John Drago Structured Transactions to Assist Customers in Evading Taxes and Operated an Off-the-Books Payroll; Concealed More Than $9.5 Million from IRS
John Drago, the former owner/operator of several check cashing businesses on Long Island, was sentenced to 4 years in prison for illegally structuring financial transactions and payroll tax evasion. The proceeding took place before United States District Judge Gary R. Brown. In addition to his prison sentence, Judge Brown ordered Drago to forfeit $253,000 and to pay restitution of approximately $593,000. Drago pleaded guilty to fraud charges in September 2021. As a result of his plea, Drago was required to surrender his check cashing licenses, his federal money services business registrations and he is barred from applying for any such licenses or registrations in the future.
Breon Peace, United States Attorney for the Eastern District of New York, and Thomas Fattorusso, Special Agent-in-Charge, Internal Revenue Service Criminal Investigation, New York (IRS-CI) announced the sentence.
“Drago operated his check cashing business as a haven for tax cheats like himself, concealing over $9.5 million from the federal government,” stated United States Attorney Peace. “Today’s sentence demonstrates that significant consequences follow business owners who place greed above public good.”
Mr. Peace expressed his thanks to the New York State Department of Financial Services for their assistance.
"Drago used his seemingly legitimate check cashing business to defraud the government while lining his pockets. Over several years, he used his employees do his dirty work and, at his request, they cashed checks in a way to avoid IRS reporting requirements, concealing more than $9.5 million in check cashing transactions. His scheme to make some extra cash has now resulted in him spending time behind bars, where he will no longer have any pockets to be lined," said Thomas Fattorusso, Special Agent in Charge of IRS-CI.
According to court filings and facts presented at the plea and sentencing proceedings, Drago owned and operated check cashing businesses on Long Island, including Kayla Check Cashing Corp., North Island Check Cashing Corp., South Island Check Cashing Corp., East Island Check Cashing Corp., Bay Shore Check Cashing Corp. and Brentwood Check Cashing Corp. (collectively, the “Kayla Companies”). Financial institutions are required to file a Currency Transaction Report (CTR) for each cash transaction in excess of $10,000. In addition, a CTR is required to be filed by the financial institution when multiple checks, the total value of which exceeds $10,000, are cashed in a single day.
From January 2010 to October 31, 2013, Drago instructed employees to cash multiple checks in excess of $10,000 in a single day for certain customers without filing required CTRs. In addition, to avoid the required CTR filings, Drago directed employees to deposit and cash checks that had been submitted together on a single day in amounts in excess of $10,000. Drago also instructed employees to tell certain customers who presented individual checks in amounts exceeding $10,000 to return with multiple checks in amounts that were less than $10,000 to avoid the reporting requirement for such financial transactions. As a result of Drago’s scheme, more than $9.5 million in check cashing transactions were concealed from the IRS.
Between April 1, 2012 and July 31, 2013, Drago paid overtime wages and commissions to employees of the Kayla Companies in cash and failed to inform the IRS of the payment of these cash wages. Drago falsely underreported to the IRS the gross wages paid to his employees to avoid paying the full amount of Federal Insurance Contribution Act taxes that the Kayla Companies owed. In addition, as part of his plea, Drago agreed to pay restitution to the IRS for evading personal income taxes between 2010 and 2013. Overall, Drago’s payroll and personal tax evasion cost the IRS approximately $590,000.
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