Robert F. Smith
Background and Non-Prosecution Agreement
INTRODUCTION:
Mr. Smith in 2020, at the age of 57, entered into a Non-Prosecution Agreement, NPA, with the IRS. Let’s look at what I believe happened to Mr. Smith to cause his personal and professional life to intersect with potential Criminal Prosecution with the United States Government. Let’s also see what could have been done differently to head off such a horrible outcome to his reputation, his freedom, and a lifelong stain on his legacy.
Finally, let’s see if this is now the end of Mr. Smith’s criminal and civil problems with the successful negotiation of this NPA.
PART I.
Background:
In 2020, at the age of 57, Mr. Smith a resident of Austin, Texas and a citizen of the United States agreed that from 2000 through May 2015 that he was engaged in an illegal scheme to conceal income and evade Federal taxes owing by using an offshore trust structure with related foreign corporations and offshore bank accounts and that he willfully filed a series of false documents with the Internal Revenue Service (‘”IRS”) and the Treasury Department. The author notes that it is very easy to unknowingly or knowingly file false documents with the IRS.
PART II.
In the Beginning:
Smith obtained his MBA from Columbia University in 1994 and became an investment banker where his job description was to meet and developed business relationships. One such relationship evolved into his becoming the CEO of a private equity firm with an initial $300 million commitment which was later increased to $1 billion. Later it became apparent to Smith that the individual in the relationship completely controlled a foreign trust structure and made all final and substantive decisions regarding its investments and the funds were to be located in the Cayman Islands and that Smith holds half this person’s interest through a “perfected foreign trust” and involved Smith in controlling the offshore trust.
You can quickly see that Smith was being used as a conduit for the benefit of A.
PART III.
What happened When?
The year 2000:
In 2000, Smith formed Excelsior and Flash knowing Excelsior and Flash were intended and would be used, to avoid the payment of United States income tax on income earned from investments intentionally used Excelsior and Flash foreign bank accounts to conceal from the IRS.
Excelsior had a nominee trustee in Belize, that trustee exercised no independent judgment and made no decisions regarding Excelsior other than those that Smith directed. Similarly, although Flash had a nominee corporate manager and resident agent in Nevis, these managers and agents exercised no independent judgment over Flash and made no decisions regarding Flash other than those that Smith directed.
The year 2005:
Beginning in approximately 2005, Flash began to earn and receive general partnership carried interest income, and deposits were made to Flash’s bank account in the British Virgin Islands (“BVI Account”). Smith was not a signatory on the BVI Account, but was its beneficial owner and controlled all transactions concerning the account through Flash’s nominee manager. Smith did not report this and therefore was in violation of filing his Foreign Bank Account Report, FBAR.
The year 2007:
In 2007, Smith caused an account in Flash’s name to be opened at Banque Bonhote in Switzerland into which additional carried interest income earned by Flash and at all times Smith was the sole signatory on the Bonhote Account, fully controlled the Bonhote Account, and was listed in Banque Bonhote records as the beneficial owner of the Bonhote Account. Therefore, Smith was the beneficial owner of the Bonhote Account.
In 2005, Smith and his then-wife purchased a vacation home in Sonoma, California titling the property in Flash’s name. Smith directed that the purchase price of$2.5 million be paid with untaxed funds from the BVI Account. Smith and his then-wife renovated the Sonoma property and paid for the renovation costs with untaxed funds deposited in the BVI Account and the Bonhote Account. Smith and his family used the Sonoma property and had unfettered access to it from 2005 to 2014.
The year 2010:
In 20 I 0, after Smith and his then-wife moved to Switzerland, they acquired two ski properties in Megeve, France and later a Megeve commercial property using untaxed funds to make the purchases, and titling the properties in the names of foreign entities. Smith directed the payment of more than 13 million Euros from the Bonhote Account to purchase and furnish the properties. Smith and his family had control of the Megeve ski properties and had priority access to them from 2010 to 2014 unless rented to third parties.
The year 2013:
From 2005 to 2013, Smith withdrew untaxed funds from the BVI Account and the Bonhote Account for his personal use and benefit. In 2011 and 2012, Smith transferred more than $13 million from the Bonhote Account to a United States bank account for his benefit. Smith used these funds to build a home and make improvements to property that he owned in Colorado and to fund charitable activities on that property for inner-city children and wounded veterans.
The year 2014:
From 2000 until 2014, Smith knowingly and intentionally did not advise his tax return preparer about Excelsior, Flash, and the BVI Account, and the Bonhote Account. Smith did not tell his return preparer that he controlled these entities and bank accounts.
Year 2015:
From in or about 2006 through 2015, Smith willfully filed the false United States Individual Income Tax Returns, Forms I040, for the tax years 2005 through 2014 in which he failed to disclose his beneficial interest in, and control over the BVI Account and the Bonhote Account. Smith willfully failed to report on these income tax returns the income he earned and other private equity funds, a portion of which he directed to be deposited into the BVI Account and Bonhote Account. Therefore, Smith willfully understated his income on these tax returns and evaded more than $43,000,000 in U.S. federal income taxes for the tax years 2005 through 2014.
PART IV.
Consequences of Knowingly and Willfully:
Smith knew that United States laws and regulations require United States citizens who have signatory authority over, or financial interest in, a foreign bank account[s] to annually file a Foreign Bank Account Reporting Form TD F 90-22.1 (“FBAR”), with the United States government reporting either this signatory authority and/or financial interest.
Smith did file an FBAR for the 2010 calendar year that willfully failed to report his financial interest in the BVI Account and the Bonhote Account. Smith also willfully failed to file an FBAR for 2011 as required by law. In or around June 2013, Smith filed an FBAR for the 2012 calendar year that willfully failed to report his financial interest in the BVI Account and the Bonhote Account for purposes of concealing his ownership and control of these accounts.
IRS’s Offshore Voluntary Disclosure Program:
In or around November 2013 and January 2014, Smith received letters from Banque Bonhote regarding the bank’s intended participation in the United States Department of Justice “Swiss Bank Program” which required participant banks to report all United States-related accounts to the United States government (the “Bank Program Letters”). Smith received these letters relating to the Bonhote Account. The Bank Program Letters noted that the Bonhote Account was held by a United States person, and requested Smith to waive Swiss bank secrecy related to it. It further recommended that Smith consider applying to the IRS’s Offshore Voluntary Disclosure Program (“OVDP”) to report his non-compliance. The Bank Program Letters also informed Smith that if he failed to take one of these actions that Banque Bonhote would close the Bonhote Account.
The Dreaded Denial:
In March 2014, Smith filed a preclearance request with the IRS seeking entry
Into OVDP. In April 2014, the IRS denied Smith’s preclearance application into OVDP. In or around June 2014, after receiving the OVDP preclearance denial, Smith willfully filed a false 2013 FBAR. Smith listed both the BVI Account and the Bonhote Account on the 2013 FBAR, but only reported signature authority over these accounts while willfully omitting both his financial and beneficial interest in the accounts as well. Smith willfully omitted these disclosures to further conceal his taxable income deposited into these accounts.
Perjury Everywhere:
In or around October 15, 2014, Smith willfully filed a false United States Individual Income Tax Return, Form 1040, for the tax year 2013, with the IRS, which misrepresented and willfully failed to disclose his income from, beneficial interest in, and control over Excelsior and Flash. Smith’s 2013 federal income tax return also failed to disclose Smith’s financial interest in the BVI Account and Bonhote Account. In addition, Smith filed a false Form 8275, attached to his income tax return, in which he represented that the Excelsior/Flash structure had corporate trustees and managers and willfully concealed his control over those entities. Smith attempted to conceal from the IRS that he controlled and beneficially owned the offshore entities Excelsior and Flash. Smith also failed to disclose on Form 8275 his beneficial ownership of the BVI Account and Bonhote Account and falsely claimed that income distributed to Flash and other private equity funds, was required to be donated to charity.
Too Late to have a “re-do”:
In December 2014, Smith directed Excelsior to contribute all of the shares of Flash, and all of its assets, to a U.S. 50l(c)(3) charitable organization. Smith knowingly and intentionally falsely claimed that this charitable contribution was required as part of an agreement with the limited partner investor.
In or around May 2015, Smith willfully filed false FBARs for the calendar years
2008 through 2013 (”Streamlined FBARs”) and false amended United States Individual Income Tax Returns, Forms 1040X, for tax years 2010 through 2013 (“Streamlined Tax Returns”) as part of the Streamlined Domestic Offshore Procedures. Smith’s Streamlined FBARs continued to represent that Smith only had signatory authority over the BVI Account and Bonhole Account, while willfully omitting Smith’s true beneficial ownership of these accounts.
Even More Perjury:
Smith’s Streamlined Tax Returns continued to willfully include a false Form 8275 that concealed his beneficial ownership and control of Excelsior and Flash. Smith’s Streamlined Tax Returns falsely reported that only small portions of income distributed to him in the United States from Flash’s foreign bank accounts, were taxable to him. Smith willfully failed to report on his Streamlined Tax Returns over $200 million of partnership income distributed to Flash from Fund and other private equity funds, over which Smith had beneficial ownership during the calendar years 2005 through 2014. Smith knew that the earned income attributed to Flash was in fact taxable to him when he filed the Streamlined Tax Reruns.
Is This The End for Mr. Smith with a Non-Prosecution Agreement in Place…NO.
