# Messages from the Chief and Deputy (2020) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1c3a62b3affd00bf ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text ANNUAL REPORT 2020 4 Messages from the Chief and Deputy 46 Field Office Map 6 2020 Snapshot 48 Atlanta 8 Organizational Chart 52 Boston 10 Tax Crimes 56 Charlotte 16 Digital Fornesics 60 Chicago 20 Non-Tax Crimes 64 Cincinnati 24 International Operations 68 Dallas 27 Narcotics, Counterterrorism, & 72 Denver Transnational Organized Crime 76 Detroit 28 Specialized Units 80 Houston 29 Asset Forfeiture 84 Las Vegas 30 Nationally Coordinated 88 Los Angeles Investigations Unit 92 Miami 31 Commissioner's Protection Detail 96 Newark 32 Undercover Operations 100 New York 34 National Forensic Laboratory 104 Oakland 36 National CI Training Academy 108 Philadelphia 38 Professional Staff 112 Phoenix 39 Equity, Diversity & Inclusion 116 Seattle 42 Communications & Education 120 St. Louis 43 Outreach/Community Engagement 124 Tampa 128 Washington D.C. 132 Appendix TABLE OF CONTENTS Table of Contents IRS:CI Annual Report 2020 3 Message from the Departing Chief Message from the Incoming Chief and find those cases that have the biggest impact on tax administration. We are leading the world in our ability to trace virtual currency in financial investigations while still working our foundational tax enforcement mission areas. Our conviction rate is among the highest in federal law enforcement. Although many things have changed, some things have remained constant. That is how we preserve our legacy. Most crimes are still committed for financial gain and we are still the only federal agency authorized to investigate and recommend prosecution on federal income tax cases. It has been the honor of my life to lead the men and women of IRS-CI these past three years. It’s been an amazing run. In my 29 years with CI, I never imagined I would rise from a grade 5 Special Agent to being the Chief of this great agency. It’s truly been an honor. We have had some tremendous successes over the years, and I attribute those to the great personnel I have worked with in CI, and with our partners around the world. I’ve followed one simple philosophy: Work hard, surround yourself with greatness and the rest will take care of itself. During my tenure as Chief, we launched some important initiatives and the quality of our cases has never been higher, but it is the people I will miss the most. It is the people who selflessly devote their lives to this mission on behalf of the American people because they believe in the badge and all that it represents. Throughout my time with CI, I have never forgotten our mission and the important role we play on tax administration. The deterrent effect from our work forms the backbone of our voluntary compliance tax system—a system that funds our government, our military and our infrastructure. While criminals and their methods may change from year to year, following the money still forms the basis for everything we do just as it did 100 years ago. I’m proud of our accomplishments from this year and I look forward to following future successes! –Don Fort, Departing Chief The people in CI change throughout the years, but our underlying principles and our mission remain the same. They are what unite us and give us the structure to move forward seamlessly. Honor the Badge, Preserve the Legacy, Master Your Craft, and Inspire the Future are the guiding principles that IRS Criminal Investigation lives by and by which 2020 was defined. HONOR THE BADGE. As the new Chief, I am excited to share the FY 2020 IRS Criminal Investigation Annual Report. We honor the badge by remembering that the IRS relies on Criminal Investigation’s ability to investigate and recommend prosecution of criminal tax violations to the Department of Justice. Criminal Tax cases which are prosecuted and publicized provide a strong deterrent message to would-be tax evaders, helping to ensure the integrity and fairness in the tax system. Our workforce honors the badge by working with a sense of urgency, integrity, and professionalism every day. As we look ahead to develop and deploy the tools that will make us successful in the 21st Century, we must use those lessons learned from the past to inform our investigations and investigative techniques of the future. This is how we continue to honor the badge and our great history. PRESERVE THE LEGACY. Our cases continue to be some of the most complex and impactful cases in the world and regularly appear on the front page of the nation’s largest newspapers and websites. We are working smarter using data analytics to augment good old-fashioned police work MASTER YOUR CRAFT. The evolution of financial crime mirrors the evolution of money movement in general. The speed at which money moves today is almost instantaneous and the convenience that comes with that opens the door for criminals to exploit the latest technological advancements. Money disappears in the blink of an eye. All that is needed is a smartphone to move money from one location to another, anywhere in the world. The internet and the dark web have facilitated this change and law enforcement has adjusted to keep up. CI made significant investments in training our employees in the latest tactics and techniques to be successful in a digital financial world. These investments will continue. INSPIRE THE FUTURE. While the tools of the trade may have changed, criminals are still doing the same things they were always doing. Skimming money from a business to avoid employment taxes or pretending to be someone else to file taxes—these are things criminals have done since our inception. And while it is true that the threat and evolution of cybercrimes is real and has impacted all financial crimes, I’m proud of what we have done as an agency to position ourselves to solve these sophisticated crimes. Today’s cyber criminals think we cannot catch them, but as evidenced by some of the great casework in this report, it is clear we can. I’m proud of all we have accomplished in fiscal year 2020. I’m proud to lead this agency and I look forward to helping to write the next chapter of investigative excellence for CI. –Jim Lee, Chief Message from the Incoming Deputy Chief In fiscal year 2020, we continued to focus on case selection to make sure we worked the most egregious tax crimes in the country. We continued to pursue the cases that have the biggest impact on tax administration, finding ourselves in the headlines of some of the most talked-about cases of the year. We validated pilot programs and solidified units designed to better use data to aide in finding and solving the best financial crime cases. We took another step into the center of the world stage in solving some of the most complex cybercrimes. And we nourished international partnerships, broke down barriers of information sharing, and showed the world’s criminal population that there is nowhere to hide. CI Special Agents are in demand when it comes to solving complex financial crimes. As the Chief said, we are the only ones who can investigate tax crimes, but U.S. Attorneys want CI special agents involved in all their financial crime cases. In the international arena, we continue to work with our partners to break down barriers and work together in areas where we share common goals. Perhaps there is no better example of these types of partnerships than our work with the Joint Chiefs of Global Tax Enforcement, or J5. The J5 includes CI and our counterparts in the United Kingdom, Australia, Canada, and the Netherlands and focuses on enablers of international tax evasion and on the use of cryptocurrency to evade international tax obligations. This annual report is a proud reflection of the tremendous cases the Criminal Investigation Division has worked during fiscal year 2020. The case summaries in this report touch every field office, every state and nearly every region of the world. Though we spend most of our time talking about cases, it should be noted that these successes are a result of having the most sophisticated financial crime law enforcement personnel the world has ever seen. I look proudly at our successes in fiscal year 2020, but also forward to accomplishing great things in fiscal year 2021. – Jim Robnett, Deputy Chief 4 IRS:CI Annual Report 2020 IRS:CI Annual Report 2020 5 2020 Snapshot U.S. ATTORNEY'S OFFICE $2.3B $8.4B 90.4% 1226 1.27 TAX FRAUD IDENTIFIED OTHER FINANCIAL CRIMES WARRANTS EXECUTED INTERNATIONAL 26% 14% BSA DATA 13% CONVICTION RATE INVESTIGATION SOURCES PETABYTES IRS:CIVIL DIGITAL DATA SEIZED 7% STATE/LOCAL GOVERNMENT 4% CORPORATE FRAUD EMPLOYMENT TAX 8% OTHER FEDERAL AGENCIES PUBLIC CORRUPTION ABUSIVE TAX SCHEMES PUBLIC 29% CYBER CRIMES GENERAL TAX FRAUD GENERAL FRAUD IDENTITY THEFT TAX REFUND FRAUD IRS:CRIMINAL INVESTIGATION 73.1 13.8 NON-TAX NARCOTICS 11.3 MONEY LAUNDERING IRS:CI STAFFING OCDETF Organized Crime Drug Enforcement Task Force SPECIAL AGENTS 2020 2030 PROFESSIONAL STAFF 2020 1% DIRECT INVESTIGATIVE TIME SPENT* 2019 2009 828 13.7% 2019 728 PERCENTAGES *1.8% UNCATEGORIZED 6 IRS:CI Annual Report 2020 IRS:CI Annual Report 2020 7 Office of the Chief Chief of Staff Communications & Education Chief Deputy Chief Review & Program Evaluation Technology Operations & Investigative Services Equity, Diversity & Inclusion International Operations Operations, Policy, & Support Field Operations East National Forensic Laboratory Finance Program Analysis & Operational Support Business Systems Development Chicago Boston Atlanta Denver Field Operations West Financial Crimes Human Resources Cyber Crimes Cybersecurity Dallas Cincinnati Charlotte Las Vegas Narcotics, Counterterrorism, & Transnational Organized Crime Special Investigative Techniques National CI Training Academy Operations, Scheme Development, & Support Digital Forensics Detroit Newark Miami Los Angeles Warrants & Forfeiture Applied Analytics Technical Operations Center Houston New York Tampa Oakland Treasury Liaison User Support St. Louis Philadelphia Washington, DC Phoenix FinCEN Liaison Program Management, Acquisition, & Contracts Strategy Refund & Cyber Crimes Midstates Area Field Offices NCIU Northern Area Field Offices Southern Area Field Offices Western Area Field Offices ORGANIZATIONAL CHART Organizational Chart Seattle TEOAF Liaison 8 IRS:CI Annual Report 2020 IRS:CI Annual Report 2020 9 TAX CRIMES Tax Crimes 1598 945 593 INVESTIGATIONS INITIATED PROSECUTIONS RECOMMENDED ABUSIVE TAX SCHEMES CI focuses on the investigation of promoters and clients who willfully participate in domestic and offshore tax schemes in violation of the tax laws. Participants in these abusive schemes create structures such as trusts, foreign corporations, and partnerships to make it appear a trustee, nominee, non-resident alien, or other foreign entity is the owner of the assets and income, when in fact the true ownership and control remains with a U.S. taxpayer. CRIMINAL INVESTIGATION’S (CI) primary resource commitment is to develop and investigate tax crimes, both legal and illegal source. Prosecution of these cases supports the overall IRS compliance goals and enhances voluntary compliance with the tax laws. CI works some of these investigations with our federal, state and local law enforcement partners and also coordinates with foreign tax and law enforcement agencies. The Illegal Source Financial Crimes Program encompasses tax and tax-related, money laundering and currency violations. These investigations focus on individuals deriving income from illegal sources, such as money obtained through embezzlement, bribery, and fraud. The individuals can be legitimate business owners but obtain their income through illegal means. These investigations focus on methods through which individuals seek to launder their ill-gotten income by making it appear the income is from a legitimate source. Frequent money laundering techniques include the manipulation of currency reporting requirements, layering of transactions and international movement of funds. 10 IRS:CI Annual Report 2020 REFUND FRAUD PROGRAM GENERAL TAX FRAUD General tax fraud investigations are at the core of CI’s law enforcement efforts and directly influence the American public’s confidence and compliance with the tax laws. The integrity of our tax system depends heavily on taxpayers’ willingness to self-assess taxes owed and voluntarily file tax returns. CI investigations help assure law-abiding taxpayers that individuals who deliberately underreport or omit income from their tax returns are held accountable for their actions. Common practices involved in general tax fraud investigations include keeping two sets of books, making false entries in books and records, claiming personal expenses as business expenses, claiming false deductions or credits against taxes owed, and hiding or transferring assets. CI special agents use their financial investigative expertise to uncover and quantify the seriousness of these schemes. They also work closely with Department of Justice (DOJ) prosecutors to gather the necessary evidence to bring these cases to a successful conclusion. The Refund Fraud Program consists of three parts– identity theft investigations, the Questionable Refund Program (QRP), and the Abusive Return Preparer Program (RPP) for both Individual Master File (IMF) and Business Master File (BMF). These programs cover criminals who file fraudulent tax returns to steal government funds. This type of theft erodes voluntary compliance and taxpayer confidence in the integrity of the tax system. It also results in the loss of vital funds needed to support government programs, many of which impact the most vulnerable Americans. The Questionable Refund Program identifies fraudulent claims for tax refunds. Generally, these schemes involve individuals filing multiple fraudulent tax returns using the personally identifiable information of individuals who knowingly or unknowingly are used to facilitate the scheme. A significant number of these investigations include cases also considered identity theft investigations (stolen identity refund fraud-SIRF). In contrast, Abusive Return Preparer Program investigations involve the orchestrated preparation and filing of false income tax returns by corrupt return preparers. These preparers often claim inflated personal or business expenses, false SENTENCED deductions, excessive exemptions, and unallowable tax credits. The preparers’ clients may or may not know their returns were falsified. EMPLOYMENT TAX FRAUD Employment tax fraud takes many forms. Some of the most common forms include employee leasing, paying employees in cash, filing false payroll tax returns, and failing to file payroll tax returns (“pyramiding”). Pyramiding occurs when a business withholds taxes from its employees, but intentionally fails to forward them to the IRS. After a liability accrues, the individual starts a new business and begins to accrue a new liability. Some employers withhold taxes from their employees’ paychecks and use the funds for their personal expenses. Employment taxes include federal income tax withholding, Social Security taxes, and federal unemployment taxes. IDENTITY THEFT Identity theft refund fraud occurs when someone uses the personally identifiable information (PII) of another individual–for example name, Social Security number (SSN), address–without permission, to commit fraud or other crimes. These cases are commonly referred to as stolen identify refund fraud (SIRF) investigations. The scam usually occurs when an identity thief uses a legitimate taxpayer’s identity to file a fraudulent tax return and claim a refund. Generally, the identity thief will use a stolen SSN and other personally identifiable information to file a fraudulent tax return and attempt to get a refund early in the filing season before the legitimate taxpayer files their tax return. u IRS:CI Annual Report 2020 11 Cyber Crimes Cyber Crimes SIGNIFICANT CASES North Korea Crypto Hackers Charged SINCE 2015, CI continues to build a cybercrimes program to address the exponential growth of cybercrime impacting the tax, financial, and economic systems of the United States. A Cyber Crime Unit (CCU) with locations in our Los Angeles and Washington, D.C. Field Offices was part of the initial launch of the program and a headquarters Cyber Crimes office and cybercrimes coordinators in each of our 21 Field Offices followed. CCU investigations involve the internet and internet based technologies that enable criminals to engage in illegal activity with anonymity and without a defined physical presence. The CCU focuses its efforts on multijurisdictional investigations posing the most significant threats to the U.S. tax and financial systems. These crimes typically involve the use of crypto currencies to facilitate the criminal activity. Field office special agents and professional staff working cybercrime investigations are focused primarily on cyber enabled investigations that involve theft and fraud and are increased in scale by the use of computers, computer networks, or other forms of technology. Over the past several years, CI has seen an increasing growth in the number of criminals using the cyber environment to facilitate Stolen Identity Refund Fraud (SIRF) and other refund fraud schemes. During this same period, data loss incidents reported to the IRS has drastically increased. These data loss incidents include data intrusions, 12 IRS:CI Annual Report 2020 business email compromises, phishing schemes, and bank account takeovers victimizing private sector entities involved in the tax eco-system and the IRS. These thefts target detailed financial data, prior year tax returns, and payroll records that criminals use to generate SIRF claims that mirror a victim’s actual tax return. During these types of cybercrime investigations, special agents use their close working partnerships with other law enforcement agencies and their capabilities as law enforcement officers to gather valuable information about SIRF, refund fraud crimes, and information that affects the integrity of IRS online systems. They share criminal intelligence in real-time with their IRS civil counterparts to aid taxpayer and revenue protection efforts. The IRS also uses this information to develop internal defenses that help identify and prevent further losses associated with fraudulent claims. CI’s cybercrime investigative efforts focus on subjects using the internet as an essential means to commit the crime, remain anonymous, elude law enforcement, and conceal financial transactions, ownership of assets, or other evidence. As with all types of crimes within CI’s area of responsibility, special agents working cybercrimes investigations use the same “follow the money” strategy that made CI’s involvement in complex investigations a mainstay since the creation of the agency in 1919. On March 2, 2020, two Chinese nationals were charged with laundering over $100 million worth of cryptocurrency from a hack of a cryptocurrency exchange. In total, nearly $250 million in cryptocurrency was stolen by North Korean co-conspirators in 2018. The funds were laundered through hundreds of automated crypto­ currency transactions and multiple virtual currency exchanges’ Know Your Customer (KYC) controls were circumvented through the use of doctored photographs and falsified identification documentation. A Treasury Secretary Steven Mnuchin presented the Secretary’s Honor Award to portion of the laundered funds was Special Agent Christopher Janczewski of the Washington Field Office. Christopher used to pay for infrastructure used was recognized for playing a key role in an international investigation that brought in North Korean hacking campaigns down three terrorist financing schemes, leading to the largest crypto seizures in against the financial industry. The the history of the U.S. relating to terrorism. U.S Treasury’s Office of Foreign Asset Control (OFAC) also imposed sanctions on defendants and numerous cryptocurrency Largest Ever Seizure of Terrorist Organizations addresses related to their involvement in activities facili­ Cryptocurrency Accounts Causes Global Terror tating North Korean sanctions evasion. Disruption Darknet Based Bitcoin Mixing Service Owner Charged with Laundering More Than 300 Million Dollars On February 13, 2020, Larry Harmon was charged with money laundering conspiracy, operating an unlicensed money transmitting business and conducting money transmission without a D.C. license. Harmon ran both Grams and Helix, respectively a darknet search engine and money laundering service that was integrated into major darknet markets such as AlphaBay, Silk Road II, Abraxxas, and many others. Helix worked by tumbling bitcoins from users and vendors on darknet markets with new, “clean” bitcoin so as to obfuscate the illicit source of the bitcoin. Approximately 356,000 bitcoins moved through the site between July 2014 and December 2017 – valued at over $300 million at the time of the transactions. Data obtained from these servers will assist investigations all around the world – since criminals use tumblers to obfuscate the crypto trail. Evidence obtained from this investigation will serve as the missing link or puzzle piece in many investigations. On August 13, 2020, three forfeiture complaints and a criminal complaint were unsealed in the District of Columbia detailing a coordinated effort to dismantle three terrorist financing cyber-enabled campaigns. These campaigns involved the (1) al-Qassam Brigades, Hamas’s military wing, (2) al-Qaeda, and (3) Islamic State of Iraq and the Levant (ISIS). These actions represent the government’s largest-ever seizure of cryptocurrency in the terrorism context. These three terror finance campaigns all relied on sophisticated cyber-tools, including the solicitation of cryptocurrency donations from around the world. The action demonstrates how different terrorist groups have similarly adapted their terror finance activities to the cyber age. Each group used cryptocurrency and social media to garner attention and raise funds for their terror campaigns. Pursuant to judicially-authorized warrants, U.S. authorities seized millions of dollars, over 300 cryptocurrency accounts, four websites, and four Facebook pages all related to the criminal enterprise. IRS:CI Annual Report 2020 13 Cyber Crimes AL-QASSAM BRIGADES CAMPAIGN: The first forfeiture complaint involves the al-Qassam Brigades (aQB), Hamas military wing, and its online cryptocurrency fundraising efforts. In early 2019, aQB posted a call on its social media page for bitcoin donations. The aQB then moved the request to its official websites and boasted the donations were untraceable and would be used for violent causes. The websites offered video instructions to make bitcoin donations. With judicial authorization, IRS:CI seized the infrastructure of the aQB websites and subsequently covertly operated one of the websites and a bitcoin wallet. Funds were received from persons seeking to provide material support to aQB and communications from persons seeking to join aQB. Financial accounts were seized and also included hundreds of bitcoin addresses from both donors and aQB in a forfeiture complaint. AL-QAEDA CAMPAIGN: The second action involves al Qaeda and affiliated terrorist groups, largely based out of Syria. These organizations operated a bitcoin money laundering network using Telegram channels and other social media platforms to solicit cryptocurrency donations. In some instances, they purported to act as charities when, in fact, they were openly and explicitly soliciting funds for violent terrorist attacks. IRS:CI identified and included 155 bitcoin addresses in the forfeiture complaint. ISIS CAMPAIGN: The final forfeiture complaint involves a scheme by ISIS facilitator, Murat Cakar to sell fake personal protective equipment via website FaceMaskCenter.com. The website claimed to sell FDA approved N95 respirator masks, when in fact the items were not FDA approved. Site administrators claimed to have near unlimited supplies of the masks, in spite of such items being officially-designated as scarce. The forfeiture complaint seized Cakar’s website as well as four related Facebook pages used to facilitate the scheme. 14 IRS:CI Annual Report 2020 Cyber Crimes Two Turkish Inidividuals charged as money launderers Mehmet Akti and Husamettin Karatas were charged in a criminal complaint with acting as related money launderers while operating an unlicensed money transmitting business. Akti operated a prolific virtual currency Money Service Business (MSB) from his account with a virtual currency exchange receiving approximately 2,328 Bitcoin, 2,296 Ethereum, and U.S. dollar wires totaling $82.8 million. During the same time period withdrawals out of the account were made to more than 250 unique cryptocurrency wallet addresses totaling over $90 million. Karatas opened an account at a virtual currency exchange which he used to operate a cryptocurrency exchange of his own. In addition to a $500,000 wire from a company linked to Akti, Karatas received cryptocurrency and fiat currency valued at approximately $2.1 million into his virtual currency account between April and July 2019. During the same time period Karats withdrew cryptocurrency valued at approximately $2.3 million from this account to 17 unique wallet addresses. HEROCOIN Owner Admits to Operating Unlicensed Crypto ATM Network that Laundered Millions of Dollars of Bitcoin and Cash for Criminals Kais Mohammad, a.k.a. “Superman29”, ran a variety of Bitcoin ATM-type kiosks under the brand name “Herocoin”. He was charged in a three-count criminal information filed on July 22, 2020, and plead guilty the same day. Mohammad plead guilty to one count of operating an unlicensed money transmitting business, one count of money laundering, and one count of failure to maintain an effective anti-money laundering program. From December 2014 to November 2019, Mohammad owned and operated Herocoin, an illegal virtual-currency money services business. Mohammad purchased and advertised on the internet a network of Bitcoin ATM-type kiosks, which were located in malls, gas stations and convenience stores in Los Angeles, Orange, Riverside and San Bernadino counties. These 17 kiosks allowed customers to use cash to buy Bitcoin, an internet-based cryptocurrency, or sell Bitcoin in exchange for cash that is dispensed onsite. The machines were seized by the government. In total, Mohammad admitted he exchanged between $15 million and $25 million from in-person exchanges and transactions occurring at his Bitcoin kiosks. SCAM ALERT! The BitClub Network investment scheme revealed On December 10, 2019, Matthew Goettsche, Jobadiah Weeks, Russ Medlin, Joseph Abel, and Silviu Balaci were charged for their roles in connection with defrauding BitClub Nework investors of at least $722 million. To date, Balaci and Abel have plead guilty to various charges associated with their roles in the scheme. From April 2014 through December 2019, the defendants operated BitClub Network, a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors. Goettsche, Weeks, and others conspired to solicit investments in BitClub Network by providing false and misleading figures that BitClub investors were told were “bitcoin mining earnings,” purportedly generated by BitClub Network’s bitcoin mining pool. Goettsche discussed with his conspirators that their target audience would be “dumb” investors, referred to them as “sheep,” and said he was “building this whole model on the backs of idiots.” Goettsche directed others to manipulate the figures displayed as “mining earnings” during the course of the conspiracy. For example, in February 2015, Goettsche directed another conspirator to “bump up the daily mining earnings starting today by 60%,” to which his conspirator warned “that is not sustainable, that is ponzi teritori [sic] and fast cash-out ponzi... but sure.” In September 2017, Goettsche sent an email to another conspirator in which he suggested that Bitclub Network “[d]rop mining earnings significantly starting now” so that he could “retire RAF!!! (rich as f**k).” Weeks sent an email in June 2017 to Goettsche and another conspirator in which he remarked that BitClub selling shares in BitClub and then not using the money to purchase mining equipment was “not right.” Goettsche, Weeks, and others obtained the equivalent of at least $722 million from BitClub Network investors. Goettsche, Weeks, Abel, and others also conspired to sell BitClub Network shares – which were securities – notwithstanding that BitClub Network did not register the shares with the U.S. Securities and Exchange Commission. Weeks and Abel created videos and traveled around the United States and the world to promote BitClub Network. In one video, a conspirator espoused that BitClub Network was “the most transparent company in the history of the world that I’ve ever seen.” In another video, Abel assured investors that BitClub Network was “too big to fail.” u IRS:CI Annual Report 2020 15 DIGITAL FORENSICS IRS:CI’S ELECTRONIC CRIMES section is now Digital Forensics. In fiscal year 2020, Electronic Crimes was restructured to better provide world class digital forensic services to Special Agents and other law enforcement stakeholders. This specialized and highly technical section has been more appropriately named Digital Forensics. Virtually every criminal investigation now includes some form of digital evidence and a need for digital forensics. Digital forensics can range in complexity from running a simple keyword search on existing data to imaging complex server farms and analyzing terabytes of data in a virtual environment. The Digital Forensics section specializes in extracting evidence from a variety of sources: standalone computers, mobile devices, business computer networks and systems, servers, cloud storage, and even the dark web. As digital technologies 16 IRS:CI Annual Report 2020 Digital Forensics The Digital Forensics section forensically acquires and analyzes digital data and provides testimony in legal proceedings about digital evidence and processes in ongoing criminal investigations. Digital Forensics currently has 68 field CISs in 47 laboratories throughout the United States; these labs will be consolidated to 18 Regional Digital Forensics Laboratories in the coming years. Digital Forensics also has a specialized Digital Forensics Laboratory in Virginia staffed with six CIFAs and two Special Agent Senior Analysts responsible for policy, training, hardware and software testing, as well as serving as a resource in solving complex data extractions, data recovery, and other challenges encountered by CISs in the field. SIGNIFICANT CASES In FY 2020, Digital Forensics personnel participated in more than 959 search warrants or other digital forensics operations at more than 718 locations and seized over than 1.278 petabytes of data from more than 3,304 computers, laptops, and external devices and 724 mobile devices. The Digital Forensics section is the primary source for digital analysis in IRS:CI, and IRS:CI’s Digital Forensics remains one of the premier digital forensic programs in all of U.S. law enforcement. Initially, Kvashuk started stealing smaller amounts totaling about $12,000 in value using his own account access. As the thefts escalated into millions of dollars of value, Kvashuk used test email accounts associated with other employees. Kvashuk, a knowledgeable software developer, attempted to mask digital evidence that would trace the fraud and the internet sales back to him. He used a bitcoin “mixing” service in an attempt to hide the source of the funds ultimately passing into his bank account. In all, over the seven months of Kvashuk’s illegal activity, approximately $2.8 million in bitcoin was transferred to his bank accounts. Kvashuk then filed fake tax return forms, claiming the bitcoin had been a gift from a relative. Northern Pacific Area On February 25, 2020, Volodomyr Kvashuk, a 25-year-old former Microsoft software engineer was convicted of a scheme to steal over $10 million in digital currency from Microsoft. Kvashuck was involved in the testing of Microsoft’s online retail sales platform and used that testing access to steal “currency stored value” (CSV) gift cards. Kvashuck resold the value on the internet and used the proceeds to purchase a $160,000 Tesla vehicle and a $1.6 million-dollar lakefront home. and modes of concealing evidence evolve, CI’s Digital Forensic examiners’ evolve as well through training and education. Computer Investigative Specialists (CISs) and Computer Investigative Forensic Analysts (CIFAs) continually train and work to advance their technical acumen and skillsets. Training is primarily accomplished through a joint-agency training project known as the Treasury Computer Forensic Training Program (TCFTP), a collaboration with Homeland Security Investigations and the U.S. Secret Service. Through TCFTP training and additional advanced trainings and certifications, IRS:CI’s Digital Forensics examiners have quickly become leaders in the identification and extraction of data from common computer and mobile systems to unique devices, such as vehicle infotainment systems, drones, wearables, and various other electronic media known as the Internet of Things. IRS:CI Annual Report 2020 17 Digital Forensics IRS:CI Digital Forensics took the lead as to the acquisition, processing, and analysis of the data from various devices, constituting approximately seven terabytes of data seized as evidence. A Digital Forensics SA-CIS and a special agent from the Western Cyber Crimes Unit worked together on a daily basis to triage and assess digital evidence in the context of the investi­ gation. Information about the tools and means of the fraud that were initially developed via other aspects of the investigation were confirmed and validated through the Digital Forensics’ analysis of internet and program artifacts found on the seized devices. For example, use of VPN services; meticulous analysis by the user of possible IP and geolocation information; Microsoft test account access information; stolen CSV codes; screenshots of fraudulent purchases made in the scheme; and a rich variety of data in the forms of significant internet browser history, saved user login/password information, and add-ins designed to thwart identification of the user. The CIS prepared video recordings of Kvashuk’s virtualized computer documenting user attribution and the operation of a custom-built software program used to automate the process of stealing Microsoft CSV codes. The CIS subsequently testified at trial using extracts of the video to show how the information would have appeared to the user behind the keyboard. When sentenced, Kvashuk faces up to twenty years in prison. Mid-Atlantic Area Monique Ellis was sentenced to six years in prison for wire fraud and aggravated identity theft. Ellis was convicted following a jury trial in October 2017. Ellis’s appeal was denied in September 2019. According to documents filed with the court and evidence presented at trial, Ellis used stolen IDs, including those of prisoners within the Alabama Department of Corrections, to file tax returns with the Internal Revenue Service seeking fraudulent 18 IRS:CI Annual Report 2020 Digital Forensics refunds. Ellis directed the fraudulently obtained refunds to bank accounts that she controlled, causing a tax loss of $700,933. A Digital Forensics SA-CIS was tasked with forensically reviewing laptops seized during the execution of a search warrant at Ellis’s apartment, including two laptops seized from her bedroom. A forensic review of the laptops revealed that they were used to file over 300 electronic tax returns from 2008 through 2012. The forensic review included identifying TurboTax UIDs from the laptop’s internet browser history to identify the filed returns. The forensic review also identified that the laptops accessed the internet provider (IP) address associated with Ellis’s apartment over 300 times. The tax returns linked to the laptops shared certain characteristics, such as being filed from one of several IP addresses, including the IP address for Ellis’s apartment. The CIS testified at trial, as well as at a pretrial hearing regarding the tools/processes used. In addition to the prison term, Ellis has been ordered to serve three years of supervised release and to pay $352,183 in restitution. Mid-Atlantic Area George David George was indicted in the Middle District of Tennessee by a federal grand jury in May 2015 with securities fraud, mail fraud, wire fraud, and money laundering and subsequently charged with additional counts of wire fraud in February 2017. George plead guilty and was sentenced in March 2019. His appeal was denied in March 2020. George operated a fraudulent investment scheme where he raised money for a social networking platform focused on health and wellness known as Well City. George bilked dozens of investors out of $3 million. Rather than invest the funds in the business, he diverted a substantial portion to personal uses like gambling and retiring personal debts. In May 2017, George was indicted for failing to appear in U.S. District Court after he failed to appear for a bond revocation hearing and prior to the start of his trial scheduled for May 16, 2017. George, who was out on bail, cut off his ankle monitor and absconded from justice. He spent nineteen months as a fugitive and continued to deceive. He went to Texas, Alabama, and was caught in Jacksonville, FL. He assumed at least two identities while on the run to evade capture. One identity was that of a Harvard-trained psychiatrist where he unlawfully dispensed a prescription drug, Clonazepam, to a sixteen-year-old, landing the boy in the hospital. George had previously taken this medication from a woman he met on Match.com and whom he was having a romantic relationship with while deceiving her as well. George was apprehended and arrested by the US Marshals in January 2019. IRS:CI’s Digital Forensics (DF) was tasked with imaging and analyzing devices seized during the arrest under a short deadline. SA-CISs in the Nashville Digital Forensics lab were quickly able to do the necessary analysis. The work of the CISs was crucial as George’s computer was a major topic addressed during sentencing. Analysis showed George’s internet searches consisted of topics such as how to successfully run from authorities and how to erase search history. George plead guilty to seven counts of wire fraud, and one count of mail fraud, securities fraud and money laundering in March 2019. George was sentenced to 20 years in federal prison for the fraud scheme and ordered to pay almost $3 million in restitution. During sentencing, Judge Wilson remarked that George had “larceny in his heart”. Eastern Area Ryan P. Sheridan operated two drug and alcohol detoxification centers in Ohio under the name Braking Point Recovery Center. Sheridan, with the assistance of multiple co-conspirators, used these detoxification centers to commit health care fraud by submitting false billings to the Ohio Department of Medicaid. On October 4, 2019, Sheridan plead guilty to a 60-count indictment that included various health care fraud charges and 28 money laundering counts. On January 22, 2020, Sheridan was sentenced to serve 90 months incarceration and pay restitution of over $24 million. During the course of the investigation, A Digital Forensics SA-CIS captured significant data on various cell phones and computers and elicited essential information during interviews of key witnesses who had text message communications with Sheridan. These text messages provided insight into the relationships Sheridan had with his co-conspirators. The SA-CIS assisted the prosecution team in determining the most efficient way to examine mass amounts of data seized from the electronic devices which proved instrumental to the investigation and subsequent prosecution. Walters among other things, adjusted prescription formulas to ensure the highest reimbursement without regard to efficacy; solicited recruiters to procure prescriptions for high-margin compounded medications and paid those recruiters commissions based on the percentage of the reimbursements paid by pharmacy benefit managers and health care benefit programs, including commissions on claims reimbursed by TriCare; solicited (and at times paying kickbacks to) practitioners to authorize prescriptions for high-margin compounded medications; routinely and systematically waived and/ or reduced copayments to be paid by beneficiaries and members, including utilizing a purported copayment assistance program to falsely make it appear as if the pharmacies were collecting copayments. Walters and his numerous co-conspirators effectuated a scheme to defraud health care benefit programs, including the TRICARE program, in the amount of $287,659,569, with losses to a government health care program exceeding $20,000,000. Walters obtained over $40,000,000 in proceeds derived directly or indirectly from the fraud. Walters is only one of fourteen guilty pleas or trials in which Digital Forensics played a significant part in the investigation. In February 2017, Digital Forensics CISs took the lead in analyzing the 210 terabytes of digital evidence originally seized by the FBI. In conducting the digital review and analysis, CISs used complex forensic software, as well as CI’s own internal digital evidence file sharing system known as Electronic Crimes Environment. The three-year review consisted of a team of CISs assisted by technical agents from several other agencies to complete and present the evidence necessary to prove the case. The IRS:CI Digital Forensics section continues to provide technical assistance to the investigation and US Attorney’s as they continue to look into the numerous aspects of this case. u Southeast Area On July 10, 2020 Wade Ashley Walters, a co-owner of numerous compounding pharmacies and pharmaceutical distributors, pleaded guilty to one count of conspiracy to commit health care fraud and conspiracy to commit money laundering. As part of his guilty plea, Walters admitted that, between 2012 and 2016, he orchestrated a scheme to defraud TriCare and other health care benefit programs by distributing compounded medications that were not medically necessary. As part of the scheme, IRS:CI Annual Report 2020 19 NON-TAX CRIMES Non-Tax Crimes 998 914 633 INVESTIGATIONS INITIATED CRIMINAL INVESTIGATION’S (CI) Illegal Source Financial Crimes Program investigates tax and tax related crimes, money laundering, and currency violations. The special agent’s investigations focus on individuals who receive income from illegal sources, such as embezzlement, bribery, and fraud. They also focus on money-laundering schemes where individuals launder their ill-gotten gains by making the money appear as if it came from legitimate sources. Sometimes an individual will employ a third party or a professional money launderer. 20 IRS:CI Annual Report 2020 Frequent money laundering techniques include: • Manipulating currency reporting requirements • Layering transactions • Use of Cryptocurrency • Using Black Market Peso • Moving funds internationally The domestic and international law enforcement community recognize CI’s special agents as the premier experts in money laundering investigations. PROSECUTIONS RECOMMENDED SENTENCED MONEY LAUNDERING BANK SECRECY ACT PROGRAM Money laundering, as defined in the National Money Laundering Strategy, is criminal finance. Money laundering creates an underground, untaxed economy that harms our country’s overall economic strength. When criminals or criminal organizations seek to disguise the illicit nature of their money by introducing it into the stream of legitimate commerce and finance, they launder money. The traditional image of money laundering portrays someone manually washing drug money from city streets, and turning it into legitimate financial transactions, such as those for bank deposits and other assets. The Bank Secrecy Act (BSA) mandates the disclosure of foreign bank accounts, the reporting of certain currency transactions conducted with a financial institution, and the reporting of the transportation of currency across United States borders. Through the analysis of BSA data, CI has identified significant, complex money laundering schemes and other financial crimes. CI is one of the largest law enforcement consumers of BSA data. In contrast, criminals today can press a computer button to move large amounts of criminally derived funds into or through the United States and foreign financial institutions. They launder money through a wide variety of enterprises, such as banks and money transmitters to stock brokerage houses, casinos, and virtual currency exchanges. The flow of illegal funds around the world is estimated to be hundreds of billions of dollars. Whenever money, whether it be legal or illicit, moves through a financial system, it leaves behind a trail of transactions. Uncovered trails identify who willingly enables and finances crime. These people often view crime with deliberate blindness, negligence, or disregard. The trail can also reveal the crooks who made money through crime. CI special agents are experts at uncovering money trails. They take part in a wide variety of investigations, financial task forces, and narcotics task forces including Organized Crime Drug Enforcement Task Force (OCDETF) and the High Intensity Drug Trafficking Area (HIDTA). The CI BSA program has grown substantially since its start in early 2000. The primary objective of the program is to analyze BSA information to identify significant financial criminal activity. Although Financial Crimes Enforcement Network (FinCEN) is the agency tasked with administering the BSA, they have no criminal enforcement authority. All criminal enforcement of BSA is delegated by the U.S Treasury Secretary to IRS:CI. Other federal agencies can investigate criminal violations of the BSA, but CI is the only federal agency that actively reviews all BSA data for leads and possible criminal violations. CI uses various data analytics tools to actively analyze BSA data and identify leads for possible investigation. CI leads SAR Review Teams (SAR RTs) and Financial Crimes Task Forces (FCTFs) in all 93 judicial districts across the country. The FCTFs and SAR-RTs focus on specific geographic areas and involve collaboration between CI and federal, state, and local law enforcement agencies for identifying and investigating financial crimes, including BSA violations, money laundering, narcotics trafficking, and terrorist financing. IRS:CI Annual Report 2020 21 Non-Tax Crimes Each of the SAR RTs and FCTFs operate in slightly different fashion, based on direction and oversight from their respective U.S Attorney’s offices (USAO), but once CI special agents identify leads in their respective areas, they meet with participating law enforcement agencies to discuss and disseminate the leads for action. It should be noted that all of the major federal agencies use BSA data to supplement their investigations, but only CI regularly triages BSA data for leads and possible criminal violations. CI’s financial investigative focus allows them to leverage BSA data better than any other U.S law enforcement agency. As a result, 13% of all CI investi­ gations initiated in fiscal year 2020 were the direct result of BSA data. CI currently has upwards of 200 special agents and investigative analysts working on SAR RTs and FCTFs around the country. CI strengthens the BSA program area by maintaining excellent working relationships with anti-money laundering officials within the financial industry. During the past year, CI participated in numerous local, regional, national, and international anti-money laundering forums and conferences presenting on various topics including CI’s role in investigating financial crimes, case studies, and typologies. CI also continues to partner with FinCEN and other federal law enforcement agencies to provide feedback and outreach to the financial industry. Additionally, CI is collaborating with the financial industry and federal regulators to examine the US Anti-Money Laundering regime to make it more effective and efficient through the BSA Advisory Group. 22 IRS:CI Annual Report 2020 Non-Tax Crimes PUBLIC CORRUPTION CORPORATE FRAUD SIGNIFICANT CASE CI investigates elected and appointed individuals who violate the public’s trust. The Corporate Fraud Program concentrates on violations committed by publicly-traded or private corporations and their senior executives. Some specific criminal acts involving corporate fraud include falsifying, fabricating, or destroying company records. Fraudsters use the false information to complete tax returns, financial statements, and reports for regulatory agencies or investors. Corporate Fraud can also include executives who entitle themselves to unauthorized compensation, or who receive unapproved payments and bonuses, corporate funds, or bogus loans to pay for personal expenses. Former Milton City Mayor and Ex-Head of United Way of Santa Rosa County Sentenced to 51 Months Federal Prison for Fraud and Tax Evasion These individuals are from all levels of government including local, county, state, federal, and foreign officials. Public corruption investigations include criminal offenses, such as bribery, extortion, embezzlement, kickbacks, tax fraud, and money laundering. Corruption by public officials results in the loss of taxpayer dollars. Public officials who violate the public trust are often prosecuted to the full extent of the law, with large fines and increased jail time for offenders. In addition, the United States is often a desirable destination for the monies of corrupt foreign officials. This type of corruption undermines democratic institutions and threatens national security. GENERAL FRAUD CI special agents also investigate healthcare and financial institution fraud. When CI brings income tax and money laundering charges to a criminal case, it enhances prosecutors’ effectiveness to combat these and other types of fraud. CI special agents work with federal, state, and local law enforcement partners, as well as with foreign tax and law enforcement agencies, to follow and uncover a trail of illicit money in these investigations. Guyland W. Thompson, a former mayor of Milton, Florida, and ex-executive director of the United Way of Santa Rose County Florida, was sentenced to 51 months in federal prison after pleading guilty to wire fraud and tax evasion in relation to a complex embezzlement scheme. Between at least 2011 and 2018, Thompson embezzled over $650,000 from the United Way. He used his position and access to the charity’s records and bank accounts to steal money from the charity for years by conducting a series of complicated financial transactions to cover his tracks. He also made false representations to board members, employees, bank tellers, and United Way Worldwide to keep his fraud undetected for so long. Thompson then failed to report to the Internal Revenue Service the extra income from his embezzlement scheme. Prior to sentencing, Thompson pled guilty to 20 counts of wire fraud and three counts of tax evasion stemming from his embezzlement of funds from United Way of Santa Rosa County while he ran the organization. Thompson was ordered to forfeit $221,868 seized from his bank accounts and pay an additional money judgment of $430,132. u IRS:CI Annual Report 2020 23 INTERNATIONAL OPERATIONS THE HAGUE LONDON FRANKFURT OTTAWA WASHINGTON, D.C. DUBAI HONG KONG MEXICO CITY BARBADOS PANAMA CITY BOGOTA THE GLOBAL FIGHT against tax and economic crimes transcends borders and requires innovative approaches. IRS:CI’s Office of International Operations (IO) works collaboratively in support of agency goals, objectives, and activities. IO enhances IRS’s international strategy by combating offshore tax, money laundering, transnational organized crime, terrorism financing and other financial crimes. It unites our domestic, foreign tax, and law enforcement agency partners. IO also works with other organizations to leverage bi- and multilateral agreements and resources. CANBERRA Headquarters BRANCH A: 24 IRS:CI Annual Report 2020 OTTAWA LONDON THE HAGUE DUBAI CANBERRA & SYDNEY Attaché BRANCH B: SYDNEY Attaché (J5) MEXICO CITY PANAMA CITY BOGOTA BARBADOS FRANKFURT HONG KONG IRS:CI Annual Report 2020 25 International Operations Internationally, IO has Special Agent Attachés strate­ gically stationed in 11 foreign countries: • Mexico • Canada • Colombia • Panama • Barbados • China • Germany • The Netherlands– Europol • England • Australia • Dubai Attachés continuously build and maintain strong alliances with foreign governments, and law enforcement and industry partners. These alliances give CI the ability to develop leads for domestic and international investi­ gations that have an international nexus. The vigilance of IRS:CI Special Agent Attaches serves to uncover emerging schemes perpetrated by promoters, profes­ sional enablers, and financial institutions. These entities facilitate tax evasion of federal tax obligations by U.S. taxpayers. IO also educates foreign governments and agencies on crime detection, investigative techniques, case studies, emerging trends, and best practices. Special Agents train foreign governments through collaborative efforts with the International Law Enforcement Academies (ILEA) in Budapest, Hungary; Bangkok, Thailand; San Salvador, El Salvador; and Gaborone, Botswana. In addition, IO conducts training at the International Academy for Tax Crime Investigation at Guardia di Finanza Economic and Financial Police School in Ostia, Italy. The Organization for Economic Cooperation and Development (OECD) and the U.S. Department of State sponsors the training. In FY 2020, IO had several significant accomplishments: The Assistant Secretary of the U.S. Treasury and the Ambassador of U.S. Embassy Mongolia were concerned with counter-threat finance, counter narcotics, and border security of Mongolia. They pledged to provide support to Mongolia. Hong Kong Post coordinated a week-long Financial Investigation Technique training in Mongolia. The training was attended by judges, prosecutors and law enforcement from Mongolia’s National Police Agency, Dept of Taxation, Financial Regulatory Commission, Financial Intelligence Unit, Independent Authority Against Corruption, General Prosecutors Office, General Intelligence Agency, Judicial General Council and Internal Affairs University of Mongolia. An important partnership initiative, of CI’s International Strategy, involves 26 IRS:CI Annual Report 2020 NARCOTICS, COUNTERTERRORISM & Section Title TRANSNATIONAL ORGANIZED CRIME strengthening agency participation in The Joint Chiefs of Global Tax Enforcement (J5), is an alliance between the criminal tax authorities of the U.S., Australia, Canada, the Netherlands, and the United Kingdom. J5’s focus is combatting international tax and financial crimes through proactive collaboration using each country’s collective resources. Areas of emphasis for the J5 presently include: • Professional Enablers • Virtual Currency Crimes • Tax Evasion • Technology Sharing • Innovation The first major operational activity for the J5 occurred on January 23, 2020, when a globally coordinated enforcement activity was carried out in the United Kingdom, Canada, Australia, the Netherlands and the U.S. The action occurred as part of a series of investigations into an international financial institution located in Central America whose products and services are believed to be facilitating money laundering and tax evasion for customers across the globe, using the institution’s sophisticated system. The coordinated day of action involved collection of intelligence, and evidence through interviews, search warrants and subpoenas. On November 22, 2019, Mexico City Post, U.S. Ambassador to Mexico, Christopher Landau, along with the Phoenix Field Office, hosted a meeting with Mexico’s Financial Intelligence Unit, Banking Commission, Banking Unit, and AML Compliance Officers of Mexican financial institutions. The Mexico City Post increased communi­ cation and collaboration with local bankers, and provided a history of CI, and how they collaborated with AML officials to facilitate the detection and referral of BSA investigative leads to IRS:CI. u IRS:CI NARCOTICS AND COUNTERTERRORISM (NCT) program supports these programs: • President’s Strategy for Transnational Organized Crime • The U.S. National Drug Control Strategy • The National Money Laundering Strategy • The U.S. Government’s National Counterterrorism Strategy IRS:CI contributions include reducing or eliminating the profits and financial gains of individuals, entities, and transnational criminal organizations whose crimes involve financing terrorism, narcotics trafficking, and money laundering. Our special agents investigate criminal violations of the Internal Revenue Code, Bank Secrecy Act and Federal Money Laundering statutes. In addition, we use our unique financial investigation skills to trace profits from illegal activities to individuals or criminal organizations to dismantle or disrupt schemes and prosecute criminals. NCT assigns CI personnel to the White House Office of National Drug Control Policy to support its related strategy and the National Money Laundering Strategy. Other personnel have assignment to multi-agency task forces. Here are some examples: • Organized Crime Drug Enforcement Task Force (OCDETF) • OCDETF Fusion Center (OFC) • High Intensity Drug Trafficking Area (HIDTA) • High Intensity Financial Crimes Area (HIFCA) • Drug Enforcement Administration Special Operations Division (SOD) • El Paso Intelligence Center IRS:CI focuses its narcotics investigations on high-priority OCDETF investigations because its contributions can have the greatest effect on dismantling large criminal organizations. In 2019, NCT partnered with the Organization for Economic Cooperation and Development (OECD) Task Force on Tax Crimes and Other Crimes to update their Money Laundering and Terrorist Financing Awareness Handbook for tax examiners and tax auditors. The purpose of this handbook is to raise awareness on money laundering and terrorist financing techniques. One of the largest drug rings ever prosecuted in Buffalo, NY tried to hide their drug proceeds as income from sea cucumbers. While on the witness stand, IRS Special Agent David Turri painted the picture of an organization so big, it shipped its cocaine and heroin – anywhere from 30 to 70 kilograms at a time – on pallets in tractor trailers. Another witness said that in 2013, the organization shipped 100 kilograms of cocaine to a house on Niagara Falls Boulevard in the Town of Tonawanda, New York. During his testimony, Turri took the jury through a series of false bank deposit records and purchase orders to demonstrate how the organization took in $19 million during a 2-year period ending in 2015. He added that the drug ring laundered its money by setting up front companies in California, such as seafood wholesalers with names like Triton Foods. They relied on sales records to falsely show the distribution of large amounts of sea cucumbers in Buffalo. Indicted with multiple other defendants, the courts accused Herman Aguirre of being a leader of the organization and, with co-defendant Jose Ruben Gil, a link to the Sinaloa cartel. Gil, who claims he met with “El Chapo,” pleaded guilty in February 2019 and testified against Aguirre. u IRS:CI Annual Report 2020 27 SPECIALIZED UNITS WARRANTS & FORFEITURES ALCOHOL AND TOBACCO TAX AND TRADE BUREAU (TTB) GLOBAL ILLICIT FINANCIAL TEAM (GIFT) GIFT is an IRS:CI-led task force to investigate organi­ zations that illicitly move money used to support international crime organizations. These investigations are conducted with various partner agencies, including Homeland Security Investigations (HSI) and the Defense Criminal Investigative Service (DCIS). An IRS:CI supervisory special agent (SSA) oversees the task force, which includes special agents and professional staff from CI and partner agencies. The SSA reports to the special agent-in-charge in the Washington, D.C., field office. The GIFT is a major conduit of IRS:CI’s money laundering strategy and a focal point for the newly formed CI money laundering cadre. The cadre consists of special agents from all 21 field offices who coordinate activities and allocate resources to effectively execute CI’s money laundering strategy. GIFT investigations include: • Illegal money transfer businesses • International real estate fraud • Financial institutions concealing and disguising illegal transactions • Identity theft • Public corruption and extortion • Government contract fraud • Sale of contraband goods 28 IRS:CI Annual Report 2020 Reminiscent of Eliot Ness and Elmer Irey’s “T-Men,” IRS:CI continues its partnership with the Alcohol and Tobacco Tax and Trade Bureau (TTB) to combat illicit tobacco and alcohol trade. The TTB was created in January 2003, when the Bureau of Alcohol, Tobacco, Firearms and Explosives or ATF, was extensively reorganized under the provisions of the Homeland Security Act of 2002 and realigned to the Department of Justice. The act called for the tax collection functions to remain with the Department of the Treasury, thereby creating TTB. TTB regulates and collects taxes on trade and imports of alcohol, tobacco, firearms, and ammunition within the United States. In 2009, TTB entered into an inter-agency agreement with CI to provide special agents to enforce TTB’s criminal provisions. These special agents are strategically dispersed across the country and overseen by an SSA. This group’s sole focus is combating the illicit tobacco and alcohol trade. The TTB reports to the special agent-in-charge in the Washington, D.C., field office. Since the agreement began, the group has initiated over 180 investigations with great success. INTERNATIONAL TAX GROUP (ITG) As the Swiss Bank Program winded down in 2017, CI ramped up an International Tax Group (ITG) to continue their focus on this type of work. An SSA leads this group of special agents, investigative analysts, and professional staff, which report to a special agent-in-charge in the Washington, D.C., field office. The ITG’s focus is on investigations concerning international financial entities, ultra-high net worth individuals, and tax fraud promotors. Additionally, ITG remains involved in CI’s J5 tax enforcement efforts with the governments of the United Kingdom, Canada, Australia, and the Netherlands. u IRS:CI ASSET FORFEITURE program uses seizure and forfeiture authority as an investigative tool to disrupt and dismantle criminal enterprises. The program seeks to deprive criminals of property used in, or acquired through, illegal activities. CI takes a leading role in these investigations because of their financial expertise and resources. IRS:CI is one of the largest contributors to the Treasury Forfeiture Fund (TFF), which the Treasury Executive Office for Asset Forfeiture manages. These funds are used to reimburse victims of criminal activity and to pay for law enforcement related expenses, such as training, equipment, and the cost of conducting significant investigations. In addition, CI shares a portion of forfeited funds with federal, state and local law enforcement agencies. As of September 30, 2020, IRS:CI seized 775 assets worth an estimated value of $821 million and forfeited approximately $162 million in ill-gotten proceeds. FY2020 Significant Forfeiture - $71,850,000 HSBC Private Bank (Suisse) SA (HSBC Switzerland), a private bank headquartered in Geneva, entered into a deferred prosecution agreement (DPA) with the Department of Justice in the U.S. District Court for the Southern District of Florida. HSBC Switzerland admitted to conspiring with U.S. taxpayers to evade taxes and, as part of the agreement, HSBC Switzerland will pay $192.35 million in penalties, to include a civil forfeiture of $71.8 million, for proceeds illegally derived from their conduct. HSBC Switzerland admitted that between 2000 and 2010 it conspired with its employees, third-party and wholly owned fiduciaries, and U.S. clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns. In 2002, the bank had approximately 720 undeclared U.S. client relationships, with an aggregate value of more than $800 million. When the bank’s undeclared assets under management reached their peak in 2007, HSBC Switzerland held approximately $1.26 billion in undeclared assets for U.S. clients. FY2020 Significant Forfeiture - $18,920,865 Thomas Edward Spell Jr., Glenn Doyle Beach Jr., and other co-conspirators pled guilty to their role in a $200 million compounding pharmacy scheme to defraud health care benefit programs, including TRICARE, which is the program that covers U.S. military service members and their families in the Southern District of Mississippi. The charges consisted of conspiracy to commit health care fraud, conspiracy to commit money laundering and tax evasion. Both Spell and Beach owned and operated separate pharmacies that marketed compounded medications at their respective pharmacies. Rather than formulating compounded medications based on the individualized needs of patients, formulas were selected to maximize profit based upon reimbursements from TRICARE and other health care benefit programs. Numerous assets were seized and forfeited from Spell, Beach and other co-conspirators to include bank accounts, U.S. currency, real estate, and vehicles. u IRS:CI Annual Report 2020 29 NATIONALLY COORDINATED INVESTIGATIONS UNIT SINCE ITS LAUNCH IN FISCAL YEAR 2017, the Nationally Coordinated Investigations Unit (NCIU) has continued to provide critical support to Criminal Investigation’s (CI) efforts in using a data driven process in identifying, selecting, and developing cases. As in previous years, the NCIU’s resources are focused on case development efforts that are national and international initiatives. The NCIU continues to modernize IRS criminal investi­ gative tools to make them more reliant on data analytics with a centrally led, team-based approach. The NCIU is proactively addressing key issues in non-compliance and emerging threats by building strategic partnerships with internal and external stakeholders. In addition to innovative, national case development, the NCIU offers continuous support to CI field offices by offering initia­ tive-specific training and investigative research. The NCIU also works closely with multiple IRS business operating divisions to facilitate a collaborative, service-wide approach to enforcement, and to promote data analytics throughout the entire IRS. The NCIU has focused its current case development efforts on several national initiatives that CI’s Executive Steering Committee identified as priorities. The unit’s current priorities are: COVID-19 related fraud, virtual currency, international tax, significant money laundering, employment tax, the Department of Homeland Security’s National Targeting Center, and the Whistleblower Program. The NCIU successfully developed data models for multiple initiatives that lead to significant, impactful investigations in the field. More importantly, the unit demonstrated the power of data analytics and its benefit for law enforcement through the significant number of referrals it made, and through quantitative and qualitative controls. 30 IRS:CI Annual Report 2020 COMMISSIONER’S PROTECTION DETAIL During FY 2020, the NCIU continued to support the CI field offices through existing national initiatives: • International – Foreign Account Tax Compliance Act (FATCA) • International – U.S. Citizens Living Abroad (USCLA) • Virtual Currency • Employment Tax In addition, during FY 2020, the NCIU expanded their data driven methods of case development by adding a new national initiative involving Form 1099K data. In FY 2020, due to the global COVID-19 pandemic, the NCIU also brought data driven methodologies to identify and develop cases specific to the growing fraud in this area. Several referrals were made to the field offices to include hording/price gouging of critical supplies, false applications for Small Business loans, and false claims of tax credits made via the new Form 7200. Creativity and the ability to quickly adjust resources allowed the NCIU to successfully address this emerging threat. In FY 2020, the NCIU had several notable accomplishments, including the referral of 117 cases to field offices across the country. In addition, the efforts of NCIU team members involved in the employment tax initiative were recognized with a Commissioner’s Award in October of 2019 for their innovation and use of data analytics to identify non-compliance. THE COMMISSIONER’S PROTECTION DETAIL (CPD) is a specially trained cadre of IRS:CI Special Agents, who provide personal security and protection of the IRS Commissioner. Since 1999, this dedicated team has been charged with protecting the Commissioner during official business operations. CPD agents provide protection of the Commissioner within the National Capital Region and while in travel status, foreign and domestically. CPD agents are trained in protective service operations with an emphasis on operational planning, motorcade operations, protective intelligence, and preventing and responding to attacks. Protective operations are a team effort and require detailed advanced preparations aimed at identifying and mitigating potential risks, threats, and vulnerabilities. u As the leader of the IRS, the Commissioner frequently attends meetings, conferences, publicized hearings and speaking engagements in locations such as the White House, U.S. Capitol, U.S. Treasury, and other venues in Washington, D.C., as well as around the globe. In a typical year, the CPD protects the Commissioner on approximately 500 protective movements, 20 domestic trips, and 2-3 international visits. The NCIU leadership also provided a briefing to United States Treasury Secretary Mnuchin on the Employment Tax Initiative and the data driven process used by the team to identify, select and develop employment tax investigations. u IRS:CI Annual Report 2020 31 UNDERCOVER OPERATIONS Undercover Operations During the investigation, IRS undercover agents posed as businesspeople interested in purchasing Trendsetter. In a recorded meeting between Mr. Khatib and the agents at Trendsetter, Mr. Khatib bragged about millions of dollars in income he had concealed from the IRS, and encouraged the agents to run Trendsetter in the same fraudulent way if they purchased it from him: “How are you going to pay taxes on the $3.5 mill[ion] that I got hidden? I can’t pay taxes on that. If you guys want to run it different than what I’m running it, you will be paying over 200 grand.” Later the same day, the undercover agents met with Lisa Khatib at the defendants’ residence, and she explained to them how she maintained two sets of records to conceal the tax evasion, and doubled down on the concealment by making sure the balances provided to the defendants’ accountants reflected what was contained in the false, clean books. This evidence lead to the Khatibs entering into a plea agreement admitting to violating Title 26, United States Code, Section 7206(1), the submission of a false return. CRIMINAL INVESTIGATION (CI) has a long history of using undercover techniques to investigate crime. These techniques are well-documented, and they play a significant role to bring criminals to justice. Special Investigative Techniques (SIT) oversees CI’s undercover activities and reviews, approves, funds, and trains personnel who carry out undercover operations. Special agents and leadership teams initiate and manage day-to-day operations in their respective field offices. CI has a cadre of active undercover agents that use sophisticated means to initiate contact with individuals perpetrating tax crimes and gain evidence needed to prosecute their crimes. In FY 2020, agents conducted approximately 293 undercover operations. 32 IRS:CI Annual Report 2020 SIGNIFICANT CASES IN FEBRUARY 2020, the United States District Court out of the Northern District of Illinois sentenced Mohammad Khatib, owner of Trendsetter, a business located in Harvey, Illinois, to 24 months in prison for one count of submitting a false income tax return. Lisa Khatib, Mohammad’s wife, also plead guilty to a count of the same and was ordered to serve two years of probation, including 6 months of home confinement and 120 hours of community service. In addition, the two were ordered to pay restitution in the amount of $822,265. According to their plea agreements, Mohammad Khatib owned Trendsetter, which sold tobacco products, marijuana paraphernalia, and additives used to cut certain controlled substances, including heroin and cocaine. Lisa Khatib was in charge of bookkeeping, payroll and making bank deposits for the business. Two sets of books were kept for Trendsetter, one which listed the total amount of cash generated from the sale of merchandise and the other which underreported cash sales. The false set of books was provided to their accountant to prepare their U.S. Income Tax Returns for the years 2010 through 2015, resulting in a federal tax loss of $822,266. IN MARCH 2020, the United States District Court of New Hampshire sentenced Michael A. Albert, owner of Mike’s Affordable Auto, LLC, a business located in Chichester, New Hampshire, to six months imprisonment and ordered him to forfeit $434,201 for structuring cash deposits for the purpose of evading bank reporting requirements, money laundering, and evading reporting requirements with respect to cash transactions in excess of $10,000. According to the plea agreement, Albert knew that if he deposited cash in amounts more than $10,000, the bank was required to file reports of those transactions with the IRS. To evade the reporting requirements, he structured cash deposits from his business. Additionally, Albert failed to file required Forms 8300 with the IRS identifying cash receipts in his business in excess of $10,000. During the investigation, IRS undercover agents purchased two vehicles from Albert, representing that the cash was proceeds of illegal drug trafficking. In one transaction of $17,800, Albert instructed the undercover agent to make two payments in amounts less than $10,000 and said “so I’m not doing over ten grand. I don’t have to do nothing.” In the other transaction of $19,500, Albert altered the bill of sale to reflect a paid price of less than $10,000. Albert failed to file IRS Forms 8300 related to either of the vehicle sales. CI’S UNDERCOVER PROGRAM HISTORY In 1929, Michael Malone successfully infiltrated Al Capone’s Chicago gang for nearly two years. Because of his work, the government successfully prosecuted Capone and his top enforcer, Frank Nitti, for tax crimes. In 1963, the Undercover Operation (UCO) was centralized into the National Office. UCO focused on illegal gambling and organized crime, and most operations lasted longer than one year. In the late 1960s, CI initiated the Courier Project to corroborate persistent allegations concerning the movement of casino receipts by couriers to offshore tax havens. UCO infiltrated organized crime organizations that used fall guys to operate casinos. In the late 1970s, the UCO was decentralized. The National Office retained review, approval, funding and training authority, and districts were responsible for the initiation and daily management of the operation. This organization continues today. In the 1980s, UCO focused on offshore banking schemes and illegal tax shelters. The estimated revenue loss from these shelters was about $120 billion by 1985. With the advent of money laundering laws, undercover agents became proficient at conducting investigations into the laundered illegal proceeds of narcotics traffickers. Today, CI uses undercover operations in investigations on unscrupulous tax return preparers, offshore tax schemes, money launderers, dark web marketplace operators, and those who seek to conceal the movement of money for illegal purposes, including tax evasion. This evidence ultimately lead to Albert entering into a plea agreement admitting to violating Title 31, United States Code, Section 5324, Structuring cash deposits to evade bank reporting requirements, Title 18, United States Code, Section 1956, Money laundering and Title 31, United States Code, Sections 5331 and 5322, Failing to file IRS Forms 8300 for cash transactions by a nonfinancial business in excess of $10,000. u IRS:CI Annual Report 2020 33 NATIONAL FORENSIC LABORATORY National Forensic Lab Requests 120 SCIENTIFIC SERVICES SINCE THE EARLY 1970’S, scientists and technical experts at the National Forensic Laboratory (NFL) have reported the results of forensic testing and technical services to investigators for use in both exploring potential criminal violations and for adjudication of the Internal Revenue Code and related financial crimes. Results of the NFL’s work are used by CI Special Agents, or other customers of the laboratory to analyze elements 34 IRS:CI Annual Report 2020 to provide pivotal direction in their investigations. Often, support provided by the NFL doesn’t end with delivery of a scientific report or product. Whether it be a visual information specialist providing and adjusting graphics before or at trial, or a forensic scientist testifying to their findings, an important function of the NFL is to support judicial proceedings where and when required. 147 TRIAL GRAPHICS & DESIGN The laboratory’s work is critical in ensuring the efficient processing of crucial evidence in CI investigations. The NFL consists of three sections, each offering specific scientific or technical services. For instance, the Scientific Services section offers forensic disciplines that include electronics (audio, video, and image intelligi­ bility), latent prints (finger and palm print development and comparison), polygraph, questioned documents, chemistry, and DNA collection. The Trial Graphics and Design section is responsible for breaking down complicated cases into succinct effective visuals that help show, rather than tell, all the elements of extremely complex investigations. Although these services are primarily for CI Special Agents preparing for trial, Trial Graphics and Design also assists in the creation of high-level presentations and other special projects such as CI branding and marketing outreach. Furthermore, the Data Processing Center (DPC) located in Florence, Kentucky is responsible for taking information, either hard copy or electronic, and compiling it into a database that is delivered to the customer and can be used to more efficiently manage and analyze case-related data. By doing so, the DPC saves investigators countless hours of tedious labor, while enabling them to focus their energy on other key areas of the investigation. 59 DATA PROCESSING CENTER When the experts at the NFL are not working on evidence, they are providing tours to agents and various IRS:CI stakeholders at their building located in downtown Chicago. One of the most effective ways to educate others about the NFL’s capabilities is by demonstrating their state-of-the-art equipment and sharing stories. Thanks to the talented men and women of the NFL and their dedication to science and their technical services, as well as the mission of IRS:CI, the customers of the laboratory have come to know and expect their high-quality work. The successes of the cases they assist in speak for themselves and nothing is more gratifying to the NFL than seeing them get fully adjudicated. But equally important is helping investigators know when to consider closing a case. Bottomline, the NFL adds evidentiary and incriminating value in nearly every case or can aid with the investigator’s decision to move onto the next one. u IRS:CI Annual Report 2020 35 NATIONAL CI TRAINING ACADEMY TRAINING AND NCITA In addition to SAIT, the NCITA provides advance training to special agents in the use of force, firearms instruction, building entry and defense tactics. The NCITA also provides leadership development programs for all levels, from pre-management through senior management, to ensure the identification and development of future leaders. Each year, the NCITA develops continuing professional education courses for special agents and professional staff with an emphasis on emerging trends such as cybercrime and crypto currencies. The NCITA also provides foreign governments and agencies training in crime detection, investigative techniques, case studies, developing trends, and best practices. CI trains foreign governments in partnership with the International Law Enforcement Academies located in Budapest, Hungary; Bangkok, Thailand; San Salvador, El Salvador; and Gaborone, Botswana. CI also partners with the Guardia di Finanza Economic and Financial Police School’s International Academy for Tax Crime Investigation in Ostia, Italy. The Organization for Economic Cooperation and Development (OECD) sponsors this training. IRS:CI special agents receive refresher training regularly. They attend quarterly firearms, defensive tactics and semi-annual building entry training. Through frequent use of force training, they maintain their skills and abilities, so they always use good judgement and the appropriate degree of force necessary to safely carry out enforcement activities. These activities include issuing search warrants, arrests, surveillance, armed escorts, dignitary protection, undercover activities and seizures. IRS:CI SPECIAL AGENTS are the best trained and finest financial investigators in the world. They begin their training at the National Criminal Investigation Training Academy (NCITA). The NCITA is located at the Federal Law Enforcement Training Center (FLETC) in Brunswick, Georgia and is dedicated to fostering the highest levels of professionalism and ethical behavior throughout the CI workforce. The NCITA’s primary focus is training new special agents in the fundamentals of financial investigations. Agents learn to recognize the elements of tax offenses, and methods of proof unique to federal tax investigations. They acquire all the knowledge, skills, and abilities required to be federal law enforcement’s finest financial investigators. 36 IRS:CI Annual Report 2020 FLETC cancelled all trainings throughout the United States on March 20, 2020, due to the Covid-19 virus. On June 16, 2020, students were allowed back after new pandemic policies were set in place by FLETC. Despite this setback, the NCITA still trained new employees and trained future IRS:CI leaders. u FY 2020 HIGHLIGHTS • 5 Special Agent Basic Training (SABT) classes held for approximately 103 new students. • 2 Frontline Leadership Readiness Program (FLRP) classes held for future IRS:CI leaders. • 15 slot classes held at NCITA • 1 Basic Instructor Facilitator Training (BIFT) class. • 1 Smith and Wesson Armor Training class. • 2 Use of Force Instructor Trainings (UOFIT) classes. New special agents complete six months of training including the 11-week Criminal Investigator Training Program (CITP) run by FLETC. The CITP covers basic criminal investigation skills, federal criminal law, courtroom procedures, enforcement operations, interviewing skills, and firearms training common to all federal law enforcement agents. Following the CITP, new special agent trainees take the NCITA Special Agent Investigative Techniques (SAIT) course. The SAIT program trains recruits in tax law, evidence gathering, interviewing, report writing, methods of proving unreported income, and money laundering violations. It also provides physical fitness conditioning and use of force training. IRS:CI Annual Report 2020 37 PROFESSIONAL STAFF IRS:CI EMPLOYS 828 professional staff serving in many administrative and investigative capacities. Our Budget Analysts, Management and Program Analysts, Administrative Officers, Secretaries and computer support professionals all work tirelessly behind the scenes to support the mission of IRS CI at Headquarters and in the field offices across the United States and abroad. Professional staff team members actively participate in programs like the Chief’s Advisory Council illustrating their hard work and dedication and providing crucial insight to CI leadership. training continues into FY2021 ensuring our professional staff have the resources and skills needed to maximize their impact and allowing professional staff to keep abreast of emerging tax fraud trends like crypto-currency and COVID related financial fraud. In addition to core mission tax, Investigative Analysts also support criminal investigations relating to the opioid crisis, terrorist financing, and ID theft through work with the High Intensity Drug Trafficking Areas (HIDTA), Joint Terrorism Task Forces (JTTF) and other federal law enforcement taskforces. Our investigative professional staff are critical to advancing the law enforcement efforts of CI and include: Tax Fraud Investigative Assistants (TFIA) and Investigative Analysts (IA). They process and maintain investigative files, conduct extensive research, interview witnesses, schedule and analyze bank records, prepare written summaries of their findings and recommen­ dations, and other actions to support criminal investi­ gations and prosecutions. During FY 2020, CI capitalized on the Veteran Volunteer Program, an umbrella program that enabled CI to recruit two disabled veteran interns as volunteers from the Department of Defense (DoD) and Veteran’s Affairs (VA). Interns were provided challenging assignments to include extracting and analyzing critical information from investi­ gative databases. Through this program, CI provided training and work experience to those who served our country and have now returned to the civilian workforce. Also, during FY 2020, CI focused on the permanent hiring of veterans and hired 54 new veterans through various programs, 44 of these veterans are disabled veterans. These veterans were placed throughout CI. This veteran hiring accounted for 34% of CI’s overall hiring, which greatly exceeded the Treasury FY 2020 veteran hiring goal of 14%. CI also hired several disabled non-veterans through Schedule-A hiring authority. Assigned to the field offices, the Nationally Coordinated Investigations Unit (NCIU), Refund Crimes, and Interna­ tional Operations, CI’s Investigative Analysts use sophis­ ticated analytical software to develop leads and support complex cases for the special agents in the field. In FY 2020, Analysts attended training at the e-Crimes Lab in Woodbridge, VA, learning about specialized tax and law enforcement research skills and advanced investigative data analysis. During FY 2020, professional staff in multiple CI job series received comprehensive training in a virtual environment due to COVID travel restrictions. Virtual 38 IRS:CI Annual Report 2020 There are also many specialty professional staff positions related to technology, cyber security, data analytics and other areas. All of our administrative, investigative, and technical professional staff employees are critical to CI accomplishing our law enforcement mission. u EQUITY, DIVERSITY & INCLUSION OFFICE THE MISSION OF the Criminal Investigation (CI) Equity, Diversity, and Inclusion Office (EDI) is to identify, examine, and address the organization’s employment practices, policies, guidelines, and procedures to ensure that all employees and applicants for employment achieve equal opportunity in every facet of the CI’s programs, activities, and services. We work to ensure that employment practices and decisions are made with the highest level of integrity and fairness for every employee. CI EDI endeavors to provide excellent customer service, advice, and education to management, employees, and stakeholders to ensure compliance with appropriate federal Equal Employment Opportunity (EEO) laws and regulations that prohibit discrimination on the basis of age, color, disability, equal pay, national origin, pregnancy, race, religion, retaliation, sex (gender), and sexual harassment. potential. The EDI Director reports directly to the Chief and Deputy Chief and provides strategic advice and assistance on Management Directive 715 (MD-715), diversity strategies, policies, directives, and guidance to the Senior Staff and Senior Leadership Team. EDI staff members also advise managers on how to effectively capitalize on the strengths of all employees while embracing their differences and unique perspectives to create an environment that engages and supports all employees. Additionally, the EDI staff prepares CI’s Federal Agency Annual EEO Program Status report, also known as the Management Directive 715 (MD-715) report. This Directive requires agencies to take appropriate steps to ensure that all employment decisions are free from discrimination. It also sets forth the standards by which EEOC will review the sufficiency of agency Title VII and Rehabilitation Act programs, which include periodic agency self-assessments and the removal of barriers to free and open workplace competition. They also monitor and evaluate the organization’s compliance with the directive and other policies established by the Equal Employment Opportunity Commission (EEOC). The directive helps identify program limitations and uncover potential discrimination of equal opportunities for all employees. It also provides EEO plans to remove barriers and respond to problems. The EDI staff develops action plans to eliminate barriers and correct program deficiencies to ensure compliance with the following six essential elements of a model EEO program as defined by MD-715: CI EDI is dedicated to providing diversity and inclusion training and education, recognizing that education is essential for bringing diversity awareness to the workforce. Our efforts for educating the CI workforce is an ongoing process of creating the awareness needed to manage an inclusive and diverse workforce. Presentations, products/reports, guidance, and seminars are customized and provided to the workforce to ensure that employees have the awareness, skills, and knowledge to carry the message of diversity into their personal work environments. The goal of our diversity training program is to convey the importance of a respectful work environment, thereby maximizing every individual’s When field offices need to obtain EEO information, we can provide an in-depth demographic report of the field office as well as an overview of the data so the requestor understands the information they have received. We can also give advice, guidance, and recommendations on any EDI Diversity questions concerns you may have while providing you all reference points and sources for any information we provide to you. Part of our job is to educate the employees of where the written and electronic sources can be obtained and what impact it has on their job/role in CI. EEO PROGRAM STATUS REPORT IRS:CI Annual Report 2020 39 Equity, Diversity and Inclusion Office Demonstrated commitment from agency leadership The EDI and HR Director facilitated having the IRS EAP representative present several training segments to CI’s senior leadership team on topics that help to mitigate the tangible and intangible impact COVID-19 is having not only on employees in their workplace, but also at home. Cultural competence comprises four components: (a) awareness of one’s own cultural worldview; (b) attitude towards cultural differences; (c) knowledge of different cultural practices and worldviews; and (d) cross-cultural skills. As multiple inquiries were being received from employees and managers related to their concerns related to the advent of social reform protests and the upcoming election cycle, the CI EDI staff realized that training needed to be provided to employees to help manage their concerns on these pressing issues. In response, the staff created a training presentation on Cultural Competency which was delivered to all 21 Field Offices and HQ organizations. Cultural Competency refers to the ability to interact effectively with people of different cultures. During the monthly meetings with the Special Agents in Charge and in conjunction with requested training presentations, EDI staff members conveyed to all partic­ ipants that all of the EEO laws, including the ADA and Rehabilitation Act, continue to apply during the time of the COVID-19 pandemic. These laws do not interfere with or prevent employers from following the guidelines and suggestions made by the CDC or state/local public health authorities about steps employers should take regarding COVID-19. u This Directive requires agency heads and other senior management officials to demonstrate a firm commitment to equality of opportunity for all employees and applicants for employment. Even the best workplace policies and procedures will fail if they are not trusted, respected and vigorously enforced. Agencies must translate equal opportunity into everyday practice and make those principles a fundamental part of agency culture. This commitment to equal opportunity must be embraced by agency leadership and communicated through the ranks from the top down. It is the respon­ sibility of each agency head to take such measures as may be necessary to incorporate the principles of equal employment opportunity into the agency’s organizational structure. Integration of EEO into the agency’s strategic mission Equality of opportunity is essential to attracting, developing and retaining the most qualified workforce to support the agency’s achievement of its strategic mission. Management and program accountability A model Title VII and Rehabilitation Act program will hold managers, supervisors, EEO officials and personnel officers accountable for the effective implementation and management of the agency’s program. Proactive prevention of unlawful discrimination Agencies have an ongoing obligation to prevent discrimi­ nation on the basis of race, color, national origin, religion, sex, age, reprisal and disability, and eliminate barriers that impede free and open competition in the workplace. As part of this on-going obligation, agencies must conduct a self-assessment on at least an annual basis to monitor progress, identify areas where barriers may operate to exclude certain groups and develop strategic plans to eliminate identified barriers. Efficiency Agencies must have an efficient and fair dispute resolution process and effective systems for evaluating the impact and effectiveness of their EEO programs; and Responsiveness and legal compliance Federal agencies must ensure that they are in full compliance with the law, including EEOC regulations, orders and other written instructions. 40 IRS:CI Annual Report 2020 Other responsibilities include monitoring the organiza­ tion’s effort to enhance diversity initiatives and analyzing trends in the following areas: • EEO complaints • Disciplinary actions • Performance Appraisals • Promotions • Awards • Separations • Employee development and training • Recruitment and hiring initiatives and practices • Retention EDI SUPPORT DURING THE COVID-19 PANDEMIC While the CI organization has spread throughout the globe, different segments of our employee population have been impacted by the COVID-19 crisis in drastically different ways. Some employees are dealing with inconveniences while others are seeing their families and communities fight to stay alive. We recognize these situations are impactful on the organization when employees feel isolated during a humanitarian crisis along with feeling marginalized, in forms such as racism, ageism and parental status pertaining to having young children, closed school systems, and ad hoc distance learning. CI EDI staff works diligently at supporting and coaching managers to incorporate inclusion in a remote and high-stress work environment. It has been a priority to ensure managers know what inclusive behaviors look like in a remote environment, are modeling them properly, are prepared for how they will be tested in a stressed environment and know how they can help all employees to be inclusive. As a result of these overlapping concerns, CI EDI implemented the following steps to assist in addressing these concerns: CI EDI collaborates with our embedded Human Resources office on expanding opportunities to partner more closely and support critical engagement and employee experience projects, especially in developing emotional well-being resources and remote work best-practices. Leveraged CI’s Communication and Education office to communicate and connect a wider network of employees throughout the organization on EDI concerns/issues and create social connections that might be missing in a remote work environment. GOALS ALIGNED WITH GUIDING PRINCIPLES Equity, Diversity and Inclusion Office Goal 1: Cultivate a well-equipped, collaborative, and inclusive work environment that leverages diversity and empowers all contributors to Honor the Badge. CI endeavors to cultivate a culture that encourages collaboration, flexibility, and fairness to enable individuals to contribute to their full potential and further retention. In order to reap the benefits of workforce diversity, work environments must cultivate the facilitating conditions that enable diverse perspectives to be heard and empower all participants to contribute. This requires deliberate efforts by our leadership to provide flexibility with respect to where, when, and how work gets done; promote robust collaboration through teamwork, participatory work processes, and cross-functional work experiences; and engage all employees through cultural competency, leadership development, reasonable accommodation, and constructive conflict management. Goal 2: Build a diverse, high performing workforce that reflects all segments of society and preserves the CI Legacy. Federal agencies are required to take appropriate actions to ensure there is equal opportunity in the workplace by identifying and removing barriers to EEO. Actions include comparing the demographic composition of the workforce to the demographic composition of the relevant labor market, removing internal barriers, conducting strategic outreach to communities and utilizing special hiring authorities for members of groups with less than expected participation rates. Goal 3: Create an environment that maximizes employee engagement in a psychologically safe setting that encourages individual growth toward continuous learning, pursuit of excellence, and engagement with internal and external stakeholders and enables employees to Master Your Craft. CI will endeavor to develop structures and strategies to equip leaders with the ability to manage diversity and accountability, measure results, refine approaches based on such data, and engender a culture of inclusion. This will facilitate the creation of a workplace approach resulting in the right conditions for employee engagement where employees can give their best each day, committed to the organization’s mission, goals and guiding principles. This will motivate employees to contribute to our continued organizational success with an enhanced sense of their own well-being. Goal 4: Recognize the importance of sustaining the current workforce while cultivating the next generation of managers and leaders that Inspires the Future. Research has shown that a diverse workforce and inclusive workplace are associated with greater organizational performance. The goal of having a diverse workforce and an inclusive work environment is to deliver better services to our customers (internal and external) and meet the needs of our stakeholders, which come from all segments of society. Effective leadership and accountability are critical to sustaining this organization-wide commitment. IRS:CI Annual Report 2020 41 COMMUNICATIONS AND EDUCATION CRIMINAL INVESTIGATION (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes. It does so in a way that encourages compliance with the law and confidence in the tax system. One of the most effective ways to encourage compliance is by publicizing CI activities that enforce the laws within its jurisdiction. Making taxpayers aware of the enforcement efforts undertaken by CI is crucial to deterrence. It builds confidence with the public that our tax system is fair and just and that potential violators will be caught and brought to justice. The Communications and Education Office (C&E) is the function within CI that makes taxpayers aware of these enforcement activities. It directly supports CI’s mission by raising the level of awareness of all stakeholders— internally and externally—about the important work that CI does to protect the financial interests of the United States. C&E’s communication efforts in FY 2020 expanded in two important areas – in the international arena, and on social media. CI’s work has an increasingly global reach, and we partner with the Joint Chiefs of Global Tax Enforcement (J5), which is a transnational committee comprised of tax organizations from five countries. The J5 combats tax crime through collaboration, by sharing intelligence, conducting operations and building the capacity of tax 42 IRS:CI Annual Report 2020 crime enforcement officials. In FY 2020 alone, more information has been shared regarding cryptocurrency, tax crimes, and related enforcement, than in the previous ten years combined. In May 2020, C&E launched a dedicated IRS:CI Twitter account, @IRS_CI, with the purpose of supplementing IRS compliance and enforcement messaging. This account provides real-time information on criminal cases to the media and public and creates awareness about CI. Since its launch, CI’s Twitter account has earned thousands of impressions and generated hundreds of tweets and continues to grow exponentially. OUTREACH AND Section Title ENGAGEMENT COMMUNITY IN 2020, IRS:CI employees continued to help their communities in time of need. When catastrophe strikes, the President has the authority to approve sending Federal support to states impacted by natural disasters including hurricanes, tropical storms, flooding and the like. As part of the Emergency Support Function #13, IRS Special Agents were deployed to assist with the nation’s Coronavirus response. Our agents were deployed to Travis AFB in Fairfield, CA where they worked to cover perimeter security at the base quarantine zone where approximately 845 people were being housed. IRS:CI employees across the country also assisted their local communities where they live in many different ways. From buying meals for local hospital employees working tirelessly to take care of sick COVID-19 patients to participating in local law enforcement torch run events to support the Special Olympics, IRS CI employees continue to show their human spirit and inherent nature to want to support the communities they serve. u All CI communicators work to balance media outreach with training and education opportunities for the general public, federal and Congressional communities, and our global partners. C&E is structured to react swiftly to unplanned communication needs. CI communicators face unique challenges when engaging external audiences due to the sensitive nature of CI’s work with grand juries, taxpayer information, law enforcement material and relationships with U.S. Attorneys’ Offices around the country. C&E works through these challenges to support CI’s mission. Their work directly contributes to the deterrent effect surrounding financial crimes and promotes voluntary compliance and confidence in our tax system. u IRS:CI Annual Report 2020 43 Wildfire Response COVID-19 Pandemic AS WE WRAPPED up 2019 by celebrating our 100th year as a law enforcement agency, 2020 began with something unprecedented in our agency’s history: the worldwide COVID-19 pandemic. Of utmost importance during the pandemic has been the safety of our employees and their families. Unfortunately, criminals don’t stop committing crimes just because there is a national health emergency. In fact, some criminals pounce on the opportunity to take advantage of others as well as government programs designed to help the American people in times of crisis. IRS CI developed a quick plan of action to adapt investigative techniques to this new environment so our employees could continue to do their jobs in a safe and efficient manner. CI is heading up investigations into fraudulent claims for economic impact payments, Paycheck Protection Program (PPP) loans, and refundable payroll tax credits from the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136). The PPP offers billions of dollars in potentially forgivable loans to keep workers on the payroll, guaranteed by the Small Business Administration (SBA). The division is also exercising its nontax jurisdiction to investigate other pandemic-related fraud, including fake cures and masks. Working with our law enforcement partners, CI has opened investigations involving various allegations of individuals attempting to take advantage of the government programs designed to help struggling individuals and businesses. Some examples of these investigations include: The arrest of David T. Hines, 29, of Miami, Florida, who was charged by criminal complaint with fraudulently obtaining $3.9 million in PPP loans and using those funds, in part, to purchase a 2020 Lamborghini Huracan sports car worth $318,000. At the time of his arrest, authorities seized the Lamborghini and $3.4 million in bank accounts from Hines. of their arrests, authorities seized a Range Rover worth approximately $125,000, jewelry, over $120,000 in cash, and over $3 million from ten bank accounts. The owner of a Florida talent management company and four others were charged in complaints for their alleged participation in a scheme to file fraudulent loan applications seeking more than $24 million in forgivable PPP loans guaranteed by the SBA under the CARES Act. Terror groups based in the Middle East are targeting American first responders in an online scam. The groups are allegedly trying to raise money by offering bogus personal protective equipment at a time of desperate shortages amid the coronavirus pandemic. ISIS allegedly used the website facemaskcenter.com as a front for peddling fake N-95 masks. Their targets allegedly included hospitals, nursing homes and first responders. Investigators found that terrorists from al-Qaida and Hamas used social media and cryptocurrency to raise money for weapons and operations. U.S. authorities seized $2 million and over 300 cryptocurrency accounts in what was described as the biggest case of its kind. A Washington, D.C., man was arrested and charged by a criminal complaint with fraudulently obtaining over $2.1 million in PPP loans and Economic Injury Disaster Loans (EIDL). He used those funds, in part, to purchase a $300,000 yacht, a $1.13 million rowhouse, and a $46,000 luxury sports sedan. The charges in the case examples above are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. u Georgia federal prosecutors have accused five individuals with attempting to steal $4.1 million from the Paycheck Protection Program designed to provide relief to small business owners. The indictment charges these individuals with conspiracy to commit bank and wire fraud, bank fraud, wire fraud, false statements to a financial institution and money laundering. At the time 44 IRS:CI Annual Report 2020 IRS:CI Annual Report 2020 45 FIELD OFFICE MAP NORTHERN AREA Click on a location to go to that Field Office section. WESTERN AREA MIDSTATES AREA BOSTON SEATTLE NEW YORK NEWARK PHILADELPHIA CINCINNATI DETROIT CHICAGO Guam WASHINGTON, D.C. DENVER ST. LOUIS OAKLAND CHARLOTTE LAS VEGAS ATLANTA LOS ANGELES PHOENIX Puerto Rico DALLAS HOUSTON TAMPA U.S. Virgin Islands MIAMI SOUTHERN AREA 46 IRS:CI Annual Report 2020 IRS:CI Annual Report 2020 47 ATLANTA FIELD OFFICE 401 W. PEACHTREE STREET NW, ATLANTA, GA 30308 | (470) 639-2228 | AtlantaFieldOffice@ci.irs.gov AUGUSTA, GA BATON ROUGE, LA BIRMINGHAM, GA COLUMBUS, GA DECATUR, GA GULFPORT, MS HATTIESBURG, MS HUNTSVILLE, AL JACKSON, MS LAFAYETTE, LA MACON, GA MOBILE, AL MONTGOMERY, AL THE ATLANTA FIELD OFFICE covers the states of Georgia, Alabama, Mississippi, and Louisiana and consists of eleven judicial districts. We work a wide variety of criminal investigations across the four state region which includes legal and illegal source income tax fraud, payroll tax fraud, stolen identity theft / tax refund fraud, public corruption, terrorism, general fraud, money laundering and narcotics cases. With the recent merger of two field offices (the Atlanta Field Office with the former New Orleans Field Office), the newly constituted and expanded Atlanta Field Office has a diverse mix of employees with different backgrounds who are finding creative ways to investigate our cases. The Atlanta Field Office is continually building and strengthening its relationships with our law enforcement partners, the United States Attorney’s Office and the public in an effort to identify, investigate and refer quality cases for prosecution that will encourage compliance with and confidence in the Internal Revenue laws. 48 IRS:CI Annual Report 2020 NEW ORLEANS, LA OXFORD, MS SAVANNAH, GA SHREVEPORT, LA Atlanta Field Office Case Files Mississippi Pharmacy Owners Sentenced in $200 Million Compounding Pharmacy Scheme On July 23, 2020, Glenn Doyle Beach, Hope Thomley and Howard “Randy” Thomley, were sentenced for conspiring to commit health care fraud, conspiring to commit money laundering and tax evasion. Beach was sentenced to 13 years in prison; Hope Thomley was sentenced to 14 years in prison and Randy Thomley was sentenced to 8 years in prison. Beach was ordered to pay a monetary judgment of $9,109,872 along with restitution of $185,407,641. Hope Thomley was ordered to pay a monetary judgement of $29,249,018 along with restitution of $189,200,787. Randy Thomley was ordered to pay a monetary judgement of $3,651,173, along with restitution of $3,651,173. Beach and Thomley were both owners of Advantage Pharmacy in Hattiesburg, and Thomley also owned and operated a compound prescription distributor for Advantage Pharmacy. Beach and Hope Thomley were involved in a scheme to defraud health care benefit programs, including TRICARE, out of at least $200 million. Beach and Hope Thomley were also sentenced for their role in a money laundering and tax evasion scheme that was used to conceal the fraudulent proceeds of the scheme and evade taxes. Pharmacy Owner Sentenced to 10 Years in Prison for Role in Largest Health Care Fraud Case Ever in Mississippi On October 31, 2019, Thomas J. Spell, of Ridgeland, Mississippi, was sentenced to 10 years in prison for his involvement in a $243 million compounding pharmacy fraud scheme. Spell was also ordered to pay $243,550,503 in restitution and forfeiture of $26 million. Spell previously pleaded guilty to participating in the scheme to defraud TRICARE, the health care benefit program serving our nation’s military, veterans, and their respective family members. From approximately December 2014 and January 2016, Spell owned and operated a pharmacy in Madison County, Mississippi, and several other pharmacies across the United States. Spell and other co-conspirators marketed compounded medications at his pharmacies. Rather than formulating compounded medications based on the individualized needs of patients, formulas were selected to maximize profit based upon reimbursements from TRICARE and other health care benefit programs. The result was that TRICARE reimbursed Spell’s pharmacies on these fraudulent claims totaling over $243 million. Spell’s case is part of the largest health care fraud scheme ever investigated and prosecuted in the State of Mississippi. The investigation is ongoing, and prosecutions are continuing nationwide, including in states such as California, Tennessee, Arkansas, and Connecticut. IRS:CI Annual Report 2020 49 50 Atlanta Field Office Case Files Atlanta Field Office Case Files ‘Sovereign Citizen’ Who Targeted Federal Judges and Government Officials Sentenced to 25 Years in Prison City of Atlanta Official Sentenced for Wire and Tax Fraud Former Medical Center Foundation President Sentenced for Wire Fraud and Money Laundering On January 28, 2020, Timothy Pate, aka Akenaten Ali, of Augusta, Georgia, was sentenced to 25 years in prison. Pate was convicted in October 2019 on 15 counts of filing false retaliatory liens against federal officials and five counts of making a false bankruptcy declaration, which stem from his efforts to put federal officials into bankruptcy against their will. Pate filed tax returns from 2016 through 2018 falsely claiming he was owed more than $7 million in tax refunds. Pate also attempted to have the IRS pay his past-due child support. After the IRS repeatedly rejected his false returns, Pate – a U.S. citizen and Georgia resident who claimed to be a Moorish national not subject to U.S. law – filed a federal civil case against the IRS commissioner seeking tax refunds. Pate attempted to have the court order the arrest of the IRS commissioner and filed false liens against judges, the IRS commissioner and other federal officials. On January 7, 2020, Larry Scott, the former City of Atlanta Director of the Office of Contract Compliance, was sentenced to 2 years in prison and was ordered to pay $125,000 in restitution. Scott previously pleaded guilty to wire and tax fraud. The charges stemmed from Scott’s failure to disclose to the City of Atlanta that while he served as the Director of Contract Compliance, he also secretly worked as the business manager for consulting firm that was hired by businesses who wanted construction contracts in the Atlanta-metropolitan area. From 2012 to 2017, Scott earned approximately $220,000 from Cornerstone while serving as a full-time management or executive level employee with the City of Atlanta. Scott never disclosed to the City of Atlanta his employment with and income from Cornerstone. Scott knew that if he had disclosed his income from Cornerstone on his annual Financial Disclosure Statements, the City of Atlanta could have terminated Scott. From 2012 to 2017, Scott also filed six false and fraudulent federal income tax returns – in that Scott failed to report the majority of the income that he earned from Cornerstone on his tax returns. For example, in 2015, Scott earned approximately $156,036 in income – (a) $99,136 as the City of Atlanta’s Director of Contract Compliance; and (b) $56,900 as Cornerstone’s business manager. Yet, on his 2015 federal income tax return, Scott falsely listed his “total income” as only $101,630. On October 24, 2019, John Paul Funes, of Baton Rouge, Louisiana, was sentenced to nearly 3 years in prison following his conviction for wire fraud and money laundering. Funes has already forfeited $796,309, and he was also ordered to pay an additional $50,000 as a fine. Funes executed a scheme to defraud Our Lady of the Lake Foundation (the “Foundation”), a non-profit organization that supports the Our Lady of the Lake Regional Medical Center. The fraudulent scheme caused a specific loss of $796,309. Funes prepared, signed, and submitted numerous fraudulent vouchers to cause the Foundation’s accounting personnel to issue checks for payees, amounts, and purposes falsely reflected on the vouchers. In furtherance of the scheme, for example, Funes submitted numerous fraudulent vouchers in which he represented that Foundation funds were necessary to pay a charter flight company to make time-sensitive “outbound patient transports” from Our Lady of the Lake Children’s Hospital, when in fact Funes was repeatedly using the flight company’s services for his own personal benefit, unbeknownst to the Foundation. On numerous occasions, Funes fraudulently caused the Foundation to issue payments to other individuals and he directed those individuals to funnel the majority of the funds back to him. In August of 2018, when the Foundation’s finance department began an internal audit of the expenses described above, Funes created numerous false documents in an effort to conceal the scheme. IRS:CI Annual Report 2020 IRS:CI Annual Report 2020 51 BOSTON FIELD OFFICE 15 NEW SUDBURY STREET, BOSTON MA, 02203 | 617.316.2080 | BostonFieldOffice@ci.irs.gov BRIDGEPORT, CT BURLINGTON, VT HARTFORD, CT MANCHESTER, NH NEW HAVEN, CT NORWALK, CT PORTSMOUTH, NH SOUTH PORTLAND, ME SPRINGFIELD, MA STONEHAM, MA WARWICK, RI WORCESTER, MA THE BOSTON FIELD OFFICE covers six New England states, each with one judicial district: Massachusetts, Connecticut, Rhode Island, New Hampshire, Vermont and Maine. The field office’s relationship with the U.S. Attorney’s Office and our law enforcement partners is one of the best in the country. IRS:CI special agents are vital members of several task forces including Organized Crime Drug Enforcement Task Force (OCDETF), Joint Terrorism Task Force (JTTF), cybercrimes, securities fraud and health care fraud. Boston Field Office Case Files Varsity Blues - Investigations of College Admissions and Testing Bribery Scheme RI Businesswoman Sentenced in $10M Ponzi Scheme that Defrauded 23 Individuals Since June 2019, 24 individuals have been sentenced for their involvement in a nationwide conspiracy that facilitated cheating on college entrance exams and the admission of students to elite universities as purported athletic recruits. Athletic coaches from Yale, Stanford, USC, Wake Forest and Georgetown, among others, are implicated, as well as parents and exam administrators. On February 11, 2020, Monique N. Brady, an East Greenwich attorney and businesswoman, was sentenced to 8 years in prison and was ordered to pay back her victims a total of $4.78 million. Brady duped family members, friends, and business associates as she operated a $10.3 million Ponzi scheme to help finance an extravagant lifestyle. As part of the scheme, Brady fraudulently told investors that her company, MNB, had secured contracts to perform large scale rehabilitation projects on foreclosed properties in Rhode Island, Connecticut, Massachusetts, and New Hampshire. She represented to a total of 31 investors that payments ranging from approximately $20,000 to $80,000 were needed to pay subcontractors. She promised investors a return of fifty percent of the profit realized. In reality, MNB was hired by banks to perform menial tasks, the majority of which were for less than $1,000. By the time the scheme ended, 23 i [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1c3a62b3affd00bf. Public record. Not legal advice.