Houston attorney charged in $225M offshore tax fraud

A Houston tax attorney was charged with creating offshore entities and foreign bank accounts that helped billionaire Robert F. Smith hide $225 million from the Internal Revenue Service, according to the Justice Department.

Carlos Kepke’s indictment on Thursday follows the October admission by Smith, chief executive officer of Vista Equity Partners, that he used those offshore entities and bank accounts to evade taxes for 15 years.

Smith avoided prosecution by cooperating in a case against Robert Brockman, a Houston businessman accused of using a web of Caribbean entities to hide $2 billion in income. Smith agreed to pay $139 million in back taxes, fines and penalties.

In 2000, Kepke created a limited liability company in Nevis and a trust in Belize to help Smith evade taxes, prosecutors said. Smith admitted in his statement of facts that those entities were instrumental in hiding his money offshore. Starting around 2007, Smith paid about $1 million to Kepke for “creating, managing and maintaining” the two offshore entities, as well as “other related

services and expenses,” prosecutors said. By 2009, he also began paying a small additional fee to purge, or “securitize,” the records.

The indictment of Kepke was unveiled on the traditional deadline date for U.S. tax filers and follows congressional testimony earlier in the week by IRS Commissioner Chuck Rettig, who told senators that “it would not be outlandish to believe” that tax cheats are costing the country $1 trillion or more annually in lost revenue. A growing number of lawmakers are looking to more aggressive tax enforcement as a possible way to pay for government spending.

The Nevis-based entity that Smith controlled, Flash Holdings, also became a partner or member of several other Vista funds. It received distributions, including carried interest, from those funds between 2010 and 2014. Distributions to Flash were transferred from Vista to bank accounts in the British Virgin Islands and Switzerland, according to the indictment.

“Based on Kepke’s advice, Smith did not disclose to his income tax return preparers his true ownership and control” of assets he controlled or income he earned from Vista, according to the indictment.

Prosecutors charged Kepke with conspiring with Smith from 1999 to 2014, and with aiding and assisting in the preparation of materially false tax returns.

Kepke had a long history with the Brockman family. The lawyer had set up an offshore Brockman family trust in the 1980s. Brockman later introduced Kepke to Smith. Kepke set up similar non-U.S. entities for Smith, the Vista boss has acknowledged. Brockman has been charged in a 39-count indictment with using entities in Bermuda and elsewhere to hide from the IRS income that he earned investing in Vista funds. Brockman has denied wrongdoing.

Kepke, who is in his early 80s, is scheduled to make an initial appearance in San Francisco federal court on April 22. He couldn’t immediately be reached for comment.