EXHIBIT
A
TO
ROBERT
F,
SMITH
NON-PROSECUTION
AGREEMENT
STATEMENT
OF
FACTS
1.
Robert
F.
Smith c•Smith"), age 57, is a resident
of
Austin, Texas and a citizen
of
the
United States. From 2000 through
May
2015, Smith engaged in an illegal scheme to conceal
income and evade taxes he owed
by
using an offshore trust structure with related foreign
corporations and offshore bank accounts, and
by
willfully filing a series
of
false documents with
the Internal Revenue Service
('"IRS")
and the Treasury Department.
2. Beginning in
or
about 1997, while working
as
an investment banker
at
a leading global
investment bank and securities firm, Smith met and developed a business relationship with
Individual A, the
CEO
of
a corporation that produces and markets computer software (''Company
A"), located in Houston, Texas. Smith, who received an MBA from Columbia University in
1994, worked extensively with Individual A in 1997 and 1998 regarding the potential sale
of
Company A. During that process, Smith learned that Company A was purportedly owned
by
a
foreign holding company that, in turn, was purportedly owned by a foreign trust located in
Bermuda. Individual A told Smith that the foreign trust was created
by
Individual
A's
father in
the 1980s. Individual A, and others
who
worked for Individual A, told Smith that because
Company A was owned
by
the offshore trust, no United States income tax would be owed on the
profits gained from the sale
of
Company
A's
stock.
3. The contemplated sale
of
Company A did not occur. Instead, Individual A approached
Smith about the prospect
of
creating a private equity fund ("'Fund
I")
in which Individual A would
be the sole limited partner investor, through his foreign trust structure. Smith left his employment
with the investment bank and in 2000, founded a private equity firm located in San Francisco,
California. Smith has been the CEO
of
the private equity finn since that time. Individual A
initially made a $300 million commitment to Fund
I,
which was later increased to
$1
billion.
Although the Fund 1 partnership agreement listed Individual
A's
foreign trust entity
as
its sole
limited partner, it became apparent to Smith that Individual A completely controlled this foreign
trust structure and made all final and substantive decisions regarding its investments in Fund
I.
4. Individual A personally dictated the terms under which he would invest in Fund
I,
including that Fund I had to be located
in
the Cayman Islands and that Smith hold
half
his carried
interest in Fund 1 through a "perfected foreign trust" similar to the
one
used
by
Individual A.
Specifically, Smith would personally receive an 8 percent general partnership interest in Fund
1,
holding 4 percent through his LLC and the other 4 percent through an offshore trust that Smith
controlled. All Fund l profits Smith earned were to be paid through these entities. Individual A
told Smith that a portion
of
the general partner income and distributions from Fund l had to be
held offshore because Individual A did not want to bring his foreign trust, and related foreign
companies, into United States courts to litigate claims
if
Fund l failed
to
perform. Smith
understood from Individual A, that Individual A did not want the United States Internal Revenue
Service ("IRS") to know about his own foreign trust's participation in Fund
l.
Individual A
presented this unconventional business proposal as a "take-it-or-leave-it" offer, dictating the
unique terms and unorthodox structure to the arrangement. Despite any misgivings, Smith
accepted Individual
A's
offer, viewing it
as
a unique business opportunity he eagerly wanted
to
pursue. It became apparent to Smith that despite paperwork that indicated to the contrary,
Individual A completely controlled Individual
A's
foreign trust and related foreign companies,
and
made
all substantive decisions regarding all
of
its transactions and investments.
5.
For
the purpose
of
fonning
a similar foreign trust, Individual A referred Smith to
Individual B, a lawyer in private practice in Houston, Texas who specialized in foreign trusts
and
"asset protection" planning. Smith understood that Individual B previously assisted Individual
A's
father in creating Individual
A's
trust in the 1980s.
6. Individual B told Smith that
he
could
fonn
a foreign trust that could hold assets
for
Smith, and that Smith could use and benefit from these assets without paying United States income
tax. In
order
to avoid United States income and estate tax, Smith was
to
have a foreign U.K.
relative
of
his then-spouse ("nominee settlor·') appear to fund the creation
of
the foreign trust
with an initial "donation"
of
$7,500. Individual B told Smith that
he
and his family could
be
named beneficiaries
of
the foreign trust, and that the foreign trust must also include charitable
beneficiaries in
order
to assure the tax-free nature
of
the trust. Despite representations
and
paperwork to the contrary, the charitable aspects
of
the
trust were discretionary, not mandatory.
Individual B also told Smith that the paperwork he and Smith prepared would
make
it appear as
if
the income and assets
of
the trust were not owned
or
taxable to Smith. Smith knew that
the
nominee settlor would not
be
involved in the creation
of
this foreign trust, and would neither
contribute assets to the trust, nor
pay
any fees. Despite appearing too good to
be
true, Smith did
not consult with other reputable tax attorneys
or
legal advisors
he
knew and trusted to verify the
validity, or legal soundness,
of
what Individual B told him. In fact, Individual A told Smith that
aside from Individual B,
he
should not to discuss his offshore structure with other attorneys.
7. Smith paid nearly all the costs and fees associated with the trust. In 2000, Smith
purported
to
have the nominee settlor settle his Belizean trust, called Excelsior Trust
('·Excelsior"). Smith personally paid nearly
half
the $7,500
to
settle the trust and paid the entire
$30,000 in administrative fees required to form and create Excelsior.
Smith's
foreign relative,
the
nominee settlor
of
Excelsior, paid none
of
the administrative fees. Further, from
2000
through
2014, Smith paid annual fees
of
approximately $5,000 to maintain Excelsior
in
Belize.
The
nominee settlor was not involved in the payment
of
these fees. From 2000 through 2014, Smith
also paid Individual B approximately $800,000 in fees for Individual B's assistance with the
creation
of
a false paper trail, regarding the maintenance and operation
of
Excelsior and its related
entities. Smith falsely told the Belizean nominee trustee that
the
initial donation
of
$7,500
came
from the nominee settlor to create the false impression that Excelsior was
an
independent foreign
trust being created and fonned
by
someone
other
than Smith.
8.
Individual B further told Smith that
the
foreign trust could own foreign corporations
to hold various assets in foreign jurisdictions, similar
to
Individual
A's
foreign trust. Smith
understood from Individual B that although assets would
be
held and titled under the foreign
trust and foreign corporate names, Smith could continue to control the assets and use them
for
his personal benefit.
9. With the assistance
of
Individual B, Smith created a foreign limited liability
company named Flash Holdings, LLC ("Flash''),
in
Nevis. At Individual
B's
direction, Smith
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of
6
falsely represented
to
the Belizean nominee trustee for Excelsior that Flash was formed under
the direction
of
the nominee settlor, using bearer shares, and that Flash
was
purportedly owned
by Excelsior.
1
In reality, Smith paid the fees and costs
to
form Flash and made all substantive
decisions regarding Flash's operations, transactions, income, investments,
and
assets.
10.
Following the formation
of
Excelsior and Flash, Smith held a
4%
general
partnership interest in Fund 1 under his own name and a
4%
general partnership interest in the
name
of
Flash. Smith was
at
all times in control
of
and the beneficial
owner
of
Flash's
4%
general partnership interest in Fund
1.
Smith understood from Individual B that
he
controlled
both the investment decisions for Flash and its assets, but
he
felt obligated
to
honor any claims
Individual A made against
Flash's
tax-free funds held in a foreign jurisdiction
if
Fund I
was
not
successful. Smith understood that Individual A could assert claims
over
the assets
of
Fund 1
if
the fund were to lose money. Individual A had the power to remove Smith and the general
partners from Fund 1 by forcing a sale
of
general partner interests
to
Individual A at Individual
A's
valuation.
11.
In 2000, when Smith formed Excelsior and Flash, Smith knew that Excelsior
and
Flash were intended, and would
be
used, to avoid the payment
of
United States income tax on
income earned from investments in Fund 1 and
other
private equity funds. Smith knowingly and
intentionally used Excelsior and Flash and their associated foreign bank accounts to conceal from
the IRS, and the United States Treasury Department, income earned
and/or
distributed to Flash
from Fund 1 and other private equity funds.
12.
At all times from their formation, Smith knowingly and intentionally controlled
Excelsior and Flash for his use, benefit, and enjoyment, subject only to a claim Individual A could
assert
to
Fund I. Although Excelsior had a nominee trustee in Belize, that trustee exercised no
independent judgment and made
no
decisions regarding Excelsior other than those that Smith
directed. Similarly, although Flash had a nominee corporate manager and resident agent in Nevis,
these managers and agents exercised no independent judgment
over
Flash, and made nodecisions
regarding Flash other than those that Smith directed.
13.
Individual B recommended that Smith work through
him
to
create a paper record
for purposes
of
creating a false impression that Excelsior' s trustees and
Flash's
managers made
independent decisions for these entities when in fact, Smith made all substantive decisions in their
regard. Individual B advised Smith to communicate with the nominee trustees and nominee
managers
of
Excelsior and Flash through Individual B for greater confidentiality, which Individual
B knew was intended to, and did, conceal Smith's control and beneficial ownership
of
the income
concealed in bank accounts under
Flash's
name.
14. Beginning in approximately 2005, Flash began to earn and receive general
partnership carried interest income from Fund
1.
Distributions
of
this income were initially made
to
Flash's bank account at bank in the British Virgin Islands ("BVI Account"). Although Smith
was
not a signatory
on
the BVI Account, Smith was its beneficial owner and controlled all
transactions concerning the account through Flash's nominee manager. Smith did not report this
1
A bearer instrument
is
a document that entitles the holder
of
the document rights
of
ownership
or
title to the
underlying property.
Page 3
of
6
income to the IRS.
15.
In
2007, Smith caused an account in Flash's name to be opened at Banque Bonhote
in
Switzerland
into
which additional carried interest income earned by Flash from Fund I and later
from additional private equity funds were deposited (the "Bonhote Account"). At
all
times, Smith
was the sole signatory on the Bonhote Account, fully controlled the Bonhote Account, and was
listed
in
Banque Bonh6te records as the beneficial owner
of
the Bonhote Account. Smith was,
in
fact, the beneficial owner
of
the Bonh6te Account.
16.
In
2005, Smith and his then-wife purchased a vacation home
in
Sonoma, California.
Smith titled the property they selected
in
Flash's name. Smith directed that the purchase price
of
$2.5 million be paid with untaxed funds from the BVI Account. Smith and his then-wife
renovated the Sonoma property and paid for the renovation costs with untaxed funds deposited
in
the BVI Account and the Bonhote Account. Smith and his family used the Sonoma property and
had unfettered access
to
it from 2005 to 2014. Smith knowingly and willfully neither timely
reported
to
the
IRS
nor timely paid income tax on these funds.
17.
In
20 I 0, after Smith and his then-wife moved
to
Switzerland, they acquired two ski
properties
in
Megeve, France and later a Megeve commercial property using untaxed funds to
make the purchases, and with Individual
B's
advice, titled the properties
in
the names
of
foreign
entities. Smith directed the payment
of
more than
13
million Euros
from
the Bonhote Account to
purchase and furnish the properties. Smith and his family had control
of
the Megeve ski properties
and had priority access to them from 2010 to 2014 unless rented to third parties. Smith
knowingly and willfully neither timely reported
to
the IRS, nor timely paid income tax on these
funds.
18.
From 2005 to 2013, Smith withdrew untaxed funds
from
the
BVI
Account and the
Bonh6te Account for his personal use and benefit. In
2011
and 2012, Smith transferred more than
$13 million
from
the Bonhote Account to a United States bank account for his benefit. Smith used
these funds to build a home and make improvements to property that he owned
in
Colorado and to
fund
charitable activities
on
that property for inner city children and wounded veterans. Smith
knowingly and willfully neither timely reported to the IRS, nor timely paid income tax on these
funds.
19.
From 2000 until 2014, Smith knowingly and intentionally did not advise his
tax
return preparer about Excelsior, Flash, and the BVI Account and the Bonhote Account. Smith
knowingly and intentionally did not tell his return preparer that
he
controlled these entities and
bank accounts
and
that he had placed a portion
of
his general partnership income from Fund I
and other private equity funds into those entities and accounts. Smith knowingly and
intentionally did not tell his return preparer that
he
used untaxed income deposited into these
foreign accounts for his own personal benefit.
20.
From
in
or
about 2006 through 2015, Smith willfully filed false United States
Individual Income Tax Returns, Fonns I040, for the tax years 2005 through 2014
in
which
he
failed to disclose his beneficial interest in, and control over the BVI Account and the Bonhote
Account.
In
addition, Smith willfully failed to report on these income tax returns the income
he
earned from Fund
1,
and other private equity funds, a portion
of
which
he
directed to
be
deposited
into the BVI Account and Bonh6te Account. Smith willfully understated his income on these tax
Page
4
of
6
returns and willfully evaded more than $43,000,000 in U.S. federal income taxes for the tax years
2005 through 2014.
21. Smith knew that United States laws and regulations require United States citizens
who have signatory authority over,
or
a financial interest in, a foreign bank account[s] to annually
file a Foreign Bank Account Reporting
Fonn
TD
F 90-22.1 ("FBAR"), with the United States
government reporting either this signatory authority and/or financial interest. Prior to 2011, Smith
knowingly and intentionally did not file an FBAR
as
required
by
law. In
or
around September
2011, Smith filed
an
FBAR for the 2010 calendar
year
that willfully failed to report his financial
interest
in
the BVI Account
and
the Bonhote Account Smith also willfully failed to file an FBAR
for 2011 as required
by
law. In
or
around June 2013, Smith filed an
FBAR
for 2012 calendaryear
that willfully failed to report his financial interest in the BVI Account
and
the Bonhote Account
for purposes
of
concealing his ownership and control
of
these accounts.
22.
In
or
around November2013 and January 2014, Smith received letters from Banque
Bonhote regarding the
bank's
intended participation in the United States Department
of
Justice
"Swiss Bank Program" which required participant banks to report all United States-related
accounts to the United States government (the "Bank Program Letters"). Smith received these
letters relating to the Bonhote Account. The Bank Program Letters noted that the Bonhote Account
was held
by
a United States person,
and
requested Smith to waive Swiss bank secrecy related to
it. It further recommended that Smith consider applying to the
IRS's
Offshore Voluntary
Disclosure Program ("OVDP")
to
report his non-compliance. The Bank Program Letters also
infonned Smith that
if
he failed to take one
of
these actions that Banque Bonhote would close the
Bonhote Account. In March 2014, Smith filed a preclearance request with the IRS seeking entry
into OVDP. In April 2014, the IRS denied
Smith's
preclearance application into OVDP.
23. In
or
around June 2014, after receiving the OVDP preclearance denial, Smith
willfully filed a false 2013 FBAR. Smith listed both the BVI Account and the Bonhote Account
on the 2013 FBAR, but only reported signature authority over these accounts while willfully
omitting both his financial and beneficial interest in the accounts as well. Smith willfully omitted
these disclosures to further conceal his taxable income deposited into these accounts.
24. In
or
around October 15, 2014, Smith willfully filed a false United States Individual
Income Tax Return,
Fonn
1040, for the tax year 2013, with the IRS, which misrepresented and
willfully failed to disclose his income from, beneficial interest in,
and
control over Excelsior and
Flash.
Smith's
2013 federal income tax return also willfully failed to disclose Smith's financial
interest in the BVI Account
and
Bonhote Account. In addition, Smith willfully filed a false Fonn
8275, attached to his income tax return, in which he represented that the Excelsior / Flash
structure had corporate trustees and managers and willfully concealed his control over those
entities. Smith attempted to conceal from the IRS that he controlled and beneficially owned the
offshore entities Excelsior and Flash. Smith also willfully failed to disclose on the
Fonn
8275 his
beneficial ownership
of
the BVI Account
and
Bonhote Account and falsely claimed that income
distributed to Flash from Fund
1,
and other private equity funds, was required to be donated to
charity.
25. In December 2014, Smith directed Excelsior to contribute all
of
the shares
of
Flash,
and all
ofits
assets, to a U.S.
50l(c)(3)
charitable organization. Smith knowingly and intentionally
falsely claimed that this charitable contribution was required as part
of
an agreement with
Individual A, the limited partner investor in Fund
l.
Page 5
of
6
26.
In or around
May
2015, Smith willfully filed false FBARs for the calendar years
2008
through 2013 (''Streamlined FBARs'') and false amended United States Individual Income
Tax
Returns,
Forms
1040:X,
for tax
years
2010 through 2013 ("Streamlined Tax Returns")
as
part
of
the Streamlined Domestic Offshore Procedures. Smith's Streamlined
FBARs
continued to
represent
that Smith only bad signatory authority over the BVI Account and Bonhole Account,
while
willfully omitting Smith's true beneficial ownership
of
these accounts.
27.
Smith's Streamlined Tax Returns continued to willfully include a false Form
8275
which concealed his bUe beneficial ownership and control
of
Excelsior and Flash. Smith's
Streamlined Tax Returns falsely reported
that
only small portions
of
income distributed to
him
in
the United States from Flash's foreign bank accounts, were taxable to him. Smith willfully failed
to
report on his Streamlined Tax Returns over $200 million
of
partnership income distributed to
Flash
from
Fund
I and other private equity funds, over which Smith
had
beneficial ownership
during the calendar years 2005 through 2014. Smith knew
that the earned income attributed
to
Flash
was
in
fact
taxable to him
when
he filed
the
Streamlined Tax Rerums.
28
. The acts taken by Smith, including acts described above, were done willfully and
knowingly with the specific intent to violate United States
law.
Smith acknowledges that the
foregoing statement
of
facts does not
dcscn1,e
all
of
his conduct relating tn the offenses stated
herein and docs not identify all
of
the persons with whom
he
may
have
engaged
in
unlawful
conduct.
29.
The foregoing is a summary
of
relevant facts and
is
not a complete recitation
of
every relevant fact known.
AGREED
AND
CONSENTED
TO
:
Date signed /Jt:.,r
?;r
hJ
2-0
Date signed
Mf.
Z
to'lo
Mark
Filip
J
Kirkland
&
El1ts
LLP
Attorney for Robert
F.
Smith
Ju
.
._
c
bl
Date signed
Od
W.NMggi~on
Kirkland &
EUls
LLP
Attorney for Robert F. Smith
Page 6
of6
Date signed
Kirkland
Attorney
for
o
ert
•
Smith
(JJ
LIU
Date signed
0<f
1
,2
010
J
Mark
E.
Matthews
Caplin & Drysdale,
Chartered
Attorney for
Robert
F.
Smith
Date signed
Scott
D.
Michel
Caplin
& Drysdale,
Chartered
Attorney
for
Robert
F.
Smith
M1
~
DatePgaed
Richard
E. Zuckerm
~
Principal Deputy Assistant Attorney General
Department
of
Justice
Tax
Division
Page 7
of6
