Recently, Denmark claimed Michael Ben-Jacob, an Arnold & Porter partner, designed a scheme that defrauded the country of around $260 million. The scheme involved setting up sham pension plans to apply for refunds in Denmark and the complaint was filed in the Southern District of New York (S.D.N.Y.). Denmark’s customs and tax authority (SKAT) stated that the plans submitted at least 364 fraudulent applications involving 630 dividends issued by 13 Danish companies. This blog post will discuss in further detail the scheme and briefly touch on the change of legal climate in relation to enablers in fraud schemes.
Michael Ben-Jacob’s clients are mainly high net-worth individuals, family offices, and “closely held” businesses. The activity allegedly started around 2011 and ended in August 2015 after Denmark received a tip from a whistleblower and a foreign government. Ben-Jacob designed a partnership structure that allowed the principles of Argre, a New York-based business, to recruit friends, family members, and colleagues to set up additional plans to submit refund applications. The partnership structure enabled the principals to retain control of the plans that the recruits agreed to set up and take 90% to 95% of the proceeds that these additional plans obtained from Denmark, after payments to others in the scheme. Finally, recruits signed the papers necessary to set up one or more allegedly sham companies and allegedly sham pension plans, and appoint one of the principals as the plans’ authorized representative.
The S.D.N.Y. recently ruled against Michael Ben-Jacob a motion on the revenue rule, “a common law principle that prohibits courts from hearing actions by foreign nations to enforce their foreign tax laws, whether directly or indirectly.” This further adds to the mountainous amount of litigation Ben-Jacob will need to deal with, as Ben-Jacob is already a defendant in 39 actions.
Potential Changes for Enablers
The recent development in this case provides a potential for change for future enablers in fraud schemes. In this case, associate defendants initially claimed privilege over their communications with Ben-Jacob. Now, the defendants “announced that they were asserting a reliance-on-counsel defense, waived the claim of privilege and, in January 2021, began producing communications with Ben-Jacob that they had previously withheld.” As a result, these communications revealed Ben-Jacob’s role in the scheme to defraud SKAT.
SKAT’s allegations against Ben-Jacob’s will definitely put a lot of people on notice. Enablers of fraud can be found in many forms: accountants, attorneys, bankers, and others. Potential liability of Ben-Jacob could lead to further investigations and new interpretations by tax authorities and courts alike as to what kind of responsibilities do enablers have in their role in assisting those in fraud schemes. This topic will be explored in a larger article for the International Enforcement Law Reporter.
 Bruce Love, Arnold & Porter Partner Faces More Litigation By Denmark Over Tax Controversy, LAW.COM, https://www.law.com/newyorklawjournal/2021/06/17/arnold-porter-partner-faces-more-litigation-by-denmark-over-tax-controversy/, Jun. 17, 2021 (last visited Jul. 16, 2021).
 Love, supra.
 SKAT v. Ben-Jacob, 1:21-cv-05339 **at 3 (S.D.N.Y. Jun. 16, 2021).
 In re SKAT, 356 F. Supp. 3d 300 (S.D.N.Y. 2019).
 1:21-cv-05339 at 4.
 Love, supra.
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