IRS Criminal Investigation casework mainly focused on significant legal source tax investigations, with increasing numbers of high-quality, high-impact criminal investigations with international tax administration aspects. The public may be surprised to know that IRS Special Agents have a significant impact in the area of public corruption.
Criminal Investigation continues to participate in numerous investigations involving individuals who violate the public trust. The subjects of these investigations include both elected and appointed officials from all levels of government including, local, county, state, federal, and foreign officials.
Public corruption investigations run the gamut of criminal offenses including bribery, extortion, embezzlement, illegal kickbacks, tax evasion, and money laundering. Criminal Investigation concentrates its resources on the tax and money laundering aspects of these investigations in cooperation with other federal, state, and local law enforcement agencies.
The impact of investigating public corruption can be demonstrated by the recent sentencing of 16 former utility company construction inspectors and private contractors in the Brooklyn, N.Y. federal courthouse who were ordered to forfeit more than $2.8 million and pay nearly $1.5 million in restitution along with $10,000 in fines.
The defendants were sentenced on charges stemming from schemes in which they solicited and accepted millions of dollars in kickbacks from contractors between 2000 and 2009 in connection with construction projects in Manhattan, the Bronx and Westchester County. Con Ed is the main utility provider in the New York City area for electric, gas and steam utility services.
As such, it is responsible for maintaining and repairing its electrical, gas and steam facilities, as well as installing new lines and for rebuilding and rerouting existing utility lines when construction projects interfere with them. Con Ed contracts private construction companies to perform this work, and Con Ed inspectors monitor the projects to ensure that they are being performed safely and to engineering specifications – and that Con Ed is not overpaying the contractors.
Also sentenced were two contractors for paying kickbacks and the brother-in-law of one of the inspectors for laundering bribe payments to conceal their true nature and source. According to court documents, following the attacks of September 11, 2001, Con Ed directed or took part in much of the subsurface construction in lower Manhattan and received hundreds of millions of dollars in federal funds, mainly from the United States Department of Housing and Urban Development (HUD), to perform the work.
In connection with these projects, Con Ed inspectors solicited bribes in exchange for approving contractor invoices that listed phantom pay items, allowing contractors to perform unnecessary additional work on the projects, and expediting Con Ed payments to the contractors. In the aggregate, these schemes cost Con Ed millions of dollars.
All but two of the defendants arrested in connection with the investigation pleaded guilty. Contractor John Connelly was tried and convicted in August 2010 of paying bribes in separate schemes with various Con Ed inspectors, and retired Port Authority of New York and New Jersey project contractor, Nathaniel Ham, was tried and convicted in March 2011 of conspiring with his brother-in-law William Shannon and two other Con Ed inspectors to launder their bribe payments through Ham’s credit union accounts.
The Con Ed corruption was far from the only investigative activity fielded by the IRS-CI New York office in November and December.
New York contractor ordered to pay $306,765 in payroll tax evasion scheme
On November 15, 2011, in Manhattan, Michael Mahoney was sentenced to 24 months home confinement, two years of supervised release and ordered to pay $306,765 in restitution. According to the information court documents, from 2004 through 2006, Mahoney, owner and operator of a construction company known as EMC of New York, took checks that represented receipts of EMC and, rather than depositing them in the corporate bank accounts, cashed them at a check-cashing establishment in New York City, operated by a co-conspirator.
The cash that Mahoney received was used, in part, to pay employees all, or a portion of their wages, avoiding federal tax reporting and withholding requirements and defrauding the IRS of taxes owed under FICA.
IRS, FBI and SEC team up to investigate securities dealer
From January 2003 through March 2003, Mark McKelvie was employed as a stock promoter and financier in Rochester, New York engaged in a scheme to manipulate artificially the price of AR Associates' common stock. AR Associates was a Nevada corporation purportedly engaged in the business of developing and selling technology for use in easing traffic congestion. AR Associates was publicly-traded over-the-counter, and listed under the symbol "ARAI," in the "pink sheets.”
Two co-conspirators, who owned substantial amounts of AR Associates’ common stock, agreed with McKelvie to create generate artificial demand among retail customers for AR Associates' common stock by paying secret bribes to stock brokers to motivate them to cause their customers to buy AR Associates' common stock.
When the brokers' customers were persuaded to place orders to buy AR Associates' stock, those orders would be "filled" with sales of shares from accounts controlled the two co-conspirators. In return, the two co-conspirators agreed to pay McKelvie and a cooperating witness approximately 55 percent of the proceeds of such sales, with the understanding that cooperating witness would then use 30 percent of those sales proceeds to compensate brokers to encourage them to tout aggressively AR Associates' stock to the public. McKelvie was fined $10,000 and paid back $63,120 in taxes, penalties and interest for his 1996 tax year and $154,972 in taxes, penalties and interest for his 1997 tax year.
Structuring results in $6,000 fine to contractor
Jehangir Khalid, 46, was alleged to have structured $100,000 in transactions in a twelve month period from March 2003 through November 2004.
Khalid owned three businesses which performed a variety of subcontracting services based at various addresses in Brooklyn. Khalid and his brother, Malik Khalid, frequented City Check Cashing, located in Jersey City, NJ to cash checks payable to his businesses. Khalid was sentenced to five years probation and fined $6,000.
Colombian drug trafficking organization member lands in jail for 10½ years
As part of Operation Peso Feo, William Ardilla was sentenced to 36 months and Alcibiades Enrique Cervantes Cujia was sentenced to 126 months. The two were part of large scale conspiracy to import cocaine into the United States.
Cervantes Cujia was heard discussing the pickup of narcotics proceeds in New York City. William Ardila was heard discussing the wire transfers of narcotics proceeds for the benefit of another conspirator. In August 2007, in Maicao, Colombia, Ardila, along with another co-defendant, supervised and participated in the delivery of 220 kilograms of cocaine to other members of the Drug Trafficking Organization in order to distribute the cocaine in the United States and elsewhere.
As part of the indictment, a forfeiture allegation has been made to obtain any and all property constituting or derived from any proceeds from the narcotics trafficking organization.
Long Island Painter underreports $20,495 in Payroll Taxes
Francisco J. Lopez owned and operated Pelicanos Painting Inc. ("Pelicanos Painting"), a painting business located in Suffolk County, New York. From January 31, 2005 through December 31, 2005, he filed Form 941s with the IRS for Pelicanos Painting showing reported wages of $62,440 and FICA payroll taxes of $14,885.34. Actually, as Lopez then knew and believed, there were additional unreported wages of $168,806.36 and an additional $20,495.35 in FICA payroll taxes due and owing.
Lopez was sentenced to 6 months imprisonment, ordered to pay a $5,000 fine. He paid his back taxes to the IRS.
K-9 Dog Detects Drugs on Clothes in Suitcase at LaGuardia Airport
On May 8, 2009, Paulino-Gomez, a/k/a Maritza Alvarez-Cruz, traveling from LaGuardia Airport, Queens, NY to Fort Lauderdale, FL, was found with $74,705 on her person and in her baggage at the Northwest Airlines Terminal in New York’s LaGuardia Airport. During a routine TSA luggage search at LaGuardia Airport, a TSA screener found U.S. currency concealed behind the lining of a piece of checked luggage.
A further search of the luggage revealed approximately four stacks of cash stuffed within white tube socks hidden behind the lining of the suitcase. A K-9 dog alerted law enforcement of the presence of narcotics on the white tube socks containing the defendant funds. The government moved to seize the funds believing them to be intended to be furnished in exchange for controlled substances from narcotics trafficking. Paulino-Gomez was recently sentenced to time served and forfeited the $74,705.
Harboring Illegal Aliens Results in Forfeiting $9,000
From July to September 2010, Ah Cheng Siew hired and lodged individuals he knew to be illegal aliens for the purpose of getting them hired at private restaurants for commercial advantage and his own financial gain.
Siew was part of a larger sweeping arrest of 18 defendants. Some of those arrested operated employment agencies in Manhattan’s Chinatown. For a fee, they referred illegal aliens to restaurant owners and managers, who in turn employed the illegal aliens. The aliens were often employed at below minimum wage and were often housed in crowded and unsanitary conditions. As part of Siew’s sentence he forfeited $9,000.
US Postal Service Mail Carrier and Tax Preparers forfeit millions in False Claim Schemes
From 2002 through 2008, Yavette Adams, 49, a mail carrier with the U.S. Postal Service at the Tremont Station in Bronx, NY, conspired to file false claims against the US Government. For Adams’ part in the conspiracy, she placed approximately 99 envelopes containing United States Treasury checks into a mailbox designated for a non-existent apartment so that such envelopes could be retrieved by another person who was not the addressee on any of these United States Treasury checks.
The tax and mail theft scheme is alleged to be running out of the Dominican Republic. Adams was ordered to forfeit $1 million and a 2007 blue Kawasaki motorcycle. Additionally, she received 12 months incarceration and was ordered to pay $200,000 in restitution.
Jossly Daniel Willmore was sentenced to nearly two years incarceration for his role in a conspiracy with Ivan Coss, who was sentenced to 18 months for preparing tax returns as part of a large conspiracy to defraud the government.
Coss was ordered to pay back more than $3 million in restitution for the scheme he was involved in. Coss and Willmore prepared fraudulent tax returns out of an apartment in Manhattan and in Pennsylvania using identification information of people in Puerto Rico, prepared and submitted to the IRS false and fraudulent US Individual Income Tax Returns using identification information of individuals located in Puerto Rico.
Head Start funds embezzled by administrator; results in recovery of $120,700
Philip Klein, 61, of Brooklyn, New York, was sentenced to one year and one day for embezzling government funds and tax evasion. Klein had embezzled Head Start Program funds, which was intended for the use of underprivileged children or children in disadvantaged educational situations, from the United States Department of Health and Human Services.
Klein was the administrator of the program. He underreported his income for the years 2005 through 2008. Klein agreed to plea for unreported income for those years that totaled $183,255. In addition to the time to serve, Philip Klein was ordered to pay $33,802 in restitution to the IRS and forfeit $120,700.
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