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Iranian Company, Subsidiaries, and Officers Accused of Illegal Exporting to Iran; U.S. Persons Face the Fallout
An Iranian corporation, its subsidiaries, and several of its officers and business partners have been charged in Alexandria, Virginia, accused of allegedly exporting more than $30 million in computer goods from U.S. companies to Iran, in violation of the Iranian sanctions program administered by the Department of Treasury’s Office of Foreign Asset Control (OFAC).
The case was originally filed under seal in July 2012, but was made public in December after two alleged conspirators were arrested in Los Angeles, California. The two U.S. persons arrested were Alireza Beshcari and Mikaeil Ghahramani.
Business Machinery World Wide (BMWW aka Jahan Goster, Co.) is an Iranian company that imports computer and related equipment and redistributes such equipment to persons and entities in Iran. BMWW has three subsidiary companies located in Dubai, United Arab Emirates. BMWW, its subsidiaries, and nine officers and individuals have been charged with conspiracy to defraud the United States and conspiracy to violate the International Emergency Economic Powers Act (IEEPA).
According to an affidavit filed in support of the criminal complaint, several U.S. persons are allegedly included in the conspiracy. In addition to the two individuals identified above, Amir Mazlomian is also included in the indictment as a U.S. person. Other U.S. entities cited to in the indictment include Photo Craft, Inc., located in Burke, Virginia, and Compudirect3000, located in Irvine, California. Photo Craft and Compudirect3000 have not been indicted nor charged in the criminal complaint.
The Government claims that it has direct evidence of involvement by U.S. persons in the form of emails, shipping forms, and other communications with BMWW and its subsidiaries. The Government is going to use such evidence to prove that the U.S. defendants had knowledge of the Iran sanctions and were willfully violating them by conspiring with others to exporting computer related goods to Iran via Dubai.
Because Beshcari, Ghahramani, and Mazlomian have been charged with conspiracy, the Government only has to prove that they entered into an agreement to export computer related goods ultimately destined for Iran. Further, they must prove that they engaged in acts in furtherance of the conspiracy. From a defense perspective, trying to argue against a conspiracy charge can be extremely difficult, particularly because the Government does not have to prove that the defendants acted willfully.
The criminal case is still in its early stages. Although two U.S. persons have been arrested, the case has not set a trial date as of today. This may give the U.S. persons a chance to cooperate with the Government in an effort to receive a reduced sentence. Plea negotiations are not always the best course, but the evidence in this case is mostly in the form of written communications, which tend to easily sway jurors.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.
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Former Navy Sailor Accused of Attempted Espionage
Robert Patrick Hoffman II, 39, of Virginia Beach, Va., has been indicted by a federal grand jury for allegedly attempting to provide classified information to individuals who he believed to be representatives of the Russian Federation.
According to the indictment, Hoffman is a U.S. citizen born in Buffalo, N.Y., who served for 20 years in the U.S. Navy until his retirement in November 2011. While serving in the Navy, Hoffman was a Cryptologic Technician, which required him to maintain Top Security clearance. Hoffman also had access to sensitive information and special programs.
The indictment and other court documents reveal that Hoffman allegedly supplied “drops” of classified information in September and October 2012 to individuals he believed to be part of the Russian Federation. Hoffman was, in fact, engaging in communications with undercover FBI agents. However, Hoffman was solicited by the FBI agents following his return from a trip to Eastern Europe. Apparently, a letter was mailed to Hoffman “from Moscow” that inquired into his interest in assisting the Russian Federation and requested an immediate response.
Although Hoffman responded to the letter, he never came into actual contact with any Russian nationals, hence the attempt charge under 18 U.S.C. § 794(a). Further, Hoffman argued at his detention hearing that he provided some information as a means to gain the interest and trust of the Russian Federation before reporting the communications to the FBI. Hoffman eventually reported the interactions to the FBI, but since they were behind the whole operation, it obviously provided no benefit to him. With the weight of the evidence against him, the judge ordered that Hoffman be detained until trial.
18 U.S.C. § 794(a) is an espionage statute, and carries with it the potential for up to life in prison, and even death under certain circumstances. To sustain a conviction, the government must be able to prove that the defendant acted intentionally or with reason to believe that the disclosed information will be used to cause injury to the United States. Further, the information must be communicated, delivered, or transmitted, or the defendant must attempt to do so. Lastly, the information must be related to the national defense of the United States.
From a defense perspective, particularly at this early stage in the proceedings, an in-depth review of the evidence is critical. The evidence must be reviewed to determine the defendant’s mental state and whether he/she acted with the specific intent to cause injury to the U.S., whether the defendant attempted to transmit information, and whether such information is so sensitive as to qualify as related to national defense. The evidence must also be evaluated to determine the viability for any justifiable defenses.
Hoffman’s mental state is a major component in this case. If he was acting with the intent to gain the trust of the Russian Federation in order to ultimately benefit the FBI, then the argument that he intended to cause injury to the U.S. fails. Further, court documents indicate that the information that was allegedly communicated or transmitted to the undercover FBI agents pertained to methods of tracking U.S. submarines, including technology and procedures. The issue of whether Hoffman transmitted information does not appear to be in dispute; thus, the relevancy turns to the type and classification of the information, and whether it relates to national defense.
In addition to the two key issues above, another defense that appears to jump out immediately is entrapment by the FBI agents, due to their solicitation of Hoffman. However, an entrapment defense can be a difficult argument to make, particularly because the defendant must prove that he was induced to commit the crime by solicitation plus some overreaching or improper conduct on the part of the government, and that he was not otherwise predisposed to commit the crime. Solicitation by the government, is not in and of itself entrapment.
The defense’s strategy going forward should focus on the strength of the evidence as to Hoffman’s mental state, specifically whether he formed the intent necessary to commit attempted espionage, and whether the information that was communicated to undercover FBI agents did, in fact, relate to national security. Such details may mitigate the ultimate result of the outcome of the case and will effect the defense’s next steps and viability of potential defenses.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.
Grand Jury Returns Indictment Against Virginian for Conspiracy and Tax-Related Offenses
On July 10, 2011 the U.S. Attorney’s Office for the Eastern District of Virginia announced that a federal grand jury has indicted Jeffrey Charles, of Mathews County, Va., for conspiring with his daughter and son-in-law to defraud the United States. The docket also indicates that a warrant has been issued in this matter.
According to the indictment, Charles conspired with his daughter and son-in-law to impair and impede the IRS in ascertaining, computing, assessing and collecting federal income taxes. The government charged this count under the general conspiracy statute, 18 U.S.C. 371. General conspiracy makes it a crime for two or more persons to agree to work together to commit any federal crime, so long as the participants in the conspiracy undertake any act, commonly referred to as an overt act, to further the underlying criminal activity. This overt act itself does not have to be a criminal act or illegal. Accordingly, in its indictment, the government alleges no less than 21 overt acts in furtherance of the alleged conspiracy to defraud the United States of tax revenue.
The indictment also alleges that Charles aided and assisted in the preparation of three false tax returns in his daughter’s name for tax years 2000, 2001, and 2005, and attached false documents to each tax return. The statute, 26 U.S.C. 7206(2), makes it a criminal offense for anyone to assist in the filing of a false return. The statute specifically disregards whether or not the fraudulent information or falsity was included with the knowledge or consent of the person authorized or required to present the documents to the IRS. Therefore, tax preparers can be liable for this offense even if the taxpayer himself intentionally produced false or fraudulent information. In such a scenario the tax preparer would have to demonstrate that they could not have reasonably known the information presented to them was false.
As alleged in the indictment, Charles also filed a false tax return in his own name for tax year 2006 in which he allegedly falsely reported earning $0.00 income. Since this count is with regards to Charles’ own tax return, the count is charged as 26 U.S.C. 7206(1), which targets the actual taxpayer or the person obligated to file, not the preparer.
An interesting note about this case is that according to the indictment Charles was affiliated with an organization known as the American Rights Litigators (ARL) (a.k.a. the Guiding Light of God Ministries). The organization is a tax protest group located in Lake County, Florida. As alleged in the indictment, Charles utilized materials provided by this organization to fulfill his alleged criminal endeavors.
However, it may be constitutionally improper for the government to use Charles’ affiliation with this group against him at trial. Using someone’s political affiliations against them in the court of law gets dangerously close to offending the First Amendment. Therefore, defense counsel in this matter should probably attempt to limit its usage in court and look into whether the investigation into Charles was originally initiated due to his association with this protest group.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Former Background Investigator Sentenced to Prison Term for Making a False Statement
Bryan M. Marchand, 39, a former background investigator who did work under contract for the U.S. Office of Personnel Management (OPM), was sentenced yesterday to three months in jail on a charge stemming from the alleged falsification of work on background investigations of federal employees and contractors.
Marchand pled guilty in April 2012 in the United States District Court for the District of Columbia. Upon completion of his prison term, Marchand will be placed on three years of supervised release, 12 months of which will be on home detention. As part of the guilty plea, Marchand agreed to pay $192,071 in restitution to the federal government.
Marchand was employed with United States Investigations Services (USIS) as an investigator under contract to conduct background investigations on behalf of OPM’s Federal Investigative Services. For certain federal employment positions and other various circumstances, federal background investigations are required. For example, in order to obtain a security clearance, a background investigation must be conducted into the individual’s personal life and previous work experiences. The investigation results are then compiled into a comprehensive report and used as a basis to grant or deny the security clearance.
According to prosecutors, between May 2007 and May 2008, in more than four dozen reports of investigations on background investigations, Marchand represented that he had interviewed a source or reviewed a record regarding the subject of the background investigation although he had not conducted the interview or obtained the record.
These types of reports are utilized and relied upon by the agencies requesting the background investigations to determine whether the candidates are suitable for positions having access to classified information, for positions impacting national security, or for receiving or retaining security clearances. If a background investigator has not actually conducted the investigation according to all requirements, but states as such, then the federal government apparently views the claim as a false statement under federal criminal law.
In the past three years, the U.S. Attorney’s Office in D.C. has prosecuted 11 other background investigators and two record checkers for similar charges. The press release indicates that prosecutors are usually tipped off after being informed of inaccuracies that are found during internal compliance procedures taken by the federal contractor providing the service, which in this case would be USIS. Albeit a violation of employment practices to falsify information in the report of investigation, the fact that federal criminal charges can be imposed for false statements should put the employees of USIS, and similar government contractors, on notice of what they are facing if the company or federal government believes such falsifying is taking place.
In addition to the prison term and supervised release, Marchand’s sentence requires him to pay $192,071 in restitution to the U.S. government for the reopening and reworking of background investigations, as claimed by OPM’s Federal Investigative Services.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Richmond Marketing Company Owner Sentenced for Health Care Kickback Scheme
Lorie Monroe, 51, of Richmond, Virginia, was sentenced yesterday to 37 months in prison, followed by 3 years of supervised release, for conspiracy to receive health care kickbacks, in violation of Title 18, United States Code, Section 371. In addition, Monroe was ordered to pay $545,410.00 in restitution to the Virginia Department of Medical Assistance Services.
The sentence was imposed by United States District Judge Henry E. Hudson. On January 24, 2012, Monroe waived indictment and pled guilty to a one-count information alleging conspiracy to receive health care kickbacks.
The underlying criminal statute that Monroe has been accused of conspiring to commit is 42 U.S.C. § 1320a-7b(b)(1)(A). The statute makes it illegal for a person to solicit or receive kickbacks and other remunerations in return for referring an individual to a person for furnishing or arranging services under a Federal health care program.
According to court documents, Monroe was the owner and operator of Creed Xtreme Marketing Concepts, a.k.a Creed Extreme Marketing (“Creed”), a company located in Glen Allen, Virginia. Sometime prior to December 2008, Monroe and “Individual A” agreed that Creed would serve as a marketing company for “Company 1.” It is not clear who initiated the alleged agreement, but Monroe’s plea indicates that she did not solicit kickbacks but was merely the recipient.
Individual A is the CEO of Company 1. Company 1 was an IIH provider located in the Eastern District of Virginia, which was under contract with Medicaid to provide Intensive In-Home Therapy (IIH) services. IIH services are designed to assist those youth and adolescents who are at risk of being removed from their homes, or are being returned to their homes after removal, because of a significant mental health, behavioral, or emotional issues. Allegedly, Monroe and Individual A verbally agreed that Monroe would receive approximately half of the Medicaid payments for each child Monroe referred to Company 1 for IIH services.
On or about December 2008, Monroe allegedly hired two employees to canvass low income areas, specifically Section 8 housing and subsidized housing projects, in the greater Richmond and Petersburg, Virginia, areas, to find children who were Medicaid beneficiaries to refer to Company 1. Court documents further allege that Company 1 contacted the individuals recruited by Creed, then enrolled many of these Medicaid-eligible children in its IIH program and billed Medicaid for IIH services rendered. Between December 2008 and January 2010, Company 1 allegedly paid Monroe a total of $545,410.00 in kickbacks for recruiting beneficiaries for IIH services.
The court documents do not identify Individual A or Company 1 by name. There may be several reasons for this, but most likely, the government is still building their case against the two and has not issued an indictment as of yet. Monroe’s plea agreement further supports this theory, as part of the plea discusses Monroe’s continued cooperation in the form of potential grand jury testimony, participation in government debriefings, producing documents related to criminal activity, and the inclusion of the possibility of a 5K1.1 and Rule 35(b) downward departure during sentencing.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Former Virginia Man Sentenced for Bank Fraud and Identity Theft Scheme Targeting Young Navy Sailors
On June 6, 2012 the U.S. Attorney for the Eastern District of Virginia announced that Lionel Jason Haynes was sentenced to seven years and three months in prison for bank fraud (18 U.S.C. 1344) and aggravated identity theft (18 U.S.C. 1028A(c)). He was also ordered to pay $181,960 in restitution.
According to court documents and proceedings, Haynes, a former Navy sailor, executed a scheme to defraud Navy Federal Credit Union (NFCU) by victimizing young, impressionable sailors. Posing as a Chief Petty Officer, Navy SEAL or as a representative of the Navy’s Fleet and Family Services Center, Haynes would approach a sailor on Navy Base Norfolk and offer assistance to help him purchase a car.
He would ask for their personal identifying information and bank account information under the pretense of needing it to determine pre-approval for an auto loan. Once he received this information, he accessed their NFCU bank account, requested an auto loan, and changed the mailing address to an address to which he had access. He received the check, wrote down the fraudulent vehicle information, forged their name, and had an associate (the purported seller) cash the check. He victimized 14 different sailors in this manner.
In its sentencing memorandum the government requested 60 months’ imprisonment for bank fraud, plus 24 months for identity related fraud. Although the defense moved for a downward departure, it is apparent that no such departure was granted by the sentencing judge. Mr. Haynes was sentenced to exactly what was requested by the government and prescribed in the U.S. Sentencing Guidelines. Unfortunately for Mr. Haynes his request to have his identity theft conviction run concurrently was denied, probably because the statute specifically prescribes the sentence to run consecutively. As such, instead of serving 5 years and 3 months in prison, he will serve 7 years and three months.
Not all was lost however. According to sentencing documents the judge did grant Mr. Hayne’s request to be placed in a prison near his family in New York and ordered him to continue his education while in prison. Court documents made it clear that Mr. Haynes was in college during the sentencing phase of the case.
This case was investigated by the Navy Criminal Investigative Service (NCIS) and prosecuted by the U.S. Attorney’s Office of the Eastern District of Virginia.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Virginia Family Arrested for Alleged Distribution of Prescription Pills
Three members of a family living together in Fauquier County, Virginia, were arrested and made their initial appearances last week for allegedly conspiring to distribute prescription pain medication from their home since at least 2009. Vernon Scott Carter, 55, his wife, Helen R. Carter, 50, and their son, Jason Vernon Carter, 29, allegedly conspired since 2009 to obtain Oxycodone and Oxymorphone prescribed to them from a local physician and sell them for a profit. The family is facing the charges in the U.S. District Court for the Eastern District of Virginia.
Law enforcement began investigating the Carter family with the assistance of two confidential informants (CI). The CIs allegedly made purchases from the Carters under the surveillance of government agents. The affidavit that was submitted to establish probable cause for the search tends to imply that the confidential informants revealed information about their relationship with the Carters in order to deflect attention from themselves as purchasers and users of prescription pills. Specifically, a substantial amount of the evidence against the Carter family stems from information given to the government by one of the informants prior to surveillance being conducted. The information subsequently led to the surveillance and search and arrest warrants.
During the execution of a search warrant on their Bealeton, Virginia, residence at the time of arrest, agents allegedly recovered more than a quarter pound of marijuana, as well as many and varied prescription pills stashed in kitchen drawers and other places around the house.
The doctor who allegedly prescribed the medication to Vernon and Helen Carter is not identified in the court documents, and it is unclear whether a separation investigation is being pursued against him.
This case is part of an Organized Crime and Drug Enforcement Task Force (OCDETF) investigation nicknamed Operation Cotton Candy, which has been focusing on the illegal distribution by numerous doctors, pharmacists, nurses, and patients of pain medication. Operation Cotton Candy, headed by the FBI, is primarily concerned with the Northern Virginia area, and has secured more than 200 drug-trafficking convictions and guilty pleas since its inception in 2002.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
South Florida Retiree Pleads Guilty for Failing to Report Assets in Swiss Banks
Wolfgang Roessel of Ft. Lauderdale, Florida, pleaded guilty on Wednesday in the U.S. District Court in the Southern District of Florida to filing a false tax return for 2007, the Justice Department and Internal Revenue Service (IRS) announced.
According to the court documents, Roessel, a U.S. citizen, maintained bank accounts at UBS AG in Switzerland, which he failed to report on his 2002 through 2007 personal income tax returns. He also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) for these same years. In 2002, Roessel opened a UBS numbered investment account in the nominee name of a foreign entity, Neptune Trust, with an opening balance of approximately $4 to $5 million. In around 2004, this account and subaccounts were transferred into the nominee name of another foreign entity, Cyan United, and traded in U.S. and foreign securities. Allegedly, Roessel met with a Swiss banker periodically to discuss the performance of his accounts.
The IRS requires U.S. persons to file an FBAR for every taxable year reporting their interests in foreign financial accounts, if the foreign account is in excess of $10,000 at any one time during the calendar year. According to the IRS, the reporting requirement has been implemented because foreign financial institutions do not follow the same regulations as U.S. banks. Of course, the obvious reason for such a reporting requirement is so that the IRS can tax the funds once they have been reported.
Court records also allege that, dating back to the 1980s and up through the late 2000s, Roessel held accounts at different times at Bank Wegelin and another Swiss bank (Bank A) into which he deposited foreign proceeds from his business, yet which he neither reported on his tax returns nor on the required FBARs. In the early 2000s, the foreign account at Bank A was put into the nominee name of Cyan United. A Swiss money manager made investments on Roessel’s behalf and met with him periodically to discuss the performance of the account. In 2008 and 2009, during which period Roessel was aware of the government’s grand jury investigation into his foreign UBS accounts, he disclosed only the existence of the UBS accounts on his tax returns for those years and did not report the other Swiss account.
In recent years, the IRS has spent more energy investigating and penalizing U.S. citizens that maintain offshore accounts in an effort to subject these accounts to U.S. tax and banking regulations. At one time, holding a large amount of assets in a foreign account, particularly Switzerland, was highly desirable due to the little or no tax that was assessed on the assets. However, as the case against Roessel demonstrates, the maintenance of an offshore account can have financially and criminally devastating consequences if U.S. reporting requirements are not met.
The plea agreement includes a tax loss of $312,802.95 for 2002 through 2007, and an FBAR penalty owing to the U.S. Treasury of $5,750,933.99, which is 50 percent of the 2007 unreported foreign bank accounts year-end balance of over $11 million. Roessel faces a potential maximum prison term of three years and a fine of up to $250,000. A sentencing date has not been set.
This plea comes only a few months after the DOJ’s indictment of Bank Wegelin for allegedly enabling U.S. citizens to avoid U.S. taxes, and a $16 million seizure from Wegelin’s correspondent bank, UBS AG. Roessel’s case may be the tip of the iceberg of the investigation into U.S. citizens with accounts at these banks.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Arizona State Representative Accused of Bribery, Fraud and Attempted Extortion
A member of the Arizona House of Representatives was charged last Wednesday by a federal grand jury in the District of Arizona with bribery, fraud, attempted extortion and false statements in connection with receiving more than $6,000 in tickets to sporting and special events while serving as a Tempe City Council councilmember and member-elect of the Arizona House.
The indictment charges Paul Ben Arredondo, 63, of Tempe, with one count of federal programs bribery, two counts of honest services mail fraud, one count of attempted Hobbs Act extortion and one count of making false statements. Arredondo will be arraigned on May 30, 2012, in U.S. District Court for the District of Arizona before U.S. Magistrate Judge Lawrence O. Anderson.
Honest services fraud has been an evolving area in federal criminal prosecutions since its addition to 18 U.S.C. 1346, the mail and wire fraud statute, in 1988. The question lower courts have grappled with is what type of specific conduct, in the private and public sector, falls under the purview of “honest services” fraud. Without any indication of Congressional intent in the statute itself, lower courts approached the law broadly, which lead to little limitation as far as federal prosecutors were concerned.
However, in 2010, three cases made their way to the U.S. Supreme Court on this exact issue. The most notable of the three is Skilling v. U.S., where the former CEO of Enron, Jeffrey Skilling, was convicted of honest services fraud. Holding that honest services fraud is limited to bribery and kickback schemes, the Supreme Court overturned Skilling’s conviction under the statute because he did not engage in such behavior. The other two cases were remanded in order for the lower courts to evaluate each case based on the holdings of Skilling.
According to the indictment, Arredondo was a councilmember in Tempe for 16 years, until July 2010. He was elected to the Arizona House of Representatives in November 2010. The indictment alleges that from February 2009 to November 2010, Arredondo accepted, agreed to accept and solicited things of value, mainly sporting tickets, from representatives of a company whose purported business objective was to acquire city-owned property in Tempe for real estate development purposes. Allegedly, in return for those tickets, Arredondo took and agreed to take action in his capacity as a Tempe city councilmember and as a member of the Arizona House of Representatives to facilitate the purported purchase of city-owned property and development project. The representatives were, in fact, undercover agents with the FBI, and no development project actually existed.
Although this case seems to involve a bribery scheme, it was initiated by undercover government agents. Entrapment is a viable defense if Arredondo can raise a reasonable doubt as to whether he had any intent to commit the crime had it not been for inducement or persuasion on the part agents.
In addition to the fraud and bribery charges, Arredondo must also prepare a defense for attempted extortion, which is somewhat of a catchall bribery provision for a public official acting under color of official right. To prove attempted extortion under the Hobbs Act, the government simply has to prove that Arredondo attempted to agree to take some official action in exchange for payment as opportunities arose to do so. Arredondo’s actual intent to follow through with the agreement is irrelevant.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
“Nifty Fifty’s” Restaurant Owners and Managers Indicted for Tax Evasion Conspiracy
Robert Mattei, Leo McGlynn, Brian Welsh, Joseph Donnelly, and Elena Ruiz, the owners and managers of the Nifty Fifty’s restaurant chain, were charged today by information in a tax evasion conspiracy that allegedly defrauded the Internal Revenue Service by failing to properly account for more than $15 million in gross receipts. Nifty Fifty’s restaurants are located in Pennsylvania and New Jersey. The case was brought in the Eastern District of Pennsylvania.
An information is a formal charging document, but differs from an indictment in that a grand jury was not convened to review the evidence and decide whether probable cause exists to issue an indictment. Because an information was issued in this case, the judge at the preliminary hearing will determine whether probable cause exists.
The individuals are charged with conspiracy to commit tax evasion and tax evasion for allegedly constructing a long-running scheme to avoid paying millions of dollars in personal and employment taxes as related to their restaurant chain. The information alleges that the defendants not only evaded paying the taxes they owed, but that they filed income tax returns claiming they were due refunds based on the erroneous reporting of their incomes. Mattei, McGlynn, Donnelly, and Welsh are also charged with bank fraud; and McGlynn and Donnelly are also charged with aggravated structuring of financial transactions.
According to the press release, the individuals have allegedly evaded paying taxes since the restaurant was established in 1986 by, among other things, paying employees a portion of their wages with unreported cash in order to evade payroll taxes; paying suppliers with unreported cash; and having false tax returns prepared that under-reported income and falsely inflated expenses and deductions. For example, between the years 2006 and 2010, it is alleged the individuals deliberately failed to properly account for $15.6 million in gross receipts, thereby evading $2.2 million in federal employment and personal taxes.
In cases related to tax fraud and evasion, the threshold to prove willfulness is fairly low. Specifically, although an individual may not have intentionally evaded taxes, the actions and circumstances surrounding the evasion can be sufficient to warrant a finding of willful conduct. However, that is a question of fact left for a jury to decide.
Further, it is remarkable that the IRS would not catch on to such an elaborate scheme, if the individuals were in fact carrying on this activity since 1986. If, as the government alleges, millions of dollars were not being paid to the IRS, it should have caught someone’s attention much earlier, rather than 26 years later.
This case was a joint investigation between the FBI and the IRS Criminal Investigation Division. The IRS Criminal Investigation Division seems to be stepping up its efforts, as numerous criminal cases have recently resulted following an investigation by the IRS.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
