Walter Anderson sentenced to 9 years in prison

[Demosthenes]

Anderson Gets Nine Year-Term in Biggest U.S. Tax Case
By Nadine Elsibai and Cary O'Reilly

March 27 (Bloomberg) -- Walter Anderson, the U.S. telecom entrepreneur who once tried to turn Russia's Mir space station into an orbiting hotel for the wealthy, was sentenced to nine years in prison for failing to report $365 million in income.

Anderson, 55, must also pay $23 million in restitution, U.S. District Judge Paul Friedman ruled. Anderson, who has said he is nearly broke and can't pay, pleaded guilty to tax evasion charges in September and has already spent more than two years in jail. Prosecutors claimed it's the biggest tax evasion prosecution in U.S. history.

``We can't have citizens who are making lots of money not'' pay taxes, Friedman said today at the sentencing in Washington federal court. The restitution imposed was for District of Columbia taxes, while no restitution was ordered for the federal government because of a ``poorly drafted'' plea agreement, the judge said.

The U.S. government is cracking down on tax cheats as it seeks to address a soaring federal budget deficit. The IRS said it suspects thousands of Americans hide billions of dollars in non-disclosed income in bank accounts in foreign countries with low taxes and tough bank secrecy laws.

Arrested

Anderson was arrested in February 2005 at Washington's Dulles International Airport after he stepped off a plane from London. He was accused of earning hundreds of millions of dollars from investments in offshore businesses that weren't reported to the Internal Revenue Service or the District of Columbia.

U.S. prosecutor Karen Kelly had asked Friedman to sentence Anderson to the maximum sentence of 10 years in prison as an example to others and to discourage potential tax cheats.

``Walter Anderson didn't raid a corporate treasury, he raided the treasuries of the U.S. and the District of Columbia,'' Kelly said in a court hearing last week. ``The defendant believed that the rules didn't apply to him, that he was above the law.''

Anderson made his fortune by starting up long distance phone service companies in the late 1980s when the industry was just being deregulated. Officials said his tax troubles began in 1992 when he realized the merger of his first successful company, Mid-Atlantic Telecom, with another firm would trigger taxable income.

Corporation

He formed a corporation named Gold & Appel Transfer in the British Virgin Islands to shelter the money he made, prosecutors said. Anderson then created a network of other corporations to disguise his ownership in countries with strict secrecy laws, including Panama, according to the government.

Between 1995 and 1999, Anderson used the assets of Gold & Appel to invest in other business ventures that generated more than $450 million in earnings, prosecutors said.

Anderson conducted most of these transactions through bank accounts in the U.K.'s Channel Islands, a known tax haven, the government said in charging documents. He failed to disclose to his tax return preparers that he controlled Gold & Appel, prosecutors said.

As a result, Anderson's U.S. income tax returns for 1998 and 1999 omitted $126 million and $239 million of additional income, respectively, the government said. He also filed a false D.C. return for the tax year 1999 by failing to report this income, according to the government.

'No Stash'

In the indictment, prosecutors said Anderson spent his money on failed space ventures and on buying luxuries including a 19,000 square-foot mansion, a $21 million private jet and paintings. His largest art purchase was a Rene Magritte painting entitled, "A la Rencontre du Plaisir,'' which he acquired for $1.2 million from Christie's auction house in New York in 1998.

Anderson, who his lawyers said is now almost "destitute,'' was granted court-appointed attorneys in 2005 after saying he had no money left to pay for his legal defense. He's been held in a Washington jail since his arrest more than 2 years ago.

"Part of the problem in this case is that nobody really knows how much Mr. Anderson has access to or may get access to at some point,'' Friedman said in court March 20.

His lawyer, Michelle Peterson, a public defender, denied that Anderson has hidden large sums of money in foreign bank accounts.

"There is no great stash of money waiting for Mr. Anderson to get out,'' she said at a court hearing March 23. "The government has had seven years to find it.''

Anderson's last job was as chief executive officer of London-based Orbital Recovery Corp., a provider of insurance services to the aerospace industry.

`Disingenuous'

He gained international attention in the late 1990s when he led a group of investors that wanted to convert the space station Mir into a tourist attraction for the wealthy. Russia crashed the aging space station into the Pacific Ocean in March 2001.

Under terms of the plea agreement, the defense argued Friedman could impose restitution paid to the District of Columbia and not the federal government. Friedman said such charges could have reached $101 million to the government since Anderson pleaded guilty to at least $100 million in losses.

Kelly argued that it was ``disingenuous'' for the defense to make such a claim because ``the entire issue before this court has been how much restitution to impose.''

Any restitution charges must have a supervised release term attached during which officials would ensure Anderson makes the necessary payments, Friedman said. The plea agreement didn't include provisions for a supervised release.

Because ``the plea agreement does not have provisions of supervised release in it I cannot impose restitution as a condition of supervised release,'' Friedman said.

``This is a very poorly drafted agreement,'' he later noted, adding that he expected both sides to appeal.

The IRS said it found that about $345 billion in taxes owed by U.S. citizens wasn't collected in 2001.

The case is U.S. v. Anderson, 05-00066, U.S. District Court for the District of Columbia (Washington).

[Demosthenes]

Anderson also used a couple of fictional Ayn Rand names.

[Demosthenes]

Tax cheat escapes $100 million repayment thanks to flawed court documents

By Matt Apuzzo

ASSOCIATED PRESS

4:46 p.m. March 27, 2007

WASHINGTON – Poorly written Justice Department documents cost the federal government more than $100 million in what was supposed to have been the crowning moment of the biggest tax prosecution ever.

Walter Anderson, the telecommunications entrepreneur who admitted hiding hundreds of millions of dollars from the IRS and District of Columbia tax collectors, was sentenced Tuesday to nine years in prison and ordered to repay about $23 million to the city.

But U.S. District Judge Paul Friedman said he couldn't order Anderson to repay the federal government $100 million to $175 million because the Justice Department's binding plea agreement with Anderson listed the wrong statute.

Friedman said he could have worked around that problem by ordering Anderson to repay the money as part of his probation. But prosecutors omitted any discussion of probation – a common element of plea deals – from Anderson's paperwork.

“I've come to the conclusion, very reluctantly, that I have no authority to order restitution,” Friedman said. “I hope the government will appeal me.”

Channing Phillips, a spokesman for the U.S. attorney's office, which prosecuted the case in cooperation with Justice Department headquarters, said the government would bring civil charges against Anderson.

“The IRS still has ample civil remedies available to recoup the money which are, in some respects, more efficient and quicker,” Phillips said. “Combined with today's nine-year prison sentence, this was a significant victory for the government.”

That will require a new round of litigation in a court that does not wield the threat of more jail time. Prosecutors have said Anderson has money stashed away in accounts around the world, a claim Anderson denied in court.

He appeared humbled but not overly apologetic Tuesday. He took responsibility for his actions but said he never intended to defraud the government.

Anderson told the judge that his millions in unpaid taxes weren't funding an opulent lifestyle. He often used jets but for business or charity, he said, and usually he flew business class, not first class, and sometimes even coach.

“For every time I ate in a nice restaurant, I also grabbed a doughnut or a burger in an airport,” he said. “I could have wasted millions. I could have taken a limo everywhere.”

Friedman was not persuaded. He sentenced Anderson near the high end of his sentencing range.

“I do think it's important to send a message in a case like this,” Friedman said. “It's about as serious as it gets.”

Anderson started a long-distance telecommunications business in the 1980s as the industry was being deregulated. When his first company, Mid-Atlantic Telecom, merged with another company in 1992, Anderson formed corporations in the British Virgin Islands to hide the income, prosecutors said.

Authorities said Anderson used other offshore corporations to disguise his ownership in other telecommunications companies that earned more than $450 million between 1995 and 1999. He allegedly did not file federal income tax returns from 1987 to 1993.

With credit for the two years he has been jailed, he will have to serve seven years in prison and will be eligible for release in less than six years.

Among the taxes allegedly owed to the District of Columbia are use taxes, equivalent to sales taxes, on art, jewelry and wine. The indictment alleges that Anderson bought a painting by Salvador Dali and several paintings by Rene Magritte, an 18-karat gold bracelet and more than $47,000 in fine wines, then had them shipped to a Virginia address to avoid Washington taxes.

[Cpt Banjo]

Anderson also used a couple of fictional Ayn Rand names.

I bet Ellsworth Toohey wasn't one of them.