(Bloomberg) A Swiss banker used a toothpaste tube a decade ago to smuggle diamonds into the U.S. Prosecutors now say an Israeli bank employee devised a new way to help a U.S. client hide assets from the Internal Revenue Service: She carried account statements into the country on a USB flash drive concealed in her necklace.
The businessman, Masud Sarshar, agreed to plead guilty to hiding more than $21 million through accounts at Bank Leumi Le-Israel Ltd. and two other Israeli banks, the Justice Department said Monday.
The case comes as the U.S. shifts the focus of its offshore tax cases beyond Switzerland. Eighty Swiss banks avoided prosecution by paying $1.37 billion in penalties and admitting how they helped Americans cheat on their taxes. In December 2014, Bank Leumi agreed to pay $400 million for helping American clients evade taxes for a decade. The bank also agreed to cooperate with investigators.
Court papers spell out how Sarshar, owner of a clothing business, tried to avoid leaving a paper trail that could expose his offshore money. He used a code name in 1993 to set up an account at an unidentified Israeli bank, and he and his relationship manager at the time would secretly meet in Sarshar’s car so the manager could show him copies of his account statements.
Three Accounts
In 2007, Sarshar opened three accounts at Bank Leumi that he hid by placing them in the names of entities he created. Sarshar believed his new relationship manager “knew of his desire to keep his Bank Leumi accounts secret,” and she “acted accordingly,” according to his plea agreement.
She “brought electronic copies of Sarshar’s Bank Leumi account statements during her visits to the United States, which she kept hidden on a USB drive contained in a necklace that she wore,” according to Sarshar’s plea agreement.
Neither of his two relationship managers were identified in court papers or charged with wrongdoing.
Sarshar closed his Bank Leumi accounts in 2011, telling his manager there that he was worried his accounts would be revealed to U.S. investigators.
“Masud who?” she responded, according to the plea agreement, indicating that she “would claim ignorance regarding Sarshar’s existence if asked about his Bank Leumi accounts.”
Two Passports
Sarshar’s relationship managers also offered him so-called back-to-back loans, which allowed him to access accounts in Israel through loans taken at Los Angeles branches, the U.S. said. This way, he moved about $19 million to the U.S. without alerting the IRS. At the direction of his relationship managers, Sarshar obtained Israeli and Iranian passports to avoid alerting bank compliance officers.
He also transferred funds to a third Israeli bank in 2011 and $5.8 million from his Bank Leumi account to a Hong Kong bank, according to the plea agreement.
Sarshar, a naturalized U.S. citizen from Iran, is the owner of Apparel Limited Inc. Under his plea deal, he will serve two years in prison if a judge agrees to that term.
“He’s pleading guilty because he is guilty,” said his attorney Edward Robbins Jr. “He’s cooperating to duck a significantly higher jail sentence than he’s looking at under his plea.”
High Balance
The plea agreement calls for Sarshar to pay $8.3 million in restitution and a penalty of 50 percent of the high balance of his accounts for failing to disclose them.
“Sarshar stashed millions in secret foreign financial accounts in Israel and then sought to use these accounts to evade his U.S. tax obligations,” Caroline Ciraolo, who heads the Justice Department’s tax division, said in a statement.
In an interview, she said the investigation is continuing, and the Tax Division’s offshore bank cases remain a “top priority.”
The U.S. has brought dozens of offshore tax cases since former UBS Group AG banker Bradley Birkenfeld pleaded guilty in 2008 and pierced the veil of Swiss bank secrecy. He said the bank made $200 million a year handling $20 billion in undeclared assets. He also said he took customer checks to deposit in European banks and bought diamonds for a customer, bringing them to the U.S in a toothpaste tube.
After serving a prison term, he secured an IRS whistle-blower award of $104 million for cooperating with the government.
The case is U.S. v. Sarshar, 16-cr-527, U.S. District Court, Central District of California (Los Angeles).
