McLean Bank Admits Failing to File Reports on Cash in Major Drug Case

By Elizabeth Tucker Washington Post Stall Weiter

McLean Bank pleaded guilty yesterday to
charges that it failed to tell the Internal
Revenue Service about sizable cash trans-
actions that helped drug ringleader Chris-
fopher F. Reckmeyer launder millions of
dollars from illegal drug sales.

The bank, but not bank officials, pleaded
guilty in U.S. District Court in Alexandria
to intentionally failing to file reports on 23
occasions between July 16, 1980, and April
27, 1981. The cash involved totaled
$620,000-part of more than $2.25 million
deposited at the bank in an account con-
trolled by Reckmeyer beginning in the
1970s, according to a statement by the of

fice of the U.S. attorney for the Eastern District of Virginia.

Financial institutions are required by fed-
eral law to tell the IRS about cash transac-
tions exceeding $10,000. The IRS uses the
information for criminal investigations,

In January, federal prosecutors issued a
122-page indictment of Virginia brothers
Christopher and Robert Reckmeyer and 24
others, alleging that from a few marijuana
sales in 1972 at Langley High School in
McLean, the Reckmeyers built a marijuana
and hashish empire that stretched from
coast to coast and grossed more than $100
million over a decade.

On May 17, Christopher Reckmeyer was
sentenced to serve 17 years in federal pris-
on after pleading guilty to masterminding

the drug ring. Robert Reckmeyer was sentenced to 14 years in prison,

McLean Bank's guilty plea followed a
grand jury investigation conducted by As-
sistant U.S, Attorney Kent S. Robinson dur-
ing the last six months. The Drug Enforce-
ment Administration, the Internal Revenue
Service and U.S. Customs also worked on
the case. Sentencing is set for Jan. 24 be-
fore U.S. District Judge James C. Cacheris.

Although the maximum penalty for the
bank's violation is a $500,000 fine, terms of
an agreement between the government and
the bank limit the possible fine to $100,000.

Bank officials were not available for com-
ment yesterday, but an unsigned statement
was issued by the bank.

"The United States has concluded that no

individual director, officer or employe of the
bank has committed any criminal violation
of the currency reporting requirements of
the U.S. Code," the bank's statement said.

"Instead, the government's prosecution is
based on the novel legal theory that the
bank can be criminally liable for 'knowingly
and willfully' failing to file currency trans-
action reports based on the 'collective
knowledge' of its employes-in effect that
some employes of the bank were aware of
the bank's obligation to file such reports,
but different employes were aware of the
particular currency transactions.

"The bank has decided not to contest the
government's interpretation of the law so
that this matter, which involves transac-

1

tions that are five years old, can be put to rest," the bank said.

Bank President Roy L. Browning was on
vacation and not available for comment,
according to a bank secretary. One bank
employe said the problem was due to "lack
of communication.... It has nothing to do
with anything... underhanded.

Assistant U.S. Attorney Robinson said
the charge was not based on a "novel" legal
theory.

"The bank is saying people in manage-
ment knew that currency transaction re-
ports were supposed to be filed," he said.
"The tellers who actually received the cash
deposits were aware of the transactions
See McLEAN, D8, Col. 1

McLEAN, From Di

that gave rise to the need to file. Those two groups of employes never quite hooked up that's the bank's claim.

There is going to be a sentencng in this case, at which point both the bank and government will be ble to say more about their position in this case," Robinson said.

Robinson said his office has inestigated other banks and found no indication that any other banks that the Reckmeyers were using jailed to file currency transaction

reports. The Reckmeyers used

several banks throughout North

ern Virginia," he said, without iden

tifying the banks. "Certainly any other cases of this sort which come to our attention will be vigorously prosecuted," he said.

Documents filed with the court Eisclose details of the cash transactions. Since the early 1970s, more than $2.25 million in cash was deposited on 173 separate occatons in an account called Crancy's Inc. and controlled by Christopher Reckmeyer, Robinson said. Beginung in 1978, many of the cash deposits exceeded $10,000.

But the McLean Bank filed only six reports to the IRS on the Crancy's account, involving about $200,000 in deposits, the US. attorney's office said. No reports were filed on 61 transactions involving more than $1.5 million.

Forty of the 61 transactions oc

condominium units at Port Royal

had been deposited in a savings account at the McLean Bank, instead of in escrow accounts as required by Virginia law.

At that time, documents showed that less than $10 remained in that account on Dec. 31, 1983, and that withdrawals had been made to finance other developments directed by Port Royal's principal officers, Eugene Lawson and Charles H. Schools. Schools, who had been chairman of the board for the McLean Bank until shortly before the controversy surfaced, was replaced by Roy L. Browning, but no one had been willing to say at the time why the change had been made.

Now, Browning is president, and the chairman is John G. Broumas, according to a bank employe.

In 1974, McLean Bank nearly collapsed under the weight of a wine mvestment scandal that touched its two top officers, bank officials said at the time. About $2.5 million in loans had been made to investors in the venture, which subsequently collapsed, leaving the young bank with a potential loss of $1.8 million.

The chairman, J. Michael Burry. was an investor in the scheme, which the Securities and Exchange Commission was to describe as fraudulent. Only the overnight infusion of $600,000 in cash by an investors group saved the Northern Virginia bank from having to be liquidated or merged with a holding

SHELTER, From Al

nights to American promoters, offered an innovative menu of tax avoidance schemes and attracted lots of customers.

One popular plan involved bogus medical malpractice insurance, in which doctors would take big tax deductions for their "“premiums" and secretly get most of the money back, according to the documents. Another called for the chent to buy phony consulting studies, again recouping most of the money after deducting the cost, the documents say.

Most IRS investigations involve a single promoter, but this money-laundering probe has attempted to track a loose network of about 20 USTPS associates from Massachusetts to California. The 22-month inquiry has involved more than 30 IRS officials in 10 cities.

This account was pieced together from hundreds of pages of IRS documents filed in various courts and made available by the agency, as well as interviews with IRS officials, shelter promoters, prosecutors and lawyers in the case.

In recent months, Schwind and Hill have pleaded guilty to tax fraud conspiracy, and a USTPS associate in South Carolina has been barred from peddling the tax shelters. More charges are expected.

Prosecution of Investors Planned

In a major break with past policy, IRS officials say they plan to prosecute not only the promoters but some of those who invested with USTPS. The agency says at least 3,000 wealthy taxpayers-a third of them doctors-invested with American promoters, who bought their franchises for up to $25,000.

The company was founded in the Cayman Islands, a tiny British colony of 17,000 with strict business secrecy laws that have transformed it into the Caribbean's leading tax haven. Half of all IRS criminal investigations now involve such offshore money centers.

The founders aggressively marketed their smorgasbord of tax plans. They took out full-page ads in The Wall Street Journal and paid prominent speakers, including former senator Eugene McCarthy (D-Minn.), to draw people to their tax seminars in the Cayman Islands. McCarthy says he was just a speaker and knew nothing of the company's operations.

IRS officials contend that the company's offerings went far beyond the legal shelters strewn throughout the tax code. They charge in court papers that USTPS advocated the use of bogus transactions to produce fraudulent deductions, largely by moving investors' money through Cayman banks and returning it to them in disguised form.

Each plan involved setting up a Cayman Islands corporation to invest money provided by the American client. The offshore firm is placed under foreign directors, but the client, who is listed as a "consultant," gives the marching orders, according to the IRS. Even if the company does nothing more than invest in bank certificates, the client can hide the account from the IRS and avoid paying taxes on the money.

"You have to be a little deceitful to get involved in this shelter," a USTPS promoter in St. Paul told an undercover IRS agent.

Lynford R. Evans, an accountant who was president of USTPS and now runs a new investment company out of the same Cayman Islands office, said the IRS allegations are untrue and greatly exaggerate the size of USTPS. He described himself as "an innocent bystander" who had only a loose affiliation with the American promoters.

The IRS has no jurisdiction over Cayman citizens such as Evans and is barred by Cayman law from conducting investigations on the islands.

Evans said USTPS was a small firm that never made a profit and was put out of business by the IRS last year. He called the estimate that it had 3,000 clients "so off the wall it's just incredible."

"We dealt with tax avoidance, not tax evasion," Evans said. "We never recommended tax evasion."

IRS affidavits and tape transcripts paint another picture of how offshore shelters are promoted behind closed doors. According to the documents, prime selections on the USTPS menu include:

The Mastercard Account-This is one of several ways an American client can gain access to his money after it is placed in a Cayman bank. The client is issued a special credit card to tap the funds, but the account is not listed in his name or reported to the IRS. The money can also be brought back to the United States through loans, gifts and scholarship funds.

■ The Medical Malpractice Plan-An American doctor writes a large check to a small Caribbean insurance company selected by USTPS. The doctor deducts the insurance "premium" as a business expense, although the IRS says no real insurance was involved.

The Caribbean company keeps 10 percent as its fee and forwards the rest to a "friendly" reinsurance company, which is secretly directed by the doctor. He can reclaim 90 percent of his money at any time through loans and other means.

A USTPS promoter in Dallas with 300 doctors as clients told an IRS agent that he refers to this plan as "naked insurance" because nothing exists.

The Consulting Study-The client buys a bogus study of European video games or some other topic, deducts the fee as a research expense and secretly gets most of his money back. A promoter in Humble, Tex.. told an IRS agent that USTPS had companies in six countries to do the studies, including "a Swiss corporation with a German name, a Bahamian corporation with a French name, a Liberian corporation with a South African name, a Panamanian corporation with a Spanish name."

■The Congregational Church of Human Morality— The client buys a "parish" at this church, whose address is a post office box in South Carolina. The tax-deductible "donation," minus a 10 percent handling fee, is deposited in a Cayman Islands account and can be reclaimed at a later date.

The Payroll Plan-The client enrolls in a plan that purports to transform his wages into tax-free "gifts." His salary, minus the standard 10 percent, is moved to an offshore trust and then secretly returned to him. The Justice Department recently obtained a court order barring George D. Sprague, a USTPS associate in Charleston, S.C., from operating this and other tax shelters.

Evans said that if some of his American associates promoted illegal shelters, they did so without his knowledge or after they had broken off relations with him. He said the medical malpractice plans promoted by USTPS involved bona fide insurance, and that many of the offshore shelters he recommended were backed by legal opinions.

Richard Wassenaar, assistant IRS commissioner for criminal investigations, called such arguments "a bunch of hogwash."

"Not every offshore corporation is illegal, but the vast majority are," Wassenaar said. "If you or I set up a

bank account in the Caymans, chances are we would do. it only for the purpose of evading taxes. Why would we want an account 3,000 miles away when we could have one around the corner?"

USTPS was born several years ago when California economist James G. Bryan moved to the Cayman Islands and teamed up with Evans. They began holding daily tax seminars at the Grand Cayman Holiday Inn. where visiting Americans got to see a videotape of Bryan touting various tax avoidance schemes.

Early last year, an IRS agent on vacation noticed maganne and billboard advertisements for the seminars and stopped in at one of the sessions. It wasn't long before an investigation was under way.