Six Convicted in Far Reaching International Tax Fraud Case
Eileen J. O’Connor, Assistant Attorney General, United States Justice Department, Tax Division, John McKay, United States Attorney for the Western District of Washington, and Mark W. Everson, Internal Revenue Service Commissioner, announced last week that after seven weeks of trial, six persons associated with Anderson’s Ark and Associates (AAA), were convicted in connection with one of the most far ranging fraudulent tax schemes ever prosecuted. The jury was unable to reach a verdict on four other defendants.
With administrative offices in Hoodsport, Washington, the organization spanned five countries and had over 1,500 clients. The following defendants were convicted on charges of conspiracy to defraud the government, mail fraud, wire fraud, money laundering and aiding and assisting the filing of false tax returns:
- Keith Anderson, age 62, a former resident of Hoodsport, Washington,
- Wayne Anderson, age 64, a resident of Fresno, California,
- Richard Marks, age 60, an accountant from Los Osos, California,
- James Moran, age 56, a resident of Montrose, Colorado,
- Pamela Moran, age 53, from Montrose, Colorado,
- Karolyn Grosnickle, age 62 formerly from Hoodsport, Washington.
“People should be skeptical of tax reduction schemes that seem too good to be true,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “Before participating in an ‘investment’ to reduce your taxes, you should seek the advice of a knowledgeable tax professional who has no stake in the deal.”
“This verdict is a real blow to promoters of shady offshore tax schemes,” said IRS Commissioner Mark W. Everson. “We are ramping up our enforcement efforts, and we have more cases in the pipeline. People should think twice before getting caught up in these schemes."
According to the trial evidence, from 1997 through early 2001, the defendants earned tens of millions of dollars in fees from the sale of several fraudulent tax shelter plans over the Internet. The two predominant programs were called the “Look Back” and the “Look Forward” programs.
Evidence introduced at trial showed that through the Look Back program, the defendants assisted AAA clients in taking $120 million in false income tax deductions for advertising expenses associated with AAA’s “Tax Magic” project. The evidence revealed that the defendants charged AAA clients anywhere between $50,000 to $250,000 each to buy into the Look Back Program. AAA members were instructed to take out a “loan” from La Maquina Blanca, a Costa Rican lender.
According to the trial evidence, La Maquina Blanca was merely a Costa Rican bank account used by AAA. Although the funds “borrowed” from La Maquina Blanca were purportedly to be invested with another AAA entity, Mason Advertising, the evidence at trial established that the loans were illusory. Instead, AAA simply transferred a few million dollars between account at Costa Rican banks to create the appearance that these “loans” were actually being funded. Accordingly, the tax deductions arising from these “loans” were false.
In the Look Forward program, client funds that were moved to foreign bank accounts were falsely deducted on their income tax returns as “consulting” or “management” expenses. To make the deductions appear to be legitimate, clients were instructed to send money (through an AAA partnership) to a shell company called “Sawtooth,” which had bank accounts in Nevada and Arizona.
Sawtooth was operated by defendant Richard Marks, who would transfer the funds to Austrian accounts operated by defendant Wayne Anderson. Ultimately, the money was wired to Costa Rican bank accounts, where it could be withdrawn by clients through the use of international Visa Debit cards or wire transfers (handled by AAA personnel in Costa Rica). In total, over $11 million in income evaded taxation in this manner, according to evidence introduced during the trial.
Defendants Keith Anderson, Wayne Anderson, Richard Marks, James and Pamela Moran, and Karolyn Grosnickle, were also convicted on charges of conspiracy to commit wire and mail fraud, and 19 counts of wire and mail fraud for defrauding clients out of over $7 million in fees for the non-existent loans associated with the AAA Look Back program. According to the trial evidence, clients were told that these fees were necessary to process the non-existent “investment loans.” Once deposited in AAA accounts in Costa Rica, the defendants split the money by transferring it to bank accounts at the Bank of Montreal in Canada and the Riga Bank in Latvia.
Defendant Keith Anderson was also convicted of defrauding some AAA clients out of an additional $21 million in an investment program he called “Loan 4.” Loan 4 was represented to be a short term lending investment being operated by Charles McCormick of New Jersey. At trial, Mr. McCormick, who had been previously convicted by New Jersey State authorities, testified that the Loan 4 program was nothing more than a pyramid scheme that he operated in conjunction with the defendant Keith Anderson.
Finally, defendants Keith Anderson and Wayne Anderson were convicted of international money laundering. From 1996 through early 2001, the Andersons sent money collected in domestic AAA accounts to the La Maquina Blanca account, and others, in Costa Rica to promote AAA tax shelters. In short, the Andersons used money AAA clients thought was going to be invested to create the appearance that La Maquina Blanca was actually making the loans that were at the heart of the AAA illegal Look Back tax shelter. Most of this money was eventually lost in the stock market.
At trial, the government called approximately 50 witness, including 6 undercover agents, and introduced over 2000 exhibits. Extensive evidence of “email” correspondence was introduced to prove that the defendants acted in concert to market and promote the various AAA tax shelters throughout the country. The government has provided notice of intent to forfeit AAA property in Washington, Colorado, and Costa Rica.
On the conspiracy counts, Counts 1 and 2, each defendant faces a maximum sentence of 5 years imprisonment and/or a $250,000 fine. On each of the 53 counts of aiding and assisting the filing of a false income tax return the defendants face a maximum sentence of 3 years imprisonment and/or a $250,000 fine. On each of the mail and/or wire fraud counts the defendants face a maximum sentence of 5 years imprisonment and/or a $250,000 fine, and on the money laundering charges the defendants Keith and Wayne Anderson each face a maximum penalty of 20 years imprisonment and/or a $500,000 fine.
The case was tried by Department of Justice Tax Division attorneys Corey J. Smith, Krista Tongring, and Kendall Day and investigated by agents of the IRS Criminal Investigation Division.