BERMUDA: Largest individual tax evasion case intensifies.

As published on caymancompass.com, Thursday 7 April, 2022.

Bermuda and Cayman liquidators of an investment company for a family trust, embroiled in the largest US tax-evasion case against an individual taxpayer, have filed for Chapter 15 recognition of the Bermuda liquidation in the United States.

The filing attempts to prevent the US Internal Revenue Service from enforcing an alleged US$1.4 billion tax debt.

The IRS charged Texas billionaire Robert T. Brockman in October 2020 with an offshore tax-evasion scheme that concealed approximately $2 billion in income from the tax authority.

The IRS alleges that Brockman, the retired CEO of a company that developed a specialised software for car dealerships, used offshore entities in Bermuda and Nevis to hide his investment income from Cayman Islands-based private equity funds.

Brockman allegedly directed the untaxed capital gains from the fund investments to secret bank accounts in Bermuda and Switzerland.

Brockman, 80, has pleaded not guilty and his lawyers claim he cannot stand trial because he has dementia. Prosecutors contest this but a judge has yet to rule on Brockman’s competence.

On 29 March 2022, the liquidators of Bermuda company Point Investments Ltd made a filing in a Delaware court seeking a stay of execution against the company’s assets and for provisional relief preventing the IRS and other parties from seizing property belonging to the company.

The liquidators – Matthew Clingerman, KRyS Global (Bermuda); and Andrew Childe and Richard Lewis, FFP (Cayman) – stated in their filing that the IRS seeks to immediately seize $1.42 billion on the basis that Point Investments Ltd is Brockman’s “alleged nominee or alter ego”.

However, they said, no court has ever made such a finding or found Brockman liable for any tax. “Instead, the IRS has invoked a federal tax procedure known as a ‘jeopardy assessment’ to sidestep having to prove its case before levying assets,” the filing, published by Offshore Alert, said.

Because the IRS did not provide notice of the purported levies, the liquidators said they had no choice but to commence chapter 15 case proceedings “to satisfy their fiduciary duties of preserving the debtor’s assets for the benefit of its stakeholders, to prevent the piecemeal administration of the debtor’s worldwide assets, and to ensure the debtor’s orderly liquidation”.

Bermuda’s Supreme Court ordered Point Investments Ltd to be wound up in February 2022. The company’s ownership structure is complex.

Point Investment’s economic interest, in the form of common shares, is fully owned by British Virgin Islands-based Spanish Step Holdings, which is part of the Eugene Brockman Charitable Trust.

According to a 2021 Bermuda Supreme Court judgment, Point Investments Ltd is the corporate investment vehicle for the trust and holds about US$1.8 billion in assets, most of which are invested in Cayman Islands funds.

However, the company’s sole management share and voting control is held by Nevis-based Point Investment LLC.

Since April 2021, the Bermuda-based Brockman family trust has been controlled by BCT Limited, a Cayman Islands subsidiary of Maples FS, as its trustee.

The Brockman trust’s previous trustee, St Johns Trust Company Limited, was removed by the Bermuda court, finding that it had never been properly appointed.

Between 2010 and 2018, Evatt Tamine, an Australian lawyer, controlled both the St Johns Trust Company and, through another trust company, Point Investments LLC and thus the management of Point Investment Ltd, according to court documents.

This left Spanish Step Holdings and the new trustee of the Brockman trust without management control of the trust’s investment vehicle, Point Investment Ltd, and became the main argument to have the company wound up.

BTC is also suing Tamine for allegedly misappropriating $28 million from the trust.

The IRS’s key allegation against Brockman is that the family trust is a sham and Brockman retained control of the assets, while his lawyers say Brockman had no role in managing the trust.

Tamine is a cooperating witness with the US Department of Justice in its prosecution of Brockman, according to court documents.

Prosecutors allege that in addition to the family trust, Brockman used dozens of offshore entities, including other sham trusts, corporations and LLCs.

They say the ownership structure of offshore trusts and holding companies was intentionally convoluted to both conceal Brockman’s ownership and underreport his taxable income.

“Although Brockman outwardly owns none of these entities, he controls them all. This is accomplished by his use of hand-picked trustees and trust ‘protectors’ that he controls,” the Department of Justice said in a court filing in the US in February this year.

It added that Tamine explained, in a sworn affidavit filed with the Supreme Court of Bermuda in 2020, that Brockman controlled the Eugene Brockman Charitable Trust and related offshore entities.

In the affidavit, Tamine stated that “Brockman gave very detailed instructions directing the administration of the [trust] and all the other entities that were associated with him”. He added that “Brockman was intimately involved in every aspect of the administration of the Brockman trust, and it was administered exclusively at his direction.”

Using this structure, US authorities allege Brockman failed to report approximately $2.7 billion of income on his tax returns between 2004 and 2018, consisting of unreported investment income and gains. These derived mostly from private equity funds formed by Brockman with his former business associate, Robert Smith of Vista Equity Partners.

In October 2020, Smith entered a non-prosecution agreement with the United States admitting to wilfully evading US tax and filing false returns for 2000 through 2015. He also pledged to cooperate with the US government against Brockman, who had invested $1 billion into Smith’s funds and helped launch his private equity career.

Smith admitted to engaging in an illegal scheme to conceal income and evade taxes by using an offshore trust structure with related foreign corporations and offshore bank accounts.

Prosecutors said Smith’s offshore structure was similar to Brockman’s because he recommended the arrangement to Smith.

In September 2021 the IRS issued a jeopardy assessment concerning Brockman’s individual income tax liability for the years 2004 through 2007, 2010, and 2012 through 2018.

Using the assessment, the IRS seized funds from Brockman’s and his wife’s bank accounts and placed liens on their properties and his retirement pay.

The IRS uses jeopardy assessments when the agency fears the taxpayer may leave the country, place assets beyond the reach of US authorities or otherwise fail to pay the tax bill.

Brockman filed a suit against the IRS in January 2022 to have the jeopardy assessment lifted, with his lawyers arguing that it was unreasonable and improperly imposed as none of the conditions apply.

They denied the tax-evasion allegations and noted that there were sufficient assets in the US to satisfy any potential tax debt. In a separate tax court trial, Brockman is contesting the amount of the jeopardy assessment.

The Justice Department in response stated that a review process could take years and claimed Brockman was still using foreign trusts and corporations to hide billions of dollars from the IRS and continued to move family assets between offshore ‘tax havens’.

The department said in a court filing that Brockman appeared to be acting “quickly to place his property beyond the reach of the government by maintaining his property offshore, transferring it from one tax haven to another, concealing it, dissipating it, or transferring it to other persons, including family members”.

It alleges that sometime in 2020 Brockman created two new foreign trusts with foreign bank accounts in the Cayman Islands and transferred funds to them from US sources.

It cited the Bermuda litigation between Spanish Step and Point Investments, claiming that Brockman’s wife had filed the suit that resulted in the removal of St John’s Trust Company and the appointment of the Cayman trust company BCT.

“Brockman did not domesticate the [family trust] or its control to the United States. Instead, through Mrs. Brockman, he moved the [trust] and its control to another tax haven, (Cayman Islands), subject to another tax haven’s laws (Bermuda) where a U.S. judgment for taxes may be unenforceable.”

In a court filing in March 2022, lawyers for BCT Limited, the trustee of the Brockman trust, proposed to place $1.45 billion in US bank accounts, provided the IRS lifted the jeopardy assessment and resulting liens on Brockman’s properties and assets.

BCT said it was willing to move the funds from Switzerland to the US, where the funds would be available for any liability determined to be owed by Brockman after either a settlement or the final appeal of the tax court case.

Lawyers for Brockman have argued that the proposal proves there is no jeopardy, because the tax liability could be collected.

Lawyers for the US government have responded that it does not prove anything and the proposal was merely “a highly conditional invitation for further discussions”.

In addition, several of the conditions were well beyond the control of the US as court approval would be required from the Bermuda Supreme Court, “which in the past has been hostile to the Department of Justice”, they wrote.

The proposal also appeared to require the release of funds frozen in Swiss accounts by the Swiss authorities, who may have their own claim to the funds, they added.

Swiss prosecutors froze about $950 million linked to Brockman after his indictment in October 2020.

INDIA: Searches Conducted On W…