Who says that every banker who is charged with aiding and abetting U.S. customers to hide their money offshore is guilty of tax evasion? This is the story of one defendant who forced the government to prove its case and came out victorious. Shokrollah Baravarian, an eighty-two year old retired senior vice president at Mizrahi Tafahot Bank Ltd. (MZTF), was found not guilty of conspiring to defraud the U.S. and helping Mizrahi clients prepare false tax returns.

The jury verdict, which came just four hours after deliberations began, “represented total vindication of Dr. Baravarian,” said Marc Harris, Baravarian’s defense attorney. It also sent a strong message to the government: pursue those that are actually breaking the laws, namely the accountholders who have willfully failed to report their offshore accounts and as a result, have been unjustly enriched.

Unlike so many offshore tax evasion trials where the defense has gone up in flames, this acquittal was a major setback in the U.S. government’s seven-year crusade to root-out offshore tax evasion. During that time, more than 70 taxpayers and three dozen professionals (ranging from offshore bankers, lawyers, and advisers) have been prosecuted. More than 45,000 Americans have avoided prosecution altogether by entering the Offshore Voluntary Disclosure Program (OVDP), an amnesty-program administered by the IRS.

The government alleged that Baravarian played the role of a facilitator, having been instrumental in assisting U.S. clients to open up accounts in Israel. While there is nothing illegal about assisting a person to open up an offshore account at a foreign financial institution – indeed, this is as routine as getting into your car and driving to work – it is what some U.S. clients did with these accounts that put Baravarian in hot water. Very simply, they used their offshore accounts to hide money from the IRS, never bothering to report their foreign accounts on their tax returns, much less reporting the interest generated by them on their returns.

As if that was not enough to draw the ire of Uncle Sam, the money stored in these accounts was used as collateral to secure loans made by the Los Angeles branch of Mizrahi Tafahot Bank Ltd.

In a trial that had as much allure as a salacious episode of “Jersey Shore,” the government paraded in six taxpayers to testify as lay witnesses. The cast of characters consisted of three snitches or government cooperating witnesses who had pleaded guilty and were promised a reduced sentence in exchange for “truthful testimony” at trial. For those who are strangers to the criminal justice system, “truthful testimony” is nothing more than code language for “favorable testimony” to the government.

To say that these three witnesses were biased in favor of the government and would say whatever the government wanted them to say in order to guarantee their freedom would be like saying that Moaning Myrtle, the fictional character in “Harry Potter,” was a little emotional. They were mere puppets, with the government pulling the strings just as Geppetto pulled the strings of Pinocchio when he was still a puppet.

At the end of the day, it is not hard to understand why: their very liberty was at stake. Indeed, the difference between being present in the lives of their children during the most formidable years to experience the joy and happiness of all of their crowning achievements – from birthdays to graduations to school plays – and being sent away to a correctional institution to spend the next several years locked up in a 5 by 8 cell with a steel bed and steel toilet – and a cellmate named, “Vito,” depended on what they said in court. With stakes this high, it is no wonder government cooperating witnesses seldomly disappoint.

As an aside, being a defense attorney, I find it amusing the lengths that the government will go to try and portray snitches as pure as the driven snow. What about the remaining cooperating witnesses? While they had not been prosecuted, it cannot be said that they were free of any bias either. At the end of the day, the very thing that saved them from prosecution was a government-administered program called the Offshore Voluntary Disclosure Program, or “OVDP” for short. They sought shelter in the OVDP bunker.

Ironically, Mr. Harris didn’t have to employ the ‘ole “pillage and plunder strategy” of impeachment to expose how inherently biased these cooperating witnesses were. Why? Because their testimony was actually favorable to Mr. Baravarian. Mr. Harris was able to elicit a bombshell of an admission from each witness on cross-examination: a flat out denial that Baravarian had anything to do with helping them to cheat on their taxes.

“These taxpayers did what they did on their own, and they didn’t pay taxes on their accounts,” Harris said. “Dr. Baravarian had nothing to do with that. The linchpin of the case was that the loans were fake, and they were a mechanism to access that money. Dr. Baravarian helped people get legitimate loans for legitimate purposes.”

This case is the latest in a long-line of offshore tax evasion cases. Last January, Ty Warner, the billionaire founder of “Beanie Babies,” appeared in court for sentencing after pleading guilty “to evading almost $5.6 million in taxes on more than $24.4 million in income from accounts with as much as $107 million.[i]” Although Warner faced a lengthy prison term of between 46 and 57 months, the judge sentenced him to probation. Not surprisingly, prosecutors are now appealing.

There is yet another offshore tax evasion trial that is unfolding before our very eyes. And like the case involving Baravarian, it too involves a high-level bank executive at a foreign bank. A jury in Florida is hearing a tax conspiracy case against former UBS banker Raoul Weil. Deliberations are expected to begin next week.

Returning to Baravarian, he emigrated to the U.S. in 1980 from Iran and became a naturalized U.S. citizen shortly thereafter. He worked for Mizrahi for twenty-seven years, from 1982 to 2009.

While Baravarian can feel a huge sense of relief, he might be repeating the famous quote of James Ray Donovan, the former U.S. Secretary of Labor under Ronald Reagan, who after being indicted and subsequently acquitted, lamented: “Which office do I go to to get my reputation back?”

The case is U.S. v. Baravarian, 14-cr-00248, U.S. District Court, Central District of California (Los Angeles).

Original Post By:  Michael DeBlis

[i] Ex-Mizrahi Octogenarian Banker Acquitted at Tax Trial, Bloomberg Nov. 1, 2014, available at http://www.bloomberg.com/news/2014-11-01/ex-mizrahi-octogenarian-banker-acquitted-at-tax-trial.html (last visited Nov. 2, 2014).