Examples of International Investigations - Fiscal Year 2013
Criminal Investigation (CI) is increasing its focus on international tax compliance.
International investigations encompass a wide range of activities such as abusive tax schemes, narcotics, non-filers, money laundering, and terrorism funding. Criminal Investigation works closely with international law enforcement partners as well as federal, state, and local law enforcement agencies to investigate financial fraud.
The following examples of investigations with international links are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Abusive Tax Schemes
Idaho Businessman Sentenced for Tax Evasion
On May 13, 2013, in Coeur d’Alene, Idaho, Michael George Fitzpatrick, of Hope, Idaho, was sentenced to 42 months in prison, three years of supervised released and ordered to pay just under $1.4 million in restitution to the IRS. Fitzpatrick was convicted in January 2013 of two counts of tax evasion. A previous jury had convicted him in September 2012 on two counts of failure to file corporate income tax returns. According to the indictment and evidence introduced at both trials, Fitzpatrick operated a business selling products which purported to help individuals eliminate credit card debt. During 2003 and 2004, gross sales from the business, operating under the names Dynamic Solutions Inc. and North American Educational Services Inc., exceeded $9 million. Trial evidence proved that the corporations failed to report $3.7 million and Fitzpatrick himself failed to report over $500,000 in income, resulting in a total tax loss of $1,397,762. The evidence further established that Fitzpatrick last filed an individual income tax return in 1996. At trial, Fitzpatrick argued at length that the income tax laws did not apply to him. However, he put all of his property in the names of nominees. Fitzpatrick sent over $5 million offshore to a bank located in the Dominican Republic. Fitzpatrick accessed this money through the use of a debit card and through wire transfers. During a two-year period Fitzpatrick used over $1 million of his money hidden offshore to buy real estate and to gamble in Las Vegas. He also paid a contractor to build a schoolhouse for his kids in his backyard in Hope, Idaho.
South Dakota Surgeon Sentenced for Tax Evasion
On May 7, 2013, in Sioux Fall, S.D., Edward J.S. Picardi, a surgeon who resides in Sturgis, S.D., was sentenced to 60 months in prison and one year of supervised release for tax evasion. On October 5, 2012 following a multi-week trial, Picardi was convicted by a federal jury of sending his earnings through a complicated offshore network. According to trial evidence, Picardi passed his earnings through a web of entities organized under the laws of Ireland, Hungary, Cyprus, Isle of Man, Jersey, and Guernsey. The money was ultimately deposited into various foreign accounts that Picardi controlled through a New Zealand trust, in the name of a corporation set up for him in Nevis, a Caribbean island. Through these offshore transactions, Picardi attempted to hide his income and evade over $1 million in taxes.
Texas Businessman Sentenced on Tax Charges
On February 14, 2013, in Houston, Texas, Robert Edward Cone was sentenced to 12 months and a day in prison, one year of supervised release and ordered to pay a $50,000 fine. Cone has already made full restitution of the unpaid taxes plus penalties and interest altogether totaling $939,917. According to court documents, Cone used a foreign account in the Channel Islands to corruptly obstruct and impede the IRS in the collection of $282,871 in federal income taxes. Cone was employed as president of a manufacturing company in Houston, during 2001. Under his employment agreement, Cone was entitled to receive a severance payment equal to four times his annual salary of $250,000. In anticipation of receiving the $1 million severance payment, Cone set up a foreign account to conceal the payment and avoid paying the taxes owed.
Ohio Attorney Sentenced on Tax Fraud Charges
On November 2, 2012, in Columbus, Ohio, Aristotle R. Matsa, aka Rick Matsa, of Worthington, Ohio, was sentenced to 85 months in prison and ordered to pay a $265,000 criminal fine, $388,000 in restitution to the IRS and $24,069 in restitution to a client. Matsa was convicted by a jury in April 2012 on one count of a corrupt endeavor to obstruct and impede the IRS; 15 counts of aiding and assisting in the preparation of false and fraudulent tax returns, that related to five different trusts; one count of willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR); one count of conspiracy to obstruct justice, commit perjury and make false statements; two counts of witness tampering; one count of submitting a false statement; and one count of obstruction of justice. Matsa’s mother and co-defendant, Loula Z. Matsa, was sentenced to three years of probation and ordered to pay a $150,000 criminal fine for her role in the conspiracy with her son to obstruct justice, commit perjury and make false statements. According to court documents and trial evidence, Matsa created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005. In fact, the evidence at trial showed that he had been filing similarly false returns for the trusts dating back to 1990. Each of the trusts reported receiving significant amounts of interest income each year, yet no income tax was ever reported as due because the trust tax returns fraudulently claimed deductions for distributions purportedly paid annually to a foreign beneficiary. The evidence at trial established, however, that Rick Matsa used funds from these trusts to purchase a 150-acre farm in Hocking County as well as a home in Worthington, Ohio. In addition, the trusts’ purported foreign beneficiary was located in the Netherlands and testified that she was not the beneficiary of the trusts. The evidence at trial also showed that during calendar year 2003 Rick Matsa violated the foreign bank account reporting requirements, by failing to disclose his ownership and control over a foreign bank account held in The Netherlands. This account had in excess of $300,000 from at least August 2003 to November 2003.
President of Costa Rican Company Sentenced for Fraud Scheme
On October 23, 2012, in Richmond, Va., Minor Vargas Calvo was sentenced to 60 years in prison for carrying out a half-billion-dollar fraud scheme that affected more than 3,500 victims throughout the United States and abroad. Vargas, a citizen and resident of Costa Rica, is the majority owner of Provident Capital Indemnity (PCI) Ltd., an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. Vargas was sentenced for one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, three counts of wire fraud and three counts of money laundering. Evidence at trial showed that Vargas and Jorge Castillo, PCI’s purported independent auditor, used lies and omissions to mislead PCI’s clients and investors regarding PCI’s ability to pay claims when due on the financial guarantee bonds that PCI issued. Evidence at trial showed that Vargas spent more than $23 million of his ill-gotten gains on his professional soccer teams in Costa Rica, his unrelated companies, his family and himself. Castillo, who was a PCI employee prior to becoming PCI’s “outside auditor,” pleaded guilty to conspiring to commit mail and wire fraud and awaits sentencing.
Financial Institution Fraud
Mexican Pecan Company Owner Sentenced for Scheme to Defraud the U.S. Export-Import Bank
On November 7, 2012, in El Paso, Texas, Leopoldo Valencia-Urrea, the owner of a pecan brokerage company in Ciudad Juarez, Chihuahua, Mexico, was sentenced to 48 months in prison, three years of supervised release and ordered to pay $58,000 in restitution and $399,075 in forfeiture. Valencia pleaded guilty on October 13, 2011, to one count of conspiracy to commit wire fraud, one count of wire fraud and one count of money laundering conspiracy in connection with the scheme to defraud the Export-Import Bank of the United States (Ex-Im Bank) of approximately $400,000. According to court documents, Valencia, a U.S. citizen, was the owner of a pecan brokerage company in Ciudad Juarez and resided in El Paso. Valencia admitted that in 2006, he applied for an Ex-Im Bank insured loan for $406,258 through a bank in Miami. Valencia and others submitted a fraudulent loan application, financial statements, invoices, letters and bills of lading to falsely represent to the Miami bank and the Ex-Im Bank the purchase and export of U.S. goods to Valencia in Mexico. After the exporter who conspired with Valencia received $399,075 from the Miami bank, Valencia and others diverted the loan proceeds directly to Valencia and others in Mexico. As a result of the fraud, Valencia’s loan defaulted, causing the Ex-Im Bank to pay a claim to the lending bank on a $371,962 loss.
Missouri Men Sentenced for Running Illegal Gambling Operation
On October 31, 2012, in Springfield, Mo. William Lisle, of Joplin, was to two years of probation, including six months of home detention, and ordered to pay a $2,000 fine and forfeit $98,263. On October 18, 2012, Kenneth B. Lovett, of Joplin, was sentenced to two years of probation, including six months of home detention. Lisle and Lovett each pleaded guilty to operating an illegal gambling operation over the Internet. Lisle also pleaded guilty to money laundering. According to court documents, from January 1, 2003 to February 8, 2011, Lisle and Lovett used the Internet to transmit wagering information, including placing bets on sporting events, as part of their gambling business. Lisle sent cashier’s checks, payable to a false name in an effort to conceal the transfer, to the Costa Rican company that operated the Web sites. Lisle’s plea agreement cites 15 instances in which he sent cashier’s checks totaling $72,000 to Costa Rica as part of his scheme to launder money obtained from the gambling enterprise.
Two California Men Sentenced for Orchestrating International Plot that Smuggled Rhinoceros Horns
On May 15, 2013, in Los Angeles, Calif., Vinh Chuong “Jimmy” Kha, of Garden Grove, was sentenced to 42 months in prison. Kha's son, Felix Kha, was sentenced to 46 months in prison. In addition, the Khas were ordered to pay more than $185,000 in tax fraud penalties to the IRS and $800,000 in restitution to the Multinational Species Conservation Fund, a fund managed by the U.S. Fish and Wildlife. The Khas each pleaded guilty in September 2012 to conspiracy, smuggling, wildlife trafficking in violation of the Lacey Act, money laundering and tax evasion. According to court documents, from January 2010 through February 2012, the Khas conspired with individuals throughout the United States to purchase white and black rhinoceros horns with the full knowledge that the animals were protected by federal law as endangered and threatened species. The horns acquired by the Khas during the course of their conspiracy had a market value of up to $2.5 million. In their plea agreements, both defendants admitted that they purchased the horns in order to export them overseas to be sold and made into libation cups or used for traditional medicine. They made at least one illegal payment to Vietnamese customs officials to ensure clearance of horn shipments to that country. In addition, they evaded income taxes owed in 2009 and 2010.
Defendant Sentenced for Role in Internet Fraud Scheme
On December 20, 2012, in Manhattan, N.Y., Razvan Marcu, of Las Vegas, Nevada, was sentenced to 60 months in prison, three years of supervised release, and ordered to pay $1 million in restitution and forfeit more than $1 million. Marcu pleaded guilty in July 2012 to one count of conspiracy to commit wire fraud for his role in an Internet fraud scheme in which at least 80 victims were defrauded of more than $1 million. According to court documents and statements made in court, from at least 2009 through about 2011, Marcu and his international co-conspirators engaged in a scheme to defraud individuals seeking to buy items, including cars, which were listed for sale on various Internet websites, including eBay.com, Autotrader.com, and Craigslist.com. As part of the scheme, Marcu recruited Timothy Harron and instructed him to recruit individuals to open bank accounts into which money from victims could be sent, or to agree to receive money sent by victims through money transmission services. Once a victim contacted the purported seller over the Internet and the parties agreed to the terms of sale, the victim received an e-mail message that appeared to be from the website on which the item was listed, or some other legitimate website designed for online transactions. The e-mail asked the buyer to wire money to one of the people Harron had recruited or to one of the bank accounts that was opened to facilitate the scheme. The victims never received the items for which they paid. After victims wired money, Harron arranged for the money to be withdrawn in cash and then deposited into accounts of others or transmitted to co-conspirators, including those located in Romania, where leaders of the scheme were also based. Some of the victims’ money was also deposited into Marcu’s bank accounts. He used the money to purchase and lease numerous luxury automobiles and for other personal expenses.
Co-Owner of Los Angeles County Toy Company Sentenced in Money Laundering Case
On May 6, 2013, in Los Angeles, Calif., Dan “Daisy” Xin Li, co-owner of the Woody Toys, Inc., was sentenced to eight months in prison, followed by six months of home detention. Li’s husband, Jia “Gary” Hui Zhou, will be sentenced at a later date. Li and Zhou pleaded guilty in September 2012 to conspiring to structure currency transactions with a U.S. financial institution to avoid the filing of a Currency Transaction Report. As part of their agreements, the couple forfeited to the federal government $2 million in proceeds that were derived from their money laundering scheme. According to court documents, Li and Zhou participated in an elaborate scheme known as a Black Market Peso Exchange, which is an underground money transfer system that enables international drug trafficking organizations to launder narcotics proceeds. The scheme used “structured” cash deposits in the United States to launder illicit proceeds generated by drug trafficking organizations based in Mexico and Colombia. From 2005 through 2011, approximately $3 million in structured, out-of-state cash was deposited into Woody Toys’ bank accounts. During that same time, Woody Toys took in approximately $3 million in cash without filing the required federal documents. As part of the Black Market Peso Exchange scheme alleged in this case, foreign toy retailers with Colombian and Mexican pesos would contact currency brokers to buy discounted United States dollars, which they used to purchase merchandise from Woody Toys. The dollars being “sold” were allegedly proceeds from illegal drug sales that had been deposited in the toy company’s accounts or delivered to the business. The Colombian or Mexican pesos that the currency broker received from the foreign toy retailer were remitted to the drug trafficking organizations. Previously in this case, Woody Toys, Inc. was sentenced in November 2012 to five years of probation after pleading guilty to money laundering conspiracy charges. The sentence prohibits the company from receiving payments of more than $2,000 in cash and the business may not receive cash from anyone who is not a customer. The company must also report the identity and contact information of all its customers. Finally, the business will be subject to unannounced examinations of its books and records.
Two Texas Men Sentenced for Money Laundering
On October 30, 2012, in Laredo, Texas, Nelson Casarez and Miguel Santos were sentenced their roles in laundering millions of drug proceeds for the Los Zetas organization. Casarez was sentenced to 108 months in prison and ordered to forfeit $$2,999,310. Santos was sentenced to 72 months in prison and ordered to forfeit $4 million. According to court documents, Casarez provided a tractor trailer yard in Laredo for use by Los Zetas as a receiving station for other co-conspirators who transported bulk cash drug proceeds from the Chicago, Ill., area to Laredo. Casarez then coordinated the receipt and transfer of bulk cash drug proceeds to other co-conspirators who would transport it to Nuevo Laredo, Mexico. Casarez was involved in the laundering of approximately $5 million. Santos was a commercial truck driver who transported drug proceeds from the Chicago area to Laredo. Santos transported drug proceeds on at least two occasions in 2010 with each bulk shipment totaling approximately $2 million.
Drug Trafficker Sentenced on Drug and Money Laundering Charges
On December 11, 2012, in Atlanta, Ga., Jason Barbour, of Manhattan Beach, California, was sentenced to 136 months in prison and five years of supervised release. Barbour was convicted on October 6, 2011, upon his plea of guilty for conspiring to distribute marijuana and cocaine and conspiring to launder money. According to court documents, Barbour was a member of a conspiracy that obtained high-grade marijuana from sources in Canada and arranged for the transportation of those drugs to the Pacific Northwest. From there, Barbour and members of his conspiracy would transport the drugs via private airplane to cities throughout the United States, including Atlanta. Money that was generated from the marijuana sales was used to purchase cocaine in Los Angeles, California, for ultimate sale to the marijuana suppliers in Canada.
Guam Resident Sentenced on Drug and Money Laundering Charges
On October 30, 2012, in Agana, Guam, Gina Fresnoza Medina was sentenced to 324 months in prison and five years of supervised release. Medina pleaded guilty plea to money laundering, conspiracy to distribute methamphetamine hydrochloride ("ice"), and conspiracy to import methamphetamine hydrochloride. According to the plea agreement, since 2004, Medina had been importing methamphetamine hydrochloride from the Philippines and distributing it in Guam. Medina would purchase the ice in the Philippines and have others carry it into Guam, as well as smuggling it in herself. In July 2007, Medina moved to the Philippines and continued to direct her drug trafficking organization until August 2009 when she returned to Guam. Between September 2007 through March 2010, Medina caused several individuals to wire money which she had acquired through drug trafficking, with the intent of concealing and disguising the nature, source, ownership and control of the funds.
Former Airlines Employee Sentenced for Leading a Criminal Drug Enterprise
On October 16, 2012, in Brooklyn, N.Y., Victor Bourne, a Barbadian national, was sentenced to life in prison and ordered to pay a $5.1 million forfeiture judgment for his leadership of an international drug trafficking organization that smuggled cocaine from the Caribbean into the United States through John F. Kennedy International Airport. Bourne was convicted of narcotics trafficking offenses and money laundering following a month-long trial in October 2011. The investigation into Bourne's organization has resulted in 20 convictions, including 19 airline employees, the seizure of 13 kilograms of cocaine and 2,900 pounds of marijuana, and the forfeiture of $6.9 million. According to the evidence at trial, between 2000 and 2009, the Bourne Organization used corrupt employees of commercial airlines working at domestic and international ports of entry to smuggle illegal narcotics into the United States and throughout the Caribbean. Bourne paid dispatching crew chiefs at the airlines to assign crews of baggage handlers, who, in turn, were paid tens of thousands of dollars by the Bourne Organization to retrieve the cocaine from the flights upon arrival. The cocaine was hidden behind panels in the front and rear cargo holds, the ceiling and wing assemblies, and in an aircraft’s avionics and other vital equipment compartments. After removing the cocaine from these locations, the baggage handlers hid the drugs inside their coats and airline equipment bags to avoid detection by law enforcement and safely transport the drugs to Bourne. The Bourne Organization was responsible for importing over 150 kilograms of cocaine into the U.S. Bourne reaped millions of dollars in illegal cash proceeds from his illegal drug trafficking, and laundered his drug proceeds through businesses and real estate ventures in Brooklyn and Barbados.