Oct. 10 (Bloomberg) -- Cipriani USA Chief Executive Officer Giuseppe Cipriani was sentenced to three years of probation for evading $10 million in New York state and city taxes, while his father, Arrigo, received conditional discharge for the tax fraud.

Giuseppe Cipriani, 42, and Arrigo Cipriani, 73, operators of Harry's Bar in Venice, Italy, and the Rainbow Room in Manhattan, were sentenced today in New York state court. Each pleaded guilty July 31 to filing false corporate tax returns claiming deductions on sham royalties for use of the family name, prosecutors said.

``We're just happy it's behind us,'' Cipriani attorney Stanley Arkin told Justice John Cataldo, who granted the Ciprianis certificates of relief from civil disabilities, which Arkin said should help them retain their liquor licenses.

The Ciprianis and their companies must pay $10 million in back taxes over the next 3 1/2 years and will have a business monitor until 2011, according to the agreement. Arkin said a monitor was already in place.

Arrigo Cipriani, owner and chairman of the Luxembourg-based parent company, Cipriani SA, pleaded guilty in July to a felony charge of filing false corporate returns, while his son pleaded guilty to a misdemeanor of the same crime.

Arkin said the judge agreed to a conditional discharge of three years for Arrigo Cipriani, rather than five years probation as per the plea agreement, because he lives in Italy. Probation would have required him to remain under the supervision of New York authorities.

Plea Agreement

Prosecutors asked the judge to sentence the Ciprianis according to the plea agreement. They took no position on the certificate of relief, which under New York state law protects a person convicted of a crime from the ``automatic forfeiture of any license, permit, employment or franchise.''

Cataldo also allowed Giuseppe Cipriani in today's hearing in Manhattan to give notice to the court when he travels rather than the probation department and to not have to await a response.

Three Cipriani corporations that also pleaded guilty in July received conditional discharges today as well. They include Cipriani Fifth Avenue, doing business as the Rainbow Room; Downtown Cipriani New York; and GC Alpha, LLC, doing business as Cipriani Dolci. They also received certificates of relief.

The tax crimes included illegal deductions for nonexistent royalty payments to the Luxembourg parent company by the U.S. unit, Manhattan District Attorney Robert Morgenthau has said.

Cipriani USA claimed to have paid $30.7 million from 1998 to 2004, 11.5 percent of sales, to the parent company in exchange for the right to use the family name and other trademarks, Morgenthau said.

$3 Million

The Ciprianis paid $3 million of the $10 million they owe in August, as per their agreement, Arkin said. The rest is due in equal installments over the next three years.

``We look forward to focusing on the continued growth and success of the business the Cipriani family has been building for more than 80 years,'' Chris Giglio, a spokesman for Cipriani, said in an e-mailed statement.

Giglio said the company was in settlement talks with the New York State Liquor Authority over its licenses. State liquor authority spokesman Bill Crowley said a meeting was scheduled to discuss the licenses next week.

``What we'll look at is the underlying conduct that led to the convictions,'' Crowley said, adding that the licenses are under Giuseppe Cipriani's name, and the authority would investigate whether his father also should be on the license as someone with managerial or ownership interest.

If a licensee is convicted of a felony, they are prohibited from holding a liquor license unless they have a certificate of relief from the sentencing judge or parole board, or a pardon from the governor, Crowley said.

The case is People v. Cipriani, 3651/2007, New York Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Karen Freifeld in New York State Supreme Court in Manhattan at kfreifeld@bloomberg.net.

Last Updated: October 10, 2007 16:53 EDT