Ex-Tax Scheme Promoter Looking for a Better Deal
In U.S. District Court in San Francisco next month, Jerome Schneider is expected to plead guilty to one count of conspiracy to defraud the federal government, and then some.
In hopes of getting a lighter sentence, Schneider’s plea will include a detailed confession to the complicated tax shelter scheme he promoted. Last week, he was even giving reporters a preview.
“Anyone who has income hidden in the Caymans or the Bahamas or wherever and thinks they are going to elude detection from the IRS is greatly mistaken,” Schneider said in an interview. “They should immediately suspend any belief that this works and set the record straight with the IRS.”
Whether Schneider’s mea culpa will persuade Judge Susan Illston to go easy on him isn’t clear.
But anyone who has ever been tempted by promises of offshore tax havens would do well to pay attention to his story.
To get people to buy into his schemes, Schneider said, he worked hard to create the appearance of credibility. He advertised his “global wealth- building” strategies in in-flight magazines. He penned a litany of books -- including “Offshore Money Havens” and “Global Investing for Maximum Profit and Safety” -- that gave him the veneer of a published authority.
Three-day summits -- where people paid thousands of dollars just to learn his techniques -- were held at tony resorts including the Ritz-Carlton hotels in Cancun, Mexico, and on Maui, Hawaii. For $200 a half-hour, attendees could buy a private consultation with Schneider. For the finishing touch, he hired prominent Americans including Rep. W.J. “Billy” Tauzin (R-La.) and retired Marine Col. Oliver L. North to appear at his events.
They didn’t tout Schneider’s tax schemes, Schneider said, but they lent credibility to the pitch.
“I brought them in to impress the audience,” he said.
It worked. In the 1990s, hundreds of wealthy taxpayers paid Schneider and his former partner, Los Angeles attorney Eric Witmeyer, $15,000 to $60,000 each to buy shell banks in places like the Cayman Islands and change the bank’s ownership to a foreign conspirator of Schneider’s.
Wealthy investors were told they could put money into these shell banks and hide the income it produced from the IRS because the banks were foreign-owned. In fact, such a ruse is illegal, but Schneider said he was able to convince hundreds of people they could fool the IRS this way.
The scheme began to unravel in 1996 when Jack Blum, a former congressional investigator, was invited to attend one of Schneider’s summits. He returned steaming about the blatant tax fraud being perpetrated by Schneider and the lack of IRS enforcement.
The IRS began to investigate after Blum wrote a scathing letter to the agency and sent copies to friends in Congress. The investigation took more than five years, and Schneider and Witmeyer were indicted by a federal grand jury in 2002.
Witmeyer quickly agreed to cooperate with authorities and was sentenced last year to one year of parole and a $10,000 fine. Schneider, who this year agreed to plead guilty, could face as many as five years in prison when he is sentenced next month. Under terms of the plea agreement, the government agreed to cap his fines at $100,000, rather than the potential maximum of $350,000.
Also as part of a plea agreement, Schneider gave the IRS a list of his clients’ names, addresses, phone numbers and other information. Schneider readily acknowledges that the information he has provided authorities may lead to fines and possible prison time for some of his clients.
Neither the IRS nor court documents say precisely how many people Schneider lured into the world of international tax fraud. Nor do they reveal the amount of money that was hidden from IRS view. (The IRS is prohibited by federal law from discussing individual taxpayers or pending investigations.)
Schneider said the scam wouldn’t work today. In the post-Patriot Act world, too many people are paying too much attention to the international flow of funds.
When Schneider was asked whether his clients were tax cheats to start or simply misled, he says there was probably some of both.
“Certain clients I felt really knew that this was bogus, that it didn’t work,” he said. “But some of them might not have known. But they should have at least had a hint that it sounded too good to be true.”
What’s next for the man who once described himself as the world’s leading authority on offshore banking and investing?
“I’m trying to promote nutritional products, using my marketing expertise,” he said. “I’m working with a couple of people up in Canada on protein powder and fat burners. We are just getting started.”
He says he won’t go back to promoting illegal tax shelters.
“This has ruined my life,” he said. “I have a felony conviction. I’m divorced. Pretty much everyone has abandoned me. And I’m living in a 529-square-foot apartment.”
E-mail Kathy M. Kristof at kathy.kristof @latimes.com. For past columns, visit latimes.com/kristof.
