Tax Evasion Through Swiss Banks Alleged Against Florida Resident

Today in the "I Really Thought I Could Get Away With It" Department we find a Florida man by the name of Dan Rotta who is now subject to a Criminal Complaint in U.S. v. Rotta, S.D.Fla. Case No. 24-MJ-2479 (March 8, 2024), as stated in the U.S. Department of Justice Press Release (March 11, 2024). My fellow Forbes.com contributor Matthew Roberts explains the technical aspects of the Rotta allegations in his article, DOJ Alleges Decades-Long Tax Scheme To Hide Foreign Assets From IRS (Mar. 12, 2024). Here, I will look at this case from a different angle and try not to repeat Matthew's work as much as possible.

As a preliminary note, at this stage only allegations have been made against Rotta and no judgment has been entered, and he is innocent until proven guilty. All the facts stated below are from the publicly-available but as-yet unproven allegations of the Complaint and accompanying Affidavit of the involved IRS Criminal Investigations agent. To the extent my commentary factually diverges from the Complaint and Affidavit, if at all, they control.

Rotta lived in Fisher Island, Florida, and had been a U.S. citizen and resident since the 1970s, although he held dual citizenships in Romania and Brazil. Starting around 1985, Rotta apparently opened Swiss bank accounts and would maintain these through 2020. These bank accounts were not in Rotta's name but were instead held in the name of various companies. For instance, Rotta opened an account with Credit Suisse (which would later cooperate and turn over account information to the IRS) under the name of Vima, Inc., a Liberian corporation whose shares were held by NAD Foundation, a Liechtenstein foundation was that formed for Rotta's benefit. The IRS-CI agent who wrote the Affidavit noted that NAD is "Dan" spelled backwards, and "Vima" was a combination of the first two letters of the names of Rotta's two children then living.

Later, in 1997, Rotta opened two accounts with Bank Julius Baer in Switzerland and identified himself as the beneficial owner of the accounts, over which Rotta also had signatory authority. In 2000, Rotta used $2 million from this account to purchase a home on Fisher Island.

Note here that there are no allegations of wrongdoing by the banks involved in this case.

In January, 2001, Switzerland mandated new bank requirements for identifying U.S. account holders. Shortly thereafter, Rotta closed his accounts with Credit Suisse and Bank Julius Baer and transferred the funds to a company called Citaro International Business Corporation, Ltd., whose accounts were also held at the same two banks, plus UBS. Citaro was a bearer-share corporation formed in the British Virgin Islands (BVI), which means that there is no share ledger to record who owns the shares, but very simply whoever physically holds ("bears") the shares controls those shares.

Rotta executed an agreement with Sinco Trust Ltd. which identified himself as the beneficial owner of the accounts and authorized a person by the name of Beda Singenberger to manage the assets in the Citaro accounts. Later, in 2011, Singenberger would be indicted by a New York federal grand jury for conspiracy to defraud the United States by helping U.S. persons evade Swiss bank identify verification requirements so that those persons could conceal their offshore accounts and income in those accounts. Singenberger is still a fugitive from U.S. justice.

By 2001, Rotta had over $19 million in various Citaro accounts at Credit Suisse, Bank Julius Baer, and UBS which generated around $400,000 in investment income for 2001 and $1.375 million in 2003, all of which Rotta used to fund his Florida lifestyle by causing Citaro to send money to his domestic accounts.

Keeping the shell game going, in 2003 Rotta closed the Citaro accounts and transferred that company's assets to new accounts at the same three bank in the name of Sky Delta Limited, which was formed in Hong Kong. Like Citaro, Sky Delta was owned by the NAD Foundation with Rotta identified as the beneficial owner. Between 2003 and 2008, the Sky Delta accounts varied from $15 million to $20 million and produced income ranging between $1.3 million and $1.6 million.

Rotta caused Sky Delta to transfer money to his domestic company, Pevima Corporation, which paid his bills, to his life insurance policy, or sometimes just directly to his own accounts. Pevima had no real business purpose, but instead was just a domestic entity through which Rotta used to receive his offshore funds as they were remitted to him.

In May of 2008, dark clouds started to form in the offshore world as UBS came under a criminal investigation. Rotta clipped a Wall Street Journal story about this and kept it at his house (and which evidence was later found in the inevitable IRS raid). This apparently spooked Rotta, as he soon closed Sky Delta's accounts at UBS and transferred the money instead to a new Swiss bank (which is simply identified as "Swiss Bank 1" in the criminal complaint). This bank recorded that Rotta was the beneficial owner of the new Sky Delta account and identified himself not as a U.S. person but instead as a Brazilian citizen living in Brazil.

The next year, in February of 2009, UBS entered into a deferred prosecution agreement with the U.S. in which the bank admitted that it had conspired to help U.S. persons commit tax evasion. As part of this agreement, UBS agreed to immediately provide the IRS with the identities of its U.S. customers. Rotta also saved these articles which were later seized at his Florida home.

Swiss Bank 1 had an affiliated trust company, and now Rotta used the Swiss trust company to create a new entity structure. Rotta directed that Sky Delta transfer its accounts from Credit Suisse and Bank Julius Baer (which accounts were then closed) to Swiss Bank 1. Rotta again held himself out as a Brazilian citizen and resident and signed false attestations that he was not a U.S. citizen, nor was he subject to U.S. income tax withholding requirements.

The new accounts with Swiss Bank 1 were held in the name of Edelwiss Corporate Limited which were managed by the Swiss trust company. Edelwiss was another BVI corporation, but now its shares were held by the Putzo Foundation, which was a new Liechtenstein foundation for Rotta's benefit. Between 2009 and 2011, Edelwiss had between $15 million and $20 million in its accounts, which produced from $1.6 million to $2 million annually. The aforementioned Swiss Trust Company managed the Edelwiss accounts. While Rotta did not have signatory authority over the accounts, he nonetheless communicated to the Swiss Trust Company at least once about the disbursement of assets to him, and his disbursements from Edelwiss to Rotta's domestic accounts were in the millions.

Then one day the IRS came knocking.

In July of 2011, the IRS began an audit of Rotta's half-brother based on information that the IRS had obtained through the UBS deferred prosecution agreement about the Vima account. Rotta's half-brother denied owning Vima or any other offshore entities or accounts. Somehow this all lead to Rotta himself, and in September of 2011 the IRS referred Rotta himself for audit of Vima and the UBS accounts.

This was not good, to put it mildly, and Rotta started taking steps to erase any evidence of his ownership of the Edelwiss accounts. Next, Rotta obtained the agreement of his cousin in Brazil, and a true Brazilian citizen, to serve as the nominee owner of Edelwiss, since Rotta's cousin would not be subject to any U.S. withholding or tax reporting requirements. Then, in October and November of 2011, Rotta worked with the Swiss Trust Company to make sure that the paperwork for Edelwiss reflected that Rotta's cousin was the beneficial owner of the Edelwiss accounts. This included Rotta's cousin to create a new Liechtenstein trust, called the Putzo Settlement, to hold the shares for the benefit of Rotta and his family. Rotta was named the protector of Putzo Settlement, which effectively gave him veto powers over that new trust. Rotta's cousin — referred to as "Co-Conspirator 1" in the criminal complaint — was recorded as the beneficial owner for Edelwiss by both Credit Suisse and yet another Swiss bank (referred to as "Swiss Bank 1").

Even with the IRS launching its formal investigation of Rotta's activities, and Rotta taking great pains to distance himself from Edelwiss, he just could not stop having Edelwiss continue to pay money to Rotta's domestic company, Pevima, apparently for his living expenses. These included two transfers of $301,000 and $300,000 from Edelwiss to Pevima on January 30 and May 21, 2012, respectively.

As the IRS audit rolled on, an IRS agent spoke with Rotta and his tax preparer (called Accountant 1) regarding Rotta's income taxes for 2008 through 2011. In these conversations, Rotta denied that he had any foreign bank accounts, foreign investments or business activity. This was in December of 2011. The following May, now 2012, Rotta again repeated his denials of any offshore accounts, though for the first time he stated that he owned a candy company in Brazil and a watch business in Hong Kong during the 1990s.

Feeling the heat, in October of 2012, Rotta hired counsel (Attorney 1) to represent him during the IRS audit, apparently replacing Accountant 1. Rotta told Attorney 1 that he did not have any foreign bank accounts, and Attorney 1 told this to the IRS Revenue Agent. In a later meeting in November of that year with the IRS Revenue Agent, Rotta in person again denied having any foreign bank account. At this time, Rotta also told the IRS Revenue Agent that he had no safe deposits during the years in question. This was false since Rotta had a safe deposit box for the Sky Delta account for UBS in 2008. Rotta also had a safe deposit box at Credit Suisse in his own name from 2009 to 2014.

The IRS agent suspected all this was false and had at least some information at this time to prove it. Finally, in November of 2012, the IRS agent confronted Rotta with the transfers of several hundred thousand dollars from Rotta's offshore accounts to his domestic accounts. The IRS agent also told Rotta that she knew that Rotta had received $1.45 million from Rotta's Sky Delta accounts, and asked Rotta to explain the source of the funds. Rotta said it was all a loan from Sky Delta, and that he had arranged the borrowing from two friends who were not U.S. persons that actually owned and controlled Sky Delta, and not Rotta himself.

Rotta, through Attorney 1, later submitted various documents to the IRS agent showing that he did not own Sky Delta, but rather two friends who were Romanian nationals living in France owned Sky Delta and made the loan. These documents included a promissory note for the loan, a letter from another attorney (Attorney 2), a letter from the son-in-law (Co-Conspirator 2) of the Romanian nationals, and a letter from his aforementioned cousin.

That was Rotta's story about the $1.45 million, but the IRS agent then started asking questions about additional transfers that Rotta received from Sky Delta in the amount of $850,000 and also from Edelwiss for a little over $2.8 million for 2009 to 2011. Responding to the IRS agent, Attorney 1 presented additional promissory notes and letters from Rotta's cousin and the son-in-law of the Romanian nationals.

In August of 2013, Attorney 1 on behalf of Rotta again advised the IRS agent by letter that Rotta had never heard of Vima, never had any interest in a Liberian corporation (again meaning Vima), and never had any account at UBS. Attorney 1's law firm repeated much of this to the IRS agent in yet another letter in November of that same year. This November letter was in response to the IRS agent's request for documents, wherein Rotta's attorney denied that he had any such documents.

To skip ahead, the later raid on Rotta's home would prove otherwise. Rotta had kept "extensive records" of his offshore companies and accounts, including Rotta's own instructions to UBS to form Vima, make Rotta the director and president of Vima, and a form given to UBS which documented Rotta's beneficial ownership of Vima's assets. Rotta's records included documents showing that he was the owner of Sky Delta and controlled its various Swiss bank accounts.

Returning to the IRS audit, the IRS issued Rotta a Notice of Deficiency for the tax years 2008 to 2010, which found that Rotta had understated his income by $6,148,993 for those three years (through Sky Delta and Edelwiss) and which included the purported loans of his French friends as instead being Rotta's income.

And now it gets interesting with the entry onto the stage of Attorney 3, a new attorney hired by Rotta to file a Tax Court petition on his behalf, aided by Rotta's trusts and estate planning attorney, known as Attorney 4. Through the Tax Court petition, Rotta reiterated that he did not have any foreign bank accounts and all the money that he received from Sky Delta and Edelwiss was not income but loans. Those promissory notes for Rotta to Sky Delta and Edelwiss, which purported to document the loans, were attached to the petition. But now Rotta also claimed that the funds that he obtained from Edelwiss in 2009 and 2010 were loans from his Brazilian cousin.

While the IRS audit was ongoing, Rotta still needed funds to live on and thus a shuffling of money from his offshore accounts began. Instead of receiving money directly into his own accounts as he had previously, Rotta now started directing that the funds be sent to other persons, such as his cousin. Yet another lawyer who was a longtime friend of Rotta, we're up to Attorney 5, worked with Rotta's cousin to open a domestic Citibank account on which Attorney 5 had signatory authority. In fact, Attorney 5 was simply Rotta's nominee, and Rotta had online access to the Citibank account, knew the debit card numbers and security codes, and the like. From 2012 to 2016, this Citibank account received over $3.7 million from the Edelwiss accounts, which were then diverted either directly to Rotta's personal accounts or were used to pay Rotta's bills. Attorney 5 accepted Rotta's instructions to make transfers from the Citibank account for Rotta's benefit.

In addition to the Citibank account, Rotta also caused Edelwiss to transfer moneys through the attorney trust accounts of Attorneys 2 and 5. Between 2014 and 2016, Rotta directed seven wire transfers totaling $614,500 to be sent to Attorney 2's trust account from Edelwiss. In July, 2016, Rotta caused Edelwiss to send $75,000 to Attorney 2's trust account, which Attorney 2 then further transferred to a Miami car dealership so that Rotta could purchase a new Porsche 911 Targa.

Enter now Attorney 7 in June of 2015, who began to represent Rotta in the Tax Court litigation and ongoing IRS audits for the years 2011 through 2013. Attorney 7 sent the IRS declarations from Rotta's cousin and Co-Conspirator 2 which stated that the payments to Rotta from Edelwiss were loans. Later, in 2016, Rotta's cousin and Co-Conspirator 2 told an IRS attorney during an interview that the payments to Rotta from Sky Delta and Edelwiss were loans which Rotta was expected to repay.

In December f 2016, Rotta sold his property in Oyster Bay, New York, which had purportedly been pledged as security for the Sky Delta and Edelwiss loans. Instead of paying Sky Delta and Edelwiss back, however, Rotta deposited the $5.9 million proceeds of the sale into his personal bank account. A month later, in January of 2017, Rotta transferred $4.4 million to his cousin and another $750,000 to Co-Conspirator 2 with memo lines of these checks stating, "payment of loan as per agreement." These checks were then provided by Attorney 7 to the IRS as proof of the loan repayment.

Based upon the representations of Rotta's cousin and Co-Conspirator 2, the Tax Court litigation was settled in February of 2017, and included that Rotta would pay not additional income tax or penalties for the years 2008 through 2010. Based on these same representations, the following month the IRS also agreed to an identical settlement for tax years 2011 through 2013.

But remember those loans repayments made by Rotta? Turns out that after Rotta settled with the IRS, those funds were almost immediately sent back to Rotta via a trust for the benefit of Rotta and his son called the Sergio 2014 Trust.

Rotta's trusts and estates planner, Attorney 5, In October of 2015, assisted Rotta's cousin in settling the Majestic Trust, in which Rotta and his son were entitled to the net income of the trust. In November of 2016, Rotta began closing the Edelwiss accounts and transferred those funds to a bank in Zurich known as Swiss Bank 2. Those new accounts had been opened by Attorney 5 and a declaration of trust given to the Swiss Bank 2 indicated that Rotta's cousin had settled the Majestic Trust for the benefit of Rotta and his son. Forms also given to the bank identified Rotta and his son as U.S. citizens.

The reality here was that Rotta's cousin did not really settle the Majestic Trust, but instead Rotta himself effectively settled it by transferring his funds in Edelwiss to the Majestic Trust (a trust settlor is one who funds the trust). Next, to further reduce his one income taxes, Rotta claimed that a portion of the income of the Majestic Trust went to Rotta's cousin. Although Rotta attempted to distance himself from the Majestic Trust, he effectively managed the assets in that trust through Attorney 5.

Meanwhile, Rotta kept transferring money from Switzerland to his domestic accounts, usually through the personal accounts of Rotta's cousin and with the assistance of Attorney 5. January of 2019 saw $600,000 transferred to Rotta's cousin's Citibank account, followed by another $650,000 in February. Of these funds, over $1 million was transferred to Attorney 5's client trust account where it was held in trust for Rotta. In June of 2019, Rotta instructed Attorney 5 by e-mail to cause $490,000 to be transferred from Rotta's Swiss Bank 2 account to the Majestic Trust's Morgan Stanley account. That same year, Rotta instructed Attorney 5 to close the Swiss Bank 2 account and transfer the balance to the same Morgan Stanley account.

By 2019, Rotta knew that certain of his Swiss bank accounts were going to be disclosed to the IRS as part of the Swiss banks' agreement with the IRS, and that these disclosures would finally make clear that Rotta and his cousin had defrauded the IRS during the earlier audits. So, enter yet another attorney (this one not given a number for whatever reason) that Rotta hired to make a voluntary disclosure to the IRS. To qualify for a voluntary disclosure, a taxpayer had to fully come clean about the taxpayer's activity and make a "timely, accurate, and complete voluntary disclosure of their conduct." The voluntary disclosure also does not work if the IRS had previously received information about the unreported account.

Rotta submitted a voluntary disclosure application wherein he disclosed the Edelwiss account but claimed that only $2 million of the account assets were his. The IRS let Rotta into the voluntary disclosure program, but this was only the start of the procedure. In the next round of disclosures, Rotta checked "no" in response to the question whether he was aware that any foreign government or financial institution had advised him that his account information was susceptible to being turned over to the IRS. In fact, Swiss Bank 1 had previously notified Rotta that it had received a request from the U.S. Department of Justice for the Edelwiss records.

Rotta also admitted — for the first time — that he had had owned and controlled Swiss bank accounts since the 1990s. However, Rotta also claimed that most of the assets in those accounts had come to him by way of inheritance from his cousin's father, except for $2 million which he claimed to have inherited from his (Rotta's) first wife's father. In actuality, Rotta had owned and controlled the Edelwiss accounts since at least 1985.

And now it gets weird. When asked why Rotta's cousin had placed funds in trust for the benefit of Rotta and his son, Rotta stated that his cousin had done this because his cousin had no children of his own and wanted the funds to pass to Rotta's son. In fact, Rotta's cousin had a wife and two adult children of his own.

And even weirder. Rotta now claimed in his Voluntary Disclosure Application that "he had tried to become complaint with U.S. tax and reporting obligations but asserted that he was never properly advised as to how to accomplish this." Rotta also pointed to the fact that his IRS audits and Tax Court litigation did not result in any back taxes or penalties, overlooking that those results had been procured by his own numerous false representations.

Thus, the IRS-CI's agent concluded that, based on all the foregoing, Rotta had conspired with his cousin and others to evade taxes, and also made materially false statements and disclosures to the IRS in violation of the U.S. penal code.

ANALYSIS

Again, these are mere allegations against Rotta, so far unproven in any court of law, and he is presumed innocent until proven guilty after a fair trial. But my analysis isn't going to be about Rotta. Instead, let's look at the activities of all the other folks who assisted him.

Nobody but Rotta is listed in this particular criminal complaint, but that doesn't mean that Rotta was the only one who potentially committed crimes. One would naturally presume that Rotta's cousin will face allegations of criminal conspiracy, albeit he apparently lives in Brazil and one would further wonder whether he would be subject to extradition to the United States. Then there is Swiss trustee Beda Singenberger who already has been indicted, albeit for things other than this, who is already a fugitive from justice. After those two, we have numerous Swiss bankers and others abroad who also potentially engaged in criminal conduct by assisting Rotta, but again they may be difficult to get at so long as they stay away from North America.

The most interesting question is whether some of the attorneys who knowingly assisted Rotta in criminal conduct (if he engaged in that) are potential targets of criminal allegations. Here, I don't mean those attorneys who did little more than represent Rotta, but instead the focus is on those attorneys — and particularly Attorney 5 — who allowed Rotta to transfer money through their attorney trust accounts. If Rotta did engage in criminal conduct in regard to those funds, then what those attorneys did would be pretty blatant money laundering. Not only does a conviction for money laundering carry heavy penalties, such as five years per count, but it would of course result in the disbarment of any attorney convicted of such activity. Just last month, I wrote another article about an attorney who inadvisedly took in $11 million from a client's investment scheme, and after his client was prosecuted then so was the attorney (who later plead guilty to the removal of property to avoid seizure).

If the allegations here are to be believed, then Attorney 5 did much more than simply launder money through his client trust account. Attorney 5 also actively aided and abetted Rotta's actions and basically served as his nominee. So in addition to money laundering charges, there would also be charges of criminal conspiracy and aiding and abetting tax evasion. In fact, the allegations here are so egregious that it is difficult to see how Attorney 5 could not be prosecuted.

When prosecutors pursue a conspiracy case, they usually start at the outside with bit players, get them to cooperate, and then work their way inwards towards the bigger fish. But if prosecutors have a solid case against the biggest fish, then sometimes prosecutors will start at the center with the biggest fish and then their way out and snab persons for less egregious, albeit still criminal, conduct. The bottom line is that this case may only be the first of several.

Finally, I will reiterate a point that I have previously written about numerous times about hiding money in undisclosed offshore accounts: Somebody knows. When somebody tries to set up a structure to hide money abroad, they necessarily require the services of trust companies, banks, and usually often investment managers. Even if the IRS doesn't know about the offshore accounts, these people know. When people initially move money offshore, they get a good song and dance about the local country's strict financial privacy laws, etc., but as with Switzerland those laws can change and the service providers may someday be compelled under the new laws to cough up evidence about their clients. There have also been numerous cases where some of these offshore service providers basically embezzled money from their clients and then threatened to turn them into the client's home nation tax authorities if they complained (much like how the Mafia used to shake down bookies once upon a time). And all that is on top of bank employees obtaining supposedly secret client information and later selling it to the tax authorities as whistleblowers such as how Bradley Birkenfeld came into an award of $104 million for his disclosures about UBS and its clients which lead to that bank's deferred prosecution agreement and enormous fine.

It's just a very bad gamble that the secrecy of accounts will be maintained over a long period of years, and of course if somebody is caught evading taxes then the penalties, both monetary and penal, are tremendous. Some folks like to think that they are being smart in hiding their money abroad, but the truth is that it is really a very stupid thing to do.

Somebody knows.