A view of Fiduciary/Corporate Crime from an IRS Perspective

1. A view of Fiduciary/Corporate Crime from an IRS Perspective Guy Ficco Supervisory Special Agent May 22, 2012

2. Introduction to IRSCriminal Investigation

3. 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.

4. 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.

5. 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.

6. Civil vs Criminal • What activities elevate activity from civil to criminal?

7. 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

8. 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

9. 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

10. 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

11. 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

12. Fraud InvestigationsConducted By CI • Individual Tax Evasion • Self-Dealing • Skimming • Diversion • Loans • Options • Embezzlement • Offshore Schemes • Special Purpose Entities

13. Fraud InvestigationsConducted By CI • Corporate Tax Evasion • False Invoicing • Basis Shifting • Inflated Revenues • Payroll Tax • Ghost Employees • Trust Fund Taxes

14. 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.

15. Unauthorized Compensation • Unapproved payments • Incentives tied to false financial statements • Stock transactions • Loans • Forgiveness of debt • Payment of personal expenses with corporate funds

16. The Subjects of Corporate Fraud Investigations • The Corporation • Chief Executive / Financial Officers • Corporate Executives • Board Members • Managers • Controllers • Corporate Attorneys • Auditors or Accountants

17. Types of Corporate Fraud Investigations • Financial Statement Fraud • Obstruction of Justice

18. 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

19. Obstruction of Justice • Shredding documents • Erasing computer files • Creating or altering documents • Witness tampering

20. Case Examples

21. 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

22. 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

23. 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

24. 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

25. 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

27. Sources of Investigations • Whistleblowers • IRS Audits • Audits by other government agencies • US Attorney’s Offices • Media coverage • Ongoing criminal investigations

28. 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

29. Program and Emphasis Areas for IRS Criminal Investigations • Healthcare Fraud • Identity Fraud • Insurance Fraud • International Investigations • Money Laundering and Bank Secrecy Act (BSA) violations • Mortgage and Real Estate Fraud • Narcotics related offenses

30. Program and Emphasis Areas for IRS Criminal Investigation • Non-filer Enforcement • Public Corruption Crimes • Questionable Refund Program (QRP) • General Fraud- Catch All

31. Global Reach • Expanded Global Footprint • Voluntary Disclosure - UBS

32. CI Attaché Offices London Frankfurt Ottawa Beijing Hong Kong Mexico City Bridgetown Bogotá Panama City Sydney IRS-CI INTERNATIONAL POSTS OF DUTY

33. CONCLUSION

34. Guy Ficco, Supervisory Special Agent Washington DC Field Office guy.ficco@ci.irs.gov (703) 647-5502