Financial Transparency Coalition

New York Toy Manufacturer Representative Used Nominee Entities, Offshore Credit Cards, Sham Loans

US Department of Justice

WASHINGTON – Jeffrey P. Chernick, of Stanfordville, N.Y., pleaded guilty today to charges of filing a false tax return, the Justice Department and Internal Revenue Service (IRS) announced. Chernick, who owns a corporation which represents toy manufacturers in China and Hong Kong, appeared today before Judge James I. Cohn in Ft. Lauderdale, Fla., and accepted responsibility for concealing more than $8 million in Swiss bank accounts.

According to court documents and statements made in court, on or about Oct. 14, 2008, Chernick electronically filed a U.S. Individual Income Tax Return Form 1040 for tax year 2007, which failed to report that he had an interest in or a signature authority over a financial account at UBS AG, one of Switzerland’s largest bank. He also failed to report income earned on the UBS account. The UBS account was opened in the name of Simba International Ltd., a nominee Hong Kong corporation.

According to court documents, beginning in the mid-1970’s, the defendant set up a Hong Kong corporation and opened offshore bank accounts in order to conceal from the IRS commissions paid to the defendant for toy sales. In total, Chernick was the beneficial owner of approximately $8 million in offshore assets which were maintained in accounts in the name of nominee entities, including Simba, at UBS and other Swiss banks.

According to court documents, in 2000, UBS entered into an agreement to begin providing the IRS with certain information relating to accounts in which the beneficial owner was a U.S. citizen. Around the same time, one of Chernick’s Swiss bankers left UBS for a smaller, less known Swiss bank. This banker told Chernick he had left UBS, in part, because the smaller bank would not be subject to Washington’s scrutiny and could not be pressured by the U.S. government to disclose certain information to American authorities. Following this banker’s advice, Chernick agreed to invest some of his assets with the smaller Swiss bank.

According to court documents, from 2002 through 2008, Chernick discussed his offshore accounts with this former UBS banker and other Swiss financial service providers. These meetings took place in the United States at various locations, including hotels in New York City. During these meetings, Chernick, the Swiss bankers and Swiss financial service providers would discuss Chernick’s investments held in his offshore accounts, as well as the payment of fees for banking services rendered by Hong Kong and Swiss financial service providers. In July 2008, despite Chernick’s concerns about the ongoing investigation into the activities of UBS, a Swiss financial service provider convinced Chernick not to disclose his offshore accounts, not to file amended returns, and not to pay to the IRS any additional taxes that were due and owing.

According to court documents, in order to have access to the millions of dollars Chernick concealed offshore, he utilized credit cards linked to his offshore Swiss bank accounts which he used to make large purchases while traveling abroad. Additionally, with the assistance of Swiss bankers and other financial service providers, Chernick set up a sham $700,000 loan between Simba and a second Hong Kong entity in order to repatriate funds into the United States to purchase property adjacent to his home in New York.

“Americans who have concealed assets offshore have until September 23 to voluntarily come clean with the IRS and take advantage of the reduced penalties connected with the current offshore initiative,” said John DiCicco, Acting Assistant Attorney General for the Tax Division. “Failure to come forward and to disclose offshore assets exposes these Americans to increased penalties and possible criminal prosecution.”

Judge Cohn scheduled sentencing for Oct. 30, 2009. Chernick faces a maximum sentence of three years in prison.

“As the investigation into offshore tax evasion continues, the United States will continue to vigorously pursue new leads and evidence as they are uncovered,” said Jeffrey H. Sloman, Acting U.S. Attorney for the Southern District of Florida. “Those who enable and commit tax evasion risk substantial monetary penalties and incarceration.”

In February 2009, UBS entered into a deferred prosecution agreement in which the bank admitted helping U.S. taxpayers hide accounts from the IRS. As part of the agreement, UBS provided the U.S. government with the identities of, and account information for, certain U.S. customers of UBS’s cross-border business.

“This is an important victory for America’s taxpayers who play by the rules and have no tolerance for those who shirk their tax responsibilities. Today’s action is also part of a much larger and coordinated effort by the Administration to aggressively find and crack down on tax evaders hiding their wealth overseas. For those still hiding in this shadowy world, it is time to come in and get right with your government or face stiff criminal and financial penalties,” said IRS Commissioner Doug Shulman.

In June 2009, UBS client Steven Michael Rubinstein, a Boca Raton accountant, pleaded guilty to filing a false tax return. In April 2009, another UBS client, Robert Moran, a Ft. Lauderdale yacht broker, pleaded guilty to filing a false tax return.

Acting Assistant Attorney General DiCicco and Acting U.S. Attorney Sloman commended the investigative efforts of the IRS agents involved in this case. The prosecution is being handled by Senior Litigation Counsel Kevin M. Downing and Trial Attorney Michael P. Ben’Ary of the Tax Division, and Assistant U.S. Attorney Jeffrey A. Neiman.

U.S. citizens who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, United States citizens much file a Report of Foreign Bank and Financial Accounts, or F-Bar, with the United States Treasury, disclosing any financial account in a foreign country with assets in excess of $10,000 for which they have a financial interest in or signature authority, or other authority over.

More information about the Justice Department’s Tax Division and its enforcement efforts is available at http://www.usdoj.gov/tax/.

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