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IRS Prosecutes Schneider For Alleged Nauru Bank Racket

by Mike Godfrey, Tax-News.com, New York

23 December 2002


According to a US Department of Justice press release, an IRS sting operation has led to the indictment of well-known offshore personality Jermome Schneider on a count of conspiracy to defraud through the sale of Nauru-registered banks to US citizens in a way that concealed their ownership.

Nauru remains on the Financial Action Task Force's list of countries deemed to be 'unco-operative in the fight against money laundering', although a number of outside agencies are working with the local government to improve its legislative regime. Last June, reports to the Asia Pacific Group on Money Laundering's annual meeting in Australia suggested that the tiny jurisdiction was being used to launder and hide funds by international terrorist organisations.

APG's Money Laundering Secretariat head, Rick McDonnell said: 'Until Nauru has a full and comprehensive law in place and other anti-money laundering standards and measures...it will be a vulnerable place for money laundering and it will be attractive to money launderers.' Nauru Ministers have pleaded for clemency from international organisations on the grounds that the jurisdiction faces 'special challenges'.

The press release reads as follows:

US Attorney Kevin V. Ryan and IRS Criminal Investigation Director of Field Operations Richard Speier, jointly announced the indictment yesterday of Jerome Schneider, age 51, and Eric J. Witmeyer, age 48, on one count each of conspiracy to defraud the Internal Revenue Service, 14 counts each of wire fraud and eight counts each of mail fraud. The two were indicted by a federal grand jury in San Francisco in connection with their alleged marketing and sales to U.S. taxpayer investors of offshore international banks or corporations and causing those entities to be "decontrolled" which is a process used by the defendants to attempt to conceal the U.S. taxpayer investor's ownership in the offshore bank or corporation.

According to the indictment, Mr. Schneider a US citizen residing in Vancouver, and Mr. Witmeyer, a Los Angeles attorney, are alleged to have operated a scheme between January 1994 and December 2001, in which they offered for sale the stock of Nauru trading corporations licensed as international banks and other offshore corporations in an attempt to defraud the Internal Revenue Service. Nauru is an island nation located in Pacific north of the Solomon Islands. No business was conducted by any offshore entity sold by the defendants on Nauru nor was any bank account established on Nauru. Instead, the defendants would cause accounts in the name of the Nauru bank to be established in financial institutions located outside the U.S.

The indictment alleges that the defendants used a scheme called "decontrol" to conceal the U.S. taxpayer's ownership in the offshore entity. Utilizing Mr. Schneider's businesses known as Premier Corporate Services, LTD, Premier Financial Advisors, LLC., Premier Management Services, LTD, Wilshire Publishing, and other entities, U.S. taxpayers paid him between $15,000 and $60,000 for an offshore entity. Mr. Witmeyer "decontrolled" the offshore entity for a fee of approximately $15,000. The indictment alleges that IRS undercover agents posing as prospective clients, met with the defendants and were told how the offshore entities being sold and the "decontrol" process could be used to evade taxes on income earned by the U.S. taxpayer or the offshore entity.

In the "decontrol" process structured by the defendants, the U.S. taxpayer investor paid defendant Schneider approximately $15,000 to $60,000 for the offshore entity and then defendants sold the U.S. taxpayer investor's interest in the offshore entity to a so-called "Independent Foreign Owner" (IFO) in exchange for a promissory note in an amount large enough to make it appear as if there was a bona fide and negotiated sale of the offshore entity to the IFO. The amount of the promissory note was arbitrarily set by the defendants. There were no negotiations between the U.S. taxpayer investor and the IFO as to the sale price of the offshore entity. The defendants advised the U.S. taxpayers that they could receive back the funds they had transferred to the offshore entity through tax free loans.

The maximum statutory penalty for conspiracy is in violation of 18 U.S.C. Section 371 is five years in prison and a fine of $250,000. The maximum statutory penalty for each count in violation of wire fraud and mail fraud in violation of 18 U.S.C. Section 1343 and 1341, is up to 5 years in prison and a fine of $250,000, plus restitution. However, any sentence following conviction would be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and would be imposed in the discretion of the Court. An indictment simply contains allegations against an individual and, as with all defendants, Mr.Schneider and Mr. Witmeyer must be presumed innocent unless and until convicted.

Mr. Schneider's and Mr.Witmeyer's initial appearance in federal court has not yet been scheduled.


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