A businessman caught in a money-laundering sting helped the U.S. prosecute a foreign business -- and now he’s seeking $22.2 million from the government as a reward.
The U.S. Tax Court ruled Tuesday in favor of the informant, allowing his claim to proceed after the Internal Revenue Service earlier denied it.
The court’s opinion doesn’t identify the business or the informant, but the $74 million penalty and other details cited in the case match the allegations in the U.S. case against Wegelin & Co. Wegelin, formerly Switzerland’s oldest bank, pleaded guilty in 2013 to helping Americans hide $1.2 billion in assets from the IRS.
Details about the informant who is seeking the reward correspond with those in a separate case involving Stefan Seuss, a German living in Florida who was indicted in 2009 in Philadelphia after agreeing to help an undercover agent hide profits from a pirated-CD business. He pleaded guilty in 2010, and his indictment says he was “associated” with Wegelin.
The details about the unidentified informant in the tax case mirror those found in Seuss’s case. The informant seeking the reward was from Florida and was indicted in 2009 as part of a conspiracy to launder funds from the sale of pirated CDs. The informant pleaded guilty in 2010 and agreed to cooperate with the U.S. government.
Seuss, 49, didn’t respond to request for a comment on whether he is the unidentified informant who is seeking the reward in the Tax Court case. The claim was filed under a 2006 law that rewards people who expose tax evasion.
The informant’s tax lawyer, Dean Zerbe, wouldn’t say whether Seuss is his client. He said that one of the other lawyers in the tax case is Robert Amsel. Amsel, who was Seuss’s criminal lawyer, didn’t respond to e-mail and phone messages seeking comment.
The informant, his wife and investigators from the U.S. and U.K. worked together to record conversations with a senior executive from the foreign business about evading taxes on embezzled money. They also lured the executive to the U.S., where he could be arrested, according to the tax court opinion.
The fake scheme was concocted so it appeared as though the informant needed help to withdraw $1.2 million in illicit proceeds from a Bahamian bank and place it in a new account, outside the reach of the U.S. government. They even tried to entice the man from the foreign business by creating a fake account owner who was a fellow triathlete.
‘Throw the Bone’
“When we throw the bone, he will bite the bone,” the informant said, according to the court opinion. “And when we have him, he will, excuse my English, spill his guts.”
The ploy worked.
According to the court opinion, the informant persuaded the executive to fly to Florida for a meeting, where he was arrested. That executive also began assisting U.S. prosecutors in the case against the foreign business.
Seuss was arrested in October 2009 in a sting operation by the FBI and IRS, and the timing and nature of those charges match those of the informant in the tax case.
Seuss and Thomas R. Meyer, a Nebraska financial adviser, were charged with conspiracy to launder about $500,000, a crime for which they could have been sentenced to up to 20 years in prison. The two men had agreed to set up an offshore company and foreign bank account for an undercover agent posing as a businessman involved in software and compact disc piracy, according to an indictment filed in federal court in Philadelphia in 2009.
Both men pleaded guilty. Meyer was sentenced to serve four months. Seuss was sentenced to the time he’d already served of less than two months in jail, according to court and Bureau of Prisons records.
Seuss also cooperated with investigators probing Helmut Kiener’s hedge-fund firm K1 Group, a person familiar with the case said in 2009, seeking anonymity to discuss the matter. Kiener was convicted in 2011 of defrauding investors in a 345 million-euro Ponzi scheme and was sentenced to more than 10 years in prison.
Federal prosecutors in Manhattan charged Wegelin with conspiracy to defraud the U.S. in an unrelated case brought in February 2012. At the start of the case, Wegelin failed to answer the charges or appear in court, prompting U.S. District Judge Jed Rakoff to declare the bank a “fugitive” from justice.
Managing partner Otto Bruderer pleaded guilty on behalf of the St. Gallen-based bank in a hearing in Manhattan federal court in January 2013. Bruderer told prosecutors his bank helped U.S. taxpayers evade taxes from 2002 to 2010. Wegelin agreed to pay $74 million to the U.S.
The investigation forced the bank out of business after 272 years.
The tax court’s decision sends a strong message to the IRS that it should treat whistle-blowers better and not look for ways to avoid paying awards, said Zerbe, the lawyer for the informant in the case.
“When someone helps them go after the billionaires and the tax cheats, they’re waking up every day thinking about how they’re going to screw them over,” said Zerbe, a partner at Zerbe, Fingeret, Frank & Jadav, P.C. “Do you think we’re going to get more whistle-blowers with that attitude?”
Zerbe, who helped write the tax whistle-blower law as a Senate Republican staff member, said he expected the government to argue that his client shouldn’t get the full amount.
The lead FBI agent and prosecutor told the Tax Court that the informant and his wife were “exceptionally helpful” and “essential” to the case.
The IRS has paid 12 awards under the whistle-blower law and expects to pay six to 12 more this fiscal year, according to a statement from IRS Commissioner John Koskinen released Wednesday by Senator Charles Grassley of Iowa. Grassley was chairman of the Senate Finance Committee and Zerbe’s boss when the law was written.
In his written response to a question from Grassley, Koskinen said the IRS’s arguments in court support its administration of the law and that speedy processing of awards is a priority.
“The law was intended to direct whistle-blowers and the IRS to work together to catch tax cheats,” Grassley said in a statement. “Bureaucratic barriers don’t get the job done. The IRS should welcome whistle-blowers with a red carpet instead of putting up arbitrary legal hurdles at every turn.”
The Philadelphia case is U.S. v. Seuss, 09-cr-0083, U.S. District Court, Eastern District of Pennsylvania (Philadelphia). The tax court case is Whistleblower 21276-13W v. Commissioner of Internal Revenue, U.S. Tax Court (Washington). The Wegelin prosecution is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).