Pioneer of Sham Tax Havens Sits Down for Pre-Jail Chat

[R.A. Hettinga]

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<http://www.nytimes.com/2004/11/18/business/18tax.html?th=&oref=login&pagewanted=print&position=>

The New York Times

November 18, 2004

Pioneer of Sham Tax Havens Sits Down for Pre-Jail Chat
By DAVID CAY JOHNSTON

EATTLE, Nov. 17 - Jerome Schneider, the nation's best-known seller of
fraudulent offshore banks, said in an interview today that he had helped
hundreds of rich Americans evade taxes, including actors, celebrities and
business owners.

 Mr. Schneider, who pleaded guilty in February to conspiring to help his
clients evade the tax laws, said that he expected "every single one" of his
clients to be prosecuted or sued for the taxes they evaded. He said clients
sought to evade taxes on incomes ranging from $100,000 to $40 million,
though most were from a third to half a million dollars.

 Mr. Schneider, 53, spoke in a cramped hotel room here under the watchful
eye of three Internal Revenue Service criminal investigators, who said
nothing but smiled broadly at times as he answered questions and named
clients and associates. The I.R.S. set up the interview with Mr. Schneider
but did not interfere with it. The agency, by law, cannot comment on
individual taxpayers.

 Under the terms of his agreement with the government to plead guilty, Mr.
Schneider may not make any public comments about his former clients
"without prior consent of the government." He is to be sentenced on Monday
in Federal District Court in Los Angeles. In return for his cooperation, he
is expected to serve no more than 24 months in prison. He has already paid
$100,000 in restitution.

Mr. Schneider said he always reported his full income to the I.R.S. and
never personally used an offshore bank to hide income.

Since 1976, Mr. Schneider has set up sham banks for clients in the Cayman
Islands, Grenada, Montserratt, Vanuatu, the Cook Islands and, recently, in
Nauru, a Pacific island.

Clients paid as much as $60,000 to "acquire" an offshore bank, which
consisted of nothing more than pieces of paper to create the appearance of
legitimate business activity, he said, confirming the accusations in the
government indictment. He said that while most clients wanted to hide money
from the I.R.S., some also wanted to conceal money from estranged spouses
or creditors.

"Every one of my clients knew full well what they were getting into,
including the potential to be prosecuted," he said, detailing how they
signed contracts, were advised by lawyers and were told that if tax
authorities ever caught onto them they could go to prison. "They understood
that," he contended.

 He said that all his clients had two things in common - they were rich and
they wanted to escape taxes.

Most of the nation's major accounting firms worked with one or another of
his clients, he said, and he named two law firms that he said were central
to his business.

 He said one prominent actress sent money to the United International Bank
in Nauru, which he said he created. He said the actress paid $50,000 for a
legal opinion asserting that the arrangement was legal.

 Mr. Schneider also said that in 1988 he arranged for a prominent
motivation coach to place $250,000 in an offshore bank without reporting
the money to the I.R.S.

 In addition, Mr. Schneider said that a billionaire media businessman, one
of several clients who he said were on the Forbes 400 list of the
wealthiest Americans, sent $40 million to a sham bank in Nauru to pay for a
nut-processing company in 1994. The owner of the company has died, but his
estate is challenging in Tax Court an I.R.S. demand that taxes be paid on
profits from the sale.

 For 28 years, Mr. Schneider promoted offshore tax schemes. He sold, he
said, more than a million copies of his book, "The Complete Guide to
Offshore Money Havens," which he advertised in The Wall Street Journal and
SkyMall, a magazine found in the seat-back pocket on many airlines. The
2000 edition book carried an endorsement by Representative Billy Tauzin,
the Louisiana Republican, who also spoke at one of Mr. Schneider's tax
evasion conferences. Mr. Tauzin's spokesman, Ken Johnson, said the
endorsement was "a stupid mistake."

 Mr. Schneider, 53, who lives in Vancouver, British Columbia, was the
picture of a successful businessman, dressed in a knit shirt, gray wool
slacks and black loafers, his graying hair clipped short, his face framed
by horn-rimmed glasses.

 He began the interview by describing his conduct in terms of helping
people, but when pressed he said, "Yes, I am a criminal."

 Mr. Schneider said his undoing began the day more than a decade ago when
he asked Jack Blum, a former United States Senate investigator, to speak at
one of his offshore seminars. Mr. Blum, who specializes in exposing
international financial crimes, wrote a letter to the Justice Department
that prompted the investigation that led to Mr. Schneider's guilty plea.

 Mr. Blum said, "That Schneider could operate openly for years, buying ads
in the Wall Street Journal and the American Airlines flight magazine, shows
the utter failure of tax law enforcement." He said law enforcement had
known about Mr. Schneider for years, but failed to act.

 The Senate Permanent Investigations subcommittee called Mr. Schneider as a
witness in 1983 hearings on offshore tax evasion, and two years later the
Comptroller of the Currency warned American banks about dealing with some
of the offshore banks Mr. Schneider created.

 The I.R.S., in court papers, said it began investigating Mr. Schneider in
1997, 14 years after his Senate testimony, because of the letter from Mr.
Blum. It took five more years to obtain an indictment.

 Today, Mr. Schneider said, he is broke. "I lost everything,'' he said. "My
wife divorced me and with the legal fees, everything is gone."

 Asked about the millions of dollars he earned setting up offshore banks,
he replied, "It is gone, all gone."

Since he has held himself up as the world's leading expert on hiding money
offshore, how could one know for sure if Mr. Schneider really is broke? The
I.R.S. agents listening to the question put their hands to their mouths to
repress grins.

"If you can find it," Mr. Schneider said, "I would say take it."

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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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