International tax lawyer and former CIBC fund manager from Québec indicted in US after IRS sting
by Christine Duhaime, BA, JD, Certified Financial Crime and Anti-Money Laundering Law Specialist
The arrest of two Canadians from Québec, Eric St-Cyr, an investment fund manager, and Patrick Poulin, a lawyer, in the US over money laundering charges hit the news today when their cases were transferred to Florida for prosecution.
Mr. St-Cyr and Mr. Poulin were indicted on March 6, 2014 in Virginia and the indictment was sealed pending their arrests on March 13, 2014. They are not being released on bail.
According to LinkedIn, Mr. Poulin, is a Québec international tax attorney at a law firm named Bishops Legal, based in the Turks and Caicos. According to the Bishops Legal website, it services prominent international banks and other financial institutions and global investment funds and undertook financial regulatory work for those clients. The firm website mentions the prevention of “international money laundering” in the Turks and Caicos.
Clover Asset Management
According to the Toronto Sun, Mr. St-Cyr operated an asset investment firm, Clover Asset Management, for Canadian and American clients that was incorporated in the Cayman Islands. According to the firm’s website, Mr. St-Cyr set up the firm because no firm could meet the “needs” of institutional and private wealth clients in the Caribbean except him. Mr. St-Cyr’s bio says he is a former CIBC asset manager in Canada.
Alleged use of beneficial ownership and law firm trust account to wash funds
According to the Indictment, Mr. St-Cyr and Mr. Poulin, together with a third defendant used beneficial ownership to create layers of transactions in multiple jurisdictions to facilitate the laundering of proceeds of crime. They are alleged to have solicited clients to specifically use their services to evade US taxes by, inter alia, creating bogus legal entities, including foundations, in offshore tax havens. They were bogus because they served an illegitimate purpose.
Allegedly, part of their services included serving as board members of the legal entities to obfuscate true ownership and control. Part of the alleged money laundering scheme involved having clients fund bogus foundations, subsequent to which the directors of the foundations would wire funds to Mr. St-Cyr’s investment firm for investment to dodge reporting taxes. According to the Indictment, Mr. Poulin would subsequently wash the funds through his law firm’s trust account back to the client in his or her home country, repatriating the funds in a non-disclosable way.
Other non-US lawyers allegedly helped in the money laundering scheme
The indictment alleges that a series of non-US attorneys were used to create the bogus legal entities (e.g., corporations, trusts and foundations) for tax evaders and allowed their law firms trust accounts to be used to receive funds from tax evaders. This suggests that other non-US attorneys, likely from Canada given the Canadian connection, are being looked at for their role in the alleged international money laundering scheme.
In order to catch Mr. St-Cyr and Mr. Poulin, three US undercover agents met with Mr. St-Cyr and Mr. Poulin in Canada and Miami and hired them to launder $2 million of dirty money the agents said they obtained from defrauding a US bank. According to the Indictment, Mr. Poulin and Mr. St-Cyr had money laundering ethical standards – they were willing to launder proceeds of crime provided none of the proceeds were derived from terrorism or drug trafficking.
Not quite “zero exposure” for allegedly funneling dirty money through law firm trust account
According to the Indictment, Mr. Poulin, through his law firm, established a foundation for the undercover agents with the not-so fortuitous name of ”Zero Exposure Inc.”, a name likely selected by clever IRS agents with a sense of humor who knew Mr. Poulin was, at that point in the sting, 100% exposed if the allegations are accurate. The Indictment alleges that subsequently, Mr. Poulin knowingly accepted proceeds of crime into the law firm trust account, which was sent to Mr. St-Cyr in the Cayman Islands and invested. He also allegedly used Canadian financial institutions to launder funds from Québec to the US.
Mr. St-Cyr is alleged to have told the IRS agents that foundations are better for laundering funds and trusts are better for tax evasion, and that he charged higher fees for money laundering than for tax evasion.
Mr. St-Cyr and Mr. Poulin are charged with Conspiracy to Launder Money Instruments pursuant to 18 USC §1956(h) and Laundering Monetary Instruments pursuant to 18 USC §1956(a)(3)(B). The latter relates to undercover operations where the financial transaction involves property represented to be proceeds of specified unlawful activity. The proceeds in §1956(a)(3) cases are not derived from a real crime; they are undercover funds supplied by the government. The specific intent provisions in §1956(a)(3) require that the transaction be conducted with the intent to conceal or disguise the nature, location, source, ownership or control of the property or to avoid a transaction reporting requirement.
The defendants were not charged with Conspiracy to Defraud the US pursuant to 18 USC §371, which it may have been possible to establish against the defendants if the allegations are true and could also be used against other prospective foreign nationals who facilitate US tax evasion in multiple cases. 18 USC §371 makes it an offence if two or more persons conspire to commit any offence against the US or any agency thereof in any manner or for any purpose, such as conspiracy to defraud the IRS.
Endorsements on LinkedIn
According to LinkedIn, Mr. Poulin’s services are endorsed by Canadian attorneys and accounting firms, including by a partner of a well-known international accounting firm. According to the Indictment, the services rendered by Mr. Poulin included overt money laundering services.
A financial crime lawyer will tell you that investigators routinely download an indicted person’s LinkedIn profile months before an Indictment and save, inter alia, endorsements in their investigation files. Endorsements disclose that a firm has done business with the indicted person and is vouching for them. If the allegations in this case prove accurate, endorsements by professionals pose a reputational risk and invite an inquiry into the person who made the endorsement and their clients if it involves a law firm, some of whom may not be implicated in any financial crime.
Specific target of Canadians by IRS agents
The point should not be missed that this is a case where the IRS specifically devoted significant resources to target Canadian professionals who allegedly facilitated tax evasion by US citizens. Agents worked the file for over a year, earning the trust of Mr. Poulin, then travelled to the Turks and Caicos, Canada, Miami, and the Cayman Islands for multiple meetings with the defendants.
One of the IRS’ three articulated strategies is to identify and prosecute the most significant tax, currency and money laundering offenders and to pursue their assets domestically and internationally. It would be a mistake by non-American lawyers, bankers and other financial and tax advisors not to take notice of this Indictment. It has the markings of step one in a multi-step investigation and prosecution of the facilitation of Canadian professionals in US tax evasion.
The US prosecution of Wegelin & Co., Switzerland’s oldest bank, summarized at the end of this article, is relevant. Wegelin & Co. was charged in the US with facilitating tax evasion by US persons. It had obtained a legal opinion on its exposure to prosecution in the US and was advised that it faced zero exposure. Unfortunately for it, and its directors, that legal opinion was wrong. Inter alia, it failed to consider money laundering law. Wagelin relied upon the deficient legal opinion to its detriment and as a result, the 272-year old bank with hitherto billions of dollars in assets did not survive the money laundering sting and ceased operations.
US Attorney Preet Bharara’s statement in connection with the Wegelin & Co. prosecution is also relevant, namely that the US Attorney General will find US tax evaders and, more importantly here - those who facilitate their activities - wherever they may be in the world, including obviously Canada.
Third party firms implicated should conduct reviews now
Law firms, accounting firms and financial institutions in Canada and other countries who may have unwittingly assisted Mr. St-Cyr and Mr. Poulin in the alleged money laundering scheme should consider conducting an internal review of the transactions in which they were engaged to determine their exposure and whether any of the transactions involve money laundering and are reportable. It’s better to mitigate issues now than to receive a call from the IRS or a US prosecuting office because your firm name appears in a number of transactions associated with the indicted persons. Setting up corporations, trusts or foundations in the circumstances described in the Indictment where there is no legitimate purpose, is the facilitation of money laundering. No privilege attaches to advice rendered or legal services provided for the pursuit or fulfillment of criminal activities or fraud irrespective of whether the lawyer was an “unwitting dupe or knowing participant” (Canada v. Solosky,  1 S.C.R. 921, relying upon former Justice Benjamin Cardozo in Clark v. United States, 289 U.S. 1; 53 S. Ct. 465).
Mr. St-Cyr wanted be Spiderman
Mr. St-Cyr wrote in a client newsletter that he dreamed of putting on a Spiderman suit and becoming an American superhero. If the allegations against Mr. St-Cyr are accurate, he seems to have missed the point about Spiderman, namely that Spiderman worked to stop financial crimes from being committed, not the opposite. If convicted, Mr. St-Cyr will get to wear a different type of well-known American suit – the orange jumpsuit and may spend the rest of his life in an American jail – not quite what he wished for but perhaps close enough.