For those of you who might be wondering, the cartoon-image that accompanies this blog is not meant to portray any of the defendants in this case. However, that does not mean that it is there for no apparent reason. On the contrary, it is intended to represent someone (or perhaps some people). I’ll give you a hint. The image itself is a bit of a paradox. Sound confusing? You’ll have to keep reading to find out its hidden meaning. I promise that you won’t be disappointed.

Joshua Vandyk met a terrible fate on Friday, September 5, 2014. The thirty-four year old investment advisor was sentenced to serve 30 months in prison for conspiring to launder monetary instruments.

Vandyk, a U.S. citizen, and Eric St-Cyr and Patrick Poulin, Canadian citizens, were indicted by a grand jury in the U.S. District Court for the Eastern District of Virginia back on March 6, 2014. Vandyk pleaded guilty on June 12, 2014. St-Cyr pleaded guilty on June 27, 2014. And Poulin pleaded guilty on July 11, 2014. St-Cyr and Poulin have yet to be sentenced.

According to the indictment, Vandyk, St-Cyr, and Poulin engaged in the following acts:

(1) They conspired to conceal and disguise the nature, location, source, ownership, and control of property believed to be the proceeds of bank fraud, specifically $2 million.

(2) They assisted undercover law enforcement agents, who were posing as U.S. clients, to launder these illicit proceeds through a “shell entity,” an offshore structure designed to conceal the true identity of the proceeds’ owners.

(3) Vandyk and St-Cyr invested the laundered funds on behalf of their clients, representing that the funds would not be reported to the U.S. government. There is an important point to be made here. Contrary to popular belief, the proceeds of crime are taxable.

Now for some background information to add some meat to these bare facts. Vandyk and St-Cyr lived in the Cayman Islands and worked for an investment firm based there. St-Cyr was the founder and head of the investment firm, whose clients included numerous U.S. citizens. Poulin, an attorney at a law firm based in Turks and Caicos, worked and lived in Canada as well as Turks and Caicos. His clients also included numerous U.S. citizens.

Not knowing that these “clients” were actually undercover agents in disguise, Vandyk and St-Cyr directed them to create an offshore corporation with the assistance of Poulin and others. Neither Vandyk nor St-Cyr wanted it to appear as though their investment firm dealt with U.S. clients. Vandyk, St-Cyr, and Poulin used the offshore entity to move money into the Cayman Islands and used Poulin as a nominee intermediary – i.e., a “straw man” – for the transactions.

According to his allocution during the plea hearing, Poulin established an offshore corporation called “Zero Exposure Inc.” for the undercover agents, in which he served as a board member. Poulin then transferred about $200,000 in bank fraud proceeds from the offshore corporation to the Cayman Islands. Vandyk and St-Cyr then invested these funds outside of the United States in the name of the offshore corporation.

The investment firm neither disclosed the investments nor reported the gains generated by these investments to the IRS. In an effort not to draw any unwanted attention to the scheme, the firm did not issue monthly statements or other investment statements to its clients. However, clients could monitor their investments online through the use of anonymous, numeric passcodes.

In the event that a U.S. client ever wanted to sell his investments, Vandyk and St-Cyr would liquidate the investments and transfer the cash – through Poulin – back to the United States. If you were wondering how the cost of laundering criminal proceeds compares to the cost of tax evasion these days, Vandyk and St-Cyr were gracious enough to shed some light on that. During their plea allocutions, both acknowledged charging clients higher fees to launder criminal proceeds than to assist them in tax evasion.

The obvious take away is that “crime doesn’t pay.” But going deeper, there are two intriguing questions that have been left unanswered. First, what is to become of the U.S. clients that Vandyk, St-Cyr, and Poulin served? Let us call them the unindicted co-conspirators. Will they be prosecuted? If I had to hazard a guess, I’s say “no.” Why? I think that I smell a rat. It sounds as if there might have been a snitch – a veritable “cheese eater” – at the center of all of this who was feeding the government inside information in order to save his (or her) own hide.

It should come as no surprise that individuals who find themselves in untenable situations like this ultimately decide to “cooperate.” Caught red-handed and with the threat of criminal prosecution looming over one’s head like the sword of Damocles, such a person has few, if any, options. In other words, he’s stuck between a rock and a hard place. And law enforcement officials know this all too well. This is why white-collar investigations typically start out small with the “little guy” and end big with the prosecution of the big fish. Very simply, law enforcement’s strategy is to bait a “little fish” into becoming an informant that it can then use as a pawn in order to snag the “big fish.” This has been going on since time immemorial.

By now, you’re probably asking yourself the question, “What’s in it for the snitch?” In exchange for the information provided, he might be able to avoid prosecution altogether (i.e., be granted immunity from prosecution) or, at the very least, receive a lighter sentence. This is the incentive.

This also explains why, in the wake of the unsealing of an indictment containing multiple co-conspirators, there is a mad rush by criminal defense attorneys to get their clients into the U.S. Attorney’s Office pronto for a proffer. Time is of the essence. If another co-conspirator gets beats your client to the punch, then your client’s once invaluable information may now be yesterday’s news. In that case, it’s utterly worthless.

Therefore, it seems likely that one or more clients were the impetus behind this undercover investigation being launched in the first place.

Second, what often times gets overlooked in cases like this – not surprisingly, the penal sentence overshadows all else – is the potential tax fallout from criminal activity. Criminal fines and court costs aside, the tax fallout can be exorbitant.

If there was ever a time to have a seasoned criminal tax attorney on board to keep a bad situation from getting much worse, this would be it.

Original Post By: Michael DeBlis