BCSC-known Schneider's lawyer pleads guilty
B.C. Securities Commission *BCSC
Friday January 17 2003 Street Wire
by Brent Mudry
Los Angeles lawyer Eric Witmeyer, the key co-conspirator of notorious offshore shell bank peddler Jerome Schneider, has pled guilty in a sweet deal and agreed to rat out Mr. Schneider, who conducted much of his dubious business through his offices in downtown Vancouver.
Mr. Witmeyer pled guilty Friday in United States District Court for the Northern District of California in San Francisco to one count of conspiracy to defraud the Internal Revenue Service. The attorney's guilty plea comes less than a month after he and Mr. Schneider were charged with 23 counts of tax fraud, wire fraud and mail fraud in a grand jury indictment unsealed Dec. 19.
The guilty plea is a win for Assistant U.S. Attorney Jay Weill, who launched the prosecution after an extensive investigation by the Criminal Investigation Division of the IRS, prompted by Jack Blum, an expert in global money movement. Mr. Blum has appeared numerous times as an expert government witness on offshore finance and money laundering, and he worked for the U.S. Senate Foreign Relations Committee on the Bank of Credit and Commerce International investigation.
While Mr. Witmeyer faced potential maximum statutory penalties of five years and a $250,000 fine on the conspiracy charge and each of the mail and wire fraud charges, he negotiated a deal in which prosecutors will accept no jail, probation of one year, including six months of partial house arrest, a token $10,000 fine, no order of forfeiture and no other terms or conditions. (All figures are in U.S. dollars.)
Mr. Witmeyer's light proposed sentence has negative implications for Mr. Schneider, as it indicates just how eager authorities are to hear the lawyer sing, and just how many songs will feature Mr. Schneider. Mr. Schneider, of course, remains presumed innocent until proven guilty.
Mr. Witmeyer's actual sentencing is set for June 13 in front of Judge Susan Illston. While Judge Illston is not bound by the negotiated proposed sentence, federal sentencing guidelines give a range of six to 12 months for Mr. Witmeyer and suggest probation, of one to five years, is appropriate. During Mr. Witmeyer's proposed home detention, he can be let out each day for "gainful" employment, community service, religious services, medical care, travel for such purposes, and anything else his probation officer gives a thumbs-up to.
The Schneider indictment is a landmark case in the fight against dubious offshore tax havens, and represents one of the most significant international investigation co-operations between U.S. and Canadian authorities in years. The indictment vindicates critics of Mr. Schneider, who claim the pioneering offshore entrepreneur is little more than a sham and a flim-flam man.
In a related case, Mr. Schneider's most notorious client, offshore financier Terry L. Neal of Portland, Ore., was arrested Dec. 27 in a personal tax evasion case and is under criminal investigation by the IRS for his own promotion of offshore banking services to tax-shy clients. Mr. Neal is best known as the head of Nevis-based Exchange Bank and Trust, an offshore money-laundering account based in a downtown Vancouver bank.
Mr. Neal's EBT, like Mr. Schneider, conducted extensive dealings through the main Vancouver branch of Bank of Montreal. A whopping $115-million was laundered through EBT's account at Bank of Montreal over a two-year period, including at least $18-million belonging to Mafia-linked career felon Ed Durante, who ratted out his Vancouver broker Trevor Koenig of Union Securities, himself now a star federal witness in New York. Bank of Montreal has co-operated with numerous probes by the IRS, the U.S. Department of Justice, the British Columbia Securities Commission and the U.S. Securities, and is not a target itself.
This Bank of Montreal branch has the misfortune of being the only North American bank mentioned in the Schneider indictment, although there is no suggestion of wrongdoing on the part of the respected Canadian bank. Previously, this same Bank of Montreal branch was best known as the former long-time employer of private bankers Nick Massee, who mysteriously went missing several years ago in the Turbodyne case, and Howard Thomson, a key player in another penny stock deal closely linked to controversial expatriate Vancouver promoter Harry Moll.
Mr. Witmeyer's guilty plea comes two days after the IRS unveiled a limited-time offer to benefit clients of Mr. Schneider, Mr. Neal and other dubious offshore promoters. Clients who use offshore credit and debit cards, or other offshore arrangements, to hide their U.S. income are invited to participate in the IRS's new Offshore Voluntary Compliance Initiative.
Offshore tax dodgers have until April 15, the U.S. income case filing deadline, to come clean, avoid criminal prosecution, pay a nominal penalty and inform on their offshore promoters, aiders, abettors and facilitators. The "IRS plans on making it the end of the line for crooked perpetrators," states Senator Charles Grassley, the incoming Senate Finance Committee chairman.
"The IRS's message to tax evaders is clear -- either come forward and pay what is owed to the country today, or find the IRS knocking on your door with jail time and high financial penalties tomorrow, states Senator Max Baucus, the senior Democrat on the committee. Sen. Baucus notes the IRS alleges that hundreds of thousands of Americans may be using offshore accounts to hide taxable income, resulting in a loss of tens of billions of dollars a year to the national treasury. (The IRS's northern counterpart, the Canada Customs and Revenue Agency, is always eager to hear from taxpayers who suddenly remember undeclared income through offshore dodges, but in the absence of a similar formal amnesty program, initial approaches might best be done through lawyers.)
Mr. Witmeyer's guilty plea comes 23 months after the IRS staged co-ordinated raids on Mr. Schneider's Vancouver and Los Angeles operations in February, 2001. Although 140 boxes of documents were seized in the Vancouver raids, led by members of the CCRA, virtually all of this evidence was sealed and later returned to Mr. Schneider. In a devastating July court decision in Vancouver, a Canadian judge refused to allow the sending of a single page of the documents seized Feb. 28, 2001, at the Vancouver offices of Mr. Schneider's main operating companies, Premier Corporate Services and Premier Management.
The Canadian judge's ruling is based on defence allegations, not fully proven, that IRS Special Agent Harold (Hal) Durrette, the lead Schneider investigator, was quite naughty after the Vancouver searches, peeking and poking around in an improper sneak preview of his hoped-for big haul of evidence. However, even if Mr. Durrette had not touched a single document, Mr. Schneider still could have tied up the fruits of the search with a court seal for months or even years, as Canadian search and seizure laws are skewed in the favour of targets, not the authorities.
In Mr. Witmeyer's guilty plea, he admitted to helping Mr. Schneider market and sell purported offshore shell banks and other offshore entities licensed in such dubious offshore havens as the Republic of Nauru, a offshore international finance centre built on bird droppings in the middle of the South Pacific, a bit north of Fiji and the Solomon Islands. Aside from Mr. Schneider and Mr. Neal, Nauru is best known as the depositary of choice for hundreds of millions of dollars spirited out of the former Soviet Union by Russian Mafiya figures and Russian politicians.
Mr. Schneider and Mr. Witmeyer are alleged to have operated a two-stage scheme between January of 1994 and December of 2001, in which they marketed and sold Nauru trading corporations licensed as international banks and other offshore corporations in an attempt to defraud the IRS. In the first stage, Mr. Schneider flogged the purported shell, or brass plate, banks for $15,000 to $60,000 through Premier Corporate Services, Premier Financial Advisors LLC, Premier Management Services, Wilshire Publishing and his other companies.
The indictment alleges no business was conducted by any offshore entity sold by the defendants on Nauru nor was any bank account established on Nauru, and instead Mr. Schneider and Mr. Witmeyer set up accounts in the name of the Nauru shell bank in financial institutions located outside the U.S., including Canada. In the second stage, Mr. Schneider's clients paid Mr. Witmeyer, the lawyer, $15,000 to "decontrol" the purported offshore bank, to conceal the U.S. taxpayer's ownership of the offshore entity.
Mr. Witmeyer's guilty plea is the first confirmation of the IRS allegations by a major Schneider figure.
"Beginning sometime prior to April 1994, I conspired with Jerome Schneider to defraud the United States by attempting to defeat and obstruct the lawful functions of the Internal Revenue Service in the ascertainment, computation, assessment and collection of income taxes owed by U.S. taxpayers," states Mr. Witmeyer in his plea agreement, signed Thursday.
"The substance of the conspiracy was that Schneider would sell to U.S. taxpayer investors offshore entities such as those licenced by the Island of Nauru, as international banks and other offshore corporations, so that such U.S. taxpayers could use the offshore entities to avoid federal income taxes owed on funds that U.S. taxpayers would cause to be transferred to bank or brokerage accounts held in the name of the offshore entities in a financial institution located outside the United States," states Mr. Witmeyer.
"I would, at Schneider's direction and request, serve as counsel to the U.S. taxpayers and prepare so-called decontrol documents to conceal their ownership and control over any funds or assets transferred by or at the direction of the U.S. taxpayers to bank or brokerage accounts held in the name of the offshore entities," states the lawyer.
In his plea, Mr. Witmeyer admits that "I and Jerome Schneider conspired to defraud the United States and to attempt to defeat and obstruct the lawful functions of the Internal Revenue Service."
"I agree that the following facts are true:
a. Schneider marketed and sold to U.S. taxpayer investors offshore entities such as those licensed by the Island of Nauru as international banks and other offshore corporations. Schneider represented to U.S. taxpayers that by means of their ownership of the offshore entities, and so-called decontrol documents to be prepared by me, or other counsel, the U.S. taxpayers could conceal from the Internal Revenue Service, their ownership and control of funds or assets they caused to be deposited into bank or brokerage accounts held in the name of the offshore banks in financial institutions located outside the United States.
b. I, at Schneider's direction and request, based upon form documents supplied to me by Schneider, agreed to act as counsel for the U.S. taxpayer and prepare the so-called decontrol documents for the U.S. taxpayers who purchased an offshore entity from Schneider.
c. The decontrol process included transferring the U.S. taxpayer's interest in the offshore entity to a so-called Independent Foreign Owner (IFO) in exchange for a promissory note in an amount large enough to make it appear as if there was bona fide and negotiated sale of the offshore entity to the IFO. The amount of the promissory note was not the result of negotiations between U.S. taxpayers and the IFO. Rather, it was an amount set by me and/or Jerome Schneider in discussions with the U.S. taxpayers.
d. Jerome Schneider selected the IFO for the U.S. taxpayers and despite the purported decontrol of the offshore entity, I understood that the U.S. taxpayers in fact owned and controlled the offshore entity and any accounts opened up in the name of the offshore entity in any financial institution located outside the United States.
e. In or about September 1999, I met with two individuals whom I understood were clients of Schneider and were considering purchasing an offshore entity with Schneider's assistance. I counseled these individuals as to how they could and should tailor their use of the offshore entities to evade the detection of the Internal Revenue Service, and generally how they could conceal funds they might transfer to any offshore accounts held in the names of the entities from the Internal Revenue Service. I understood at the time that these two individuals intended to use the offshore entities they were considering purchasing, and the so-called decontrol documents they were considering hiring me to prepare, in order to conceal their ownership and control of funds and assets from the Internal Revenue Service, and thereby to evade the payment of income taxes."
In the plea agreement, Mr. Witmeyer also agrees to full co-operation with authorities, including testifying before a grand jury, at trial or in any other proceeding, and providing all requested documents, subject to any binding attorney-client privilege. "I will tell the government about any contacts I may have with any co-defendants or subjects of investigation, or their attorneys or individuals employed by their attorneys," states the convicted lawyer.
As with standard plea deals for squealers finking on co-defendants and co-conspirators to save their own bacon, Mr. Witmeyer also acknowledges that his sentencing fate depends largely on whether he provides "substantial assistance" to the prosecutors.
bmudry@stockwatch.com
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