A view of Fiduciary/Corporate Crime from an IRS Perspective Guy Ficco Supervisory Special Agent May...

A view of Fiduciary/Corporate Crime from an IRS Perspective

Guy Ficco

Supervisory Special Agent

May 22, 2012

Introduction to IRSCriminal Investigation

CI’s Mission

In support of the overall IRS Mission, Criminal Investigation serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.

Fiduciary Fraud Definition

• Illegal practices committed by financial institutions and professionals that constitute a breach of trust between the financial agent and the client. Fiduciary fraud occurs when a fiduciary acts in his or her own self interest to the detriment of the client.

Corporate Fraud Definition

Corporate fraud encompasses violations of the

Internal Revenue Code and related statutes, committed by large, public or private corporations and their senior executives.

Civil vs Criminal

• What activities elevate activity from civil to criminal?

Civil vs Criminal• More than just mistakes or oversights• Intent to commit a crime/enrich one self• Commit acts in his or her own self interest to

the detriment of company/entity

What to Look For

• Lying– To IRS Auditors– To Analysts/Investors– To Counter-Parties– To Others at Company– To Creditors/Rating Agencies– To Lawyers– To SEC

What to Look For

• Concealment– Key documents– Key terms of deal– Oral side agreements– Backdating to prior

reporting periods– Destruction of evidence/Obstruction

of justice

What to Look For• Things that Are Too Good to Be True

– Sudden end-of-quarter large transactions– Convenient dollar amounts– Outside normal approval process– Customer from unusual geographic area– Sudden corporate reorganizations– Deals with no apparent business purpose– End-of-quarter movement of reserves

What to Look For

• What Went Into Executives’ Pockets?– Bonuses/Stock Options– Theft and Self-dealing– The Corporate ATM: Loans for

Personal Items, Loan Forgiveness– Exorbitant Expenses Paid by Company– Insider Trading

Fraud InvestigationsConducted By CI

• Individual Tax Evasion– Self-Dealing

• Skimming• Diversion• Loans• Options• Embezzlement• Offshore Schemes• Special Purpose Entities

Fraud InvestigationsConducted By CI

• Corporate Tax Evasion– False Invoicing– Basis Shifting– Inflated Revenues

• Payroll Tax– Ghost Employees– Trust Fund Taxes

Additional Guidance on Corporate Fraud Investigations

Corporate Fraud, as defined by CI, includes acts of lying, falsification, deceit, fabrication, concealment or destruction of records for the purpose of:

• Falsifying tax returns, financial statements or reports to regulatory agencies, investors or markets to manipulate the value of stock or facilitate financial fraud.

Unauthorized Compensation

• Unapproved payments• Incentives tied to false financial statements• Stock transactions• Loans• Forgiveness of debt• Payment of personal expenses with corporate

funds

The Subjects of Corporate Fraud Investigations

• The Corporation• Chief Executive / Financial Officers• Corporate Executives• Board Members• Managers• Controllers• Corporate Attorneys• Auditors or Accountants

Types of Corporate Fraud Investigations

• Financial Statement Fraud• Obstruction of Justice

Common Examples of Financial Statement Fraud

• Excessive and abusive use of SPEs and unconsolidated entities

• Revenue recognition schemes• Expense fraud schemes• Reserve schemes• Related party transactions

Obstruction of Justice

• Shredding documents• Erasing computer files• Creating or altering documents• Witness tampering

Case Examples

Jeffrey Grous -Hartford, CT

• Embezzled more than $5.3 million from his employer

• Charged with wire fraud, mail fraud, tax evasion and filing a false tax return

• Submitted false invoices to company for consulting services

• Submitted false AMEX expenses

Kenneth McKay - Williston, VT

• embezzled over $5 million from his employer, Willis Management

• Sentenced to 70 months on charges of tax evasion, money laundering and wire fraud

George Tannous- Los Angeles

• Former IRS Revenue Agent• Investment Fraud Scheme- Stole over $8

million from over 200 victims. • Investments were with start up companies• Sentenced to 33 months in jail and

restitution to victims

Roy Johnson Jr.- Alabama

• Former Alabama two-year college system Chancellor

• Plead guilty to bribery, kickback scheme with contractors who worked for Alabama Post Secondary Education System

• Sentenced to 78 months in Jail

Maurice Campbell Jr.- Alabama

• Former state director of a college consortium of business development centers

• Convicted at trial of conspiracy, fraud and money laundering- over $7 million in fraud

• Sentenced to 188 months- pay back $5.9 million in restitution

Sources of Investigations• Whistleblowers• IRS Audits• Audits by other government agencies• US Attorney’s Offices• Media coverage• Ongoing criminal investigations

Program and Emphasis Areas for IRS Criminal Investigation

• Abusive Return Preparer Enforcement• Abusive Tax Schemes• Bankruptcy Fraud• Corporate Fraud• Employment Tax Enforcement• Financial Institution Fraud• Gaming

• Healthcare Fraud• Identity Fraud• Insurance Fraud• International Investigations• Money Laundering and Bank Secrecy Act

(BSA) violations• Mortgage and Real Estate Fraud• Narcotics related offenses

Program and Emphasis Areas for IRS Criminal Investigations

Program and Emphasis Areas for IRS Criminal Investigation

• Non-filer Enforcement• Public Corruption Crimes• Questionable Refund Program (QRP)• General Fraud- Catch All

Global Reach

• Expanded Global Footprint

• Voluntary Disclosure - UBS

Bogotá

Ottawa

BridgetownMexico City

LondonFrankfurtFrankfurt

Sydney

IRS-CI INTERNATIONAL POSTS OF DUTY

Hong Kong

Beijing

Panama City

CI Attaché Offices

CONCLUSION

Guy Ficco, Supervisory Special Agent

Washington DC Field Office

guy.ficco@ci.irs.gov

(703) 647-5502