Saturday Sep 18

Winter 2020

Who is Dan Horsky and Why Did He Cheat?





Just this past April 28th, the NY Times reported More self-centered generations that followed, who on an interesting Senate Finance Committee possibly took to heart the notion that “government IS the hearing in which Senator Ron Wyden asked the problem,” as Ronald Reagan so famously argued, would new Attorney General, Merrick Garland, what the perhaps be open to cheating on taxes, but I was so wrong. Justice Department knew about an obscure Horsky is not only a few years older than me, but holds case of tax evasion involving the huge Zurich-based citizenship in not just the US but also the UK and Israel, Credit Suisse and a retired American marketing professor named Dan Horsky. Now, tax evasion is hardly a new phenomenon – even in the US – but it still offends one’s sensibilities about the rising concerns of inequality and fairness, slated to become ever-more dire absent some kind of global mechanism for regulation or taxation. But that is still only a pipe dream. Whether Mr. Horsky’s attempt to bury off-shore some $200 million in gains might have put a dent in the rising federal deficit when discovered in 2014 is unlikely. But how an obviously smart professor in the business school at the University of Rochester, who taught aspiring MBA’s for decades, would seek to criminally defraud the federal tax authorities just seems so stupid on its face.

At first, I imagined this Mr. Horsky must be a younger person who, unlike myself, did not grow up in the shadow of the remarkable mid-Twentieth Century American collective enterprise that both overcame the Great Depression and effectively saved the world from fascism in WWII. We baby boomers understood that only as part of something bigger than ourselves were our parents able to achieve these remarkable ends. both of which have robust tax systems that support broader social programs than the US. No, there is no explaining away Horsky’s crimes by his falling under the spell of anti-government political suasion so popular amongst the GOP.

He evidently made his fortune by investing in startups in the 1990’s, those go-go years in the early glow of the tech revolution. He must have been quite an investor as he grew his fortune to a remarkable $200 million. At some point in this remarkable saga, he decided to keep his investments off-shore in “nominee” accounts managed by Credit Suisse. Given his multi- national status, one might think this is reasonable, but for US citizens, there is no avoiding tax obligations. He lived here, he worked here, he invested here, he got rich here, but somewhere along the way, he decided that he was so special that he really didn’t need to pay taxes here. Instead, he colluded with his bank to change the nominal “owner” of his accounts to a relative living overseas and then he didn’t report his ownership or control over the accounts.

In the end, this wasn’t such a great idea. Back in the middle of Richard Nixon’s first presidential term, Congress passed the Bank Secrecy Act which requires taxpayers to report their ownership of Foreign Bank and Financial Accounts through what are called “FBAR reports.” Intended as a mechanism to curtail money laundering, FBAR rules are harsh such that upon discovery of intentional non-disclosure, one forfeits half of those assets even if lawfully made, so our friend Dan immediately waved bye-bye to $100 million. Beyond this forfeiture, after pleading guilty, Horsky was sentenced to some jail time, another year in supervised release, a fine of $250,000 and back taxes on the assets he failed to report on totalling some $18 million. While this put quite a dent on his net worth, he still ended up with tens of millions of dollars though accompanied by a soiled reputation as a felon, tax cheat, and generalized scumbag in the eyes of folks who pay their taxes as they should. Quoted in an article on the STEP website, “Horsky’s evasion of more than USD18 million in tax liabilities was described as ‘particularly flagrant and unacceptable’ by the Head of the IRS’s Criminal Investigation unit.” [STEP is a global professional body, comprising lawyers, accountants, trustees and other practitioners that help families plan for their futures. In other words, it is part of the large industry that advises High Net Worth families, and one suspects this article was a warning of sorts.] So, in this sordid tale of tax evasion, a greedy guy got outsmarted by the law and paid the price. But what Senator Wyden was interested in wasn’t this 70-something tax cheat, but the institution that enabled him to do it in the first place.

Two-bit cheats like Horsky couldn’t hide their filthy lucre by themselves. They need the active help of huge international financial companies who have developed sophisticated and effective ways to hide money from tax authorities. Credit Suisse appears to have been especially adept at this game. Considered a “small” big bank – one chart has them as the 41st largest worldwide – CS seems to crowd out others in headlines about helping clients avoid taxes. In August of last year, Belgian authorities announced they were looking into whether CS had helped some 2,650 Belgians hide their assets from tax officials. What’s so interesting about this is that back in 2014 at the end of a long inquiry in the US, CS pled guilty to helping American clients evade taxes and agreed to pay a fine of $2.6 billion. According to the NY Times, they avoided paying a higher fine because they claimed to have stopped engaging in this practice and promised to close “any and all accounts of recalcitrant account holders.” Since the fine could have been perhaps twice as much, one can imagine CS would have been quite motivated to clean up its act. I mean a billion here and a billion there does add up, even for the likes of Credit Suisse.

But before you bring out the confetti to celebrate, let’s recall that Senator Wyden just weeks ago asked the Justice Department for information about whether Credit Suisse had lived up to its 2014 plea agreement (and huge fine), because our “weasel for a day” Dan Horsky wasn’t caught by CS and reported to the IRS – no way. Instead, after just a few months of completing this deal with the Justice Department in 2014, a whistleblower anonymously filed the information alleging CS was STILL helping this particular cheater screw the IRS out of his taxes. An investigation ensued, and our friend Dan was confronted with the details, including how CS had tried to help his “nominee” relinquish US citizenship and thus further bury the facts. In the end, it all came out and Horsky went to jail, but what about Credit Suisse?

The legal process wound its way through the courts and even though Horsky pled guilty, he wasn’t sentenced until 2017. And now, 4 years later, Senator Wyden still wants to know why the Justice Department appears to have let the big bank get off without penalty for violating its promise just months after the 2014 agreement was signed. One hopes he will get an answer soon. In the meantime, perhaps it’s time to give Credit Suisse a wide berth. Perhaps those stand-up folks at Goldman Sachs, anyone?

So-called “preferential tax regimes” have sovereign states (like Ireland) competing to land accounts of multi- nationals like Apple through friendly tax rates that then let them shuffle profits around like inventory in an Amazon warehouse, often obscuring the sources of income to their advantage. Recently, Biden’s new Treasury Secretary has suggested a “global minimum tax” on corporations to slow or defeat the avoidance schemes. In his seminal book, Capital, Thomas Piketty concurs, but goes further:

...the ideal policy for avoiding an endless inegalitarian spiral and regaining control over the dynamics of accumulation would be a progressive tax on capital. Such a tax would also have another virtue: it would expose wealth to democratic scrutiny, which is a necessary condition for effective regulation of the banking system and international capital flows. A tax on capital would promote the general interest over private interests while preserving economic openness and the forces of competition.

One wonders how many dirtbags like Horsky might be exposed in such a world and just how loudly they would squeal if a wealth tax were actually levied.

DRUMMOND PIKE, a frequent Organizers’ Forum participant and contributor to these pages, was the founder and CEO of Tides in San Francisco, and continues to be involved in philanthropy and social change.

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