Introduction:
There is
no way to get around paying taxes. This was a fact Walter Anderson
learned the hard way. While directors may owe fiduciary duties to their
shareholders in terms of wealth maximization, this cannot be
accomplished through illegal means. Shareholders expect their directors
and officers to legitimately run the business and to employ their
acquired business knowledge in order to promote shareholder wealth.
Anderson interpreted such Delaware law to allow him full access to
evade payment of personal income taxes by storing his acquired assets
in off-shore bank accounts, away from the reach of the Internal Revenue
Service.[1] Such actions were not considered sound business judgment
and Anderson has been indicted for engaging in a tax evasion scheme,
obstructing the IRS, and defrauding the District of Columbia government
by failing to pay over $200 million in taxes.[2]
“Most
people obey the tax laws: they report their income to the IRS and pay
the taxes due … honest taxpayers deserve the assurance that those who
willfully dodge their tax obligations will be investigated, prosecuted,
and punished," said Assistant Attorney General O'Connor.[3] This has
definitely held true. Growing up, Anderson was surrounded by an
affluent lifestyle and endless opportunities, but such stature did not
preclude a thorough investigation into his illegal activities.[4]
During his sentencing, Anderson’s friends and relatives went as far as
describing him as a “caring man who made a mistake,” but that his
mistake was not motivated by personal greed or luxury, detailing his
donations to space exploration, helping budding entrepreneurs and
establishing a philanthropic foundation.[5] While Anderson may have put
his illegally acquired money to smart use, he was still unjustified in
his attempt to defraud the IRS in obtaining such funds. The subsequent
charitable use of the stolen funds could never be sufficient to wipe
the slate clean for a tax-evader such as Anderson. If such were to be
the case, any money launderer would remember to donate some small
portion of his loot, so as to remain in good terms with the IRS.
Anderson’s scheme was not some small ploy to avoid paying a few
dollars. Rather, it has been coined the “largest tax-scam ever.”[6] He
had earned millions from telecommunications companies after the
AT&T breakup and was subsequently known for his goal to reform the
failing Mir space station.[7] His grand jury indictment was due to,
over a five-year period, conducting billion dollar business through
offshore corporations in Panama and the British Virgin Islands in order
to make it seem like he himself was not personally earning the
income.[8] Ultimately, Anderson’s vision included forming an offshore
corporation named Gold & Appel Transfer and hired a trust company
to serve as the registered agent and sole director.[9] Gold & Appel
was previously owned by another company also formed by Anderson and he
then granted himself an exclusive option to purchase Gold & Appel
shares for a nominal sum, ensuring no one else could have access to the
shares.[10] The unique way in which Anderson formed the companies was
not by chance. Anderson purposely concocted his plan so as neither the
option nor Anderson’s name was recorded in public records, yet he was
able to maintain total control.[11] In addition, during the time of the
tax evasion scheme, Anderson claimed to be living in Florida, which
does not have a state income tax requirement, while he actually resided
in two different residences in the District of Columbia.
Anderson’s failings, while largely comprised of tax fraud, also
involved breaches of fiduciary duties to shareholders. While Anderson
was the sole shareholder for Gold & Appel, he was not the sole
shareholder of his other companies and thus had a duty to run those
business for the benefit of the shareholders. However, it was not his
shareholder’s wealth maximization that he was concerned with, but his
own. It would seem imperative that in order to run a business for the
benefit of the owners, the director/CEO not jeopardize the company’s
functioning by leaving it vulnerable to illegality. Anderson owed a
duty of loyalty to his shareholders that he breached when he made
business decisions in order to compile a hefty stack of money for his
own benefit and did not take into account the shareholders’ potential
loss when the company would be shut down.[12] In the end, it is clear
that Anderson felt he could plan a magic scheme that would not be
uncovered by the revenue regulators. Anderson may have viewed the
benefit of saving millions through tax evasion as taking precedent over
staying in compliance with the law, but now he is left to deal with a
hefty $200 million fine and loss of reputation, in addition to a
potential 80 year prison sentence.
[1] Telecommunications Entrepreneur Indicted and Arrested in $200 Million Tax Evasion Case, DOJ Release No. 078 (Feb. 28, 2005).
[2] Carol D. Leonning, Mogul Sentenced to 9 Years For Tax Evasion and Fraud, washingtonpost.com, Mar. 28, 2007, http://www.washingtonpost.com/wpdyn/content/article/2007/03/27/AR2007032702122.html?nav=rss_technology.
[3] Id.
[4] Id.
[5] Matt Apuzzo, Tax Cheat Escapes $100 Million Repayment, USAToday.com, Mar. 31, 2007, http://www.usatoday.com/news/washington/2007-03-28-2808877398_x.htm.
[6] Pete Williams, Entrepreneur Accused of Biggest-Ever Tax Scam, MSNBC.com (Mar. 31, 2007), http://www.msnbc.msn.com/id/7046153/.
[7] Bloomberg News, Entrepreneur Gets 9 Years in Tax Case, NYTimes.com, Mar. 28, 2007, http://www.nytimes.com/2007/03/28/business/28tax.html?ex=1332734400&en=66079ef6550ead84&ei=5090&partner=rssuserland&emc=rss.
[8] Id.
[9] Telecommunications Entrepreneur Indicted and Arrested in $200 Million Tax Evasion Case, supra note 1.
[10] Id.
[11] Id.
[12] Del. Code Ann. tit. 8, § 404 (2002).