Monday, March 16, 2020

DOJ Tax Announces Convictions in Massive Biodiesel Tax Fraud (3/16/20)

This DOJ Tax announcement is noteworthy even though it does not involve one of the Title 26 crimes or a conspiracy to commit a Title 26 offense or an offense conspiracy to defraud the IRS:  Jury Finds Los Angeles Businessman Guilty in $1 Billion Biodiesel Tax Fraud Scheme: Four Members of Kingston Family, including the CEO and CFO of Washakie Renewable Energy, Previously Pleaded Guilty (3/16/20), here.

Key excerpts (with bold-face added by JAT):
According to evidence presented at a seven-week trial, Dermen was the owner and operator of Noil Energy Group, a California-based fuel company; SBK Holdings USA, a Beverly Hills real estate investment company; and Viscon International, a Nevada fuel additive corporation.  From 2010 to 2016, Dermen conspired with the owners and operators of Washakie Renewable Energy (Washakie), a Utah-based biodiesel company, including its Chief Executive Officer Jacob Kingston, his brother, Chief Financial Officer Isaiah Kingston, and others, including their mother, Rachel Kingston, and Jacob Kingston’s wife, Sally, to fraudulently claim more than $1 billion in renewable fuel tax credits from the IRS. 
The IRS administers refundable federal tax credits designed to increase the amount of renewable fuel used and produced in the United States. As part of their scheme, Dermen and Jacob Kingston shipped millions of gallons of biodiesel within the U.S. and from the U.S. to foreign countries and back again to create the appearance that qualifying renewable fuel was being produced and sold.  They also doctored production and transportation records to substantiate Washakie’s fraudulent claims for more than $1 billion in IRS renewable fuel tax credits and credits related to the EPA renewable fuel standard. To further create the appearance they were buying and selling qualifying fuel, the coconspirators cycled more than $3 billion through multiple bank accounts.
As a result of the fraudulent claims, the IRS paid more than $511 million to Washakie and the Kingstons that was distributed between them and Dermen. Jacob and Isaiah Kingston sent more than $21 million in fraudulent proceeds to SBK Holdings USA, Inc., Dermen’s California-based company, and sent $11 million to an associate of Dermen’s at his request. Jacob Kingston used $1.8 million of the fraud proceeds to buy Dermen a 2010 Bugatti Veyron, and they exchanged gifts including a chrome Lamborghini and a gold Ferrari.  
Dermen and Jacob Kingston also laundered $3 million through Dermen’s company, Noil Energy Group, to purchase a mansion in Sandy, Utah for Jacob Kingston and his wife Sally.  Dermen also laundered $3.5 million through his California company, SBK Holdings USA, Inc., to purchase a mansion in Huntington Beach, California.   
Throughout the scheme, Dermen assured Jacob Kingston that he and the Kingstons would be immune from criminal prosecution because they would be protected by Dermen’s “umbrella” of corrupt law enforcement personnel. Jacob and Isaiah Kingston transferred over $134 million in fraudulent proceeds to companies in Turkey and Luxembourg at Dermen’s direction, in purported payment for protection. 
The jury found Dermen guilty of conspiracy to commit mail fraud, conspiracy to commit money laundering, and money laundering concealment money laundering, and expenditure money laundering. 
The Kingstons, who are all members of the Davis County Cooperative Society, also known as the “Order,” each pleaded guilty on July 19, 2019 for their role in this scheme. Jacob Kingston pleaded guilty to crimes relating to the $1 billion biofuel fraud, including conspiracy to commit mail fraud, aiding and assisting in the filing of false claims with the IRS, conspiracy to commit money laundering, and conspiracy to obstruct justice.  In his plea agreement, he admitted to laundering fraudulent proceeds through Order-related entities and transferring millions in fraudulent proceeds to Order-related entities. Jacob Kingston admitted to conspiring to obstruct justice for attempting to bribe government officials, tamper with witnesses, and destroy evidence based on his agreeing with his family to hide evidence and replace computer hard drives once they learned of an impending search warrant. Under the terms of his plea agreement, Jacob Kingston faces a maximum of thirty years in prison.  He also faces a period of supervised release and other monetary penalties.  Sentencing has not yet been scheduled. 
Isaiah Kingston pleaded guilty to his role in the scheme, including to conspiracy to commit mail fraud, aiding and assisting in filing false claims with the IRS, conspiracy to commit money laundering, and conspiracy to obstruct justice.  Under the terms of his plea agreement, he faces a maximum of 20 years in prison. Rachel Kingston pleaded guilty to conspiracy to commit mail fraud, conspiracy to commit money laundering, money laundering, and obstruction of justice. In her plea agreement, she admitted to creating false invoices, backdating documents, and concealing records in advance of a federal search warrant. She faces a maximum of 15 years in prison. Sally Kingston pleaded guilty to conspiracy to commit mail fraud and conspiracy to commit money laundering; she faces a maximum of 15 years in prison. They each also face a period of supervised release. As part of their plea agreements, the Kingstons will be ordered to pay $511 million in restitution to the United States and to forfeit the proceeds of their crimes.
Jacob and Isaiah Kingston both testified at Dermen’s trial. 
U.S. District Judge Jill N. Parrish will set Dermen’s sentencing at a later date. At sentencing, he faces a maximum sentence of 20 years in prison for conspiracy to commit mail fraud, conspiracy to commit money laundering, and concealment money laundering, and 10 years in prison for expenditure money laundering. He also faces a period of supervised release, restitution, and monetary penalties.

JAT Comments:

1.  The press release is interesting for the pictures posted at the bottom, which presumably show the boys’ toys’ from their ill-gotten gains.

2.  Some documents from the Kingston plea agreements are downloadable from links at the bottom of the press release.

3.  The maximum incarceration for Derman appears to be 70 years.  He won't get that, but his sentence will certainly be substantial because this was not garden-variety tax evasion.

4.  There were undoubtedly tax counts that could have been charged and FBAR counts as well as they routed cash overseas.  It is not clear why those counts were not charged.

5.  My gut reaction is that, although the Government will get substantial forfeiture (at least under the plea agreements), restitution, criminal monetary penalties, etc., it will not collect near all of the money stolen through this tax credit scheme.

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