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(Bloomberg) — Robert T. Brockman was just putting the finishing touches on a new private equity fund when worrisome news arrived. Law enforcement agents had raided the home of a tax lawyer in Texas who had worked for him.
A Houston businessman who had made his fortune selling software to auto dealers, Brockman grew nervous, according to an account filed in Bermudian court. Could the Internal Revenue Service be delving into his taxes and business interests?
Using an app called Silent Phone that makes calls untraceable, he spoke with an adviser in Bermuda about whether the Houston lawyer might ultimately reveal Brockman’s links to offshore trusts and spur an investigation, according to the filing.
The gravity of the matter became apparent two weeks after the August 2018 raid. That’s when IRS agents raided the home of the same Bermuda adviser in whom Brockman had confided. They seized a trove of encrypted devices that documented a web of Caribbean entities tied to a Brockman family charitable trust, which together held billions of dollars, according to Bermudian court records. Soon afterward, the Bermuda adviser began cooperating with U.S. prosecutors, the records show.
Thus began an investigation into what’s been described as one of the largest potential U.S. tax frauds, one that weaves together a cooperating witness, a prominent private equity billionaire and a wealthy Texan with a penchant for privacy, code names and offshore investments. The probe and Brockman’s efforts to maintain secrecy are described by several people familiar with the situation and in Bermudian and London court filings, as well as other securities filings and documents. The matter offers insight into the world of tax havens, which many rich people have been using for decades to protect their wealth through legitimate tax avoidance methods and, in some cases, illegal means.
Control of Trusts
Like many wealthy Americans, Brockman set up offshore trusts that on paper were overseen by independent directors, Bermudian court records show. Prosecutors are investigating whether he maintained control over the entities, according to the court records. They also want to know how the assets were used and whether Brockman should have paid taxes on them, according to people familiar with the matter. Investigators are trying to determine whether Brockman’s reliance on secrecy indicated criminal intent to conceal control of assets on which he may have owed taxes to the IRS, the people said.
“The reason to do trusts for tax purposes is to divest yourself of ownership or control, and thereby you’re not taxable on it,” said Bruce Zagaris, a tax attorney in Washington who isn’t involved in the Brockman case. “But if you violate those rules by actually controlling it, the IRS is going to say you’re taxable.”
Brockman, 79, hasn’t been charged and may not be. He declined to comment.
“Mr. Brockman is interested only in seeing that the trust is safeguarded by a trust protector and trustee who will use their independent judgment in its management,” said Kathryn Keneally, a lawyer representing him.
Keneally said that Brockman was a discretionary beneficiary of a trust set up by his father and that to his knowledge, it’s made distributions only to charities.
Prosecutors are investigating Brockman’s role in a potentially “major and very large tax fraud on the United States” that could “set a record for offshore tax fraud,” a lawyer representing the Justice Department told a Bermudian judge on Feb. 20. The lawyer said prosecutors believe $1.5 billion in revenue was concealed from the U.S. Investigators also are examining possible money-laundering violations, court records show.
Several lawyers in Brockman’s offshore financial empire sprang into action after the government won over the cooperating witness. In closed proceedings in a Bermudian court without the adviser present, they effectively stripped him of any remaining control over more than $1 billion in trust assets and shifted them to entities controlled by people whose appointment Brockman had supported.
U.S. authorities were livid, according to the people familiar with the matter. The prosecutor leading the Brockman investigation accused the lawyers of misleading the court to replace a trustee. That change in control could impede the investigation and complicate any U.S. efforts to seize the assets, the people said.
In sealed Bermudian litigation over the assets, a Brockman attorney submitted a letter in 2019 saying that Brockman and his family supported the change in control. In July, a Bermuda judge cited that support in backing the change. Keneally said neither Brockman nor his counsel had any role in Bermuda proceedings that the U.S. government has taken issue with, and can’t comment about them.
Brockman, a onetime IBM salesman who goes by Bob, founded his own software company, Universal Computer Services Inc., 50 years ago. It merged with a larger rival, Reynolds & Reynolds, and is now a $1 billion concern based in Dayton, Ohio. Although he’s the chief executive officer of Reynolds & Reynolds, it’s his offshore investments that are the primary focus of tax authorities, according to the people familiar with the matter.
Investigators are examining Brockman’s business ties going back two decades to Robert Smith, the private equity billionaire and philanthropist who Bloomberg News reported on Aug. 21 is under investigation by U.S. tax authorities in a related probe. A spokesman for Smith declined to comment.
Read More: Billionaire Robert Smith Fighting U.S. Criminal Tax Inquiry
Two years ago, Brockman took a page from Smith’s successful playbook, setting up a private equity firm called Falcata Capital. Much like Smith’s Vista Equity Partners, Falcata was started with a $1 billion commitment from outside the U.S. and with a mission to buy and fix up enterprise technology companies. Although little information about Falcata is publicly available, its funding came from an entity that court documents tie to the Brockman trust structure, according to people familiar with the matter.
Pursuing Brockman and his trust structures is a daunting task for prosecutors. They must navigate trust agreements and local laws in Caribbean tax havens such as Bermuda, Belize and the British Virgin Islands. In each jurisdiction, bankers, trustees and lawyers stand ready to help rich Americans avoid, or in some cases illegally evade, taxes.
“What makes these offshore centers really insidious is they’re designed to help people dodge the law generally, not just in terms of tax,” said Brooke Harrington, a Dartmouth College professor who has written extensively about tax havens. “These offshore centers should be understood as a system that all works together. That system is like the Wild West for rich people.”
The Bermuda adviser who began cooperating with prosecutors two years ago is Evatt Tamine. An Australian lawyer who lives in the U.K., he has said he helped Brockman manage offshore entities for 14 years, according to the documents reviewed by Bloomberg. After Bermudian police and IRS agents searched his home and storage locker, Tamine testified to a grand jury in exchange for immunity from prosecution, court records show.
Brockman’s obsession with detail and secrecy is outlined in the account filed in Bermudian court. It says Brockman regarded himself as the de facto trustee of his offshore holdings who controlled all aspects of how they were managed. For example, Brockman issued to-do lists to underlings who were required to submit undated resignation letters that the boss could invoke at will.
Brockman had undergone an IRS audit previously and sought to avoid another one, the document shows. To avoid exposing his trust network, Brockman insisted on keeping documents on secure data storage cards and other encrypted devices, it says. Tamine once dispatched a courier with an unencrypted version of the database, eliciting a warning from his boss to never repeat the mistake, according to the account. In a to-do list years later, it says, Brockman referred to it as the worst data security breach ever in the management of his holdings.
Indicative of his penchant for privacy, Brockman adopted code names and used phones that left no trace of his calls, according to the filing. The IRS was known as “The House” and he was “John Barnes.” Later, after he and his advisers began communicating through the web domain houstonfishingservices.com, Brockman was identified as “Permit” and Tamine as “Redfish.” Another trustee was referred to as “Snapper” and “Chum.”
“Robert T. Brockman is a private individual who values his privacy, which is every person’s right,” said Keneally, his lawyer. “A desire to safeguard one’s privacy does not mean that a person has something to hide, or that he may have engaged in criminal conduct.”
To ensure security, Tamine sometimes delivered encrypted data to Brockman in person. In June 2018, Tamine traveled to Rome to hand his boss a data storage card with updated information on the trust structure and related entities, according to the filing. Tamine was invited to join Brockman aboard the Albula, a 200-foot luxury yacht, it indicates. The Albula carries 14 crew members, eight cabins and a helipad, according to a yacht charter website.
Entities tied to Brockman alleged wrongdoing by Tamine in court filings after he began cooperating with prosecutors, the people familiar with the matter said. Under the laws of the U.K. and Bermuda, they used sealed court filings to accuse Tamine of stealing more than $20 million.
Since then, Tamine has fought back vigorously, saying in sealed court papers that he got his boss’s approval to receive an advance of six years’ pay, legal fees and the cost of a Bermuda home to house the Brockman trust. He has placed the money in a U.K. court trust account, according to a person familiar with the matter. Tamine’s annual pay rose to $2.6 million in 2018 from $205,000 in 2005, the documents show.
A spokesperson for Tamine’s lawyers at Mishcon de Reya declined to comment for this story. The person referred to a statement provided to Bloomberg last month.
“Mr. Tamine is an important cooperating witness into a U.S. Department of Justice (DOJ) investigation in relation to Bob Brockman,” the spokesperson said at that time. “The bogus allegations of theft were raised by entities associated with Mr. Brockman only after he agreed to assist the DOJ and are clearly designed to undermine his credibility as a witness. Those same entities tried (ultimately without success) to delay access to key documents by Mr. Tamine and the DOJ.”
U.S. prosecutors have come to Tamine’s defense while also expressing anger about the shift in control of trust assets. The lead prosecutor, Corey Smith, sent a letter in March to a partner at Miller & Chevalier, a Washington firm that has worked for some Brockman-related entities and also represented Tamine at one point, according to one of the people familiar with the matter.
The prosecutor said the lawyers had made “inaccurate and disingenuous” statements to a Bermudian judge about Tamine, whom he described as “no longer a target” but instead a cooperating witness. The prosecutor went on to say that he had previously told a partner at the firm that the investigators’ targets were “Mr. Tamine’s former employer, and the entities that this individual controls,” including the Brockman family charitable trust and three other entities.
Asked to comment on that exchange, Miller & Chevalier said in a statement: “We do not speak to confidential communications between the DOJ and our lawyers in any matter.”
Brockman’s lawyer said that neither Brockman nor his legal team had any role in those proceedings. “Contentions that Mr. Brockman and his counsel have taken any steps to hinder any ongoing investigation are baseless and flatly denied,” according to Keneally.
Begun with fanfare, Brockman’s private equity push appears to have stalled. Falcata announced its first acquisition in August 2018 with a press release that it was buying Xpressdocs, a company owned by Reynolds & Reynolds. Brockman has been identified on corporate databases as a co-founder of Falcata, which didn’t respond to requests for comment.
On the day of the Xpressdocs announcement, authorities raided the Texas lawyer who’d done tax work on Brockman trust structures. Since then, Falcata has made no public announcements or deals.
(Adds details from court filings in final paragraph of ‘Control of Trusts’ section)
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