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Romanian police arrested offshore consultant Laszlo Gyorgy Kiss in Bucharest in early October, one month after reporters working undercover for the Organized Crime and Corruption Reporting Project (OCCRP) recorded him explaining how to cheat on taxes with offshore companies.
Kiss is the financial mastermind behind a complex financial scheme that embezzled and laundered funds from Petrom Service, an oil services company, according to what prosecutors of the Organized Crime and Terrorism Investigatve Department (DIICOT) said in arrest documents. The scheme is similar to one Kiss explains in a book on how to evade taxes.
Kiss is accused of money laundering and complicity in embezzling €8 million along with six top managers of Petrom Service (now called PSV Company) who were also arrested. The authorities are trying to find out if Romanian mogul Sorin Ovidiu Vîntu who annexed PSV to his other businesses was ultimately behind the theft, possibly as a ruse to avoid taxes. To hide traces of their theft, prosecutors allege the group signed fictitious consulting contracts with a network of offshore Delaware companies. The money was paid into offshore bank accounts in Cyprus and Bulgaria.
The prosecutors say – and an OCCRP transborder investigation seems to confirm – that Kiss set up the network that helped the group steal and hide the funds. All of the companies were registered at the same Newark, DE address, by Delaware Intercorp, Inc (www.delawareintercorp.com), a Delaware based registery agent. The agency regularly worked with Kiss and with Ian Taylor, his New Zealand partner.
Kiss’s lawyer Constantin Neacsu told OCCRP that “Mr. Kiss’s arrest came as a surprise to all of us. There is no evidence to accuse him, but we don’t want to interfere with justice.” DIICOT prosecutors said they could not comment.
Kiss’ lawyers appealed the arrest warrant, but the Court of Appeal rejected that bid on Oct. 14.leaving the offshore consultant in prison. On Nov. 9, the court ruled he should be held another 30 days because he posed a danger.
DIICOT prosecutors say embezzled funds from Petrom Service went to Ionut Adrian Eftimie who was arrested along with Kiss and six of the company’s top managers including President Mihai Sorin. They are accused of creating an organized crime group, embezzlement, tax evasion, money laundering and forging private signatures. http://www.diicot.ro
Eftimie was not officially employed by Petrom but his father is the trade union leader of Vîntu’s Realitatea TV company and is himself under investigation for embezzling €1.45 million while serving as the administrator of theTV channel. The cases of father and son are very similar. Eftimie’s mother is the former secretary to Romanian President Traian Basescu.
DIICOT said investigative judges are trying to identify if Vîntu is the end beneficiary of the embezzled money. If so, the scheme may have been one to avoid taxes by making profits look like expenses.
The DIICOT raids took place three days after the Petrom Service Headquarters in Ploiesti had been broken into. Police found that the main computer server had disappeared.
The charges were outlined in an arrest warrant obtained by OCCRP from Criminal Section 1 of the Bucharest court. The evidence listed in the warrant cites information from the Romanian Intelligence Service (SRI)   SRI – the Romanian Intelligence Service, responsible for the national security. , the verbal notes of the search at Kiss’ house and the statement of the accused. The judges concluded that “… the accused has commited crimes punishable by more than 4-year imprisonment; there is evidence that if he is free he represents a real danger for the public order, considering the mechanism of the crimes, the organized character and the concrete laborious way of committing crimes.” Court File - Online Verdict
In February of 2008, Petrom Service General Manager Gheorghe Stupeala and Financial Manager Zizi Agnastopol signed a consultancy contract that Kiss prepared, for ‘creating and maintaining the brand” of Petrom Service. The company paid more than €2.8 million to Boaz Active Ltd in Bucharest for the work which police said was never done. Boaz was registered in Kiss’s office located near the Romanian Government. The administrator and only shareholder of the company is a Delaware based offshore called Narfalk Investments Ltd that Romanian prosecutors suspect is actually controlled by Kiss. Narfalk, which has ownership stakes in many Romanian companies, is also under investigation by the Financial Guard in the Carpathian Region for tax evasion.
According to the Romanian Registry of Companies, Narfalk is represented in Romania by Lu Zhang. That name shows up on many companies associated with Kiss and Taylor. A Chinese immigrant and former fastfood employee in Auckland, New Zealand, Lu Zhang was an employee of Taylor who filed paperwork and checked emails for the agent but was also regularly used as a proxy by the firm. She is listed on 75 companies in New Zealand and many more in Romania. She was a proxy for a company involved in shipping illegal weapons from North Korea to Iran. She was also charged in New Zealand for making false statements on documents. (See Kiss-Taylor Network story).
Again in April, Petrom Service paid €5.1 million to Laveco SRL, another Romanian company police say Kiss controlled. The large fee was for “payment for several information services regarding the development trends of the real estate and the building market.” This new set of contracts was signed by employees of Petrom Services in March of 2008. Mariana Iordăchescu, Kiss’s secretary, signed the contract on behalf of Laveco SRL. The 32-year old Iordăchescu, born in Moldova “acted on the defendant’s request” – the prosecutors’ report said.
Located in Bucharest suburbs, in a building Kiss owns, Laveco SRL is owned by a Delaware company. The unique shareholder and administrator is Laveco Group Ltd, based in Newark DE, and incorporated at the end of 2002. It is represented by Ian Taylor. (www.onrc.ro)
The investigators say “the evidence shows that these were fictitious contracts, the payments made by Petrom Service do not cover any deliverables, and the companies that were supposed to deliver the services could not have fulfilled such obligations, considering the lack of qualified staff able to carry out such studies.”
Prosecutors said the contracts were signed between Petrom Service and Kiss’’s two companies in a way that revealed that the managers of the oil company planned the theft with the offshore lawyer. The evidence included “unqualified providers, contract values without any justification, direct mention of the possibility to subcontract the activities and a very short deadline for delivering such comprehensive studies (about one month) and for completing the payment.”
The Kiss consultancy “did not bring any benefits to justify the amount paid as there was no real need to purchase the consultancy services,” the magistrates showed in support of the case.
In October, when he spoke in court, Kiss blamed three offshore companies, KLG Debit Sevice and Factoring Ltd, Narfalk Debit Service and Factoring Ltd and Promire Consultants Ltd , all subcontracted to do the work. The businessman demanded to be released from prison and pleaded that it was the subcontractor’s responsibility – and not his - to deliver services to Petrom Service. His request was denied.
The DIICOT report says that the subcontractors were “registered in Cyprus and controlled by Laszlo Gyorgy Kiss by means of trustees… The companies did not have the possibility to carry out such market research studies and, in their turn, they did not deliver the studies to Petrom Service SA.”
OCCRP found that police actually were wrong and that while the three companies had Cyprus offices and bank accounts, they were not registered there. Two identically named companies, KLG Debit Sevice and Factoring Ltd and Narfalk Debit Service and Factoring Ltd are registered in Newark, DE in the US, at the same address of the registered agent Kiss and Taylor regularly use. The third company, Promire Consultants Ltd, is registered in Queen Street 363, in downtown Auckland, New Zealand, one of the virtual addresses used by the GT Group – the offshore consultancy network operated by Taylor. The unique shareholder is VicAm – the Taylor family’s “proxy service”, involved in other cases including the North Korean arm shipments.
A scheme much like this one is spelled out by Kiss himself in his book, “United States, Tax Heaven – Uncle Sam Will Fight Your Taxes.” In it,Kiss said a fictitious consultancy contract can be used to cover tax evasion: “There is no organized market for services and there will never be and services do not have reference prices. Therefore, services can’t be too expensive compared to a reference price. This characteristic of the service market allows us to use services in the fiscal planning mechanisms.” He explains that if 90 percent of a company’s profit was spent on a payment to an imaginary consultancy service operated by a Delaware offshore that has the same owner as the company, the European company would only have to pay taxes on 10 percent of the real profit. Most of the money is stored in the offshore account of the consultanting company, without any threat from the fiscal authorities.
Informed by DIICOT prosecutors, the National Office for Prevention and Control of Money Laundering (www.onpcsb.ro) investigated and found that, in 2008, the only important transactions in the accounts of Boaz Active SRL and Laveco SRL were the payments from Petrom Service. But the money only passed through the Romanian limited companies administered by Kiss minus about 2 percent, which prosecutors said was Kiss’s commission (approximately €160,000). The scheme is almost exactly what Kiss proposed to OCCRP undercover reporters when they came to him looking to save on taxes.
The DIICOT investigation showed that the offshore lawyer acted as a “pipeline” by securing the money and transferring it to Eftimie. The amounts obtained, based on the two consulting contracts, were successively transferred, at Kiss’s order, through the bank accounts of several companies controlled by Kiss, prosecutors said. In April and May 2008, about €2.8 million from the Boaz Active SR contract was sent to Eftimie’s IT& Media Productions Ltd of Delaware to a Bulgarian account, an offshore company registered in Delaware by Eftimie with Kiss’s help. From this account Eftimie withdrew cash and another €125,000 were sent by Kiss to the offshore KLG Debit Sevice and Factoring Ltd — one of the subcontractors listed on the Boaz Active SRL contract. KLG sent the money to Eftimie’s personal account.
In the same period, April – May 2008, more than €4 million was paid to Laveco through the same Bulgarian account. Again, Eftimie withdrew cash. €150,000 was sent through KLG Debit Service to Eftimie’s personal account. €400,000 passed through the accounts of two other offshores registered in Delaware, with headquarters in Cyprus including Kypros Accounting Ltd.
Kypros Accounting Ltd was a company Kiss told OCCRP undercover reporters that he controlled when he laid out his proposal to them. Kypros is represented by Kiss and controls Burgavis DDO in Ruse, Bulgaria.
Another company that showed up in the police investigation was Laveco Group Ltd (currently Lamark Group Ltd) which was used to transfer €450,000 to Eftimie’s personal account. The New Zealand offshore shows up on invoices Kiss gave to the OCCRP undercover reporters.
At the moment, both limited companies Kiss used as consultants are closed down.
About €8 million eventually reached either the personal accounts of Eftimie, or the account of IT & Media Production LTD, prosecutors said. Eftimie has a power of attorney for the bank account, prosecutors said.
Prosecutors found that the managers of Realitatea TV evaded €285,000 in income and VAT taxes in the same way – fictitious expenses paid to offshore consultants. Realitatea TV, a Romanian news channel, is officially owned by Vîntu and controlled both through a Cyprus offshore and through Petrom Service.
The National Anticorruption Department (DNA) eventually looked into this and found that “based on contracts, service delivery, consultancy and management services were billed by some companies; yet there is no evidence that that these services were necessary and have been delivered.”
The report by the fiscal authorities said Verisimo Ltd in Cyprus billed Realitatea TV for €850,000 in consultancy services from July to December of 2008. The company was represented by Taylor on behalf of Promire Consultants Ltd.
The money was sent directly to Cyprus, through Promire Consultants, a New Zealand offshore company that Taylor represented.