A federal jury convicted two men of conspiracy to commit tax fraud and conspiracy to evade and defeat tax due and owing the Virgin Islands, U.S. Attorney Ronald W. Sharpe announced Thursday.
According to evidence presented at the trial, Hansel Bailey, 36, of Orange County, Calif., incorporated a business in St. Thomas in 2004 called Compass Diversified and, in 2005, that company was granted EDC benefits. Bailey and another co-conspirator marketed a tax-savings scheme that would allow clients of Compass Diversified to claim bogus business deductions on their income tax returns by making payments to Compass, allegedly for management or consulting services. The clients would then recoup a substantial portion of the payment made to Compass in the form of a tax-free gift from a Virgin Islands-born resident.
Sharpe said the scheme consisted of nothing more than a three-step circuitous money flow. In the first step, Compass clients made payments to Compass or wired money directly into Compass’ bank account. In step two, David Haddow, 61, of St. Thomas, at the direction of Bailey, transferred by check a substantial portion of that money into the personal bank account of a Compass employee. The last step consisted of a substantial portion of the original payment being returned by check or wire transfer to the Compass clients who made the payments to Compass on the front end of the transaction.
As part of their scheme, Bailey and Haddow convinced a Virgin Islands-born resident to open a personal bank account for the sole purpose of sending tax-free gifts back to Compass clients, Sharpe said. Compass Diversified never offered consulting or management services to any of their clients even though the clients were encouraged to claim deductions on their tax returns.
Bailey and Haddow face a maximum penalty of five years in prison for each count, a maximum fine of $250,000, and a special assessment of $100. Sentencing is scheduled for Oct. 17.
Co-conspirator Dwight Padilla pled guilty in June to conspiracy to defraud the United States. His sentencing is scheduled for Sept. 19.
Sharpe commended the efforts of the Internal Revenue Service, which investigated the case. The case was prosecuted by First Assistant United States Attorney Bryan E. Foreman.
