Crime A Billionaire Tax Cheat Walked Free, but His Lawyer Gets Charged

00:05  17 april  2021
00:05  17 april  2021 Source:   thedailybeast.com

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After private equity billionaire Robert Smith admitted to a 15-year tax fraud scheme to hide $225 million from the Internal Revenue Service, he signed a rare non-prosecution agreement with law enforcement, allowing him to avoid any charges and return to civilian life.

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But while Smith attends birthday parties and New York Times conferences, the man he hired to help execute the fraud faces federal charges and up to 14 years in prison.

On Thursday, a grand jury in San Francisco indicted Smith’s long-time attorney, 82-year-old Carlos Kepke, on charges of conspiring with the CEO to defraud the IRS. If found guilty, the octogenarian could see as much as five years in prison for conspiracy and up to three years for each charge of filing a false return; Kepke is alleged to have filed three.

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In the indictment, prosecutors claim the attorney helped Smith create a network of offshore trusts and LLCs in Belize and the Caribbean island of Nevis to conceal about $225 million in income Smith had earned from capital gains from 1999 until 2014. In the first months of the new millennium, Kepke allegedly established an LLC on Nevis called Flash Holdings, and a Belizean trust called Excelsior. Neither entity, according to the indictment, had any purpose other than to hold Smith’s assets.

Investigators believe Kepke established Excelsior under the name of Smith’s ex-wife’s elderly uncle, giving Smith a lesser role (but one with the power to appoint and remove the trustee). He then allegedly set it up such that the trust, rather than Smith, officially owned Flash Holdings. As a result, when the investor would deposit funds into Flash’s bank accounts, held in the tax-evasion hotspots of Switzerland and the British Virgin Islands, the money did not, nominally, belong to Smith––who in turn, did not report it on his taxes. “In reality,” the filing reads, “as Kepke knew, Smith actually earned this income, and retained full dominion and control over it.”

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Between 2007 and 2014, Smith allegedly paid Kepke nearly $1 million for the creation and management of the two entities, alongside a slew of other services, including filing three false tax returns on Smith’s behalf from 2012 to 2014. According to the indictment, since at least 2009, Kepke’s compensation included a fee to “purge” or as he put it, “securitize,” his files on Smith or his entities by destroying records.

The charging document arrived on April 15—Tax Day—just two days after IRS Commissioner Chuck Rettig told a Senate panel that tax evasion in the U.S. could easily exceed $1 trillion a year. A source close to Smith told The Daily Beast that the indictment marked the latest in the Department of Justice’s effort to pursue, not only those who fail to pay taxes, “but those who enable tax evasion by creating the ‘infrastructure’ of tax evasion.” That, the source said, “can include bankers, accountants, notaries, trust advisors, and even lawyers.”

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As part of Smith’s non-prosecution agreement, he agreed to testify against his former business partner, Robert Brockman, who was charged in October for an alleged 20-year scheme to conceal $2 billion in income from the Internal Revenue Service—the largest tax evasion charge in United States history.

The 39-count indictment detailed a cartoonish conspiracy in which Brockman and associates communicated via code names like “Bonefish” and “Snapper,” used hidden income to buy a luxury yacht called “Turmoil,” and destroyed evidence with hammers. At one point, Brockman allegedly invited a wealth manager to adopt an alias and attend a “money laundering conference.”

Brockman, who pleaded not guilty, has so far avoided trial. In court filings, attorneys representing the Reynolds and Reynolds CEO have claimed he suffers from a case of rapidly deteriorating dementia. The billionaire will be assessed at a mental competency hearing in June.

Kepke also has alleged ties to Brockman. In Smith’s statement of facts, delivered to prosecutors for the landmark case, he indicated that Brockman, identified in the document as “Individual A,” had introduced him to an attorney, named only as “Individual B”—whom the indictment indicates was Kepke. Neither Kepke nor Smith agreed to comment for this article, but a source close to Smith confirmed the identity of Individual B to The Daily Beast.

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“The indictment is not a surprise as you know since in the Statement of Facts released last year as part of Robert's Non Prosecution Agreement (NPA), there were two individuals of interest to the DOJ—Bob Brockman (now known to be Individual A), and Carlos Kepke as Brockman's lawyer (now known to be Individual B)—and that Robert's cooperation represented DOJ's best avenue to prosecuting each of those individuals,” the source said.

The DOJ could not have prosecuted Kepke on the basis of his role as Brockman’s lawyer, the source said, due to a statute of limitations—hence the indictment’s focus on Smith. Prosecutors may have hoped Kepke would cooperate, like Smith, in their case against Brockman. But to former federal prosecutor Paul Pelletier, who spent 27 years in the Department of Justice’s Tax Division, the indictment suggests that Kepke declined to follow Smith’s lead.

“Between Smith's non-prosecution agreement [in October] and now, you know [Kepke's] been given ample time to cooperate, and he hasn't,” Pelletier said. “So they had to charge him."

Typically, there are two ways to prosecute someone in the federal system. One way is to secure an indictment through a grand jury. The other way is by “information”—or through a charging document drafted with the consent of the defendant. If someone chooses to cooperate, they often plead guilty to an information, because it allows them greater influence on what they’re charged with. “If Kepke was cooperating,” Pelletier said, “I presume they would have charged him by information.”

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Former IRS investigator Martin Sheil, who has written for The Daily Beast, argued that prosecutors need to crack down on what he called the “wealth facilitators”—the lawyers, accountants, and financial consultants who enable tax evasion. “The entitled wealthy class seem to fully embrace Leona Helmsley’s famous aphorism that ‘only the little people pay taxes,’” Sheil told The Daily Beast. “And it is the lawyers and accountants that continue to engender this sense of entitlement by aiding and abetting the wealthy in their tax fraud pursuits.”

But in the juxtaposition of Smith and Kepke’s cases, Pelletier saw a clear double standard. “It looks like the government is putting the heavy hand on an 82-year-old yet obviously didn’t put the same heavy hand on Smith,” he said. “If you want to indict Kepke, indict Kepke. But we know they didn’t charge Smith? The government has to treat equally situated people equally.”

Read more at The Daily Beast.

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usr: 1
This is interesting!