CI’s Mission In support of the overall IRS Mission, Criminal Investigation serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.
Fiduciary Fraud Definition Illegal practices committed by financial institutions and professionals that constitute a breach of trust between the financial agent and the client. Fiduciary fraud occurs when a fiduciary acts in his or her own self interest to the detriment of the client.
Corporate Fraud Definition Corporate fraud encompasses violations of the Internal Revenue Code and related statutes, committed by large, public or private corporations and their senior executives.
Civil vs Criminal What activities elevate activity from civil to criminal?
Civil vs Criminal More than just mistakes or oversights Intent to commit a crime/enrich one self Commit acts in his or her own self interest to the detriment of company/entity
What to Look For Lying –To IRS Auditors –To Analysts/Investors –To Counter-Parties –To Others at Company –To Creditors/Rating Agencies –To Lawyers –To SEC
What to Look For Concealment –Key documents –Key terms of deal –Oral side agreements –Backdating to prior reporting periods –Destruction of evidence/Obstruction of justice
What to Look For Things that Are Too Good to Be True –Sudden end-of-quarter large transactions –Convenient dollar amounts –Outside normal approval process –Customer from unusual geographic area –Sudden corporate reorganizations –Deals with no apparent business purpose –End-of-quarter movement of reserves
What to Look For What Went Into Executives’ Pockets? –Bonuses/Stock Options –Theft and Self-dealing –The Corporate ATM: Loans for Personal Items, Loan Forgiveness –Exorbitant Expenses Paid by Company –Insider Trading
Fraud Investigations Conducted By CI Individual Tax Evasion –Self-Dealing Skimming Diversion Loans Options Embezzlement Offshore Schemes Special Purpose Entities
Fraud Investigations Conducted By CI Corporate Tax Evasion –False Invoicing –Basis Shifting –Inflated Revenues Payroll Tax –Ghost Employees –Trust Fund Taxes
Additional Guidance on Corporate Fraud Investigations Corporate Fraud, as defined by CI, includes acts of lying, falsification, deceit, fabrication, concealment or destruction of records for the purpose of: Falsifying tax returns, financial statements or reports to regulatory agencies, investors or markets to manipulate the value of stock or facilitate financial fraud.
Unauthorized Compensation Unapproved payments Incentives tied to false financial statements Stock transactions Loans Forgiveness of debt Payment of personal expenses with corporate funds
The Subjects of Corporate Fraud Investigations The Corporation Chief Executive / Financial Officers Corporate Executives Board Members Managers Controllers Corporate Attorneys Auditors or Accountants
Types of Corporate Fraud Investigations Financial Statement Fraud Obstruction of Justice
Common Examples of Financial Statement Fraud Excessive and abusive use of SPEs and unconsolidated entities Revenue recognition schemes Expense fraud schemes Reserve schemes Related party transactions
Obstruction of Justice Shredding documents Erasing computer files Creating or altering documents Witness tampering
Jeffrey Grous -Hartford, CT Embezzled more than $5.3 million from his employer Charged with wire fraud, mail fraud, tax evasion and filing a false tax return Submitted false invoices to company for consulting services Submitted false AMEX expenses
Kenneth McKay - Williston, VT embezzled over $5 million from his employer, Willis Management Sentenced to 70 months on charges of tax evasion, money laundering and wire fraud
George Tannous- Los Angeles Former IRS Revenue Agent Investment Fraud Scheme- Stole over $8 million from over 200 victims. Investments were with start up companies Sentenced to 33 months in jail and restitution to victims
Roy Johnson Jr.- Alabama Former Alabama two-year college system Chancellor Plead guilty to bribery, kickback scheme with contractors who worked for Alabama Post Secondary Education System Sentenced to 78 months in Jail
Maurice Campbell Jr.- Alabama Former state director of a college consortium of business development centers Convicted at trial of conspiracy, fraud and money laundering- over $7 million in fraud Sentenced to 188 months- pay back $5.9 million in restitution
Sources of Investigations Whistleblowers IRS Audits Audits by other government agencies US Attorney’s Offices Media coverage Ongoing criminal investigations
Program and Emphasis Areas for IRS Criminal Investigation Abusive Return Preparer Enforcement Abusive Tax Schemes Bankruptcy Fraud Corporate Fraud Employment Tax Enforcement Financial Institution Fraud Gaming
Healthcare Fraud Identity Fraud Insurance Fraud International Investigations Money Laundering and Bank Secrecy Act (BSA) violations Mortgage and Real Estate Fraud Narcotics related offenses Program and Emphasis Areas for IRS Criminal Investigations
Program and Emphasis Areas for IRS Criminal Investigation Non-filer Enforcement Public Corruption Crimes Questionable Refund Program (QRP) General Fraud- Catch All
Global Reach Expanded Global Footprint Voluntary Disclosure - UBS
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