The Panama Papers: The First U.S. Conviction for Tax Fraud

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The Panama Papers: The First U.S. Conviction for Tax Fraud

A former U.S. resident became the first U.S. taxpayer to plead guilty to criminal tax charges arising out of the Panama Papers data leak.  The Indictment charged Harald Joachim von der Goltz and three others, including a U.S. tax professional, with conspiracy to commit tax evasion, wire fraud, money laundering, and willful failure to file an FBAR, as well as false statement charges.  Government prosecutors are seeking a lengthy sentence on the charges.  The charges are expected to be the first in a wave of prosecutions and criminal investigations resulting directly from information leaked in the Panama Papers.

 

von der Goltz, a former U.S. resident, was a long-time client of Mossack Fonseca & Co., the Panama-based law firm that is at the epicenter of the Panama Papers scandal.  Mossack Fonseca specialized in creating foundations and trusts, incorporating offshore companies for a fee, and setting up overseas bank accounts for clients, including U.S. taxpayer clients.

The Panama Papers leak was an unprecedented data leak.  It exposed previously undisclosed offshore arrangements and shell-company structures, many of which dated back decades and were associated with thousands of taxpayers across the world—a number of whom were political figures and other high-profile, wealthy individuals.  Freeman Law has provided extensive commentary on the Panama Papers in the past, such as here and here.

The DOJ alleged that:

von der Goltz was a U.S. resident and was subject to U.S. tax laws, which required him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts.  Nevertheless, von der Goltz evaded his tax reporting obligations by setting up a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS.  These shell companies and bank accounts made investments totaling tens of millions of dollars.  Von der Goltz was assisted in this scheme through the use of Mossack Fonseca, including Ramses Owens, a Panamanian lawyer who previously worked at the Mossack Fonseca law firm, and by Richard Gaffey, a partner at a U.S.-based accounting firm.

The DOJ press release continued:

Harald Joachim von der Goltz, aka “H.J von der Goltz,” “Johan von der Goltz,” “Jochen von der Goltz,” “Tica,” and “Tika,” 82, a citizen of Germany and Guatemala who last resided in Needham, Massachusetts, and Key Biscayne, Florida, pleaded guilty to one count of conspiracy to commit tax evasion, one count of wire fraud, one count of money laundering conspiracy, four counts of willful failure to file reports of foreign bank and financial accounts (Financial Crimes Enforcement Network Reports 114) and two counts of false statements.

“Over nearly two decades, von der Goltz conspired to keep his income hidden from U.S. tax authorities and law enforcement,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “Today’s guilty plea demonstrates the Department’s steadfast commitment to prosecute taxpayers who use offshore structures to obscure their wealth and evade their tax obligations.”

The government press release described the duration and magnitude of the alleged scheme:

“Harald Joachim von der Goltz went to extraordinary lengths to circumvent U.S. tax laws in order to maintain his wealth and hide it from the IRS,” said U.S. Attorney Geoffrey S. Berman of the Southern District of New York.  “Using the specialized criminal services of global law firm Mossack Fonseca, von der Goltz set up shell companies and off-shore accounts to conceal millions of dollars.  Now, after years of concealment from the United States, von der Goltz has admitted guilt in a U.S. court and awaits sentencing that could result in a term in a U.S. prison.”

According to the allegations contained in the indictments, other filings in this case and statements during court proceedings, including von der Goltz’s guilty plea hearing, since at least 2000 through 2017, von der Goltz conspired with others to conceal his assets and investments, and the income generated by those assets and investments, from the IRS through fraudulent, deceitful and dishonest means.

. . .

During all relevant times, von der Goltz was a U.S. resident and was subject to U.S. tax laws, which required him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts.  Nevertheless, von der Goltz evaded his tax reporting obligations by setting up a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS.  These shell companies and bank accounts made investments totaling tens of millions of dollars.  Von der Goltz was assisted in this scheme through the use of Mossack Fonseca, including Ramses Owens, a Panamanian lawyer who previously worked at the Mossack Fonseca law firm, and by Richard Gaffey, a partner at a U.S.-based accounting firm.

In furtherance of von der Goltz’s efforts to conceal his assets and income from the IRS, von der Goltz engaged the services of Mossack Fonseca, including Owens, to create a sham foundation and shell companies formed under the laws of Panama and the British Virgin Islands to conceal from the IRS and others the ownership by von der Goltz of accounts established at overseas banks, as well as the income generated in those accounts.  von der Goltz, Gaffey and Owens also falsely claimed that von der Goltz’s elderly mother was the sole beneficial owner of the shell companies and bank accounts at issue because, at all relevant times, she was a Guatemalan citizen and resident, and — unlike von der Goltz — was not a U.S. taxpayer.

The Indictment alleged that von der Goltz, a former U.S. resident, had failed to check the box on Schedule B of his Form 1040 indicating an interest in a foreign account.  Relevant excerpts from the Indictment are set forth below, and tell much of the relevant background and allegations:

9. In addition, on Schedule B of Form 1040, the U.S. taxpayer must indicate whether “at any time during [the relevant calendar year]” he or she had “an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account.” If the U.S. taxpayer answers that question in the affirmative, then the U.S. taxpayer must indicate the name of the particular country or countries in which the account is, or the accounts are, located.

10. Separate and apart from the obligation to file Forms 1040 that report all income and capital gains, U.S. taxpayers who have a financial interest in, or signature authority over, a financial account in a foreign country with an aggregate value of more than $10,000 at any time during a particular calendar year are required to file with the United States Department of the Treasury a Report of Foreign Bank and Financial Accounts, FinCEN Report 114 (formerly TD F 90-22 .1) (“FBAR”) . At all times relevant to this Indictment, the FBAR for any calendar year was required to be filed on or before June 30 of the following calendar year. In general, the FBAR requires that the U.S. taxpayer filing the form identify the financial institution at which the financial account is held, the type of account (bank, securities, or other), the account number, and the maximum value of the account during the calendar year for which the FBAR is being filed.

11. When a U.S. taxpayer beneficially owns1 a bank account, securities account, or other financial account that is maintained outside the United States, but fails to disclose the account or the income generated in the account on Schedule B of Form 1040 or on an FBAR, the account is referred to as an “undeclared account.”

. . .

15  a. In order to conceal their clients’ assets and income from the IRS, OWENS and BRAUER aided, assisted, advised, facilitated the establishment of, maintained, and managed undeclared accounts on behalf of U.S. taxpayers who were clients of Mossack Fonseca.

b. OWENS and BRAUER created, marketed, sold, and serviced sham foundations2 and shell companies3 formed under the laws of countries such as Panama, Hong Kong, and the British Virgin Islands (“BVI”) to conceal, from the IRS and others, the ownership by U.S. taxpayers of accounts established at overseas banks, as well as the income generated in those accounts.

. . .

[34] Von der Goltz is a German-born national who grew up in Guatemala, and who has been a resident of the United States since approximately 1984.

35. As a resident alien of the United States, von der Goltz is subject to U.S. tax laws, which require him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts. At all times relevant to this Indictment, von der Goltz evaded these requirements by setting up a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS. Von der Goltz was assisted in this scheme by RAMSES OWENS, a/k/a “Ramses Owens Saad,” the defendant, and by Gaffey.

      1. As part of this fraudulent scheme, and as discussed in greater detail below, von der Goltz, Gaffey, and RAMSES OWENS, a/k/a “Ramses Owens Saad,11 the defendant, have falsely claimed is the sole that von der Goltz1 s elderly mother (the “Mother beneficial owner of the shell companies and bank accounts at issue. At present, the Mother is approximately 102 years old. She is a Guatemalan citizen and resident, and – unlike von der Goltz – she is not a U.S. taxpayer.

. . .

43. Beginning in or about 2000, von der Goltz maintained bank accounts held in the names of various Revack Entities, as well as the Revack Holdings Foundation (the “Revack Bank Accounts”). At all times relevant to this Indictment, the Revack Bank Accounts, which included investment accounts as well as checking and savings accounts, were located both in the United States and abroad at various financial institutions. Von der Goltz – as the beneficiary of the Revack Trust and the Revack Holdings Foundation, and as a beneficial owner of the Revack Entities – was a beneficial owner of the assets in the Revack Bank Accounts. However, von der Goltz used the assets in the Revack Bank Accounts for his personal benefit without properly reporting the assets to the IRS or paying the appropriate income taxes on income generated by the assets as he was legally obligated to do. Von der Goltz was assisted in that effort by RAMSES OWENS, a/k/a “Ramses Owens Saad,” the defendant, and by Gaffey.

The case underscores, yet again, the DOJ’s and IRS’s intense focus on international tax enforcement and continued prioritization of prosecuting taxpayers who have willfully failed to disclose offshore assets.  The case is also a harbinger of things to come: Expect to see more and more cases arising out of the Panama Papers leak.