BCSC-known EBT founder Neal denied bail
[2003-01-02 17:45 PT ]
BCSC target Terry Neal, the founder and head of Exchange Bank and Trust, was denied bail on tax evasion charges Thursday. Meanwhile, unsealed documents show he used Vancouver accounts heavily, while a major IRS probe of EBT is in progress. more...
B.C. Securities Commission - Street Wire
BCSC-known EBT founder Neal denied bail
B.C. Securities Commission *BCSC
Thursday January 2 2003 Street Wire
by Brent Mudry
Offshore financier Terry L. Neal, in U.S. custody since last Friday in criminal tax evasion charges, has been denied bail on the basis of flight risk. In a brief hearing Thursday afternoon in Portland, Ore., duty Magistrate Don Ashmanskas in United States District Court for the District of Oregon cited Mr. Neal's extensive offshore dealings through Caribbean tax havens.
Mr. Neal was represented in court by defence counsel Ronald Hoevet of Hoevet Snyder & Boise, while the lead prosecutor is Assistant U.S. Attorney Robert Ross. Mr. Neal was supported in court by numerous of his seven children and 19 grandchildren. Mr. Hoevet confirms a detention appeal hearing is set for Tuesday, Jan. 7, before Judge Garr King, and he will seek Mr. Neal's release on his own recognizance, possibly with a condition of electronic monitoring.
Magistrate Ashmanskas also unsealed a criminal arrest warrant, in which the Internal Revenue Service claims Mr. Neal neglected to declare more than $7-million in penny stock trading income from 1994 to 1996 through accounts in Vancouver, primarily now defunct brokerage C.M. Oliver and the downtown Vancouver branch of Bank of Montreal. (All figures are in U.S. dollars.) Mr. Neal made his first court appearance on Dec. 27 before Judge John Delkerks, hours after being arrested.
In addition, the magistrate unsealed a search warrant affidavit in a separate criminal probe, in which the IRS claims Mr. Neal has been busy servicing tax-shy clients through his offshore accounts, continuing after the British Columbia Securities Commission froze his Exchange Bank and Trust account at the Bank of Montreal branch in April, 2000. According to the IRS, a whopping $115-million was moved through this account over a two-year period before it was shut down. The unsealing of both files follows an extensive investigation by the Criminal Investigation Division of the IRS.
THE TAX EVASION CASE
The IRS tax evasion cases is laid out in an affidavit of Special Agent Craige Walker, a veteran investigator trained in probing financial crimes, including money laundering, conspiracy and tax evasion. According to the IRS agent, Mr. Neal filed false personal income tax returns for 1994, 1995 and 1996, neglecting to disclose his Canadian accounts in Vancouver, which handled the bulk of his stock trading.
On his 1994 return, Mr. Neal allegedly declared stock-sale gains of just $21,000 on $30,000 of proceeds from his U.S. brokerage accounts, while he failed to declare more than $290,000 in proceeds at C.M. Oliver. The IRS investigation shows that Mr. Neal opened a joint account at C.M. Oliver with his wife Maureen Neal on Dec. 17, 1993, and this account was closed in July, 1995. During the tax year 1994, Mr. Neal sold shares through this account and received proceeds of $297,821.
On Feb. 24, 1994, two months after opening this first acocunt, Mr. Neal opened another account at C.M. Oliver, in the name of Newcastle Services, one of his offshore companies. Brokerage records show Mr. Neal's personal address on Newcastle's signature card, while he is also identified as the authorized signatory on the account. Through this Newcastle account, Mr. Neal directed share sales generating proceeds of $126,000 in 1994, $4.14-million in 1995 and $2.93-million in 1996.
On his income tax returns, Mr. Neal also forgot to tell the IRS that he opened a chequing account at the Bank of Montreal branch in Vancouver on Dec. 16, 1993. This account remained open through July, 1996. On July 16, 1996, Mr. Neal opened a second account at this Bank of Montreal branch. Bank records show Mr. Neal was the only signee on the account, and all statements for the Oregon client were mailed to a Canadian address. (Mr. Neal's wife also opened an account at this branch on Dec. 20, 1996, using a mail drop in Portland as the account address.)
In addition, Mr. Neal sold close to $2-million in shares through a nominee account at C.M. Oliver, opened July 21, 1995, by Henk Keilman in the name of Wycliff Fund Inc., another Neal offshore affiliate. (A few months later, on Oct. 4, 1995, Mr. Neal was granted signature authority and full power of attorney, allowing him to control this account.) The IRS claims Mr. Neal directed stock sales generating proceeds of $1.09-million in 1995 and $841,000 in 1996.
In summary, the IRS claims Mr. Neal neglected to declare C.M. Oliver account proceeds of more than $290,000 in 1994, more than $4-million in 1995 and more than $2.8-million in 1996, in addition to interest income in his Bank of Montreal accounts.
THE OFFSHORE SERVICES PROBE
In addition to probing Mr. Neal's alleged personal tax evasion, the IRS has also been investigating his offshore client services operations. Two premises were recently raided under search warrant: Laughlin International in Portland, Ore., and Privatech Group LLC in Carson City, Nev.
"Through the course of the investigation, Special Agent Craige Walker and I have been able to establish that individuals in Laughlin International and its predecessor corporations, and Privatech Group LLC are promoting an offshore bank account to help taxpayers evade the payment and assessment of federal income taxes," states IRS Special Agent Scott McGeachy in an affidavit supporting the search warrant application. A grand jury has already heard extensive testimony from several confidential informants.
The IRS claims that Laughlin International and its predecessor companies are supporting the operations of Mr. Neal's offshore bank, Exchange Bank and Trust, "by promoting, aiding, and abetting taxpayers in evading the payment and assessment of federal income tax" from the Portland location.
Privatech has contracted with Laughlin to act as a nominee service for clients of Exchange Bank and Trust. Privatech opens Nevada corporations, provides telephone answering services and remailing services, opens bank accounts, writes cheques, makes deposits, and wires money all across the world for clients of Laughlin International and Exchange Bank and Trust, according to U.S. officials.
Exchange Bank and Trust is the prime focus of the IRS investigation. "EB&T is promoted as an offshore bank; however, it is merely one bank account within the Bank of Montreal and several bank accounts within the Caribbean Islands," states Special Agent McGeachy.
According to the IRS, Exchange Bank and Trust, chartered in the Republic of Nauru and based in nearby Nevis, deposits all its clients' money into a few bank accounts offshore at regular commercial banks, and makes its own account numbers for each client, with all clients' funds commingled. Clients allegedly place sole control of their funds with the operators of Exchange Bank and Laughlin International.
The IRS notes that Exchange Bank operates from a parent company called Nevis American Trust, also located in Nevis, while Exchange Bank is supported and operated by a series of affiliated businesses: Laughlin, Morgan Carter & Young, Privatech Group and Offshore Corporate Services. Corporate records show Laughlin was formerly called Morgan Carter, and before that, Offshore Corporate.
"Terry Neal, who is the owner of the parent company, NATCO, (Nevis American Trust), is purportedly controlling foreign operations of EB&T," states the IRS. The tax probe has been corroborated by reviews of Web sites www.laughlininternational.com, www.laughlinusa.com, www.privatechgroup.com, www.morgancarteryoung.com, www.offshorecorpservices.com and www.offshoreadvantage.com.
"In essence, NATCO, Laughlin International (formerly called OCS and MCY), and Privatech Group, LLC assist United States clients in hiding their income from the Internal Revenue Service," states the court document. Laughlin International promotes the use of the offshore bank accounts under the guise of privacy and asset protection. Most of the marketing promotion comes from the Internet, referrals from other clients and seminars. I corroborated this information by reviewing their website at www.laughlininternat
"Clients that wish to deposit funds with EB&T have Laughlin International create fictitious domestic and foreign corporations, with a nominee director," states the IRS. In the next step, Laughlin International or Privatech Group, as registered agents, open a U.S. bank account in the name of the domestic fictitious corporation, with Lee Morgan at Laughlin International or a person at Privatech Group as the account signatory. Account statements, which have no reference to the actual owner, are sent to a mail drop in Nevada, while clients wire or deposit money into the U.S. bank account of the fictitious corporation.
Laughlin or Privatech then wire the money offshore to Exchange Bank's account at an offshore bank, to be credited to a sub-account held under the client's foreign fictitious corporation name. Clients can also wire money directly from their business or personal chequing account to their sub-account at Exchange Bank and Trust at the offshore bank.
Nevis American Trust then provides the clients with ways to spend the money in the U.S. without it being reported to the IRS. In one common method, Nevis American opens a bank account at an offshore bank in the name of the foreign fictitious corporation and has that bank issue a debit card to the corporation, with the client's name on the card, but not on any of the statements. The statements are mailed to the fictitious foreign corporation's address in Nevis. The account is financed out of the client's subaccount at Exchange Bank.
Clients can then use their debit card in the U.S. to make purchases and make ATM cash withdrawals. According to the IRS, Nevis American Trust will also establish brokerage accounts in the name of the fictitious corporation at domestic and offshore securities firms. "Proceeds from sales of securities can be used to pay clients creditors in the United States by wiring the funds to those creditor's bank accounts," states the affidavit. Monthly statements on the securities accounts are sent to the fictitious foreign corporation's address in Nevis.
"In these ways and others, clients of NATCO and Laughlin International are able to receive income, make payments, buy property, or receive cash and valuables while remaining anonymous, thereby concealing their income from outside inquiry. The only records that identify which client owns which foreign corporation are the internal account records held by NATCO and Laughlin International and PrivateTech Group LLC (a company that contracts with Laughlin International to act as a nominee company for its clients)."
Mr. Neal's scale, before the unfortunate Vancouver freeze order, is impressive. " From March 1998 through March 2000, records in our possession from the Bank of Montreal, show over $115-million dollars has been wired into one EB&T bank account in Vancouver," states the IRS.
The IRS investigation is at quite an advanced stage. Mr. Morgan, the current president of Laughlin, was served with a grand jury subpoena on Jan. 7, 2002.
One informant, dubbed Confidential Reliable Informant #1, or CRI#1, has been particularly helpful. Last September, this informant told the IRS that he or she used Mr. Morgan and Mr. Neal to set up fictitious foreign corporations. "CRI#1 deposited money into the EB&T bank account in Canada, for forwarding to the foreign corporation's offshore brokerage account," states the IRS. This informant has been using Exchange Bank since 1998 and is still using its services.
According to this client, Mr. Morgan is currently running Mr. Neal's business, Laughlin International, out of Portland, while Aaron Young is one of the main promoters. "We have reviewed documentation and corroborated CRI#1's statements by reviewing wire transfers into and out of EB&T's Bank of Montreal account in the name of CRI#1's foreign corporation to his/her personal bank account in the United States. We have reviewed and corroborated CRI#1's foreign credit card used to get untaxed money out of his/her foreign corporation. The credit card is in his/her name, under the name of NATCO," states Special Agent McGeachy.
"We have reviewed statements of CRI#1's foreign credit card that have been mailed to NATCO. We have reviewed brokerage account monthly statements that show CRI#1's foreign corporation owning stock with different brokerage firms in Canada. We have reviewed Bank of Montreal wire transfers from EB&T used to pay his/her Leadenhall Trust Credit Card."
The official notes that on on numerous occasions, other IRS Special Agents have debriefed Confidential Reliable Informant #2, who has confirmed much of the first witness's information. "CRI#2 said that in 1999, CRI#2 attended a seminar in Portland, Oregon on 'asset protection.' The two main promoters at this meeting were Terry Neal and Aaron Young," states Special Agent McGeachy.
"At this time (at the seminar) CRI#2 stated that the general idea was that the income from his legitimate company was deposited into a bank account of the fictitious Nevada corporation. A false consulting invoice would be sent from the fictitious corporation to the legitimate corporation to reduce CRI#2's income from the legitimate company by the amount that was deposited into the account of the fictitious Nevada corporation," states Special Agent McGeachy.
"CRI#2 would then authorize Laughlin International or Privatech Group, LLC to wire money from CRI#2's Nevada corporation's bank account to his/her foreign corporation account which resides within EB&T's account at an offshore bank. Another false consulting invoice would be generated from the foreign corporation to the fictitious Nevada corporation reducing the fictitious Nevada corporation's income to zero. Once the money was offshore, EB&T / NATCO established a credit card account at an offshore bank in the name of the foreign corporation, with the card bearing the name of CRI#2."
Special Agent McGeachy subpoenaed Wells Fargo Bank Northwest on June 16, 2002, and received a packet of records on Oct. 22, 2002, relating to Morgan Carter, with Mr. Morgan as the authorized signatory. "Checks drawn on over 100 different Nevada corporations were being written to MCY and deposited into that account. The bank accounts for the majority of the corporations are all in Nevada," states the IRS.
A third informant, dubbed CRI#3, has been a client of Laughlin, Privatech and Exchange Bank since 1999, and has received correspondence from Laughlin as recently as last October and Privatech in November.
"We were able to confirm that CRI#3 has provided stock brokerage statements in his/her fictitious Nevada corporation's name. CRI#3 confirmed that Privatech Group, LLC does the paperwork and sends the checks to his/her brokerage account in the name of the fictitious Nevada corporation," states Special Agent McGeachy.
"CRI#3 provided documentation to corroborate the wire transfer of funds from his/her fictitious Nevada corporation to NATCO in the name of his/her foreign corporation."
Special Agent McGeachy also notes that Bank of Montreal provided information on account #4660-026, held in the name of Exchange Bank and Trust.
"Based upon the copies of the bank statements and wire transfers and an analysis of the wire transfers I was able to identify 347 entities which includes 237 individuals, 120 corporations which consists of domestic and foreign corporations, and trusts. Of the filing history of the individuals I was able to obtain, only 65 individuals had ever filed returns."
In its Laughlin and Privatech searches, the IRS sought all records dating back to January, 1998, the time at which it believes Mr. Neal began actively operating Exchange Bank and Trust.
bmudry@stockwatch.com
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