Four charged with USVI tax evasion, conspiracy

More of the EDC story, this time from Bloomberg:

Published on Wednesday, March 28, 2007 Email To Friend Print Version

By Ryan J. Donmoyer

WASHINGTON, USA (Bloomberg): A federal grand jury has charged a St Louis car dealer, two Texas men and a US Virgin Islands resident with using a US Virgin Islands economic development program to evade $74 million in taxes.

The East St Louis, Illinois grand jury indicted James A. Auffenberg Jr. of Swansea, Illinois, charging him with illegally sheltering $300 million through Kapok Management, L.P., a St Croix-based partnership that qualified for tax benefits from the US territory. James W. Ferguson III of Amarillo, Texas, Peter G. Fagan of De Leon, Texas, and J. David Jackson of St Croix were also charged with promoting the scheme.

"People tempted to file federal income tax returns based on falsehoods should be aware of the serious consequences of doing so," said Eileen J. O'Connor, assistant attorney general for the Justice Department's Tax Division in a statement Tuesday in Washington.

The indictments cap a four-year investigation that began with a federal raid of Kapok Management and touched off new federal scrutiny of the US Virgin Islands' tax incentives.

Approved by the US Congress, the program permits qualified taxpayers to cut their federal bill by 90 percent.

A 2004 federal law placed new restrictions on the tax program and chased off a burgeoning hedge fund industry attracted by the incentives, the Virgin Islands government says.

To qualify for the US Virgin Islands tax incentives, firms must invest at least $100,000 in the territory, buy products such as office supplies and computers in the US Virgin Islands, contribute to area charities and hire at least 10 people, 80 percent of whom must be natives of the islands.

Company owners must live in the territory for at least half of the year, under federal requirements. They have to undergo five examinations a year by the territory's Economic Development Authority.

Auffenberg, Fagan, Ferguson and Jackson are charged with income-tax evasion, conspiracy, wire fraud and filing, aiding and assisting in the filing of false individual and corporate income tax returns. The indictment seeks forfeiture of about $16.2 million in cash.

The indictment claims Auffenberg, a St Louis-area car dealer, and other partners in Kapok never actually became bona fide residents of the Virgin Islands and used the St Croix-based Kapok to launder funds they earned in the United States. They improperly filed tax returns with the Virgin Islands' Bureau of Internal Revenue instead of with the Internal Revenue Service, according to the indictment.

Jeffrey Demerath, a lawyer for Auffenberg, a St Louis-area car dealer, said his client only followed the advice of tax lawyers and accountants in deciding to invest in the Kapok partnership and file his tax returns with the territory.

"He did everything with the full intent of following the law, and that will be his defense," Demerath said. He said Auffenberg received an opinion letter from accounting firm KPMG LLP verifying he could participate in the program.

Demerath disputed charges in the indictment that Auffenberg never became a true resident of the US Virgin Islands, saying Auffenberg was in the territory at least once a month, owned real estate there and registered to vote.

Gordon Rhea, a lawyer for Jackson, similarly denied the charges. Jackson was an employee of Kapok, not a partner, Rhea said. He said he was "confident" Jackson would be exonerated.

Messages left for Ferguson and Fagan in Texas were not immediately returned. The indictments were issued three years after another Kapok partner, a Massachusetts life insurance executive named Gary Payne pleaded guilty to tax evasion in February 2004. He has not been sentenced.

If convicted, the men named face up to five years imprisonment on the conspiracy charge; up to five years imprisonment on each income tax evasion charge; up to five years on each wire fraud charge; and up to three years on each false tax return charge. The men face up to $32.5 million in fines.

The case has major ramifications for the territory's economic development program, which has struggled to regain legitimacy since the raids on Kapok four years ago and the subsequent law change, Virgin Islands Governor John deJongh said.

"Whatever steps need be taken by the local government to safeguard this program which is essential to our economic future will be taken, and wrongdoing will be investigated and prosecuted by the appropriate government, local or federal," DeJongh said.

The territory's government says the program is needed to boost the local economy. The three principal US Virgin Islands -- St Croix, St John and St Thomas -- have a population of 108,605. Per capita income in the territory is $18,652, less than half the average in the continental US and $7,000 less than in Mississippi, the poorest state.

In addition to pledging more oversight of companies that currently are collecting tax benefits, the territory also has been trying to lure technology companies to the islands by touting an abundance of Internet bandwidth off the coast of St Croix.

More Auffenberg indictment news

"Auffenberg indicted on tax charges
He denies Virgin Islands investment was mere tax shelter
BY MIKE FITZGERALD
News-Democrat

Prominent St. Clair County car dealer Jamie Auffenberg and three promoters of a $300 million tax shelter in the U.S. Virgin Islands were indicted by a federal grand jury on tax evasion and wire fraud charges.

According to the 21-count indictment, returned by a federal grand jury in East St. Louis, Auffenberg illegally evaded more than $8.5 million in income taxes by becoming a partner in a tax shelter called Kapok Management, L.P.

Auffenberg, 55, of Swansea, is the owner of the St. Clair Auto Mall in O'Fallon and car dealerships in Belleville. He was unavailable for comment Monday. His attorney, Jeff Demerath of St. Louis, said Auffenberg will plead innocent to the charges at an April 9 arraignment before a federal magistrate judge in East St. Louis."

More here. PDF file of the indictment.

It will be interesting to see if this goes all the way to a trial. It was pretty much common knowledge that people were abusing the EDC program - to claim that your accountants and lawyers said it was okay doesn't seem to be much of a defense.

U.S. Virgin Islands Atlas

We have a brand new product available, the U.S. Virgin Islands Atlas:

"This brand new spiral bound book has tons of information for the U.S. Virgin Islands, including detailed road maps, corresponding satellite images, indexes of points of interest, references, and statistics. A real atlas, with every inch of the U.S. Virgin Islands covered. Over 130 pages in full color."

It has been a big hit so far - read what people are saying on the U.S. Virgin Islands Travel Forum. This will definitely be a great tool to have in your relocation kit, or for real estate agents.

Jamie Auffenberg Indicted

In EDC related news:

"EAST ST. LOUIS — One of the largest car dealers in the Metro East area was charged with several tax and wire fraud counts in a federal indictment made public Monday, the Justice Department and Internal Revenue Service announced.

Jamie Auffenberg, 56, and other individuals and businesses were named in the 21-count indictment, which includes charges of income tax evasion, false individual and corporate income tax returns, conspiracy and wire fraud. The indictment returned by an East St. Louis federal grand jury seeks the forfeiture of $16.2 million in cash, although it is not clear exactly from whom."

More here. You can discuss this story on the News & Relocation forum - or leave a comment here.

Relocating to the U.S. Virgin Islands: Cost of Living

The cost of living in the U.S. Virgin Islands is definitely higher than on the US mainland. It is hard to put an exact figure on the percentage, but anywhere from 15 to 50% can be considered depending on your lifestyle. This also varies by island, but in general, all the products you buy (food, clothing, cars, electronics, etc.) are not only imported, but are also brought to the islands in small quantities as compared to towns and cities in the states, and therefore more expensive (you could say that the islands lack wholesale purchasing power).

A typical trip to the grocery store costs about 30% more than it would in the states at a large chain store. St. Thomas and St. Croix have more bargain shopping options (K-Mart, discount clubs, large grocery stores, etc.), while residents on St. John make occasional trips to St. Thomas to pick up bulk items more economically. All three islands offer smaller gourmet shops with higher quality (and price!) produce and specialty items.

And don’t forget to factor in costs like energy, water, education (if you plan to send your children to a private school) and travel (if you plan to visit friends and family in the states). If you are looking to lower your cost of living or live economically, the U.S. Virgin Islands are really not the place to do it.

That being said, if public school is an option or if you don't have children, if you do not need to live with air conditioning (and it really isn't necessary in many places in the USVI), if you take advantage of local produce or perhaps have your own fruit trees, or if you live in a spot with ample rain and never have to buy water, then you can cut down drastically on your living expenses.

Luxury Home Auctions Hit Full Stride

From a news release:

"A robust market for luxury properties does not guarantee overnight success for sellers of million dollar homes however. The number of homes priced at over 1 million or more in the United States is approaching 500,000. With the highest concentration of luxury real estate found in Massachusetts, Florida, U. S. Virgin Islands, and California."

Is that true? The Virgin Islands are so small, physically - does the "concentration" in the above mean percentage of or actual number of?

Relocating to the U.S. Virgin Islands: Schools

Public and private education is available for all Virgin Islanders from pre-school through college. The private schools fall in two categories – religious and non-religious. Most families who relocate to the Virgin Islands send their children to private or parochial schools, although the public school system offers education from Head Start through high school. There are also many families who homeschool their children in the USVI.

Following is some information to help in your search for a school that fits your needs.

Public Schools:

The two websites below provide information about USVI school districts, links to individual public school web sites, curriculum information and more.

• St. Thomas & St. John: http://www.sttj.k12.vi/

• St. Croix: http://www.stx.k12.vi/

Private and Parochial Schools:

• St. Thomas Private Schools
  • Montessori School (340) 775-6360 Pre-8

  • Antilles School (340) 776-1600 Pre-12

• St. Thomas Parochial Schools
  • Prophecy Elementary (340) 775-7223 K-6

  • Memorial Moravian School (340) 774-7579 K-8

  • All Saints School (340) 774-0231 K-12

  • Church of God Academy (340) 775-1252 K-12

  • Sts. Peter & Paul School (340) 774-5662 Pre-12

  • Seventh Day Adventist School (340) 775-3525 K-12

  • Wesleyan Academy (340) 774-5438 K-12

  • New Testament Academy (340) 775-5871 K-6

• St. John Private Schools
  • Gift Hill School (formerly Pine Peace and Coral Bay Schools) (340) 776-6595 K-12

• St. Croix Private Schools
  • St. Croix Country Day School (340) 778-1974 Pre-12

  • Good Hope School (340) 772-0022 Pre-12

  • The Manor School (340) 773-1448 K-12

  • Rattan Montessori School (340) 773-8600 Pre

  • Montessori House of Children (340) 772-1187 (Nursery - 6)

  • Academy of the West Indies (340) 778-4688 9-12

• St. Croix Parochial Schools
  • St. Mary’s Catholic School (340) 773-0117 K-8

  • St. Patrick’s School (340) 772-5052 Pre-8

  • School of the Good Shepherd (340) 772-2280 K-8

  • Seventh Day Adventist School (340) 773-6350 Pre-12

  • Glen Christian Academy (340) 778-1932 Pre-12

  • Nazarene Christian School (340) 773-0042 Pre-8

  • St. Joseph's High School (340) 772-0455 9-12

  • Free Will Baptist School (340) 773-3179 Pre-12

  • Caribbean Community School (340) 772-3284 K-12

  • AZ Academy (340) 773-7909 K-9

  • West Indies Heritage Institute (340) 773-7221 7-12

  • Reading Rainbow School (340) 779-3356 Pre-6

University of the Virgin Islands

The University of the Virgin Islands website offers complete information about the university and its two campuses on St. Thomas and St. Croix.

St. Thomas Campus: #2 John Brewer's Bay, St. Thomas, VI 00802-9990 Admissions - (340) 776-9200

St. Croix Campus: RR2, Box 10,000, Kingshill, St. Croix, VI 00850-9781 Admissions - (340) 778-1620

Pond Bay Development

A user on the Virgin Islands On Line Travel Forum:

"I spoke with Miles Stair of Holiday Homes of St. John this morning, who said that groundbreaking on the Chocolate Hole Pond Bay development was due to start this month. Can anyone confirm that?"

Relocating to the U.S. Virgin Islands: Housing and Real Estate

Many people relocating to the U.S. Virgin Islands start with temporary housing, whether during a preliminary trip here or for the first month of their move. Some realtors offer short-term apartment rentals, and some hotels offer special rates for monthly stays (except on St. John where housing – both long and short term – is quite limited and expensive). Having a temporary home base makes it easier to explore neighborhoods and different housing options without the pressure of having to move into the first place you find.

Rentals are available on all of the Virgin Islands, but prices and availability will vary. St. John is the most expensive, while St. Thomas is not quite as pricey and St. Croix is yet less expensive. For example, on St. Thomas a 2- or 3-bedroom apartment generally ranges from $1,200 to $1,800 per month, while the same rental on St. John would cost $1,500 to $2,500 and on St. Croix it would be $800 to $1,200. Although there is less available during high season, a good selection of rentals is generally available on St. Thomas and St. Croix throughout the year. When looking on St. John, however, the pool of rentals is much smaller and turnover is much less frequent – don’t expect to find your dream rental immediately. You can find rentals through local realtors (and usually all fees are paid by the owner) and local newspapers also offer a lot of current rental listings.

St. Thomas: The Daily News, Island Trader (PDF file)
St. John: The Tradewinds

The cost of buying a home seems to be steadily rising in the Virgin Islands and, in general, the selection of affordable, middle class housing is reasonably slim. The price for a single-family house in a good location probably averages on $500,000 on St. Thomas (with many being much more expensive and few less expensive). And, as with rentals, this varies by island as well. As of this posting real estate sales in the Virgin Islands were trending up slightly again after a little softness in 2006. Frank Barnako's News Of St. John tracks the real estate market of that island fairly regularly and is a good source for getting a feel of what is happening.

Condominiums are another housing option. Condos can often be a more affordable option for owning real estate in the USVI. Many also offer amenities such as pools, beaches, golf courses, tennis courts and beautiful views.

As the market for rentals and sales is always changing, it is best to contact a local realtor for more current information. You can also browse our Virgin-Islands-On-Line Real Estate section and use the links on this site to get in touch with local realtors to help in your search.

Relocating to the U.S. Virgin Islands: An Introduction

We are starting a new section on VirginIslandsMLS.com about relocating to the US Virgin Islands. This is our first entry, with many more to follow in the weeks ahead:

Relocation

It is standard advice to anyone considering a major relocation to give the islands a trial visit. Once you've settled in, you'll learn the ins and outs of island life - the pace is slower, the cost of living is higher, the scenery is beautiful, and so on. It's best to get a feel for these things yourself, but we can give you some tips before you arrive. You can also check out our Relocation Forum to ask questions and talk to other people considering relocation.

Customs, People and Language

Things move at a slower pace in the Virgin Islands – some call it "Island Time". This means you can't expect to rush through a trip to the bank or the DMV, but it also means more friendly greetings along the way. This slower pace can take a while to adjust to for, but most people come to embrace it as part of their new way of life.

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One custom to remember is that locals expect to be greeted with a "Good Morning", "Good Afternoon" or "Good Night". If you launch right into a conversation without taking a moment to address the person with a proper greeting, you may find that they are less than receptive.

It may also take you a while to understand the local accents and you may never understand all of the residents here – but the key is to be patient. And remember if you can't understand someone, then chances are they can't understand you – so speak slowly. You'll find many different dialects deriving from the diverse cultural population. If you're curious about the local language, check out the Dictionary of Caribbean English Usage: