Tycoon Pleads Guilty To Offshore Tax Evasion Charges

by Mike Godfrey, Tax-News.com, Washington

12 September 2006

A US telecoms industry entrepreneur has pleaded guilty in a US district court in what is believed to be America's largest ever case of personal tax evasion.

Walter Anderson, who formed Mid-Atalntic Telecom when the industry was being deregulated in the 1980s, is accused of two counts of tax evasion and one count of failing to report $365 million in personal income in 1998 and 1999. Last Friday, he pleaded guilty to the charges in US District Court for the District of Columbia.

Anderson was arrested in February 2005 at Washington Dulles airport while stepping off of a plane from London after an investigation unraveled a complex set of offshore entities, banks accounts and transactions designed to conceal income earned from his interest in companies he owned.

According to the Department of Justice, in October 1992, Anderson allegedly formed an offshore corporation named Gold & Appel Transfer in the British Virgin Islands (BVI) and hired a trust company to serve as Gold & Appel’s registered agent and sole director. Gold & Appel was said to be owned by another BVI company, Icomnet, previously formed by Anderson.

Prosecutors believe that Anderson granted himself an exclusive option to purchase Gold & Appel shares for a nominal sum, insuring that no one else could own these remaining shares. By forming the corporations in that manner, neither the option nor Anderson’s name was recorded in the BVI’s public records. As a result, the indictment alleged that Anderson hid his ownership of the corporations that held these assets, but was still able to maintain complete control.

After other merger activity with telecommunications companies he owned, Anderson further obscured his ownership of Gold & Appel, by using an alias and forming another offshore corporation - Iceberg Transport, S.A. - in Panama. To disguise his ownership of this company, the DoJ said that Iceberg was created as a “bearer share” company, meaning that, unlike US corporations, there was no central registry information on the company. Therefore, whoever had physical control over the actual share certificates was considered the owner.

Anderson allegedly received the shares, using his alias, in a mailbox drop in Amsterdam. Once he set up Iceberg, Anderson was then said to have directed the transfer of shares of Gold & Appel to Iceberg, and represented that Iceberg owned Gold & Appel. Anderson then hired a trust company and its employees to serve as registered agent for the company and as officers and directors of Iceberg, ensuring that he had complete control over it.

Prosecutors allege that between October 1992 and July 1996, Anderson transferred his ownership interests in three telecommunications companies-Mid-Atlantic Telecom, Esprit Telecom and Telco Communications Group-to Gold & Appel and Iceberg. In this way, when appreciated stock was sold, or other taxable events occurred, Gold & Appel and Iceberg not Anderson would appear to be the taxpayer.

After these transfers were made, each of these telecommunication corporations became dramatically more valuable. Between 1995 and 1999, Anderson used the assets of Gold & Appel and Iceberg, which included the profits realized from these three telecommunication corporations, to invest in other business ventures. This generated more than $450 million in earnings for Gold & Appel and Iceberg during this period.

Anderson is also charged with evading taxes in the District of Columbia and has claimed residency in the state of Florida, which does not levy income tax.

Anderson initially faced an 80-year prison term, but will serve up to ten years under the terms of his plea agreement. He must also pay restitution to both the federal government and the District of Columbia. Sentencing is due to take place in January and Anderson must remain in detention until this time.

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