PodCast With John Kiriakou

PodCast With John Kiriakou, former CIA Agent who blew the whistle on waterboarding, about The Efforts of an Ex-Federal Prosecutor To Collect $50 million in tax fraud by Wall Street on New York State and New York City, About Which Neither Jurisdiction Has Done Anything

Text: Detailed documentation and a powerpoint presentation of the below story are available at American Tax Fraud: Wall Street Whistleblower Reveals 20-Year Battle In the below interview of Mr. Willcox by Mr. Kiriakou, Mr. Willcox sets forth the sordid tale of mismanagement, outright lies and incompetence he ran into while trying to report $50 million in tax fraud by Wall Street on New York State and New York City

Kiriakou Podcast Part One- Note – the accompanying transcript has been heavily edited for clarity.

Text of Podcast – note: The text has been heavily edited for clarity

John Kiriakou (“JK”) The CIA’s torture. The South African police are corrupt. The whistleblower comes forward , and makes his or her revelation. The whistleblower comes forward, makes his or her revelation and the story moves forward from there but what happens when the whistleblower’s revelations are so complicated that even governmental representatives just walk away from it what happens when they say look we don’t understand to the whistleblowers? Taxes are complicated for most Americans. It’s not unusual for a normal American working a normal job to have a tax return that stretches to more than 100 pages. Mine certainly does. And I’m nothing special.

So imagine what the tax returns of the big Wall Street banks, hedge funds and investment firms look like. With the US tax code taking up literally 10s of thousands of pages of the Official Gazette and corporate tax returns thousands of pages each, and with IRS oversight lacking for years, now it’s up to knowledgeable citizens to report evidence of waste, fraud, abuse or illegality. That’s exactly what happened in the case we’re going to tell you about today.

The problem, though, is what do you do when you report your evidence of illegality and the people who are supposed to investigate it just decide not to? It’s too complicated, they say. Or they disagree with your analysis even though you are certain that you’re correct. Or they just don’t have the budget or the manpower to investigate. Where they convinced the courts to ignore you because of a simple technicality, what do you do? You keep up the fight.

We’re happy to be joined by attorney Thomas Willcox. He’s a whistleblower on the issues of federal and state tax fraud committed by Wall Street banks and investment firms. Tom, welcome to the show. Thank you. Well, this is certainly a complicated case. I think the best way to tackle it is to start from the very beginning. Please give our viewers an overview of what this case is about and how you got involved in it basically in 2002.

Thomas Willcox (“TCW”) First of all, sometimes refer to myself as “I”, sometimes I refer to myself as the “Relator.”

In 2001 I discovered what Relator believed to be tax fraud inflicted on the US and New York State and New York City by several Wall Street banks. The transactions at issue which I’ll call the “PSINet transactions” or private placements of securities in 1990. With 85% of the funds raised in the United States by two syndicates of banks, both led by Credit Suisse USA. Other banks in the syndicate included JP Morgan Chase, Morgan Stanley and Merrill Lynch. Now call them the “US Affiliates. 15% of the money was raised in the United Kingdom by the British counterparts of the US banks, I will call them the “UK Affiliates.”

The structure of the transactions, described in much more detail in my website, was simply that the US Affiliates, acting as de facto principals, raised 85% of the $1.8 billion total in the two transactions in the United States, and simply, wired the funds from the New York City closing over to the UK, where the UK Affiliates simply booked the fees, to at the UK’s then lower corporate tax rate.

A simple summary of Relator”s efforts since discovery of the fraud in 2001 is that in 2005 Relator reported it to the IRS, and received back only an ambiguous letter denying a reward, but neither confirming nor denying that the IRS had obtained any recovery from the banks.

In 2011, the State of New York passed legislation permitting private litigants to bring qui tam actions on behalf of the State or any of its municipalities.

A very important aspect of the New York Law is that a Relator brining a Qui Tam Fraud Claim on behalf of New York State is bound by a 10 year statute of limitations. In contrast, when the State and the City bring such fraud claims on their own behalf, they have no statute of limitations

In 2013 I filed my New York State claim under seal with the court and presented the documents to the State of New York for review. However, that entity declined to review any of the documents from the IRS investigation or interview the people who would investigate it from the IRS. The State viewed the case as a fishing expedition and speculation.

Ultimately, the New York courts accepted this viewpoint and dismissed the case on that basis, while tacking on the view that my case was barred by the 10 year statute of limitations.

At the same time that the New York Appellate Court was passing such judgment, I found through serendipity an international tax law expert from one of the Nation’s finest law schools. I presented to him the same exact facts presented to New York State and the appellate court. Without hesitation, he came to the exactly contrary conclusion, stating the banks owed the IRS, NYC and NYS the taxes. In short, the professor opined that the facts as shown by the defendants’ documents were evidence of tax fraud.

Also in 2016, I brought a case on behalf of New York City, this time armed with the professor’s tax fraud opinion. However, the City evidently wanted to toe the same line as the State and the prior courts. Even further, it appeared to want the case to vanish so that it would not have to justify its actions.
Therefore, the city’s lawyer traded vacuous emails with me for two years, engaging in what I now would view as gaslighting, that is, hoping I would get discouraged and go away. There were no documents produced and no real investigation.

The City ultimately gave up on these efforts and permitted me to go forward

But without any help from NYC, the courts again dismissed the case, primarily on the theory that my first opportunity, the action on behalf of New York State, should be my last.

Now why do I persist after 20 years? One very important point is noted above. While my claims were dismissed, they were only the claims of a Relator, with a ten year statute of limitations. In contrast, the civil tax fraud claims of these jurisdictions, when brought directly by those entities are never time barred.

Even further, if the State or City take any actions to obtain recoveries, shareholders of the banks in question can file derivative actions alleging the banks breached their duties to those shareholders by letting such fraud take place, and failing to pay the taxes when given notice by the litigation.

Cutting to the chase, you saw evidence of tax fraud, and you did exactly as you were supposed to do. You went to the courts. But it seems that that’s where your problems actually began. As you said, in 2005, you reported tax fraud inflicted on the United States. You reported that to the Internal Revenue Service, the IRS. The IRS has long had a reputation as being hostile to whistleblowers, and unfortunately that was your experience. So tell us about it.

TCW

For a little background, in 2004 a Wall Street Banker testified anonymously that he unsuccessfully tried to report fraudulent Enron tax shelters to the IRS. If the IRS had responded when he had reported the irregularities, the Enron collapse might have been prevented.

But in essence, this whistleblower reported he was treated like a skunk at a picnic. Now in 2005, I tried to report to the fraud described above to the IRS, also Wall Street tax form. In March of 2005, the IRS referred the Relator’s claim to a special agent, I’ll call the SA, New York. The SA said he needed to confirm there was no previous audit taking place before he could meet with me. Two weeks later the SA called to notify Relator there was no pre-existing audit and arranged a meeting at the IRS’s offices off of Times Square.

At the meeting, the SA and his colleagues asked some questions but no showed no deep interest in examining the case.

In April 2005, I received a notice of rejection from the Ogden Utah IRS Office. In response, I made several phone calls seeking to find out what the basis was for the rejection. The SA said he needed more information. I ultimately reached a lawyer in the International Division of the IRS. I’m going to call him the IRS attorney. THe IRS Attorney asked me to submit a memorandum explaining my allegations of fraud, which I did.

I waited patiently, didn’t hear back.

But in December 2006, Congress passed legislation creating the Office of Whistleblower (the “OOW”). This law gave IRS whistleblowers various protections, such as an appeal to the Tax Court.

However all of these protections applied only to claims based on information provided after the passage of the Act. Therefore my claim was not included, and I could not invoke its protections.

On reading this news, I called the IRS Attorney. However, he gave a vague response indicating that a recovery had taken place, but that he had been told there was a pre-existing on it so I was not eligible for reward.

Now I know that to be false because I went to meet with the agents in New York. They would never had met with me had there been a pre-existing audit.

So in 2007 I made inquiry to the head of the newly created OOW. However, he gave me a response in June of that year which made an oblique reference to a prior denial of which I was not aware. Further, he said such denial had been “well reasoned.”

This June 2007 Letter really says nothing.

I believe the New York agents were annoyed by the fact that I turned their denial into a recommendation from Washington that they investigation the matter. So they ginned up this excuse for pre-existing attics.

Based on my review of cases, the IRS has had no hesitation telling whistleblowers the IRS recovered nothing. The Agency simply checks a box on a form like the one I got from Ogden, UT in APril 2005, next to boilerplate language to the effect there was no recovery. They wouldn’t have stated to tell me that had there been no record, but I viewed this letter as an excuse to deny reward and keep the whole amount.

Also, because Related submitted the information prior to the passage of the OWA Act, I could not appeal to the Tax Court.

With regard to your experience with the IRS, after you reported your allegations to an IRS investigator, the IRS adopted these new regulations that you just talked about, allowing whistleblowers to go to the US Tax Court to collect a whistleblower reward. This is well established law, but then you were denied. Even that opportunity. So can you go into a little bit more detail about how this happened and why they wouldn’t allow you to even apply for this whistleblower reward?

TCW

Well, as I explained above, because I submitted the factual basis for tax fraud in 2005 when there was no OOW. Any procedures for recovery were either nonexistent or weak. The OOW legislation, which which assigned each application a docket number, and gave the Relator the right to appeal to Tax Court any denial, applied only to information submitted after December 2006. So I since I had submitted my information in 2005, I had no recourse.

I did get one possible silver lining. There was one document that appeared to be a silver lining. In February 2007, Senator Charles Grassley issued a letter that instructed Senate Finance Committee staffers to review all whistleblower claims submitted to the IRS in the three years prior to the passage of the OOW legislation in 2006. The Finance Committee would go into executive session and request the file from IRS,

Were such a review to take place, I believe it would been shown that the IRS obtained a recovery.

However, take note Whistleblowers; there is a huge difference between a Senator giving instructions to committee staffers, and those staffers actually following them. Since 2007, approximately 7 Finance Committee staffers have had the role of communicating with whistleblowers. Despite my efforts with each of them, none of them made any effort to obtain my file. One of these staffers thought he might go to jail since the information was confidential, and the rest just lacked interest. So that that letter was never acted on. I must tell you, the the Enron whistleblower was pretty much right. Even after the passage of the OOW legislation. Whistleblowers get treated like skunks at a picnic.

The New York Appellate Court calls Relator’s Claims “Speculation”, Only to be Directly Contradicted By Unimpeachable Expert Opinion

After the IRS appeared to just dismiss you in 2007, you sought to bring claims first on behalf of New York State and then in 2016 on behalf of New York City. This was a complex accusation of tax fraud, but the New York Appellate court, without permitting any discovery or the introduction of expert testimony, just threw the case out and we’re talking about $75 million of the taxpayers money. What exactly happened there?

TCW

The court of which you speak, the First Department of New York State Appellate Division, is one of the finest in the country. But I have to express some disappointment in its handling of my case. The plaintiff’s allegations in the complaint are supposed to be deemed true for the purposes of a motion to dismiss, which is where we were at with the appellate court viewing the trial court’s ruling.

The First Department disregarded this rule, simply ruleing the tax fraud allegations were pure speculation. And in contrast to many other cases I’ve seen dismissing the fraud and speculation, the First Department did not set forth the allegations, or described any of the documents, on which they were

In other words, they didn’t put forward in the opinion any of the documents, the ten or so documents that I had showing the fraud. Or describe them or explain why they were speculation. The First Department did not spend more than one paragraph to dispose of the substance of the case.

I’ve seen many cases dismissed for fraud on the grounds that the plaintiffs claimed the facts were speculation. And we could see in the 2020 election many courts ruled without discovery against plaintiffs challenging the election, holding the fraud claims were speculation, and declining to permit any discovery. However, in each of them, the courts took the time to review the allegations raised by the plaintiff and explain why they did not meet the bar for the claim of fraud.

In my case, in its 2016 ruling, the First Department didn’t review any of my allegations, or summarize the transactions at issue or set forth any of the documents. And had they done so, I think I could have gotten multiple tax experts to state that the opinion was incorrect. Or at least people would have seen the facts.

Thank you, Tom. We’re going to take a short break, and when we come back, we’re going to go into some more detail about how the government denies to whistleblowers what the law demands and how officials just simply get away with it. Stay tuned.
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Kiriakou Podcast part Two

Welcome back to the whistleblowers. I’m John Kiriakou.

We’re speaking with Thomas Willcox. He’s a whistleblower on the issues of federal and state tax fraud committed by Wall Street investments firms and banks . Tom, thanks again for being with us. One of the things that has struck me about your case is the fact that it is dragged on for so many years. The whole thing began around 2002. A decade later, in 2012, you were back in the New York State courts arguing that the case was so compelling that you were sure the government and the courts would pick it up. Instead, the court dismissed the fraud as speculation without offering up any explanation. Tell us about that.

TCW

The first issue I will address is the delay from 2002 to 2012.
In 2002, the IRS had a dismal whistleblower program, as I’ve described above, and as the Enron Whistleblower’s testimony indicates and I as I discovered when I tried to file a claim in 2002, no one seemed to be in charge.

In fact, I will never forget the unforgettable statement in 2002 from the New York-based IRS lawyer in the New York office of the IRS that “we typically don’t prosecute Wall Street”. I remember that comment to this day because I couldn’t believe it when I heard it, but it was consistent with the Enron Whistleblower testimony.

Things changed a bit after the 2004 testimony before Senator Grassley of the Enron Whistleblower. I actually managed to get a formal referral to the IRS agents discussed above. However, when I met with them, I did not sense any excitement about a large case against major institutions. I will never forget showing some documents that related to a transaction that closed in the Cayman Islands and making a joking reference to transactions that the closing took place while the bankers in bathing suits and snorkels.

Later on, that agent basically started screeching at me that I had no evidence of fraud, either in the Cayman Islands example or in my transaction. After the meeting, the SA just sent me a rejection letter, as I I discussed above. When I called the SA to ask why did you just give me a formal rejection, the SA said the IRS needed “more information.”

After several phone calls made in response to the SA’s request, I found Attorney Paul Epstein, of the IRS’ International DIvision in Washington DC. Mr. Epstein asked for a detailed memo explaining the fraud. In June 2005, I provided Mr. Epstein with a detailed memorandum. I then waited for a response.

In December 2006, I read in the Wall Street Journal that Congress had passed the OO W legislation and. I called up Mr. Epstein and was told a recovery had taken place, but no reward was available because there was a “pre existing audit”.

In early 2007, I communicated with the newly installed head of the OOW. He wrote back that a prior denial (of which I was unaware) was “well reasoned.” Which I considered to be just sort of a blow off and an excuse for the IRS keep all the money and not give me a reward.

Now, after that denial in 2007, why was there any delay in filing the state lawsuits? Whistleblower law is an evolving and growing field. New York State did not pass legislation permitting private litigants to bring tax fraud cases until 2010. I didn’t learn of its passage until 2012. I filed the Complaint in 2013. Things proceeded fairly quickly at that point on the in the state litigation. However, in 2016, as the New York State litigation was being dismissed, I discovered New York City had a corporate franchise tax. I therefore filed a action on behalf of the City, under seal, as required by law in that year.

In March of 2016, I just discovered this international tax expert at the University of Michigan. He reviewed the documents and stated unquivocally the defendants owed the taxes.

I don’t think New York State liked the fact that this letter came out contradicting both it and the First Department. From March to September 2016, they sat on the complaint, doing nothing

Finally, in October 201, I called an attorney with the New York City Law Department who reviewed the expert opinion letter, contacted the TPB. They finally began to review the complaint. This is an example of me waiting for phone calls to be returned. .

These delays, however, were nothing compared to what happened after the state assigned the New York City lawyer to handle the case. In January 2017, the New York State Supreme Court issued an order formally assingin the case to the New York City Law Department for investigation. Further, the court required the city to file status reports every six months, i.e., in in late July 2017. Late January 2018 and and late July 2018,

In those months, the City Law Department filed reports to the court. I was not provided with a copies.

However, in these reports, the Law Department apparently told the Court the investigation was “ongoing.”

Notwithstanding these representations, during these two years, the Law Department never provided any documents or information relevant to the case. On conclusion of the case, the Relator reviewed how the New York City Law Department spent two years, 2017 and all of 2018, reporting to the court that it was investigating the case when it never produced any documents, interviewed any witnesses like my expert, or reported to the relay there any of the information I requested the defendants tax returns critical need. New York City policies on how they keep tracks, refunds, etcetera. Specifically, I as they provided no evidence, such as reviewing the relevant tax returns to determine what might be available in damages law department? The Law Department never interviewed the tax expert nor disclosed its “tax refund policy” which was critical to the Relator’s theory of liability.

Most egregiously, in 2018 the Law Department requested more evidence of fraud, and a demonstration had not gone stale. The Law Department was concerned because 19 years had taken place since the transactions were consummated.

In July 2018, in response to that request, I researched the current status of all of the signatories to the Purchase Agreements that governed the PSINet transactions. saw it to determine that the signatories of the purchase agreements.

I determined that all were still alive

Even further I noticed that And even, I mean, there was even more evidence of fraud. What? I sent these findings, which were several 100 pages, to the New York City Law Department. My system tracks transmission . and tells me when it’s been opened.

That is how I know the City Lawyer never looked at it.

Instead, in January of 2019, the City Lawyer let me know that the city wasn’t gonna pursue the case. In September 2019, the court unsealed the complaint. After that time, the Law Department ceased communications with me. They would not confirm receipt of filings or consent to E filing.

Finally, in December 2020, an email I sent that day to the Lawy Department Lawyer was returned undeliverable. . On inquiry, I determined the Law Department Lawyer have left the employment of the City without advising me of this fact or referring me to another attorney with whom to communicate. So on the basis of all this, I filed the formal complaint with the New York City Law Department. And I’m still waiting to hear back from that.

So where do things stand now, Tom? It looks like there’s no longer a court case because of the statute of limitations on the claims that you brought expired. It looks like neither the city nor the state have collected any taxes that the big banks have, essentially stolen. So what’s next?

TCW

Well, for background, in 2019 I consulted with Professor Richard Painter of the University of Minnesota as to whether or not the failure of the defendants conduct an internal investigation of my allegations of tax fraud would constitute a violation of the New York Rules of Professional Responsibility. He believed that to be the case. And he tweeted, if his factual allegations in these pleadings are true, that banks inflicted a huge fraud on New York State, New York City, Someone should investigate this case. Those words were true when tweeted in 2020 and they’re true today.

As noted above, while my claims have a 10 year statute of limitations, the city and state have no statute of limitations in pursuing their claims. Even further the defendants have been given clear notice of the fraud. If there’s any substantial publicity generated by your interview with me, such as any other major press event, the State and the City may feel compelled to make legitimate efforts to collect the funds.
Further, if such efforts are taken, the shareholders of the banks can file derivative actions demanding this fraud wasn’t dealt with when the when the banks were given notice of the same.

I have been described by the defendants in this case twice in their briefs as relentless. And it indeed, five years after first trying to get any press coverage on this case, I find myself speaking to you. And I intended to circulate this interview is widely as necessary to finish the job I began.

Thank you so once said that taxation is the price which civilized communities pay for the opportunity to remain civilized. When the biggest, most important and wealthiest banksman investment companies decide to not pay their taxes, we all lose, both as individuals and as a society. That’s why it’s up to whistleblowers to keep on the pressure. Even when it takes decades.

I’d like to thank our guest Thomas Willcox for being with us today and thank you to our viewers for joining us for another episode of the whistleblowers.

I’m John Kiriakou please follow me on substack at John Kiriakou. We’ll see you next time.

PodCast With John Kiriakou

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