JUSTICE DEPARTMENT SUES TO SHUT DOWN ALLEGED “WAREHOUSE BANKING” SCAM

Complaint Alleges Los Angeles-Area Man Helps Customers Hide Income And Assets From Irs

WASHINGTON, D.C. - The Justice Department today sued Anthony L. Hargis, of Fountain Valley, California, seeking to shut down an alleged fraudulent “warehouse banking” scheme that Hargis allegedly uses to help customers hide their income, assets, and identities from the IRS. The civil injunction suit, filed in the U.S. District Court for the Central District of California in Santa Ana, alleges that Hargis accepts funds from some 253 customers and then places the commingled funds in nine commercial bank accounts, held in his name or the names of his associates, in California and Texas. Hargis then allegedly uses the commercial bank accounts to write checks to pay customers’ bills. The commercial bank accounts are allegedly held in Hargis’ and his associates’ names making it difficult for the authorities to trace the income, assets, expenditures, and identities of customers. The complaint alleges that Hargis’ customers, located throughout the United States, but primarily in California, owe an estimated $24 million in federal taxes.

“The promoters and operators of so-called ‘warehouse banks’ claim to offer financial privacy. What they are actually offering is a ticket to trouble for themselves and their customers when that privacy leads to tax fraud,” said Eileen J. O'Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Department of Justice can and will ask courts to shut down these illegal operations and order promoters to turn over their customer records.”

In a related case pending in federal court in Santa Ana, California, the Justice Department asked the court to hold Hargis in civil contempt and incarcerate him until he complies with a court order requiring him to turn over his customer list. A hearing on the government’s motion will be held in Santa Ana on March 15.

In 2002, a federal jury in Portland, Oregon, convicted three individuals for operating a warehouse bank known as the Christian Patriot Association and convicted four other individuals of tax crimes relating to using the warehouse bank. Their appeals of those convictions are pending. In 1993, Judge Richard Matsch of the U.S. District Court for the District of Colorado ruled that a similar warehouse banking scheme, operated nationwide in the 1980s by a group known as the National Commodity and Barter Association, “was clearly established to thwart enforcement of the tax laws.”

The Justice Department has sought and obtained injunctions against a number of tax-scam promoters. Information on some of these cases is available at:

<http://www.usdoj.gov/tax/taxpress2004.htm>;

<http://www.usdoj.gov/tax/taxpress2003.htm>.

More information about the Justice Department’s Tax Division can be found at <http://www.usdoj.gov/tax>.

###

04-151