Robert Smith’s cooperation is preventing his indictment.
The founder, chairman and CEO of Vista Equity Partners, which owns Datto, has entered a non-prosecution agreement involving an international tax fraud scheme.
Robert Smith entered the non-prosecution agreement with the Department of Justice (DOJ). It’s for his role from 2000 through 2015 in an illegal scheme to conceal income and evade millions in taxes by using an offshore trust structure and offshore bank accounts.
Smith willfully did not report to the IRS over $200 million of partnership income. He also failed to report his ownership of his foreign bank accounts as required by law.
Smith will pay more than $139 million in taxes and penalties, according to the non-prosecution agreement.
No Vista Equity Partners entity is part of the settlement. Furthermore, the DOJ has never claimed that Vista Equity Partners, nor any of its funds or portfolio companies, were involved, of interest or under investigation.
In the agreement, Smith admits his involvement in the illegal scheme.
“It is never too late to do the right thing,” said U.S. Attorney David Anderson for the Northern District of California. “It is never too late to tell the truth. Smith committed serious crimes, but he also agreed to cooperate. Smith’s agreement to cooperate has put him on a path away from indictment.”
According to the agreement, Smith formed the Excelsior Trust in Belize, and a shell company, Flash Holdings, in Nevis, a small island in the Caribbean, in 2000. He used third parties to conceal his beneficial ownership and control of Excelsior Trust and Flash Holdings.
In reality, Smith controlled both offshore structures and made all substantive decisions regarding Flash Holdings’ operations, transactions, income, investments and assets, the agreement said. He used the Excelsior Trust to conceal his ownership and control over Flash Holdings. He further used Flash Holdings to hide his interest in private equity investments. Smith admits he formed these foreign entities to use them to avoid paying U.S. taxes.
Furthermore, Smith admits that he “knowingly and intentionally” used the Excelsior Trust and Flash Holdings and their associated foreign bank accounts to conceal from the IRS and the U.S. Treasury Department income earned and distributed to Flash Holdings from private equity funds.
Over the years, Smith used millions of this unreported income to acquire and make improvements to real estate used for his personal benefit. He admits he used about $2.5 million in untaxed funds to purchase and renovate a vacation home in Sonoma, California. In 2010, he again used untaxed funds to purchase two ski properties and a piece of commercial property in France.
In 2011 and 2012, Smith used about $13 million of untaxed funds to build and make improvement to a residence in Colorado. He also funded charitable activities at the property.
Smith agrees to abandon his protective claims for a refund totaling about $182 million that were filed with the IRS. The protective refund claims consisted, in part, of claims for charitable contribution deductions on Sept. 21, 2018, and Oct. 11, 2019.
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