

Today’s announcement is part of efforts underway by the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

The case is being handled by the U.S. Attorney’s Office of the Southern District of New York Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Janis Echenberg and Daniel Tehrani and Special Assistant U.S. Attorney Tino Lisella of the Tax Division are in charge of the criminal case.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Former New Jersey Chiropractor Sentenced to Prison for Fraud

A man formerly of Neptune, New Jersey, was sentenced today in the U.S. District Court for the District of New Jersey to serve 54 months in prison to be followed by five years of supervised release, the Justice Department and the Internal Revenue Service (IRS) announced.

In February 2014, a jury convicted David Moleski, a pilot and former chiropractor, of 14 counts of mail fraud, one count of wire fraud, one count of corruptly endeavoring to obstruct and impede Internal Revenue laws and three counts of submitting false claims for tax refunds.  Moleski was sentenced by U.S. District Judge Freda L. Wolfson, who also ordered that Moleski pay a $10,000 fine and, as a condition of release, $48,199 in restitution.

According to the evidence presented in court, Moleski submitted three false tax returns in 2009 for tax years 2006 through 2008 that collectively requested more than $1.3 million in income tax refunds to which he was not entitled.  Prior to filing these returns, Moleski failed to file tax returns from 1999 through 2005, even though he was legally required to file.  When the IRS assessed taxes for those years and began collecting, Moleski obstructed the collection efforts and demanded that a third-party financial institution not comply with an IRS levy.  In addition, Moleski attempted to pay credit card bills and other debts with fake financial instruments that claimed to draw on an account at the U.S. Treasury that did not actually exist.  For instance, Moleski sent a fake financial instrument for $500,000 in alleged payment of a mortgage debt.

The case was investigated by special agents of IRS-Criminal Investigation.  Trial Attorneys Tino M. Lisella and Yael T. Epstein of the Tax Division prosecuted the case, with the assistance of the U.S. Attorney’s Office for the District of New Jersey.

Businessman Sentenced for Overseas Bank Account

(Ed.:We have found it increasingly difficult to track the development of reciprocity agreements between the US Government and what used to be considered foreign tax havens.)  

Robert C. Sathre was sentenced today to serve 36 months in federal prison for tax evasion by U.S. District Judge Alan B. Johnson in Cheyenne, Wyoming, the Justice Department and Internal Revenue Service (IRS) announced.  Sathre was also ordered to pay $3,113,882 in restitution to the IRS and to serve three years of supervised release.  Sathre pleaded guilty on Feb. 26, 2014, to willfully evading the payment of his 1995 and 1996 tax liability.

According to court documents and proceedings, Sathre sold a Minnesota business and received installment payments in 1995 and 1996 of more than $3 million.  Sathre concealed his income by filing a 1995 tax return in which he reported only $64,928 in total income.  Sathre then purchased land and set up another business, a gas station and convenience store in Sheridan, Wyoming, known as the Rock Stop.

According to court documents and proceedings, Sathre concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts.  In a 10 month period spanning from 2005 through 2006, Sathre sent over $500,000 to the account in Nevis to keep the funds out of reach from the IRS.  When Sathre sold the Rock Stop in 2007, he wired over $1,250,000 from the sale proceeds to the trust account of a Wyoming law firm.  He later directed the law firm to wire $900,000 from the trust account to his account at the Bank of Nevis.  Sathre also provided a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer and obtained a debit card linked to the foreign account to access funds locally.  In addition, Sathre provided the Bank of Sheridan with an IRS form on which he falsely claimed that he was neither a citizen nor a resident of the United States.

This case was investigated by special agents of IRS – Criminal Investigation.  Trial Attorneys Ellen Quattrucci and Ignacio Perez de la Cruz of the Justice Department’s Tax Division