The Panama Papers
A U.S. accountant pleaded guilty to charges of conspiracy to commit tax evasion and to defraud the United States in the second U.S. criminal conviction to arise out of the Panama Papers data leak. The charges against the accountant-defendant included counts for wire and tax fraud, money laundering, failing to file FBARs, aggravated identity theft and other charges. The guilty plea is the second in the U.S. to arise out of the Panama Papers.
The Panama Papers leak was an unprecedented data leak. It exposed terabytes of data on 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. Governments around the world have collected more than $1.2 billion in back-taxes and penalties as a result of the Panama Papers data breach. Freeman Law has provided extensive commentary on the Panama Papers in the past, see our posts, A Brave New World | The Panama Papers and the United States’ Role as a Tax Haven and The Panama Papers: The First U.S. Conviction for Tax Fraud.
A recent DOJ press release provided commentary on the guilty plea:
Richard Gaffey, aka “Dick Gaffey,” 75, of Medfield, Massachusetts, pleaded guilty to one count of conspiracy to commit tax evasion and to defraud the United States, 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 one count of aggravated identity theft.
“This defendant worked with the Mossack Fonseca law firm and exploited his role as an accountant to create fraudulent shell companies and defraud the United States of millions of dollars over decades,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “Today’s guilty plea reflects the Department’s commitment to prosecute financial professionals and other gatekeepers to the U.S. financial system who abuse the public’s trust.”
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During all relevant times, while acting as an accountant, Gaffey assisted U.S. taxpayers who were required to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts. Gaffey helped those U.S. taxpayers evade their tax reporting obligations in a variety of ways, including by hiding the beneficial ownership of his clients’ offshore shell companies and by setting up bank accounts for those shell companies. These shell companies and bank accounts made and held investments totaling tens of millions of dollars. For one U.S. taxpayer, Gaffey advised the taxpayer how to covertly repatriate approximately $3 million to the United States by reporting to the IRS a fictitious company sale to thereby evade paying the full U.S. tax amount. Gaffey was assisted in this scheme through the use of Mossack Fonseca law firm, including Ramses Owens, a Panamanian lawyer who previously worked at the Mossack Fonseca.
Garrey, a U.S.-based accountant, was alleged to have worked with 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 Indictment charged Gaffey, a U.S. accountant, with counts for wire and tax fraud, money laundering, failing to file FBARs, aggravated identity theft and other charges related to his client’s alleged fraud. Among the more interesting allegations is the following background related to the false FBAR charge, which is taken from the Indictment:
The False FBARs
57. By letter dated March 4, 2014, the Swiss Bank informed von der Goltz that, pursuant to requirements under the Foreign Account Tax Compliance Act and the Swiss Bank Program run by the DOJ, the bank had undertaken a review of its account relationships and that, in the course of that review, the bank had identified von der Goltz’s accounts as “U.S. related” because he was the beneficial owner of the accounts and had U.S. resident status. The Swiss Bank further informed Von der Goltz that the bank, in certain circumstances, could be required to report his accounts, and provide his identity, to the United States. In the letter, the bank encouraged von der Goltz to enter into the IRS’s OVDP and voluntarily report his accounts to the IRS himself.
58. In or about April 2014, von der Goltz retained a U.S.-based law firm (the “U.S. Law Firm”) to assist him with entering into the OVDP. However, in or about September 2014, instead of entering into the OVDP, von der Goltz filed amended FBARs for the years 2009 to 2013 (the “Amended FBARs”). The Amended FBARs were prepared by Gaffey and the U.S. Law Firm.
59. The Amended FBARs filed by von der Goltz were materially false. Prior to 2014, von der Goltz had annually filed FBARs reporting his interest in two foreign accounts held in his personal name; however, he did not report his interest in any accounts at the Swiss Bank. The Amended FBARs reported that von der Goltz had signature authority, but no financial interest in, the Swiss Bank Revack Accounts. However, as von der Goltz, Gaffey, and RAMSES OWENS, a/k/a “Ramses Owens Saad,” the defendant, well knew, von der Goltz was the beneficial owner of those accounts and he did not actually have signature authority by design. Accordingly, the Amended FBARs contained false statements that directly contradicted the contents of the account records from the Swiss Bank. The Amended FBARs also failed to include other Revack Bank Accounts in which von der Goltz held a financial interest, including the undeclared accounts at the Panamanian Bank, which the Revack Entities nominally held.
As noted above, Gaffey pleaded guilty to charges related to the false FBARs.
The recent case reinforces what many close to the matter have long known: There will be a swell of future cases (civil and criminal) arising out of the Panama Papers leak. The case also serves as a practical reminder of the pitfalls that accountants face in advising taxpayers with offshore assets. Accountants face both criminal and civil exposure when clients fail to properly disclose and report their interests in foreign assets. Notably, some of the assets at issue in this criminal case were reported but were reported incorrectly on the relevant form. Accountants and taxpayers with uncertain reporting obligations or exposure for past filing deficiencies should consult with an experienced tax attorney regarding their legal obligations and risks.
White Collar Defense Attorneys
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