Mission Hills Woman Indicted in Cayman Island Tax Scheme and for Lying to Federal Authorities

KANSAS CITY, MO—Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Mission Hills, Kansas woman was indicted by a federal grand jury today for using numerous foreign trusts and secret Cayman Island bank accounts as part of a scheme to avoid paying more than $7 million in income taxes and for lying to federal authorities concerning her Cayman Island interests.

“Offshore tax evasion is an issue of fundamental fairness,” Dickinson said. “Americans who unlawfully hide their money offshore aren’t paying the taxes they owe, while citizens who play by the rules are forced to pick up the slack and foot the bill.

“Americans with secret offshore bank accounts still have an opportunity to voluntarily disclose those accounts to the Internal Revenue Service to avoid going to jail,” Dickinson added. “I encourage those taxpayers to do the right thing and take advantage of the IRS’s offshore voluntary disclosure program. Taxpayers can voluntarily come back into compliance so they properly report and pay their taxes.”

Verna Cheryl Womack, 62, of Mission Hills, was charged in a 10-count indictment returned by a federal grand jury in Kansas City, Missouri. In addition to her Mission Hills residence, Womack maintains a condominium in the Cayman Islands and a condominium at Trump Towers in New York, New York. (Although the Cayman Islands and New York residences are owned by companies that Womack organized under trusts that were created in the Cayman Islands, according to today’s indictment, they are in her custody and control and for her use and enjoyment.)

Womack owned and operated a number of businesses associated with selling liability insurance policies to independent truck drivers. She sold those businesses for more than $35 million in April 2002.

Today’s indictment alleges that Womack opened at least 19 bank accounts and organized a series of nominee companies and trusts in the Cayman Islands to conceal a portion of her income from the IRS. According to the indictment, these corrupt endeavors were part of a scheme that began in 1996 and caused a total tax loss to the government in excess of $7 million.

As part of her corrupt endeavors, the indictment says, Womack repeatedly failed, year after year, to report her financial interests in her nominee companies and trusts to the IRS despite the multiple legal requirements that, as a United States citizen, she do so. Today’s indictment alleges that Womack filed federal tax returns that stated she did not have an interest in or signature authority over any foreign financial accounts, even though Womack knew that was false and fraudulent. For example, the indictment says, Womack maintained a Cayman Island bank account in her own name for several years, with balances ranging from nearly $41,000 to more than $173,000. The indictment alleges that Womack repeatedly failed, year after year, to report her financial interests in her bank account to the IRS.

Womack is charged with one count of attempting to interfere with the administration of internal revenue laws and nine counts of making a false statement to a government agency.

Wine Collection and Auction

Among its allegations, the indictment cites one of Womack’s nominee companies in the Cayman Islands as an example of Womack’s corrupt endeavors to conceal income from the IRS. Womack exercised ownership, custody, and control over Lucy Limited and its assets. Among its assets, the indictment says, Lucy Limited owned (as nominee for Womack) a wine collection that was stored in the basement of Womack’s Mission Hills residence. Womack used a credit card issued by the Bank of Butterfield (in Grand Cayman) in the name of Lucy Limited to purchase at least part of the wine for her collection, for which she paid approximately $1.5 million over the course of several years.

On March 15, 2008, Womack sold approximately half the wine stored in her basement at an auction house in New York for $1.6 million. The indictment alleges that she attempted to use her nominee company, Lucy Limited, and its financial accounts at the Bank of Butterfield in Grand Cayman to conceal the revenues and profits she derived from the sale of the wine.

Following the sale, the indictment says, Womack personally directed the auction house to wire more than $1.6 million in a series of transfers to a Lucy Limited account at the Bank of Butterfield that Womack controlled. Womack allegedly employed a number of false and fraudulent business agreements that appeared to be arm’s length transactions but were in fact Womack’s self-dealing, resulting in wires of those proceeds back to the United States for Womack’s personal use.

For example, the indictment alleges that a $298,957 wire transfer was falsely and fraudulently represented in Lucy Limited’s financial statements as a management fee due to Womack. Womack also allegedly created a false and fraudulent document purporting to be a lease agreement between herself and Lucy Limited. Although not created until October 2008, the indictment says, the false and fraudulent lease agreement stated that Lucy Limited would lease the wine cellars in the basement of Womack’s Mission Hills residence for $25,000 per year beginning in 1995 and continuing through at least 2009. The day after creating that fraudulent document, Womack caused a $350,000 wire transfer from the wine auction proceeds to be wired to a bank account under her control in Kansas City, Missouri. According to the indictment, Womack falsely and fraudulently represented in Lucy Limited’s financial statements that this wire transfer was payment for rent due under the lease agreement for the years 1995 through 2008.

After the auction, Womack caused the wine that was provided to the auction house but did not sell during the auction to be transported and stored at her condominium at Trump Towers in New York.

As a result of her efforts to disguise the self-dealing nature of these transactions, the indictment says, Womack did not report the income she derived from the sale of the wine on her federal tax return. She did not disclose her control of Lucy Limited or the existence of its bank account to the IRS, the indictment says, and she did not properly report the profit she derived from that sale—at least $851,188—on her tax return.

On May 19, 2009, Womack testified under oath in a deposition by a trial attorney for the U.S. Department of Justice, Tax Division, regarding a lawsuit that sought to enjoin a third party from providing tax advice. According to the indictment, Womack falsely and fraudulently stated that Lucy Limited’s investors paid her to purchase the wine, manage the wine, and properly contain the wine, when she knew that there were no such investors, that she organized Lucy Limited, and that she exercised ownership, custody and control over Lucy Limited and its assets.

False Statements

Today’s indictment also alleges that Womack repeatedly lied to federal government officials and agents about her interests in Cayman Island businesses, trusts, and bank accounts. On one occasion, Womack allegedly lied to two FBI agents, falsely claiming that she did not own any foreign businesses and that those businesses were owned by other investors, when she knew that no other investors existed. Womack provided a list of her financial accounts to an FBI agent in relation to a separate federal criminal investigation. Womack’s list of her accounts did not include any of her foreign bank accounts.

During the May 19, 2009 deposition, Womack allegedly repeatedly lied under oath about her financial interests in the Cayman Islands. During that deposition, the indictment says, Womack knowingly made numerous false and fraudulent statements regarding her Cayman Island trusts and business interests. Today’s indictment charges Womack with nine counts of making material false statements during that deposition.

Dickinson cautioned that the charges contained in this indictment are simply accusations and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence.

This case is being prosecuted by Assistant U.S. Attorneys Brian P. Casey and Daniel M. Nelson. It was investigated by IRS-Criminal Investigation and the FBI.

IRS Offshore Voluntary Disclosure Program

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation.

Since 2006, American law enforcement agencies have had some, but limited, ability to obtain financial records concerning foreign accounts of American citizens in so-called tax havens. But a new Foreign Account Tax Compliance Act (FATCA) became law in the United States in March 2010 and is taking effect abroad on a country-by-country basis. The IRS and law enforcement are now more readily able to obtain the records of Americans holding foreign bank accounts in countries including Switzerland, the Cayman Islands, and Costa Rica. FATCA requires foreign financial institutions to report the holdings of U.S. taxpayers to the IRS, or else face serious penalties.

The IRS Offshore Voluntary Disclosure Program enables U.S. taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income. Approximately 38,000 voluntary disclosures from individuals have been made under the Offshore Voluntary Disclosure Initiative. Information on how to make an offshore voluntary disclosure is available at http://www.irs.gov/uac/How-to-Make-an-Offshore-Voluntary-Disclosure.

This news release, as well as additional information about the office of the United States Attorney for the Western District of Missouri, is available online at http://www.justice.gov/usao/mow/index.html.