I.R.S. Steps Up Tax-Evasion Raids

The New York Times/March 6, 2001
By David Cay Johnston

The Internal Revenue Service said yesterday that it conducted its most extensive raids ever last week, pursuing suspected promoters of tax evasion schemes for affluent people.

The I.R.S. says that the promoters used foreign banks and trusts to help people hide their income and create fake deductions.

Commissioner Charles O. Rossotti said more than three dozen searches were conducted and four arrests made as the I.R.S. deployed about 300 of its 2,700 criminal tax investigators on such cases.

Among the targets were the Institute of Global Prosperity, which operates on the Internet and promotes what the government says are a variety of fraudulent tax and investment schemes.

Also under investigation is Jerome Schneider, the author of books on moving money offshore to reduce or eliminate taxes. His California marketing office, as well as records of his lawyer in Los Angeles, Eric Witmeyer, were raided.

Also raided were the sales and administrative offices of Anderson's Ark, which sells what the government calls sham trusts for tax evaders, out of Costa Rica and the state of Washington.

Mr. Rossotti said that "last week's historic enforcement activities send an unmistakable signal about I.R.S. commitment to pursue investigations of promoters and their clients who would try to move money offshore to evade taxes."

Since the appointment of Mark E. Matthews as head of the I.R.S. criminal investigation division in late 1999, the division has focused on promoters of sham trusts and offshore banking.

Americans are taxed on their worldwide income, and the I.R.S. says that the promoters used foreign banks and trusts to help people hide their income and create fake deductions.

The I.R.S. is expected to seek indictments of the promoters. Investors in such schemes are often offered deals to inform on the promoters and are pursued civilly for taxes, interest and penalties.

Those arrested, all of whom are affiliated with Anderson's Ark, were identified by the government as Wayne Anderson, 55, of Squaw Valley, Calif., and Richard Marks, 57, of Los Osos, Calif., who were charged with tax evasion and money laundering; and Richard Castellini, 55, of Bridgeton, N.J., and Michael Gonet, 49, of Stow, Mass., who were charged as accessories for reportedly referring clients.

Keith Anderson, 59, of Santa Ana, Costa Rica, the founder of Anderson's Ark, said he and those arrested had done nothing wrong and would be vindicated if tried. Mr. Anderson, who is a federal fugitive, spoke by telephone from a location that he declined to specify.

He said that "the criminal government of the United States" has deceived people into believing that the income tax laws were properly enacted when in his view they are illegal.

He said that for 21 years his "free enterprise organization" has been helping Americans create "what the government likes to call trusts because that sounds like a big deal, but these are just contracts between two parties that help them build wealth" in ways that he said are not taxable.

Mr. Schneider has written books including "The Complete Guide to Offshore Money Havens" and "How to Own Your Own Private International Bank," both published by his own company in California.

Harland Braun, a Los Angeles criminal defense lawyer who said Mr. Schneider hired him after the raid, said his client had not violated any law and only promoted the lawful use of offshore banks.

Mr. Braun said that Mr. Schneider suspected that the undercover I.R.S. agents mentioned in the affidavit supporting the search warrant were tax evaders and, as a law-abiding citizen, turned them in to the authorities.

Mr. Schneider's seminars, held in Vancouver, British Columbia, and on tropical islands, attract wealthy Americans. According to the affidavit, Mr. Schneider sold private banks on Nauru, an island in the Pacific Ocean, as a way to hide income and create fake tax deductions.

To hide income, a client would funnel unreported income to his bank on Nauru. Investments would grow unseen by the I.R.S. The bank would also issue mortgages against homes in the United States, which would allow a tax evader to take a mortgage interest deduction for money he paid to himself through the bank.

The I.R.S. said clients were advised to slowly reduce the income they reported to the I.R.S., a technique that the tax agency said would not be detected by its computers when they search for patterns of tax fraud in the data taken from income tax returns.

Mr. Witmeyer, the Los Angeles lawyer whom the I.R.S. characterized as an accomplice of Mr. Schneider, did not return a call requesting an interview.

Officials and associates of the Institute of Global Prosperity did not respond to an e-mail request and no listed telephone numbers could be found for the promoters named in the search warrant.

Mr. Schneider also runs seminars that feature well-known guest lecturers. Among the speakers were Representative Billy Tauzin, Republican of Louisiana; Oliver L. North, the radio talk show host and retired Marine colonel; and Nadine Strossen, president of the American Civil Liberties Union.

A spokesman for Mr. Tauzin, Ken Johnson, said Mr. Tauzin spoke at a Vancouver seminar in June 1999 in hopes of winning wealthy Americans over to his plan for a national retail sales tax to replace the income tax.

"The congressman believes that if we had a retail sales tax, there would be no need for wealthy people to hide their money overseas," Mr. Johnson said.

Soon after arriving at the seminar, Mr. Johnson said, he concluded that a mistake had been made and that the event struck him as devoted to investment schemes and tax evasion. He said that Mr. Schneider had tried to persuade Mr. Tauzin to engage in one-on-one talks with individuals "and that's when I grabbed Billy's arm and got him out of there."

Mrs. Strossen and a spokesman for Mr. North, Tom Kilgannon, said that the appearances involved speeches unrelated to taxes and that neither guest had any idea that Mr. Schneider was suspected of promoting tax evasion.