MAN INDICTED FOR STOLEN IDENTITY REFUND FRAUD

FROM: U.S. DEPARTMENT OF JUSTICE

Wednesday, October 24, 2012

Alabama Man Indicted for Stolen Identity Refund Fraud

A federal grand jury in Montgomery, Ala., returned an indictment charging Kenneth Jerome Blackmon Jr., with aggravated identity theft, wire fraud, access device fraud and misuse of a Social Security number, the Justice Department and the Internal Revenue Service (IRS) announced today.

According to the indictment, from January 2011 through November 2011, Blackmon participated in a scheme to file false tax returns using stolen identities. As alleged, he possessed lists of names, Social Security numbers and dates of birth as well as prepaid debit cards, all for the purpose of obtaining fraudulent tax refunds from the IRS.

An indictment merely alleges that crimes have been committed and the defendant is presumed innocent until proven guilty beyond a reasonable doubt. If convicted, Blackmon faces a maximum potential sentence of 20 years in prison for each of the two wire fraud counts, 10 years for the access device fraud count, 5 years for the misuse of a Social Security number count, and a mandatory 2-year sentence for the aggravated identity theft counts. He is also subject to fines and mandatory restitution if convicted.

This case was investigated by special agents of IRS - Criminal Investigation. Trial Attorneys Justin Gelfand and Jason Poole of the Justice Department’s Tax Division are prosecuting the case.

IRS ACCUSED OF NOT GOING AFTER FRAUDULENT TAX RETURNS

FROM: CHAIRMAN OF THE HOUSE WAYS AND MEANS COMMITTEE CONGRESSMAN DAVE CAMP'S WEBSITE
Report Reveals IRS Failing to Detect or Prevent Fraudulent Tax Returns
Wednesday, August 08, 2012
　
Washington, DC - Today, Oversight Subcommittee Chairman Charles Boustany Jr., M.D. (R-LA) sent Internal Revenue Service (IRS) Commissioner Doug Shulman a letter demanding answers on a report from the Treasury Inspector General for Tax Administration (TIGTA) revealing the IRS may be blatantly ignoring fraudulent tax returns and applications for the Individual Taxpayer Identification Number (ITIN). The report raises concerns about whether IRS management has made preventing and catching fraud a priority for the agency. Specifically, the report notes that IRS procedures appear to discourage employees from flagging potentially fraudulent ITIN applications, and that IRS management went so far as to disband a review group with proven success at identifying fraudulent activity.


Below are examples of some of the extreme fraud the agency failed to identify after IRS management weakened the agency’s integrity measures:

154 mailing addresses were used 1,000 or more times on ITIN applications.
Ten individual addresses were used for filing 53,994 tax returns, resulting in the processing of $86.4 million in fraudulent tax refunds.
Ten bank accounts received 23,560 tax refunds totaling over $16 million.
At one Michigan address where IRS had previously rejected an ITIN application, the agency went on to issue 640 separate refunds to that address totaling $1.5 million dollars.

Chairman Boustany stated, "This report is shocking. It is clear that not only is the IRS not doing its job in detecting fraud, but agency management has taken steps to actively avoid dealing with fraudulent activities. When nearly six million dollars in returns are being sent to one address, it is blatantly clear that the IRS is turning a blind eye to protecting taxpayer dollars. It’s one thing if the IRS tries to catch fraud and fails, but it’s quite another when management apparently takes steps to weaken program integrity. The IRS needs to immediately account for the findings in this report. The American taxpayer deserves answers."

TWO UBS CLIENTS GO TO PRISON FOR HIDING MONEY IN SWISS BANK ACCOUNTS

FROM: U.S. DEPARTMENT OF JUSTICE
Monday, July 30, 2012

California UBS Clients Sentenced to Prison for Hiding Asssets in Secret Bank Accounts Around the WorldSean Roberts and Nadia Roberts of Tehachapi, Calif., were sentenced today before U.S. District Court Chief Judge Anthony W. Ishii in Fresno, Calif., to 12 months and 1 day in prison for hiding millions of dollars in secret offshore bank accounts in Switzerland and other banks around the world. The Roberts were also ordered to pay restitution to the Internal Revenue Service (IRS) in the amount of $709,675, and to pay more than $2.5 million to resolve their civil liability with the IRS for failing to file the required Reports of Foreign Bank and Financial Reports (FBARs).

According to court documents and statements made in court, Sean and Nadia Roberts filed false individual U.S. income tax return for 2004 through 2008 in which they failed to report that they had an interest in or a signature authority over a secret Swiss financial account at UBS, which was subsequently transferred to the Swiss branch of a Liechtenstein bank. They also failed to report several other foreign accounts in the Isle of Man, Hong Kong, New Zealand and South Africa. The Roberts failed to report any income earned on the foreign accounts and falsely deducted millions of dollars in transfers from their domestic business to the Swiss bank accounts on their corporate tax returns. The false deductions allowed the Roberts to under-report their income on their individual income tax returns. The Roberts previously operated the National Test Pilot School (NTPS) in Mojave, Calif. NTPS is a non-profit educational institute that trains test pilots from domestic and foreign aerospace industries and governments. The Roberts also owned and operated Flight Research Incorporated, which owns and maintains most of the aircraft used by NTPS.

Based on court records, in or about 1991, the Robertses opened a bank account at an Isle of Man branch of a United Kingdom bank, in the name of nominee entity Interline Trade Associates Limited. From at least 2002 through 2004, the Robertses transferred funds from their company, Flight Research Incorporated of Mississippi (FRI Mississippi), to the Interline account, and caused the transfers to be falsely deducted as interest payments on corporate income tax returns as a sham aircraft loan.

Court records also established that, in or about May 2008, the Robertses closed their Excalibur UBS account and transferred over $4.8 million to an account in Excalibur’s name at a Swiss branch of a Liechtenstein bank. This was done after the Robertses learned that UBS was under investigation by U.S. authorities and that they should leave UBS to ensure the continued secrecy of their account. In 2008, the Robertses transferred more than $1.4 million from FRI Mississippi to the Excalibur account at the Liechtenstein bank, and again caused the transfers to be falsely deducted on a corporate income tax return. Also in May 2008, the Robertses opened a bank account in the name of Modest Winner, a nominee Hong Kong entity, at the Liechtenstein bank. In 2008 and 2009, the Robertses transferred funds from another of their entities, Tisours, LLC, to that Modest Winner account. In 2009, the Robertses transferred that account to a bank in Hong Kong. The Robertses also maintained numerous undeclared foreign bank accounts in New Zealand and South Africa held in their own names. Many of the financial transactions were done with the assistance of the same operator of the Swiss wealth management and tax advisory business.

In February 2009, UBS entered into a deferred prosecution agreement under which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of their agreement, UBS provided the U.S. government with the identities of, and account information for, certain U.S. customers of UBS’s cross-border business, including the Robertses.

Kathryn Keneally, Assistant Attorney General of the Justice Department’s Tax Division, commended the investigative efforts of IRS - Criminal Investigation special agents, who investigated the case, and Tax Division Trial Attorneys Timothy J. Stockwell and John P. Scully, who are prosecuting the case.

THREE TAX PREPARERS CHARGED WITH HIDING MILLIONS IN SECRET ACCOUNTS IN ISRAEL

 FROM: U.S. DEPARTMENT OF JUSTICE
Friday, June 15, 2012
Three Tax Return Preparers Charged with Helping Clients Evade Taxes by Hiding Millions in Secret Accounts at Two Israeli Banks Defendants Operated Return Preparation Businesses Located in 12 Locations Throughout the U.S., Including California, New York and Maryland

David Kalai, Nadav Kalai and David Almog were indicted by a federal grand jury in the Central District of California and charged with conspiring to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced today. The superseding indictment, which was returned late yesterday, was unsealed following the defendants’ arrests.

According to the superseding indictment, David Kalai and Nadav Kalai were principals of United Revenue Service Inc. (URS), a tax preparation business with 12 offices located throughout the United States. David Kalai worked primarily at URS’s former headquarters in Newport Beach, Calif., and later at URS’s location in Costa Mesa, Calif.  Nadav Kalai, who is David Kalai’s son, worked out of URS’s headquarters in Bethesda, Md., as well as URS locations in Newport Beach and Costa Mesa, Calif.  David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS’s East Coast locations.

As alleged in the superseding indictment, U.S. citizens, resident aliens and legal permanent residents have an obligation to report to the IRS on Schedule B of the U.S. Individual Income Tax Return, Form 1040, whether they had a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained.  They further have an obligation to report all income earned from the foreign financial account on the tax returns.  Separately, U.S. citizens, resident aliens and permanent legal residents with a foreign financial interest in, or signatory authority over, a foreign financial account worth more than $10,000 in a particular year, must also file a Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury disclosing such an account by June 30 of the following year.

 The superseding indictment alleges that the co-conspirators prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts.  In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B.  Bank A is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide.  Bank B is a mid-size financial institution also headquartered in Tel-Aviv, with a worldwide presence on four continents.
                                                                                                                     
As further alleged in the superseding indictment, the co-conspirators incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks.  The co-conspirators then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense.  The co-conspirators also failed to disclose the existence of, and the clients’ financial interest in, and authority over, the clients’ secret accounts and caused the clients to fail to file FBARs with the Department of the Treasury.
         
If convicted, each defendant faces a maximum of five years in prison and a maximum fine of $250,000.  The charges contained in the indictment are only allegations.  The defendants are presumed innocent and it is the government’s burden to prove guilt beyond a reasonable doubt.

Kathryn Keneally, Assistant Attorney General of the Justice Department’s Tax Division, thanked Tax Division Trial Attorneys Christopher S. Strauss and Ellen M. Quattrucci, who prosecuted the case, and Assistant U.S. Attorney Sandra A. Brown of the U.S. Attorney’s Office for the Central District of California, who assisted with the prosecution.  The case was investigated by special agents of IRS – Criminal Investigation.

ING BANK N.V. FORFEITS $619 MILLION FOR TRANSACTIONS WITH IRANIAN AND CUBAN ENTITIES

FROM:  U.S. DEPARMENT OF JUSTICE
Tuesday, June 12, 2012
ING Bank N.V. Agrees to Forfeit $619 Million for Illegal Transactions with Cuban and Iranian Entities

WASHINGTON – ING Bank N.V., a financial institution headquartered in Amsterdam, has agreed to forfeit $619 million to the Justice Department and the New York County District Attorney’s Office for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) and for violating New York state laws by illegally moving billions of dollars through the U.S. financial system on behalf of sanctioned Cuban and Iranian entities.  The bank has also entered into a parallel settlement agreement with the Treasury Department’s Office of Foreign Assets Control (OFAC).

The announcement was made by Lisa Monaco, Assistant Attorney General for National Security; Ronald C. Machen, U.S. Attorney for the District of Columbia; Assistant Attorney General Lanny A. Breuer of the Criminal Division; District Attorney Cyrus R. Vance Jr., of the New York County District Attorney’s Office; James W. McJunkin, Assistant Director in Charge of the FBI Washington Field Office; Richard Weber, Chief, Internal Revenue Service (IRS) Criminal Investigation; and Adam J. Szubin, Director of the Office of Foreign Assets Control.

A criminal information was filed today in federal court in the District of Columbia charging ING Bank N.V. with one count of knowingly and willfully conspiring to violate the IEEPA and TWEA.  ING Bank waived the federal indictment, agreed to the filing of the information and has accepted responsibility for its criminal conduct and that of its employees.  ING Bank agreed to forfeit $619 million as part of the deferred prosecution agreements reached with the Justice Department and the New York County District Attorney’s Office. ,

According to court documents, starting in the early 1990s and continuing until 2007, ING Bank violated U.S. and New York state laws by moving more than $2 billion illegally through the U.S. financial system – via more than 20,000 transactions – on behalf of Cuban and Iranian entities subject to U.S. economic sanctions.  ING Bank knowingly and willfully engaged in this criminal conduct, which caused unaffiliated U.S. financial institutions to process transactions that otherwise should have been rejected, blocked or stopped for investigation under regulations by OFAC relating to transactions involving sanctioned countries and parties.

“The fine announced today is the largest ever against a bank in connection with an investigation into U.S. sanctions violations and related offenses and underscores the national security implications of ING Bank’s criminal conduct.  For more than a decade, ING Bank helped provide state sponsors of terror and other sanctioned entities with access to the U.S. financial system, allowing them to move billions of dollars through U.S. banks for illicit purchases and other activities,” said Assistant Attorney General Monaco.  “I applaud the agents, analysts and prosecutors who for years pursued this case.”

“Banks that try to skirt U.S. sanctions laws undermine the integrity of our financial system and threaten our national security,” said U.S. Attorney Machen.  “When banks place their loyalty to sanctioned clients above their obligation to follow the law, we will hold them accountable.  On more than 20,000 occasions, ING intentionally manipulated financial and trade transactions to remove references to Iran, Cuba and other sanctioned countries and entities.  Today’s $619 million forfeiture – the largest ever – holds ING accountable for its wrongdoing.”

“For years, ING Bank blatantly violated U.S. laws governing transactions involving Cuba and Iran, and then used shell companies and other deceptive measures to cover up its criminal conduct,” said Assistant Attorney General Breuer.  “Today’s resolution reflects a strong collaboration among federal and state law enforcement partners to hold ING accountable.”

“Investigations of financial institutions, businesses and individuals who violate U.S. sanctions by misusing banks in New York are vitally important to national security and the integrity of our banking system,” said New York County District Attorney Vance.  “These cases give teeth to sanctions enforcement, send a strong message about the need for transparency in international banking and ultimately contribute to the fight against money laundering and terror financing.  I thank our federal partners for their cooperation and assistance in pursuing this investigation.”

“Today, ING Bank was held accountable for their illegal actions involving the movement of more than $2 billion through the U.S. financial system on behalf of Cuban and Iranian entities subject to U.S. economic sanctions,” said FBI Assistant Director in Charge McJunkin.  “Investigations of this type are complicated and demand significant time and dedication from agents, analysts and prosecutors.  In this case, their steadfast tenacity brought this case through to today’s result, and we will continue to pursue these matters in diligent fashion.”

“In today’s environment of increasingly sophisticated financial markets, it’s critical that global institutions follow U.S. law, including sanctions against other countries,” said IRS Criminal Investigation Chief Weber.  “The IRS is proud to share its world-renowned financial investigative expertise in this and other complex financial investigations.  Creating new strategies and models of cooperation among our law enforcement partners to ensure international financial compliance is a top-priority of the IRS.”

“Our sanctions laws reflect core U.S. national security and foreign policy interests and OFAC polices them aggressively.  Today's historic settlement should serve as a clear warning to anyone who would consider profiting by evading U.S. sanctions,” said OFAC Director Szubin.  “We commend our federal and state colleagues for their work on this important investigation.”

The Scheme
According to court documents, ING Bank committed its criminal conduct by, among other things, processing payments for ING Bank’s Cuban banking operations through its branch in Curaçao on behalf of Cuban customers without reference to the payments’ origin, and by providing U.S. dollar trade finance services to sanctioned entities through misleading payment messages, shell companies and the misuse of ING Bank’s internal suspense account.

Furthermore, ING Bank eliminated payment data that would have revealed the involvement of sanctioned countries and entities, including Cuba and Iran; advised sanctioned clients on how to conceal their involvement in U.S. dollar transactions; fabricated ING Bank endorsement stamps for two Cuban banks to fraudulently process U.S. dollar travelers’ checks; and threatened to punish certain employees if they failed to take specified steps to remove references to sanctioned entities in payment messages.
According to court documents, this conduct occurred in various business units in ING Bank’s wholesale banking division and in locations around the world with the knowledge, approval and encouragement of senior corporate managers and legal and compliance departments.  Over the years, several ING Bank employees raised concerns to management about the bank’s sanctions violations.  However, no action was taken.

For decades, the United States has employed sanctions and embargoes on Iran and Cuba.  Financial transactions conducted by wire on behalf of Iranian or Cuban financial institutions have been subject to these U.S. sanctions.  The TWEA prohibits U.S. persons from engaging in financial transactions involving or benefiting Cuba or Cuban nationals and prohibits attempts to evade or avoid these restrictions.  IEEPA makes it a crime to willfully attempt to commit, conspire to commit, or aid and abet in the commission of any violations of the Iranian Transaction Regulations, which prohibit the exportation of any services from the United States to Iran and any attempts to evade or avoid these restrictions.  IEEPA and TWEA regulations are administered by OFAC.

The Investigation
The Justice Department’s investigation into ING Bank arose out of ongoing investigations into the illegal export of goods from the United States to sanctioned countries, including Iran.  For instance, ING processed payments on behalf of one customer, Aviation Services International B.V. (ASI), a Dutch aviation company which was the subject of a U.S. Commerce Department-initiated criminal investigation, through the United States for trade services relating to the procurement by ASI of dual-use U.S. aviation parts for ASI’s Iranian clients.  The ING Bank investigation also resulted in part from a criminal referral from OFAC, which was conducting its own probe of ING Bank.

ING Bank’s forfeiture of $309.5 million to the United States and $309.5 million to the New York County District Attorney’s Office will settle forfeiture claims by the Department of Justice and the state of New York.  In light of the bank’s remedial actions to date and its willingness to acknowledge responsibility for its actions, the Department will recommend the dismissal of the information in 18 months, provided ING Bank fully cooperates with, and abides by, the terms of the deferred prosecution agreement.
OFAC’s settlement agreement with ING deems the bank’s obligations to pay a civil settlement amount of $619 million to be satisfied by its payment of an equal amount to the Justice Department and the state of New York.  OFAC’s settlement agreement further requires the bank to conduct a review of its policies and procedures and their implementation, taking a risk-based sampling of U.S. dollar payments, to ensure that its OFAC compliance program is functioning effectively to detect, correct and report apparent sanctions violations to OFAC.

The case was prosecuted by Trial Attorney Jonathan C. Poling of the Justice Department’s National Security Division; Assistant U.S. Attorneys Ann H. Petalas and George P. Varghese, of the National Security Section of the U.S. Attorney’s Office for the District of Columbia; and Trial Attorney Matthew Klecka of the Criminal Division’s Asset Forfeiture and Money Laundering Section.

The case was investigated by the FBI’s Washington Field Office and the IRS-Criminal Investigation’s Washington Field Division, with assistance from the Treasury Department’s OFAC and the Commerce Department’s Bureau of Industry and Security.

The Department of Justice expressed its gratitude to Executive Assistant District Attorney, Chief of Investigation Division Adam Kaufmann; and Assistant District Attorneys Sally Pritchard and Garrett Lynch of the New York County District Attorney’s Office, Major Economic Crimes Bureau.

FARM EQUIPMENT DEALER PLEADS GUILTY TO FAILING TO PAY FEDERAL EXCISE TAXES AND FRAUD

FROM:  U.S. JUSTICE DEPARTMENT
Monday, June 11, 2012
Minnesota Business Owner Pleads Guilty to Federal Excise Tax Crimes and Tax Fraud
Jason W. Leas, a resident of Crookston, Minn., and co-founder of Best Used Trucks of Minnesota Inc., pleaded guilty today to one count of failing to pay federal excise taxes, one count of failing to file a federal excise tax return and one count of filing a false individual federal income tax return for tax year 2007, the Justice Department and Internal Revenue Service (IRS) announced. Leas was charged by information filed on May 29, 2012.  He entered his plea of guilty before U.S. District Court Senior Judge Richard H. Kyle in Duluth, Minn.

As alleged in the plea agreement, from 2004 through 2007, Best Used Trucks, which is located in Crookston, was a farm truck dealership that bought and sold used trucks, new trailers, new grain boxes and other heavy farm equipment, primarily to farmers throughout the Red River Valley of Minnesota and North Dakota.  Beginning in 2004 and continuing through 2007, Leas and Best Used Trucks purchased and imported new end dump trailers, grain boxes, and gravel boxes from a Canadian manufacturer, which subjected the company to federal excise taxes upon selling them afterward.   Leas admitted that he knew of his responsibility for paying the 12 percent federal excise tax on the sale of these trailers and related equipment, and his responsibility to file federal excise tax returns.  Leas pleaded guilty to failing to file an IRS Form 720, Quarterly Federal Excise Tax Return for the third quarter of 2005, and failing to pay federal excise taxes of $9,636 for the first quarter of 2006.  Leas admitted that he failed to pay over at least $80,088 in total federal excise taxes for ten quarters from 2004 through 2006.

Leas also pleaded guilty to willfully filing a false individual federal income tax return for the tax year 2007, which failed to report at least $120,151 in additional income with an additional tax due and owing of at least $36,872.  The plea agreement alleged that from 2004 to 2007 Leas controlled two checking accounts in the name of Best Used Trucks of Minnesota. Leas used one of these accounts to both divert corporate receipts from Best Used Trucks, and to buy and sell equipment that was not part of Best Used Trucks’s ordinary business sales.   Leas failed to report this income on his personal tax returns for four years, resulting in a total tax loss of at least $73,361.

“To build faith in our nation’s tax system, honest taxpayers need to be reassured that everyone is paying their fair share of taxes, whether it is in the form of income taxes or excise taxes,” said Kelly R. Jackson, Special Agent in Charge of the IRS Criminal Investigation Division, St. Paul Field Office.  “The IRS-Criminal Investigation Division, together with the Department of Justice, will continue to investigate and prosecute those who violate our tax system.”

Leas is facing a potential maximum penalty of five years in prison for all three charges; three years for willfully filing a false income tax return, and one year each for the failure to file and failure to pay charges.

Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, thanked Special Agents and Revenue Agents of IRS – Criminal Investigation, who investigated the case, and Tax Division Trial Attorneys Thomas W. Flynn and Dennis R. Kihm, who prosecuted the case.

LOBBYIST GOES TO PRISON FOR NOT DISCLOSING HE WORKED FOR GOVERNMENT OF PAKISTAN

The following excerpt is from the Department of Justice website:
Friday, March 30, 2012
Virginia Man Sentenced to 24 Months for Scheme to Conceal Pakistan Government Funding for His U.S. Lobbying Efforts

WASHINGTON – Syed Ghulam Nabi Fai, 62, a U.S. citizen and resident of Fairfax, Va., was sentenced today to 24 months in prison, followed by three years of supervised release, for conspiracy and tax violations in connection with a decades-long scheme to conceal the transfer of at least $3.5 million from the government of Pakistan to fund his lobbying efforts in America related to Kashmir.

The sentencing was announced by Neil MacBride, U.S. Attorney for the Eastern District of Virginia; Lisa Monaco, Assistant Attorney General for National Security; John DiCicco, Acting Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division; James McJunkin, Assistant Director in Charge of the FBI Washington Field Office; and Eric Hylton, Special Agent in Charge of the Internal Revenue Service (IRS) Criminal Investigation’s Washington, D.C., Field Office, after sentencing by U.S. District Court Judge Liam O’Grady in the Eastern District of Virginia.

On Dec. 7, 2011, Fai pleaded guilty to a two-count criminal information.  Count one of the information charged Fai with conspiracy to: 1) falsify, conceal and cover up material facts he had a duty to disclose in matters within the jurisdiction of executive branch agencies of the U.S. government; and to 2) defraud the Treasury Department by impeding the lawful functions of the IRS in the collection of revenue.  Count two of the information charged Fai with endeavoring to impede the administration of tax laws.

According to court documents filed with his plea agreement, Fai served as the director of the Kashmiri American Council (KAC), a non-governmental organization in Washington, D.C., that held itself out to be run by Kashmiris, financed by Americans, and dedicated to raising the level of knowledge in the United States about the struggle of the Kashmiri people for self-determination.  But according to court documents, the KAC was secretly funded by officials employed by the government of Pakistan, including the Inter-Services Intelligence Directorate (ISI).

 “Mr. Fai spent 20 years operating the Kashmiri American Council as a front for Pakistani intelligence,” said U.S. Attorney MacBride.  “He lied to the Justice Department, the IRS and many political leaders throughout the United States as he pushed the ISI’s propaganda on Kashmir.”

“Syed Fai is today being held accountable for his role in a decades-long scheme to conceal the fact that the government of Pakistan was secretly funding his efforts to influence U.S. policy on Kashmir,” said Assistant Attorney General Monaco.
“Today’s sentence sends a strong message that using the tax-exempt status of charitable entities to promote or conceal federal crimes carries heavy consequences,” said Acting Principal Deputy Assistant Attorney General DiCiccio.

“Mr. Fai had a duty to inform the U.S. government of the finances which he received from Pakistan to fund lobbying efforts,” said FBI Assistant Director in Charge McJunkin.  “Concealed foreign affiliations can be a significant threat to our democracy, and those who engage in hiding these associations will be brought to justice.”

“Today’s sentencing further shows that IRS-Criminal Investigation is working vigorously to stop the misuse and abuse of charities in promoting or concealing federal crimes,” said IRS Special Agent in Charge Hylton.  “The message is clear that those who engage in this type of activity will face stiff criminal penalties.”
The Scheme

Fai admitted in court that, from 1990 until about July 18, 2011, he conspired with others to obtain money from officials employed by the government of Pakistan, including the ISI, for the operation of the KAC in the United States, and that he did so outside the knowledge of the U.S. government and without attracting the attention of law enforcement and regulatory authorities.

To prevent the Justice Department, FBI, Department of Treasury and the IRS from learning the source of the money he received from officials employed by the government of Pakistan and the ISI, Fai made a series of false statements and representations, according to court documents.  For example, Fai told FBI agents in March 2007 that he had never met anyone who identified himself as being affiliated with the ISI and, in May 2009, he falsely denied to the IRS on a tax return for the KAC that the KAC had received any money from foreign sources in 2008.

In addition, according to court documents, Fai sent a letter in April 2010 to the Justice Department falsely asserting that the KAC was not funded by the government of Pakistan.  Later that year, Fai falsely denied to the IRS that the KAC had received any money from foreign sources in 2009.  In July 2011, Fai falsely denied to FBI agents that he or the KAC received money from the ISI or government of Pakistan.

In fact, Fai repeatedly submitted annual KAC strategy reports and budgetary requirements to Pakistani government officials for approval.  For instance, in 2009, Fai sent the ISI a document entitled “Plan of Action of KAC / Kashmir Centre, Washington, D.C., for the Fiscal Year 2010,” which itemized KAC’s 2010 budget request of $658,000 and listed Fai’s plans to secure U.S. congressional support for U.S. action in support of Kashmiri self-determination.

Fai also admitted that, from 1990 until about July 18, 2011, he corruptly endeavored to obstruct and impede the due administration of the internal revenue laws by arranging for the transfer of at least $3.5 million to the KAC from employees of the government of Pakistan and the ISI.

According to court documents, Fai accepted the transfer of such money to the KAC from the ISI and the government of Pakistan through his co-defendant Zaheer Ahmad and middlemen (straw donors), who received reimbursement from Ahmad for their purported “donations” to the KAC.  Fai provided letters from the KAC to the straw donors documenting that their purported “donations” to the KAC were tax deductible and encouraged these donors to deduct the transfers as “charitable” deductions on their personal tax returns.  Fai concealed from the IRS that the straw donors’ purported KAC “donations” were reimbursed by Ahmad, using funds received from officials employed by the ISI and the government of Pakistan.