Quatloos! > Tax Scams > Offshore Credit Card Scheme

TWO BUSINESSMEN PLEAD GUILTY TO TAX FRAUD
IN OFFSHORE CREDIT CARD SCHEME

Credit Cards Were Used To Spend Untaxed Income
Stashed In Foreign Accounts

WASHINGTON D.C. - Eileen J. O’Connor, Assistant Attorney General for the Tax Division, United States Department of Justice, Jeffrey G. Collins, United States Attorney for the Eastern District of Michigan, and Nancy Jardini, Chief, Internal Revenue Service Criminal Investigations, announced that at the federal courthouse in Detroit, Michigan, Kurt P. Greaves and Herbert J. Greaves each pled guilty to a felony charge of filing a fraudulent tax return (26 U.S.C. §7206(1). The sentencings were scheduled for July 15, 2004.

A violation of 26 U.S.C. § 7206(1) carries a maximum penalty of three years imprisonment, a $250,000 fine, or both, and three years of supervised release following imprisonment.

“As these convictions demonstrate, moving money offshore doesn’t hide it from the IRS,” said Assistant Attorney General Eileen J. O’Connor. “The government can and will find those who try to hide unreported income offshore, and hold them accountable.”

“Today's plea shows that not only are the promoters being prosecuted, but increasingly the clients who participate in these schemes for the purpose of willfully evading taxes are being prosecuted, too,” said Nancy Jardini, Chief, IRS Criminal Investigation. “The prosecution of individuals who intentionally conceal income and evade taxes is a vital element in maintaining public confidence in our tax system. We should not expect the honest taxpayer to foot the bill for those who hide income from the government.”

Herbert Greaves and Kurt Greaves own Greaves, Inc. (the “company”), which operates roofing and other businesses. They admitted that, from 1999 through 2001, they used offshore entities run by tax scam promoters to hide much of their income. They admitted filing fraudulent individual income tax returns that falsely reported no interest in a financial account in a foreign country. In fact, they each had interests in numerous foreign bank accounts.

In one scheme, the Greaves admitted they caused their company to make payments to Nevada shell corporations, and fraudulently deducted them as “professional fees” and/or “outside fees.” In fact, the payments were deposited in bank accounts controlled by the scheme’s promoters, who then wire-transferred the funds offshore to bank accounts maintained in Nevis, West Indies. The Greaves admitted they controlled those accounts. The promoters arranged for issuance of a credit card by Bahamas-based Leadenhall Trust Company Ltd., and for untaxed income held in the foreign accounts to be used to pay the credit card bills. The Greaves used the credit card to pay their personal expenses.

In a second scheme, the Greaves caused their company to wire transfer $230,000 to an offshore Nevis-based bank account controlled by the promoters. The company deducted the entire payment on its tax returns as an “insurance” expense. To substantiate the fraudulent deduction, the promoters provided the Greaves with a bogus insurance policy purportedly issued by Grenada-based Sovereign Life & Casualty Ltd. The Greaves had executed a secret indemnification agreement whereby, through a Nevis-based corporation, they agreed to indemnify the insurance company from any claims which might be made under the policy. The promoters received six percent of the total funds as a fee for holding the funds for one year, after which the Greaves were entitled to receive the balance.

Assistant Attorney General O’Connor and U.S. Attorney Collins thanked Tax Division Trial Attorneys John E. Sullivan and D. Loren Washburn, who prosecuted this case. They also thanked the special agents of the Internal Revenue Service, whose assistance was essential to the successful investigation and prosecution of these complex cases.