Bermuda entities at centre of largest ever US tax fraud case
A Texan billionaire stands accused of using a family charitable trust based in Bermuda to hide assets in what may be the largest tax evasion case against an individual in US history.
Robert Brockman, 79, was charged with multiple counts of tax evasion, money laundering, failing to file foreign bank account reports, wire fraud affecting a financial institution, evidence tampering, destruction of evidence and other crimes in an indictment filed in a San Francisco court. Mr Brockman pleaded not guilty in an appearance via Zoom in federal court in the Northern District of California on Thursday.
Prosecutors claim that Mr Brockman used a web of entities based in Bermuda and Nevis, as well as bank accounts in Bermuda, Switzerland and the British Virgin Islands, to hide income from private-equity investments from the Internal Revenue Service, the US tax authority.
Mr Brockman is chief executive officer of Reynolds and Reynolds, an Ohio-based vendor of management software for auto dealerships.
David Anderson, the United States attorney in San Francisco, said at a news conference: “The allegation of a $2 billion tax fraud is the largest ever tax charge against an individual in the United States.”
Robert Smith, the CEO of Vista Equity Partners, a private-equity firm founded 20 years ago with a $1 billion investment from Mr Brockman, helped prosecutors with their investigation and avoided prosecution.
Under the agreement, Mr. Smith agreed to pay more than $139 million in taxes and penalties, abandon $182 million in charitable deduction claims and co-operate with ongoing investigations, US media reported.
The indictment alleges that Mr Brockman, over a 20-year period from 1999 to 2019, channelled some of his income from investments in the Vista funds into offshore bank accounts, trusts and other entities under his control in order to evade payment of US taxes.
The billionaire used nominees to create a “false paper trail” in a conspiracy to disguise his direct control of these entities, which included the A. Eugene Brockman Charitable Trust, Point Investments Ltd and the St John’s Trust Company, all based in Bermuda, prosecutors claim.
One of the nominees, referred to as “individual one” in the indictment, managed the Bermudian entities, as well as Spanish Steps, Edge Capital Investments Ltd and Cabot Global Investments Ltd, all based on the Caribbean island of Nevis.
Prosecutors described how Mr Brockman went to considerable lengths to maintain secrecy, using an encrypted e-mail system to communicate with nominees, to whom he gave code names including Redfish, King, Bonefish and Snapper.
The indictment said Mr Brockman sent an e-mail to individual one in July 2008 on methods to create convincing backdated documents, saying that “ “[a]s a reminder – we need to also remember that all copy machine/laser printer paper has encoded into it the manufacturer of that paper as well as the year and month of manufacture. For that reason I always set aside some packets of copy paper with dates on them – for potential future use.”
Point opened an account at the Bermuda Commercial Bank in 1999 with an initial deposit of $10 million. In 2004, the indictment states, Mr Brockman directed about $635 million of profits from his software company to Spanish Steps, for transfer to Point and then investment in Vista funds “without properly reporting the transactions to the IRS”.
Some of the money held in Bermuda ended up being used to buy real estate. In late 2010, Mr Brockman used $15 million from his Bermuda Commercial Bank accounts to buy the Frying Pan Canyon Ranch in Colorado, the indictment said.
Another $15 million was transferred from Edge’s bank account in the British Virgin Islands for the purchase of the Mountain Queen property in Colorado for Mr Brockman’s use.
Prosecutors said a further $29 million was transferred from another Brockman-controlled bank account in Switzerland to buy the luxury yacht Turmoil, later renamed Albula, for Mr Brockman’s personal use.
The indictment adds that Mr Brockman used Bermudian-based Tangarra Consultants Ltd, and other entities to buy $67.8 million in debt securities from his software company, without disclosure, as the law would require him to do as CEO.
Mr Smith hit the headlines last year when he announced at the Morehouse College commencement that he would pay off the college debt of all 2019 graduates.
Mr Anderson said the agreement showed that “it is never too late to do the right thing.”
“Although Smith wilfully and knowingly violated the law, Smith has accepted responsibility and agreed to provide complete and truthful co-operation,” he said.
The Bermuda Police Service worked with US authorities on the investigation and was recognised by the IRS for its efforts.
In a statement released today, the BPS said that in April 2018, the Attorney-General’s Chambers received a request from the US Department of Justice to assist the IRS with the investigation.
Detective Superintendent Nicholas Pedro, who heads up the Bermuda Police Service, Crime Division, stated: “The Financial Crime Unit of the Bermuda Police Service was able to assist in this process by the execution of search warrants, service of production orders, and seizure of evidence locally.
“This evidence was shared with our US counterparts which proved to be pivotal to their case against two prominent US-based businessmen.
“Our detectives worked closely with the IRS and DoJ on the progression of this case, aspects of which remain ongoing, and hence cannot be discussed.”
He added: “Bermuda, and more specifically, the Bermuda Police Service welcomes the recognition of the role we played in this transnational money laundering and criminal tax evasion matter.
“This complex case highlights the role of Bermuda on the world stage, and the need for our investigators to be highly trained, skilled, and have the requisite resources available to them in order to meet international requirements and standards in the arena of financial investigations.
“We take our role on the international stage as a financial centre of excellence very seriously, and we believe this demonstrates our commitment and resolve to prevent Bermuda being used by criminals to launder criminal proceeds.”
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