Billion Dollar Tax Fraud and the Isle of Man

Federal prosecutors recently indicted two lawyers and an investment firm executive in one of the "largest tax fraud schemes ever uncovered in this country," according to US Attorney Jeffrey Sullivan of Seattle. Matthew G. Krane, Jeffrey Greenstein, and Charles Wilk face tax evasion, money laundering, and conspiracy charges. The scheme involved a shell company on the Isle of Man.

The Los Angeles Times reported in early June that Wilk and Greenstein allegedly set up a tax shelter scheme that created more than $1.3 billion in fraudulent losses for clients. Krane, according to prosecutors, accepted a $36 million kickback for enticing one of his clients into engaging in the scheme. The client had assurances from at least one noted tax attorney that the tax shelter was legitimate. According to the LA Times, prosecutors found that Wilk and Greenstein created a paper portfolio showing $9.6 billion in losses from technology stocks. The stocks, however, did not exist.

The scheme involved a complex series of transactions set up through a shell company on the Isle of Man. The Isle of Man lies in the Irish Sea at the geographic center of the British Isles. It's not part of the United Kingdom, though the UK has some responsibility for the island's external affairs and defense. The Isle of Man is not part of the European Union nor is it part of the Commonwealth of Nations.

Key to the Isle's economy is its offshore banking industry. The Isle of Man features a low tax economy - no capital gains tax, wealth tax, or inheritance tax. The highest income tax rate is 18%, and the corporate tax rate is 0%.

The complexity of tax schemes involving foreign governments makes the investigation tough for prosecutors. Kenneth Hines, special agent in charge of the IRS in Seattle said to the LA Times, "You're dealing with foreign governments, foreign jurisdictions, all the records that the two agents have to pile through...it could take years, because everything has to come through official channels."

For more information, see $1.3-billion tax-shelter scam alleged. Los Angeles Times. June 5, 2009.