Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
NATIONAL OPERATIONS
ANNUAL
BUSINESS
REPORT
Table of Contents
Chief (CI) Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
STRATEGIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Compliance Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Criminal Investigation FY 2003 Annual Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ACCOMPLISHMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Annual Strategies and Operational Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
OPERATIONAL OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Asset Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Undercover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
National CI Training Academy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Communication and Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
Chief (CI) Message – Federal Bureau of Investigation’s (FBI) Joint Terrorism Task
Nancy J. Jardini Forces and is playing an important role in tracking down
assets looted from Iraq by Saddam Hussein and his
regime.
Achieving Many Goals
Prosecution
Recommendations Indictments Convictions
by CI to identify and develop legal source tax investigation procedures that maximize the effectiveness of
investigations. Like CI, SB/SE has established a Lead civil and criminal sanctions. These parallel investigations
Development Center (LDC) to detect and combat abusive permit the simultaneous investigation and litigation of
scheme promoters and return preparers. Additionally, separate criminal and civil cases involving a common set
the SB/SE LDC is a valuable source of fraud referrals. The of facts. Today, civil injunctions are used to stop a scheme
61 percent fraud referral acceptance rate for FY 2003 is promoter from continuing to sell his/her scams while a
only 2 percent less than the all-time high acceptance rate criminal investigation is on-going.
of 63 percent achieved in FY 2002.
external stakeholders play a valuable role. Criminal tax credit. Chavez knew he was creating a large
Investigation works with W&I to address the organizational fraudulent income tax refund to which the client was not
and systemic issues involved with refund-related crimes. entitled.
In CI’s efforts to enlist the support of the practitioner
community, a new fraud alert poster and brochures were Chavez electronically filed these returns and requested
published and distributed to further community outreach. that the refund be direct-deposited into a Refund
Anticipation Loan account. When the refund was received,
Fraud and abuse associated with the Questionable Refund Chavez would issue a check to the client for the smaller
Program (QRP) and the Return Preparer Program (RPP) are estimated refund he had previously quoted and keep the
increasing. A primary contributing factor to this increase difference. The total amount of the fraudulent income tax
in fraud is identity theft. Additionally, the Earned Income refunds claimed by Chavez on the 25 false returns was
Tax Credit (EITC) program remains subject to widespread $318,407.
abuse. To more effectively combat fraud, CI is evaluating
a streamlined investigative and report writing process to
Three Sentenced For Filing Numerous Bogus Tax
reduce elapsed time and bring the investigations quickly
Returns
to fruition. The use of the Service's Electronic Fraud
Detection System and the analytical skills of the Fraud On March 19, 2003, in Los Angeles, CA, Leroy Green
Detection Centers (FDC) have enabled CI and W&I to was sentenced to 30 months in prison and ordered to pay
develop effective deterrents to both QRP and RPP $195,998 in restitution. Green was convicted on ten
schemes. counts, including one count of conspiracy to defraud the
8 United States by filing false refund claims. On January 21,
The following case summaries are excerpts from public 2003, Herman Hill, and his wife Sharon Fields-Hill were
record documents on file with the courts in the judicial sentenced after pleading guilty to filing 30 false income
district in which the cases were prosecuted. tax returns with the IRS that claimed refunds of $69,529.
Hill was sentenced to an 18-month prison term and
Lubbock Man Sentenced To Serve 30 Months In Prison
ordered to pay $213,878 in restitution. Fields-Hill was
Following Federal Tax Conviction
sentenced to six months home detention and ordered to
pay $43,152 in restitution. Green, Hill, and Fields-Hill
On August 12, 2003, in Dallas, TX, Emilio Chavez, Jr., a
prepared tax returns that contained bogus self-
tax return preparer, was sentenced to 30 months in prison
employment Schedule C-EZ and Schedule C forms that
following his May 2003 guilty plea to one count of false,
resulted in false claims for refunds based upon the Earned
fictitious or fraudulent claims on income tax returns.
Income Tax Credit.
Chavez was also ordered to pay $126,315 in restitution
to the IRS. Over $2.7 Million in Bogus Refunds Claimed
During the 2001 filing season, Chavez prepared On October 24, 2002, in Baltimore, Maryland, Mark A.
approximately 100 income tax returns and of those, 25 Knight was sentenced to 40 months in prison for aiding
were fraudulent and claimed false income tax refunds. and assisting in the preparation and filing of more than
Chavez admitted that he would take basic Form W-2 1100 fraudulent federal income tax returns seeking over
information from clients and then give them a verbal $2.7 million in refunds from the IRS. Knight offered
estimate of their tax refund. Unknown to the client, Chavez taxpayers his services in preparing amended income tax
would prepare and report a fictitious Schedule C on their returns by falsely claiming that he was previously
return showing the client to be a self-employed long haul employed with the IRS. Knight charged his clients $100 for
trucker. The Schedule C would reflect fictitious amounts of each return prepared. Typically, Knight fraudulently
income and expenses. Chavez would also prepare a claimed unreimbursed business expenses, false medical
fraudulent Form 4136, Credit for Federal Tax Paid on deductions, and personal property taxes on the returns he
Fuels, which reflected that the client was entitled to a fuel prepared.
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
The IRS has a national non-filer strategy that addresses On November 21, 2002 in the District of Alaska, Richard
this chronic compliance problem. Criminal Investigation Ray Blankenship received the longest sentence ever
plays an important role in this strategy. In addition to its imposed in Alaska for tax-related offenses. Blankenship
investigative efforts, CI launched a fraud alerts page on was sentenced to eight years and eight months in prison.
the Internet summarizing recent prosecutions to inform
taxpayers about the serious consequences that can result Blankenship renounced his US citizenship and social
from the failure to file required tax returns. This site is also security number, claiming he had no obligation to the
linked to a paper prepared by IRS Chief Counsel that Internal Revenue Service. Blankenship has not filed a
refutes the frivolous arguments employed by some non- legitimate tax return since 1994. The indictment filed on
filers. See www.irs.gov and type in "key word: Fraud" for June 19, 2002, charged him with willful failure to file
more information. Non-filer investigations remain an returns for 1996, 1997, 1998, 1999 and 2000. The
important investigative priority. indictment also charged Blankenship with several counts
of mailing threatening communications and passing
The following case summaries are excerpts from public fictitious obligations.
record documents on file with the courts in the judicial
district in which the cases were prosecuted. On September 12, 2002, a federal trial jury in Anchorage
convicted him of failing to file federal income tax returns,
Maximum Sentenced Received mailing threats to judges and attempting to pay a hospital
bill with a fraudulent Unites States Treasury sight draft.
On October 1, 2002, Edward Bruce Baker of Altamonte 9
Springs, Florida was sentenced to 24 months in prison on In imposing sentence, Chief Judge John Sedwick
two counts of failure to file federal income tax returns and commented that Blankenship's conduct was among the
was remanded to the custody of the Marshals at that time. most selfish he had ever encountered. He likened
During 1994, Baker received gross income of Blankenship to a recruit who was always out of step with
approximately $231,339 and in 1995 received the rest of his company and reminded him of his
approximately $281,824. Baker failed to file returns for obligations to pay taxes and obey the law.
either of these years. Baker was found guilty by a jury on
July 22, 2002.
Owner of Video Stores Failed to Report $1 Million in The following case summaries are excerpts from public
Income record documents on file with the courts in the judicial
district in which the cases were prosecuted.
On November 7, 2002, in Mobile, Alabama, David
Eugene Bryan was sentenced to 27 months in prison Operator of Convenience Stores Evaded $247,000 in
followed by three years supervised release and ordered to Employment Taxes
pay restitution in the amount of $414,124 to the U.S.
Treasury, after pleading guilty to tax evasion. Bryan failed On July 25, 2003, in New Haven, CT, Russell Mahler, Sr.,
to file federal income tax returns and report his income who operated a chain of gasoline/convenience stores,
from the operation of several video stores for the years was sentenced to 18 months imprisonment followed by
1996 through 2000. Bryan used eight different bank three years supervised release. Mahler was also ordered
accounts for depositing his gross receipts, but he placed to pay a fine of $40,000 and all back taxes, plus interest
five of those bank accounts in the names of nominees. In and penalties. Mahler pleaded guilty on March 11, 2003,
addition, he failed to deposit all of the cash receipts from to conspiring to impede the functions of the IRS. Mahler's
his businesses into these bank accounts. Bryan admitted son, Russell Mahler II, also pleaded guilty to the same
that he dealt extensively in cash, diverted business income charges in March and had been sentenced in May 2003
for personal use, and failed to keep accurate books and to one year and one day imprisonment followed by three
records of his business. As a result, he intentionally failed years supervised release. The Mahlers admitted to paying
to report approximately $1,019,034 in taxable income a substantial portion of many of their employee's wages in
and failed to pay approximately $414,124 in federal cash and failing to pay over to the IRS payroll taxes
income taxes. totaling an estimated $247,000. In addition, Russell
10 Mahler, Sr. admitted evading about $46,000 of his
personal income taxes.
Employment Tax
Small Business Consultant Withdrew Over $1 Million
Ensuring that income and employment taxes are withheld from Client's Payroll Accounts
and paid to the government is an important compliance
issue. Since 1999 CI has placed increased emphasis on On July 14, 2002, in Kansas City, KS, Floyd McMillon,
investigating a wide variety of employment tax evasion owner of Acculine Consulting Group, Inc., was sentenced
schemes. to 63 months in prison and ordered to pay more than
$621,000 in restitution to the small businesses he
Prosecutions Recommended 38 40 56 66
Indictments/Information 47 33 55 44
Sentenced 45 31 41 45
Incarceration Rate 80.0% 74.2% 78.0% 75.6%
Average Months to Serve (w/Prison) 17 20 19 27
Average Months to Serve (all 13 15 15 20
Sentence)
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
defrauded. McMillon pleaded guilty on February 10, temporary employment services to contracting companies
2003, to one count of filing a false tax return and one in the Boston area. The business operated until the spring
count of failing to pay over taxes to the IRS. McMillon's of 1998 using various names, including New England
business, Acculine Consulting Group, Inc., provided tax Temporary Work, New England Temp Work and N. Tech
return preparation, bookkeeping and payroll services for Temp Service. Lam, along with others, opened and ran
small businesses. Acculine calculated employment taxes these businesses in the names of three individuals who
to be withheld from the paychecks of employees of the acted as "straws" in order to hide their true ownership.
businesses, withdrew that amount from the businesses During this time, no income tax returns were filed by any
bank accounts, deposited the funds into Acculine's bank of the businesses, however, U.S. Quarterly Employment
account, and submitted the required employment tax Tax Returns were filed which underestimated both the
forms to the IRS. However, McMillon admitted that he maximum number of employees during any quarter, and
withdrew more than $1 million from Acculine's bank the annual payroll. It is estimated that Lam will owe the IRS
account which was set up to pay the employment taxes. $575,000 in taxes, plus penalties and interest.
Construction Contractor Pleads Guilty in $3.6 Million Former Owner of Defunct Security Agency Sentenced
Employment Tax Fraud Case to 32 Months
On March 14, 2003, in Memphis, TN, David Cantu Jr., On December 11, 2002, in Philadelphia, PA, Samuel
was sentenced to 48 months in prison, ordered to pay Kuttab, former owner of the now defunct Central Security
$860,435.13 in restitution to the IRS and pay a forfeiture Agency was sentenced to 32 months in prison, to be
amount of $10,000,000 to the United States. On followed by 3 years supervised release. In addition, Kuttab
December 17, 2002, David Cantu, Jr. and his company, was fined $10,000 and ordered to pay all back taxes, with 11
Brother's Construction II, pleaded guilty to conspiracy to interest and penalties. On June 26, 2002, Kuttab pleaded
commit money laundering and willful failure to file proper guilty to federal charges of conspiracy and tax fraud.
payroll taxes, as well as conspiracy to harbor, encourage, Central Security Agency paid some employees in cash to
or induce aliens to work at a variety of construction sites. avoid paying withholding taxes, thus causing the filing of
The construction sites included the Adelphia Stadium, false Forms 941. Kuttab also admitted to not filing federal
home of the Tennessee Titans NFL team, and the Federal tax returns for 1992 to 1999. The estimated tax loss is $2
Express World Headquarters. Cantu maintained the million for both personal and business returns.
workers were 'independent contractors' and his company
was not responsible for taxes. During a five quarter tax
period covering January 1, 1999, and ending March 31,
2000, Cantu, doing business as Brother's Construction II,
paid in excess of $3.6 million in gross wages to
employees, which should have resulted in approximately
$631,478 in payroll taxes and federal withholding taxes.
Prosecutions Recommended 44 30 55 80
Indictments/Information 53 32 44 73
Convictions 31 45 26 41
Incarceration Rate 93.1% 80.8% 88.2% 79.1%
Average Months to Serve (w/Prison) 33 64 32 45
Average Months to Serve (all 31 52 28 47
Sentence)
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
their rights to employment, money, and income to foreign hundreds of people hide their income and assets.
entities as part of a fictitious "employee leasing" program. According to court records, Lashlee promoted trust
The purpose of the program was to give the appearance investments into "The Genesis Fund," which claimed to be
that the clients earned substantially less income than they an unregulated private investment fund based in Orange
actually had. County that engaged in foreign currency trading through
offshore brokerage accounts. Lashlee admitted that he
Promoter of Sham Trusts Sentenced 2100 Months handled the transfer of approximately $24 million of
Imprisonment
Genesis investor funds to offshore bank accounts in Hong
Kong and elsewhere.
On September 17, 2003, in Charlotte, NC, Terry W.
Stewart was sentenced to 2100 months in federal prison
Lashlee provided clients with offshore bank accounts and
and ordered to pay approximately $28 million in
Visa debit cards issued by Swiss American National Bank
restitution for his role in a $56 million "Ponzi" scheme
of Antigua. These cards enabled clients to secretly retrieve
known as Banyan International Limited ("Banyan"). In the
and spend money that had been transferred from offshore
same case, five other defendants, Phillip Mark Vaughan,
accounts. Lashlee also created trusts for business owners
Philip B. Greer, Timothy B. Burnham, John Reaser, and
that improperly deducted the clients' personal expenses,
Howard T. Prince, III, have already been sentenced.
such as loan payments, rent, and personal living costs, as
Stewart became involved in various groups which
expenses of the trust. Phony business expenses were also
encourage and assist individuals to evade taxes and other
created for the trust, such as bogus debts, so that the trust
liabilities by "asset protection" schemes which involve
tax returns would report little or no taxable income for the
hiding assets, income, and activities in sham or abusive
clients' businesses. In his guilty plea agreement, Lashlee
trusts or other purported entities, but supposedly allow the 13
also admitted that, from 1992 through 2000, he failed to
owner to continue to control the income and assets.
report approximately $3 million in income he earned from
Eventually Stewart became a leader in such groups,
promoting abusive trusts.
including National Director of Customer Services and
Regional Manager for Commonwealth Trust Company, a
Contractor Sentenced for Tax Evasion
group which provided sham trusts or similar
arrangements, including their so-called "Pure Trust On July 14, 2003, in Fresno, CA, Michael Gilbert was
Organizations" [PTOs], for persons who wanted to evade sentenced to 24 months imprisonment followed by 36
taxes. On November 9, 2001, Stewart was convicted by months supervised release. Gilbert pleaded guilty on
jury on 27 counts, including conspiracy to commit money December 23, 2002, to not paying more than a quarter-
laundering, bank fraud, and securities fraud. The use of million dollars in taxes. By entering his plea to five counts
sham trust arrangements was done to evade federal of tax evasion, Gilbert admitted to several elaborate
income tax obligations. In addition, accounts were schemes to avoid paying over $266,000 in federal
opened in an offshore bank on the island of St. Vincents, income taxes. The methods used to hide his assets
which Banyan could control from the United States and included transferring assets into trusts, using fraudulent
which would cater to persons using sham trusts or other business licenses, conducting cash transactions, using
devices to evade taxes. false social security numbers, filing inaccurate Currency
Transaction Reports (CTR's), providing false taxpayer
Abusive Trust Scheme Promoter Goes to Federal
identification numbers, utilizing a concealed room within
Prison
his residence to store hundreds of thousands of dollars in
cash, using incorrect identifying information when
On August 11, 2003, in Los Angeles, CA, Edward J.
opening up bank accounts and failing to file tax returns.
Lashlee was sentenced to 36 months imprisonment and
fined $12,500. Lashlee pleaded guilty on March 7, 2003,
to creating thousands of abusive trusts that helped
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
Golf Course Architect Sentenced to 121 Months failing to file a 1993, 1994, and 1995 income tax return
Imprisonment
and three counts of willfully attempting to evade and
defeat a substantial portion of their 1993, 1994, and
On July 31, 2003, in West Palm Beach, Florida, Theodore
1995 income tax due and owing. The combined gross
M. McAnlis, a well-known golf course architect, was
income was approximately $671,000. Dr. Mann pleaded
sentenced to 121 months imprisonment, followed by three
guilty to tax evasion by failing to file a 1994 federal tax
years supervised release. In addition, McAnlis was
return, coupled with affirmative acts of evasion by creating
ordered to pay the costs of prosecution and to cooperate
and using sham trusts. Since 1993, Dr. Mann has not filed
with the IRS to pay back taxes. On April 9, 2003, McAnlis
federal or state income tax returns and has used nominee
was convicted on eight counts of income tax evasion.
bank accounts and sham trusts to evade the payment of
Evidence presented during trial showed that McAnlis
taxes. He put his dental practice into a trust and used a
concealed his income and assets from the IRS by using
trust with an offshore foreign business address to move
common law trusts, a sham church, false social security
money from the dental practice to a Swiss bank account.
numbers, nominee names, and a Bahamian bank
account. The estimated loss to the government was over
$1.3 million in federal taxes, penalties and interest.
On April 11, 2002, Dr. Mann, along with his wife, Laurel
Rose Mann, were indicted on three counts of willfully
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
Counterterrorism Statistics
FY 2002 FY 2003
Investigations Initiated 157 151
Prosecutions Recommended 20 54
Indictments/Information 9 68
Convictions 16 19
Incarceration Rate 100.0% 90.5%
Average Months to Serve (w/Prison) 41 40
Average Months to Serve (all Sentence) 41 36
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
The following case summaries are excerpts from public living here conspired to commit a host of crimes (interstate
record documents on file with the courts in the judicial smuggling of contraband cigarettes, the laundering of the
district in which the cases were prosecuted. proceeds and bank and credit card fraud) and sent some
of the proceeds of their criminal enterprise to Hizballah, a
Benevolence Director Sentenced After Pleading Guilty designated foreign terrorist organization.
To Racketeering Conspiracy
Money laundering is a threat to tax administration Telemarketing Fraud Promoter Sentenced to 292
because tax and money laundering violations are closely Months
related and involve similar activities. Illicit funds are rarely
reported on tax returns. Money laundering is not only On June 6, 2003, in San Diego, California, Marc Levine
used by criminal enterprises to conceal their illegal was sentenced to 292 months in custody, 3 years 17
proceeds but is also an integral part of many tax evasion supervised release and was ordered to pay restitution in
schemes. Criminal Investigation’s Suspicious Activity the amount of $49,050,378.00. Levine was the lead
Report (SAR) review teams, in each of the 35 CI field defendant in a 4 1/2-month telemarketing fraud/money
offices, have proven extremely useful in detecting not only laundering trial in the Southern District of California.
money laundering cases, but also legal and illegal source Levine was sentenced following his conviction on multiple
tax schemes. To effectively utilize its resources, CI targets counts including conspiracy, money laundering, mail
high-profile money laundering investigations, particularly fraud, and wire fraud charges. The scheme operated by
those that directly or indirectly enhance tax compliance. Levine and others involved a series of offerings that were
pitched to investors which included investments in required to pay $1,028 to purchase a unit in Vista or
partnerships that purported to be ongoing businesses $1,294 to purchase a unit in Oakleaf or Rosewood. The
about to begin profitable operations. The businesses defendants promised investors a return of 120% per year
involved pay-per-call service providers, and "virtual and told them their principal was assured against loss.
shopping malls" on the Internet, which were similar to Further, investors were told that if they rolled a single unit
"QVC" and the "Home Shopping Network" shows on cable over for ten years it would be worth millions of dollars. In
television. The scheme defrauded over 3,000 victims of fact, the defendants were operating a Ponzi scheme, in
nearly $50,000,000. which early investors were paid with later investors' money.
The evidence at trial established that the defendants
Leader Of $74 Million Investment Fraud Scheme diverted millions of dollars for their own use. The
Involving More Than 3,200 Victims Sentenced To 30
defendants also laundered millions of dollars through
Years' Imprisonment
bank accounts in Samoa, the Bahamas, and Costa Rica.
On July 28, 2003, in Seattle, WA, John W. Zidar the The government has recovered in excess of $20 million
leader of a fraudulent investment program that defrauded dollars of victims' money from bank accounts controlled
more than 3,200 victims in the United States and Canada by the defendants and assets purchased by the defendants
of approximately $74 million was sentenced to 30 years using victims' money. The money recovered will be
imprisonment. Zidar was convicted in August 2002 of returned to the victims of the fraud.
seven counts of mail fraud, seven counts of wire fraud,
and nine counts of money laundering. Five additional
Narcotics Related Financial Crimes
people, Steven C. Moreland, John W. Matthews, Elizabeth
Criminal Investigation’s Narcotics Related Financial
Anne Phillips, William H. Cravens, and Larry Hall, either
18 Crimes Strategy supports the goals of the National Drug
entered guilty pleas, or were convicted at trial on charges
Control Strategy and the National Money Laundering
of fraud and conspiracy in connection with the same
Strategy by seeking to reduce or eliminate the profit and
fraudulent investment scheme.
financial gains of narcotics trafficking and money
Beginning in 1997 and continuing until 2000, the laundering organizations.
defendants induced members of the public to invest in a
With its specialized financial investigative expertise, CI
series of purported investment funds called Vista
plays a unique role in the "war on drugs." Criminal
International (Vista), Oakleaf International (Oakleaf), and
Investigation’s mission is to disrupt and dismantle
Rosewood International (Rosewood). Investors were
significant narcotics trafficking and narcotics money
laundering organizations through the financial Omaha man sentenced to eight years
investigation and prosecution of those involved and the
seizure and forfeiture of their profits. Criminal On February 26, 2003, Gary A. Storey was sentenced to
Investigation uses all statutes within its statutory jurisdiction eight years and one month in prison, to be followed by
to accomplish this mission. five years supervised release. Storey entered a guilty plea
on October 11, 2002, to drug conspiracy and money
Criminal Investigation is a participating member of the laundering charges, and agreed to the forfeiture of
Organized Crime Drug Enforcement Task Force currency and property totaling over $2,000,000.
(OCDETF) Program, which was established in 1982. By
focusing on sophisticated cases that meet the high Storey admitted that on or about September 6, 1998
OCDETF designation standards, CI contributes significant through November 1, 2001, he conspired with others to
value to the overall investigative effort. distribute more than 100 kilograms of marijuana. On or
about July 22, 2000, Storey purchased a 2001 Dodge
The High Intensity Drug Trafficking Areas (HIDTA) Program Ram 1500 Quad Cab pickup truck, knowing that the
was established to provide assistance to federal, state, monies used to make the purchase were derived from
and local agencies operating in areas most adversely illegal drug activity.
affected by drug trafficking. Criminal Investigation
supports the HIDTA program with staffing resources. Storey agreed to forfeit several pieces of property derived
from the drugs proceeds, including trucks and residential
The following case summaries are excerpts from public property, $371,920.00 from the sale of motorcycles, lake
record documents on file with the courts in the judicial properties and assets in a brokerage account and
district in which the cases were prosecuted. $902,284.00 in currency that was seized by the 19
government on November 1, 2001. The Judge found that
Seattle Man Sentenced Storey was a manager or supervisor of at least five people
in the conspiracy and that factor was taken into account
On May 15, 2003 in Seattle, Washington, Melvin J. in determining the sentence.
Jordan was sentenced to 110 months in prison for his role
in a drug distribution and money laundering conspiracy, Federal Tax Evasion Lands Lawyer 42 Months in
which took place between 1999 and 2001. From at least Federal Prison
1999 to 2001 Jordan was involved in a marijuana
distribution conspiracy with co-defendant James On February 28, 2003, in Gainesville, FL, Henry John
Altenburg and others. Jordan purchased at least 15 Uscinski, Esq. was sentenced to 42 months in prison, to be
pounds of marijuana per month. After purchasing the followed by three years of supervised release and was
marijuana, which totaled at least 270 pounds, Jordan ordered to pay a $250,000 fine. Uscinski pleaded guilty
sold the marijuana to other persons at a profit. Jordan to evading his taxes by failing to include $1.5 million he
spent over $700,000 to purchase the drugs during the received from his client Claude DeBoc in 1996. Uscinski
course of the conspiracy. admitted that he knew the funds he received were drug
proceeds. Uscinski is the third lawyer to be prosecuted for
Jordan used at least $358,864 of the profits from the misuse of funds received from DuBoc. Previously, F. Lee
marijuana sales to purchase, furnish, sell and/or gift 5 Bailey spent 44 days in federal prison on a contempt
real properties and 9 vehicles. Jordan also spent at least conviction and Penelope Shelfer was sentenced to 135
$474,914 for various personal items. Jordan’s primary months for her part in a money laundering conspiracy with
source of income came from drug dealing. With the help DuBoc.
of others, Jordan concealed his ownership of the
properties and the vehicles.
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
Electronic Crimes and Technology Based Tax The CI function-specific question results and verbatim
Crimes responses from Survey 2003 highlighted certain areas of
concern for employees. These areas included: providing
Computers are increasingly used to facilitate or commit employees with the resources and support they need to do
sophisticated financial crimes. The records of financial their jobs; balancing workload against employee staffing
transactions are moving from the paper ledger to the and improving management effectiveness. The CI Senior
computer, to off-site, online storage. Criminal Staff instituted several measures to address these results.
Investigation is a leader in developing tools and A Chief’s Advisory Group, which will have representation
techniques to track and find records, wherever they may from field offices across the country, will meet on a regular
be. basis. Time has been allocated during the Senior Staff’s
scheduled FY 2004 managerial meetings to discuss the
The IRS CI Office of Electronic Crimes was formed in Survey 2003 results. Additionally, the CI function-specific
2001 to organize and develop CI’s expertise in the critical questions for Survey 2004 are being structured to focus
area of computer forensics. In FY 2003, Computer on the employees’ areas of concern. The questions will
Investigative Specialists (CIS) assigned to the Electronic attempt to further define the employees’ issues and
Crimes program participated in over 800 search warrants identify the level of management where these concerns
and seized and processed over 85 terabytes of data. This originate.
represents a tenfold increase over FY 2001 and more than
a hundred fold increase in five years. Criminal
Investigation set the standard for processing digital EEO and Diversity
information seized during search warrant execution.
20 Electronic Crimes provided training in computer forensics Today’s tax evasion schemes are becoming more
to federal, state, and local law enforcement and to complex, involving a more multi-cultural, diverse group of
European revenue collection agencies. In 2003, individuals. As a result, it is imperative that CI establish
Electronic Crimes opened the Technology and Support and maintain the technical, financial, and human
Center, a 10,000-sq. ft. laboratory and training facility in resources necessary to counter the latest schemes. This
Springfield, Virginia. This state of the art facility will be includes the ability to recruit and retain a diverse staff of
used to provide technical support and training and will skilled, highly trained agents and future leaders to identify
enable CI to conduct research on emerging technologies. corporate fraud schemes, and support undercover
programs and surveillance operations. Building a diverse
Employee Satisfaction group of talented agents to support these day to day
operations requires extensive planning, specialized
Criminal Investigation measures employee satisfaction training, and effective recruitment. The Office of EEO and
through the IRS Employee Satisfaction Survey, which is Diversity (EEOD) is committed to supporting CI’s efforts to
administered on a yearly basis. Criminal Investigation’s identify and recruit qualified, diverse candidates who
participation rate for Survey 2003 was up approximately support the Criminal Investigation mission. Ultimately,
3% from Survey 2002. The increase in the participation CI’s goal is to become a model organization, one of
rate was attributed to a more aggressive communication inclusion where differences are valued, employees are
and marketing campaign entered into with CI respected, and our workforce is reflective of the public we
Communication and Education. Survey 2003 was again serve.
administered by the Gallup Organization. The "Q12"
questions, which measure those aspects of employee The Office of EEO and Diversity is heavily engaged in the
engagement that link to business outcomes, showed recruitment process, working closely with the CI Office of
increased results in both the CI Grand Mean score and Human Resources with respect to identifying and
the overall satisfaction rate from Survey 2002 to Survey eliminating barriers to minority recruitment, as well as with
2003. the development of strategic recruitment initiatives. The
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
21
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
FRAUD
FRAUD SUB-PROGRAM
AREAS
INSURANCE 21 17 19 22 24 0.6
GAMING 62 61 61 51 39 1.6
TELEMARKETING 64 30 30 47 46 1.0
NARCOTICS
OTHER 46 30 27 21 25 1.2
HIDTA 23 2 6 5 5 0.7
1
Subject Criminal Investigation.
2
Legal source investigations are defined as those involving taxpayers in legal occupations and industries, being investigated for tax or tax-related violations
only, with CI as the sole investigating agency. Illegal source investigations involve taxpayers in illegal occupations or industries which are investigated with
the cooperation of other federal or state agencies and may involve currency and/or money laundering violations.
3
Includes 0.2% direct enforcement time (DET) - protection, escort, special assignments and FOIA/Privacy Act/PRP.
4
The General Fraud sub-program area encompasses a variety of investigations including both legal and illegal source cases. The General Fraud program is
the source of new trends in the area of non-compliance.
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
TITLE 18 SECTION
286 – Conspiracy False Claims 142 146 98 53
287 – False Claims 173 98 71 56
371B – Conspiracy Title 26 or Title 31 3 3 3 0
23
371K – Conspiracy Title 26 148 220 168 107
371T – Conspiracy Title 31 6 25 26 8
371M – Conspiracy Title 18 30 35 43 44
1001 – False Statements 11 9 9 4
1623 – False Declarations 9 9 9 5
1955 – Illegal Gambling 0 0 0 1
1956 – Money Laundering 1298 886 798 492
1957 – Money Laundering 107 98 100 70
Title 18 – Other 77 65 73 178
TITLE 18 TOTAL 2004 1594 1398 1018
serviced customers residing in private homes as well as the Court and file all missing income tax returns within 10
customers residing on military bases operated by the months.
United States Department of Defense (DOD).
The government estimated that the fines, forfeitures, and
The defendants’ guilty plea to defrauding the United restitution imposed by Judge Seitz represented between
States stemmed from a scheme in which they attempted to 30-35% of the value of the Americable companies.
defraud DOD. Starting in the early 1990s, DOD closed
military bases in various locations throughout the United Banco Popular de Puerto Rico Forfeits $21.6 Million
States, including bases that had received cable television
service from the Americable companies. In connection On January 16, 2003, a criminal information was filed
with these closures, the Americable companies submitted charging Banco Popular de Puerto Rico with one count of
to DOD forms known as "Settlement Proposals" or failing to file Suspicious Activity Reports (SARs) in violation
"Termination Settlement Proposals (TSP)" in order to seek of Title 31 USC 5318(g)(1) and 5322(a). Banco Popular
reimbursement from DOD for investments that had been waived indictment and accepted responsibility. The bank
made by the defendant companies at closed bases and forfeited $21.6 million dollars to the United States.
that had not been fully depreciated. However, the
defendants submitted TSPs that falsely represented certain From approximately June 1995 and June 2000, a number
expenditures, based upon approximately $8 million in of unusual or suspicious transactions were conducted in
fictitious invoices and supporting documentation within connection with certain accounts at Banco Popular.
the companies’ records. Although the bank filed Suspicious Activity Reports (SARs)
on these accounts they were not timely or were inaccurate.
The money laundering conspiracy stemmed from a six- In one series of the transactions, Roberto Ferrario Pozzi 25
year scheme in which the Americable companies deposited approximately $20 million dollars in cash into
defrauded various cable television networks, such as A&E a Banco Popular account from June 1995 to March
Television Network, Discovery Channel, ESPN, and MTV, 1998. Deposits were made to the account by Ferrario
as well as other nationally-known and regional networks, and employees of "Phone Home" a phone card, long
out of funds owed to them for providing their distance, and money transmission service - often in paper
programming to Americable customers. Americable bags or gym bags filled with small denomination bills.
companies historically under-reported and under-paid Despite the suspicious nature of the deposits, the bank did
amounts owed to the networks. Former company head, not investigate and file timely and complete SARs
Charles C. Hermanowski, would direct employees to write reporting the activity. These untimely filings, in the
checks to the victim networks, which he would falsely absence of supplementary SARs and the errors in the SARs
endorse and deposit into his personal bank account. This that the bank did file hindered law enforcement's ability to
scheme resulted in over $8 million in fraud proceeds initiate investigations on these accounts in a timely
siphoned from the Americable companies into manner, resulting in the laundering of millions of dollars
Hermanowski’s personal bank account. of drug proceeds through these accounts. Ferrario was
sentenced to 97 months imprisonment for money
As part of the five-year term of institutional probation laundering in 2002.
imposed on the Americable companies, Judge Seitz
prohibited the Americable companies and their affiliates
from employing or transacting any business with Charles
C. Hermanowski and that the Americable companies
submit to a compliance program and hire a compliance
officer to monitor their activities. Judge Seitz further
ordered that Americable International, Inc., hire an
independent auditor to audit the company on behalf of
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
The Basic Training Section of the National Criminal The Academy forged and maintained a strong working
Investigation Training Academy (NCITA) is responsible for relationship with training council partners, Tax Advisory
Group I 37 35 35
Group II 28 39 36
Total 65 74 71
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
Administrative Services, HQ International, Treasury’s investigations involving individuals who have been
Executive Office of Terrorism, and Financial Crimes to convicted of tax and other financial related fraud are
promote quality training programs. developed regarding specific market segments. Fact
sheets regarding fraud in the construction, restaurant,
automobile sales, medical, and return preparer industry
Communication and Education have been published and posted on CI and IRS websites.
Follow-up articles and interviews within specific groups
The CI Communication and Education division develops have resulted in increased publicity and awareness in the
and delivers key messages to a wide range of audiences, targeted market segment.
with a primary focus on external communications. The
key external audiences include the compliant taxpayer, the Criminal Investigation Communication and Education
practitioner community, and the non-compliant taxpayer. posted a new webpage this year regarding IRS’ significant
Internal audiences include CI employees, IRS employees, role in national and international money laundering
and other federal agencies, including the offices of the investigations.
United States Attorneys.
The CI Communication and Education Strategy for FY
The compliant taxpayer has been identified as our most 2003 was developed in conjunction with the IRS and CI
important audience as IRS continues its efforts to foster strategic plans. Some of the key elements of this strategy
compliance and ensure the tax system is administered in a include:
fair and equitable manner. Working in conjunction with
the other IRS operating divisions, CI Communication and • Using the 35 Special Agent/Public Information
Education disseminates that message via Internet sites at Officers to increase publicity related to local 27
www.treas.gov/irs/ci and www.irs.gov through fraud alerts investigations and to perform outreach efforts to the
and the publication of the CI enforcement strategy. tax practitioner community.
• Expanding our web presence by posting criminal
By working with the practitioner community, CI is able to enforcement information on www.irs.gov.
promote awareness and solicit information regarding the • Continuing our institutional commitment to become
numerous tax schemes being promoted across the United more open and provide more comprehensive
States. This year, CI participated in IRS sponsored tax information about our enforcement efforts.
forums where presentations regarding refund fraud and • Implementing a press strategy that links individual
abusive schemes were made to more than 15,000 cases in a systematic way to larger compliance issues
attendees. As a result of this outreach effort, CI received and enforcement programs.
numerous fraud referrals and initiated several
investigations. A significant part of CI’s media strategy is located on the
www.irs.gov website (keyword: fraud), which provides
The community of non-compliant taxpayers is a difficult information about compliance-related enforcement
audience to reach; however, publicity of criminal tax and activities to the public. The website includes fraud alerts
financial-related fraud efforts can deter others from similar relating to Return Preparers, Employment Tax Fraud, Non-
conduct. Criminal Investigation’s publicity efforts, through filers, General Tax Fraud, and Abusive Schemes. During
the 35 Special Agent/Public Information Officers, are at FY 2003, a Money Laundering section was added. The
an all-time high and have expanded from newsprint to website allows CI to target its enforcement efforts to
vertical magazine publications, the nightly news and talk specific media outlets or other specialized websites to
radio broadcasts. reach key audiences. This entire effort is accomplished in
cooperation with the United States Attorneys' Offices and
Part of the outreach to the external audience is based on DOJ and adheres to the disclosure provisions of the
the principle that "IRS does not want this to happen to Internal Revenue Code.
you." Statistical information and summaries of
IRS CI
FISCAL YEAR 2003 / NATIONAL OPERATIONS / ANNUAL BUSINESS REPORT
28
Publication 3847 (Rev. 6-2004)
Catalog Number 32206Y