LAWFUEL – MICHAEL J. GARCIA, the United States Attorney for the
Southern District of New York, and PATRICIA J. HAYNES, the
Special Agent-in-Charge of the New York Field Office of the
Internal Revenue Service (“IRS”), Criminal Investigation
Division, announced the filing of an Indictment today charging
former KPMG partner ROBERT PFAFF with participating in a
conspiracy to defraud the IRS by concealing fee income received
by PFAFF and his co-conspirators from tax shelter transactions.
PFAFF was also charged for conspiring to defraud a company
located in Saipan (part of the Commonwealth of the Northern
Mariana Islands (“CNMI”)) (the “Saipan Company”) of the right to
the honest services of its employees, by sharing tax shelter fee
income with officers of that company who failed to disclose those
secret payments to the Saipan Company’s Board of Directors.
According to the two-count Indictment filed earlier today:
Between 1993 and 2002 PFAFF and his co-conspirators
arranged for various entities and individuals — including coconspirators
in the Philippines and Norway, and senior officers
of the Saipan company — to participate with United States and
Saipan taxpayers in certain tax shelter transactions. The tax
shelter transactions, including those involving the Saipan
Company as a corporate taxpayer, resulted in millions of dollars
of fee income being generated by, and subsequently divided among,
the designers, marketers, and implementers of the tax shelter
transactions, including PFAFF. Between 1993 and 2000, PFAFF
received more than $3,750,000 in fee income from those tax
shelter transactions, and thereafter used the fee income for
various personal purposes, including: to purchase his principal
residence in Englewood, Colorado, and a weekend home in
Breckenridge, Colorado; to purchase his mother’s home in
Wisconsin; to purchase various automobiles, including a Porsche
for himself, a Mercedes Benz for his sister, and a Subaru for his
wife; to purchase various interests in mutual funds; to fund
various trusts for his children; to make gifts to family members;
to pay initiation fees at his country club in or around Denver,
Colorado; to renovate and landscape his Colorado home; to pay
dentist bills; and to purchase a Steinway piano and Hawaiian
artwork.
PFAFF and his co-conspirators employed a number of
fraudulent means in order to conceal the receipt of tax shelter
fee income by PFAFF and his co-conspirators from the IRS and
other taxing authorities, including the tax authorities in the
CNMI, and in order to allow the Saipan co-conspirators to defraud
the Saipan Company and its shareholders of their intangible right
to the honest services of its officers and employees. PFAFF and
his co-conspirators’ efforts to conceal the tax shelter fee
income included causing millions of dollars of tax shelter fee
income to be sent from bank accounts in the United States and the
CNMI to bank accounts in Manila, Philippines (the “Philippines
bank accounts”) — accounts which were controlled by the
Philippines co-conspirator and others.
PFAFF and his coconspirators
requested that the Philippines co-conspirator, in
exchange for fees, disburse the tax shelter fee income from the
Philippines bank accounts in accordance with instructions of
PFAFF and his co-conspirators, including instructions that checks
and demand drafts be drawn on, and wire transfers be made from,
the Philippines bank accounts and directed to individuals and
entities designated by PFAFF and others. PFAFF and his coconspirators
also created false and fictitious documentation to
make it appear that the fee income PFAFF received from via the
Philippines co-conspirator was part of a series of loans rather
than income to PFAFF — which income he failed to report on his
tax returns. PFAFF also provided false testimony to the IRS
regarding PFAFF’s receipt of fee income stemming from the tax
shelter transactions. Further, PFAFF and his co-conspirators
caused the payment of the tax shelter fee income to PFAFF to be
concealed from KPMG, in violation of KPMG’s partnership bylaws
and/or rules and procedures, and caused the payment of the tax
shelter fee income to the Saipan co-conspirators to be concealed
from the Saipan Company.
Mr. GARCIA also announced today the filing of a civil
forfeiture complaint with respect to $1,837,605 that, according
to the forfeiture complaint, represent the proceeds of the scheme
involving PFAFF’s fraud on the IRS, the CNMI tax authorities, and
the Saipan Company.
PFAFF is charged with one count of conspiracy to
defraud the United States and to commit tax evasion and wire
fraud, and one count of endeavoring to obstruct and impede the
IRS. He faces a maximum sentence of 5 years in prison on the
conspiracy count, and 3 years in prison on the IRS obstruction
count. PFAFF also faces, on each of the counts, a fine of the
greatest of $250,000 or twice the gross gain or loss from the
offenses.
PFAFF, 57, of Englewood, Colorado, is expected to
appear for arraignment before United States District Judge
RICHARD M. BERMAN on a date to be scheduled. PFAFF is currently
awaiting trial before Judge LEWIS A. KAPLAN on charges relating
to other tax shelters not at issue in today’s Indictment.
Mr. GARCIA praised the investigative work of the IRS.
Mr. GARCIA added that the investigation is continuing.
Assistant United States Attorney STANLEY J. OKULA, JR.
is in charge of the prosecution.
The charges contained in the Indictment are merely
accusations, and the defendant is presumed innocent unless and
until proven guilty.
08-068 ###
