Robert F. Smith, International Tax Fraud, California 2023

A high-profile case of international tax fraud has come to an end with the admission of guilt by Robert F. Smith, the Chairman and Chief Executive Officer of a San Francisco-based private equity company. Smith entered into a Non-Prosecution Agreement with the federal government for his involvement in a scheme to conceal income and evade millions in taxes using an offshore trust structure and offshore bank accounts.

According to the agreement, Smith formed the Excelsior Trust in Belize and a shell company, Flash Holdings, in Nevis in 2000. He used third-parties to conceal his beneficial ownership and control of the Excelsior Trust and Flash Holdings, while making all substantive decisions regarding Flash Holdings' operations, transactions, income, investments, and assets.

Smith used the Excelsior Trust to conceal his ultimate ownership and control over Flash Holdings, and further used Flash Holdings to hide his interest in private equity investments. He admits that he formed these foreign entities in order to use them to avoid the payment of U.S. taxes.

As a result of the overall scheme, Smith willfully did not report to the IRS over $200 million of partnership income. He also failed to report his ownership of his foreign bank accounts in BVI and Switzerland as required by law.

Over the years, Smith used millions of this unreported income to acquire and make improvements to real estate used for his personal benefit. Smith admits that, in 2005, he used approximately $2.5 million in untaxed funds to purchase and renovate a vacation home in Sonoma, California. In 2010, Smith again used untaxed funds to purchase two ski properties and a piece of commercial property in France. In 2011 and 2012, Smith used approximately $13 million of untaxed funds to build and make improvements to a residence in Colorado and to fund charitable activities at the property.

Under the terms of the agreement, Smith has agreed to continue cooperating with the federal government in other related investigations. He has also agreed to pay approximately $56 million in taxes and penalties stemming from the unreported income and another $82 million in penalties stemming from his concealment of his offshore bank accounts. Taken altogether, Smith will pay more than $139 million in taxes and penalties. Additionally, Smith agrees to abandon his protective claims for a refund totaling approximately $182 million that were filed with the IRS.

Principal Deputy Assistant Attorney General Richard E. Zuckerman, U.S. Attorney David L. Anderson for the Northern District of California, and Jim Lee, Chief of IRS-Criminal Investigation, commended special agents of IRS-Criminal Investigation, who conducted the investigation, and thanked them for their hard work.

Defendant/Respondent: Robert F. Smith

Criminal Charges: International Tax Fraud Scheme

City and State: San Francisco, California

Date: 2023

Sentence: Non-Prosecution Agreement, $139 million in taxes and penalties

Dollar Amounts: $139 million in taxes and penalties, $182 million in charitable contribution deductions

Source: https://www.justice.gov/archives/opa/pr/private-equity-ceo-enters-non-prosecution-agreement-international-tax-fraud-scheme-and-agrees