Billionaire Robert Smith Admits He Cheated on Taxes for 15 Years

Billionaire Robert F. Smith has been hailed as a brilliant investor who builtVista Equity Partners into a private equity powerhouse and a generous philanthropist lauded for paying off the student debt of Morehouse College’s entire graduating class last year.

But federal prosecutors undercut that image on Thursday, saying Smith concealed income and evaded taxes for 15 years by using foreign trusts, corporations and bank accounts to cheat the Internal Revenue Service.

Smith, 57, avoided prosecution only by cooperating in a case against Robert Brockman, a Houston businessmanaccused Thursday of using a web of Caribbean entities to hide $2 billion in income in what prosecutors called the largest U.S. tax case ever against an individual.

“Smith committed serious crimes, but he also agreed to cooperate,” saidDavid Anderson, the U.S. attorney in San Francisco. “Smith’s agreement to cooperate has put him on a path away from indictment.”

Smith signed a non-prosecution agreement in which he admitted he repeatedly made false filings with the IRS, even after he attempted to enter an amnesty program in 2014. He agreed to pay more than $139 million in back taxes, interest and penalties after a four-year investigationfirst reported by Bloomberg News.

Read More: Billionaire Robert Smith Fighting U.S. Criminal Tax Inquiry

A statement of facts that Smith agreed to chips away at the carefully crafted public image that he had erected over the past five years as he has used a charitable foundation he runs and his family money to donate hundreds of millions of dollars to various philanthropic causes. Recipients included Cornell University, Carnegie Hall and the United Negro College Fund.

Smith admitted that he used $2.5 million in untaxed funds to buy and renovate a vacation home in Sonoma, California, paying for it in 2005 with private equity funds deposited into accounts in the British Virgin Islands andBanque Bonhote in Switzerland. In 2010, Smith moved to Switzerland for a time and bought two ski properties and a commercial property in the French Alps, all with untaxed money in the Swiss account. Smith, who owns several homes throughout the U.S., now lives in Austin, Texas.

He transferred more than $13 million from Banque Bonhote to a U.S account. Smith used the money “to build a home and make improvements to property that he owned in Colorado and to fund charitable activities on that property for inner city children and wounded veterans,” according to his statement of facts.

Smith understood that Brockman’s offer in 2000 to invest $1 billion to seed Smith’s first private equity fund would rely on money concealed from the IRS, he admitted. Smith viewed the offer as a unique business opportunity and willingly went along, he said. He also took Brockman’s advice that he work with a Houston lawyer to structure his own foreign entity, Belize-based Excelsior Trust, and paid the attorney about $800,000 to create a false paper trail involving related entities from 2000 to 2014.

More: Houston Tech Mogul Hit With ‘Largest-Ever Tax Charge,’ U.S. Says

In 2014, Smith directed Excelsior to contribute $182 million in shares in a Nevis-based entity, Flash Holdings LLC. The shares went to Fund II Foundation, a U.S.-based charity that he co-founded. Smith falsely claimed that he’d been required to make that charitable contribution as part of his original agreement with Brockman. Had it been true that the offshore assets had always been designated for charity, it could have supported the view that Smith didn’t owe taxes on them.

Fund II Foundation lists Smith as founding director and president. Its high-profile contributions have gone to fight breast cancer afflicting women, create science programs for Black students and preserve the homes of Martin Luther King Jr. and other prominent Black Americans.

Beyond paying $139 million, Smith agreed to abandon refund claims of $182 million based on charitable deductions filed in 2018 and 2019.

Smith took steps to come clean after Banque Bonhote urged him in November 2013 and January 2014 “to report his non-compliance” to the IRS, according to his admission. He applied in March 2014 for amnesty from prosecution through an IRS program used by more than 56,000 Americans who failed to report offshore assets. But the IRS rejected him.

He then filed a false report of foreign bank and financial accounts, known as an FBAR, failing to declare his financial interest in his BVI and Swiss accounts, he admitted. He also submitted a false tax return that failed to declare his interest in those accounts.

Smith’s false filings continued. He entered a “streamlined” disclosure program but filed false FBARs and tax returns spanning several years, according to his admission.

“Smith willfully failed to report on Streamlined Tax Returns over $200 million of partnership income” distributed to Flash from private equity funds from 2005 through 2014, according to the statement of facts.

Smith has been represented by lawyers of some renown in the white-collar and tax defense world. His non-prosecution agreement was signed by five lawyers, including three fromKirkland & Ellis, the firm where William Barr worked until he became President Donald Trump’s attorney general.

Two of the Kirkland & Ellis lawyers are Mark Filip, a former deputy attorney general under President George W. Bush, and W. Neil Eggleston, a former White House counsel for President Barack Obama.

Source: Read Full Article