Varsity Blues and the Anatomy of a Charitable Money Laundering Scheme

I have often wondered, but have not had time to find out exactly what constitutes "money laundering."  From watching TV crime shows, I know it involves somehow disguising the source of ill-gotten gain by making it seem as though that gain was had through a legitimate business.  Back when the Sopranos was all the rage, I suppose Tony Soprana used his strip club or his "shipping business" to cleanse or launder the criminal element from his bribery and racketeering profits.  Still, the concept was murky to me.  Now, with the "second superseding indictment" in the Varsity Blues scandal, I now have a little better idea.  The indictment also sheds some light on the question we posed here and here, regarding whether the IRS was ever tipped off enough to look into the bogus charity -- The Key World Foundation -- and determine whether it should have been denied exemption in the first place (or at least had its exemption revoked at some point). According to to paragraphs 294 and 319 of the indictment, the Service began an audit of the Foundation as early as October 2018.  

The gist of the money laundering allegation is that parents made fake "charitable contributions" to the foundation, ostensibly to help "underprivileged children" but actually as payment in exchange for somebody helping them cheat on the ACT or SAT, or to bribe athletic coaches and officials at the "highly selective" universities to which the parents (and/or their children) aspired.  The charity substantiated the "contribution" by issuing letters attesting that "no property or services" were given in exchange for the "contribution."  In the picture to the left, the fake charity would fit right after after the guy on the cell phone and right before the bank.  I suppose there was no "private inurement" or "excess benefit" as a result of the payment to the charity, even if the payments eventually ended up in Mr. Singer's (the overall mastermind) pockets.  Or am I wrong.  I mean, if there really wasn't a charity, can there be a private inurement or excess benefit transaction.  The question is relevant because if Mr. Singer got friends to serve on his faux charity's board, suddenly those board members might be liable for a whopping amount of excise taxes for their participation in excess benefit transactions.  The charitable money laundering scheme is described in paragraphs 271 through 321, which are set out below the fold.  

Darryll K. Jones

The Money Laundering Conspiracy

271. The defendants also conspired with others known and unknown to the Grand Jury to conceal their fraud scheme by funneling bribe and other payments through the façade of The Key or [Key World Foundation, aka KWF], including via payments to and from accounts in the District of Massachusetts, and to promote their fraud scheme via payments to The Key and KWF from outside the United States. Objects and Purposes of the Money Laundering Conspiracy
272. The principal objects and purposes of the money laundering conspiracy were: (a) to conceal and disguise the nature, location, source, ownership, and control of bribe and other payments in furtherance of the fraud scheme, in violation of Title 18, United States Code, Section 1956(a)(1)(B)(i); and, (b) to transport, transmit, and transfer funds to a place in the United States 38 from and through a place outside the United States, with the intent to promote the fraud scheme, in violation of Title 18, United States Code, Section 1956(a)(2)(A). Manner and Means of the Money Laundering Conspiracy
273. Among the manner and means by which the defendants and others known and unknown to the Grand Jury carried out the money laundering conspiracy were the following: a. Making purported charitable donations to KWF or payments to The Key to fund the bribe and other payments in furtherance of the fraud scheme; b. Having KWF issue letters falsely attesting that the purported donations would help “provide educational and self-enrichment programs to disadvantaged youth,” and that “no goods or services were exchanged” for the money; c. Having The Key issue falsified “consulting” agreements and invoices stating that payments made in furtherance of the fraud scheme were instead for legitimate services; and d. Issuing bribe and other payments in furtherance of the fraud scheme from accounts in the name of The Key and KWF. Acts in Furtherance of the Money Laundering Conspiracy
274. On various dates from in or about 2011 through in or about February 2019, the defendants and others known and unknown to the Grand Jury committed and caused to be committed the following acts, among others, in furtherance of the money laundering conspiracy: 39 DAVID SIDOO
275. On or about January 23, 2013, SIDOO wired $100,000 from an account in Canada to an account in California in the name of The Key, in exchange for Singer’s facilitation of the SAT cheating scheme for SIDOO’s younger son. GREGORY COLBURN and AMY COLBURN
276. In or about December 2017, GREGORY COLBURN initiated a transfer of stock to KWF with a value of $24,443.50, in exchange for Singer’s facilitation of the SAT cheating scheme for the COLBURNS’ son.
277. GREGORY COLBURN subsequently issued a check in the amount of $547.45 to KWF, and wrote “charitable donation” in the memo line.
278. On or about December 29, 2017, KWF issued a letter to GREGORY COLBURN falsely indicating that “no goods or services were exchanged” for the purported donation.
279. In a call on or about October 24, 2018, Singer told AMY COLBURN, “So what I’ve stated to the IRS, [is] that your payment went to our foundation to help underserved kids.” AMY COLBURN responded, “Okay.” During the same call, Singer told GREGORY COLBURN, “I just wanted to make sure that we don’t-- we’re all on the same page.” GREGORY COLBURN replied, “Right. It was to help underserved kids. . . . Got it. No problem.” GAMAL ABDELAZIZ
280. On or about March 26, 2018, ABDELAZIZ wired a payment of $300,000 to KWF in exchange for Singer’s facilitation of his daughter’s admission to USC as a purported basketball recruit.
281. On or about March 26, 2018, KWF issued a letter to ABDELAZIZ falsely indicating that “no goods or services were exchanged” for the purported donation. 40 DIANE BLAKE and TODD BLAKE
282. On or about September 16, 2017, TODD BLAKE mailed a $50,000 check to Heinel, payable to USC Women’s Athletics, in exchange for facilitating his daughter’s admission as a purported volleyball recruit.
283. On or about February 5, 2018, TODD BLAKE wired $200,000 to one of the KWF charitable accounts, in exchange for Singer facilitating his daughter’s admission to USC as a purported volleyball recruit.
284. In call on or about October 25, 2018, TODD BLAKE asked Singer: “[W]ill I get contacted [by the IRS], and if so how would you like me to answer?” Singer responded: “[W]hat I want you to say is that your money went to our foundation, which it did.” TODD BLAKE replied: “Yeah. Okay.” Singer then said, “You made a donation to help underserved kids.” TODD BLAKE responded: “Right. Okay, good.”
285. In a call on or about February 22, 2019, Singer told DIANE BLAKE, in reference to her daughter’s acceptance to USC, “but [your daughter] got in with you guys making a payment, you know for $50,000 to USC women’s athletics directly and then $200[,000] to my foundation.” DIANE BLAKE responded “right,” and further acknowledged that “that was the payment to get her in.” I-HSIN “JOEY” CHEN
286. On or about April 16, 2018, CHEN wired $75,000 to The Key in exchange for Singer arranging the ACT cheating scheme on behalf of his son.
287. Singer caused The Key to provide CHEN with an invoice falsely indicating that the payment was for consulting services. 41 MOSSIMO GIANNULLI and LORI LOUGHLIN
288. On or about April 10, 2017, GIANNULLI wired $200,000 to KWF in exchange for Singer facilitating his older daughter’s admission to USC as a purported crew recruit.
289. On or about March 26, 2018, KWF issued a letter to GIANNULLI and LOUGHLIN falsely indicating that “no goods or services were exchanged” for the purported donation of $200,000.
290. On or about February 6, 2018, GIANNULLI wired $200,000 to KWF in exchange for Singer facilitating his younger daughter’s admission to USC as a purported crew recruit.
291. On or about February 7, 2018, KWF issued a letter to the GIANNULLIS falsely indicating that “no goods or services were exchanged” for the purported donation of $200,000. ELIZABETH HENRIQUEZ and MANUEL HENRIQUEZ
292. On or about May 4, 2016, the Henriquez Family Trust sent $400,000 to KWF in exchange for Singer facilitating the HENRIQUEZES’ older daughter’s admission to Georgetown as a purported tennis recruit.
293. On or about May 9, 2016, Singer caused KWF to send a receipt letter to ELIZABETH HENRIQUEZ falsely stating that “no goods or serves were exchanged” for the purported donation.
294. On or about October 24, 2018, Singer called ELIZABETH HENRIQUEZ from Boston, Massachusetts. During the call, Singer told ELIZABETH HENRIQUEZ that the IRS was conducting an audit of KWF and had asked about “the large sums of money” from the HENRIQUEZES. ELIZABETH HENRIQUEZ asked: “So what’s your story?” Singer responded: “So my story is, essentially, that you gave your money to our foundation to help underserved kids.” ELIZABETH HENRIQUEZ responded: “Of course.” 42 DOUGLAS HODGE
295. On or about April 9, 2013, HODGE wired $50,000 to KWF in exchange for Singer facilitating his daughter’s admission to USC as a purported soccer recruit.
296. On or about April 10, 2013, KWF issued a letter to HODGE falsely indicating that “no goods or services were exchanged” for the purported donation.
297. On or about April 1, 2015, HODGE wired $125,000 to KWF and $125,000 to The Key in exchange for Singer facilitating his son’s admission to USC as a purported football recruit.
298. On or about April 10, 2015, KWF issued a letter to HODGE falsely representing that “no goods or services were exchanged” for his purported contribution of $125,000. MICHELLE JANAVS
299. On or about May 12, 2017, a foundation controlled by JANAVS’s father wired $400,000 to KWF in exchange for Singer facilitating JANAVS’s son’s admission to Georgetown as a purported tennis recruit.
300. On or about May 12, 2017, KWF issued a letter to JANAVS falsely indicating that “no goods or services were exchanged” for the purported donation of $400,000.
301. On or about November 30, 2017, JANAVS sent a check for $50,000 from her foundation to KWF in exchange for Singer facilitating cheating for JANAVS’s older daughter on the ACT.
302. On or about February 5, 2019, JANAVS mailed KWF a check in the amount of $25,000 for facilitating the ACT cheating scheme for JANAVS’s younger daughter.
303. On or about February 12, 2019, JANAVS wired $25,000 to a Boston, Massachusetts account in the name of KWF as further payment for Singer facilitating the ACT cheating scheme for JANAVS’s younger daughter. 43 ELIZABETH KIMMEL
304. On or about April 15, 2013, KIMMEL caused the Meyer Charitable Foundation to issue a check to KWF in the amount of $100,000 in exchange for Singer facilitating her daughter’s admission to Georgetown as a purported tennis recruit.
305. Masera thereafter sent a letter to the Meyer Charitable Foundation falsely indicating that “no goods or services were exchanged” for the purported donation.
306. On or about June 27, 2013, and on or about July 16, 2013, KIMMEL caused the Meyer Charitable Foundation to issue additional checks to KWF in the amounts of $170,000 and $5,000, respectively as further payment for the recruitment scheme.
307. On or about February 23, 2018, KIMMEL caused the Meyer Charitable Foundation to issue a check to KWF in the amount of $200,000 in exchange for Singer facilitating her son’s admission to USC as a purported track and field recruit. WILLIAM McGLASHAN, Jr.
308. On or about December 6, 2017, McGLASHAN sent $50,000 to KWF from his personal charitable donation fund in exchange for Singer facilitating the ACT cheating scheme for McGLASHAN’s son. MARCI PALATELLA
309. On or about March 7, 2017, PALATELLA’s company wired $75,000 to KWF in exchange for Singer facilitating the SAT cheating scheme for PALATELLA’s son.
310. On or about May 1, 2018, PALATELLA’s company wired $400,000 to KWF in exchange for Singer facilitating her son’s admission to USC as a purported football recruit. 44 JOHN WILSON
311. On or about March 1, 2014, WILSON asked Singer, in substance, whether he could pay Singer from his corporate account for facilitating WILSON’s son’s admission to USC as a water polo recruit, so that the payment would be deductible as a purported consulting fee.
312. On or about April 7, 2014, WILSON’s company wired $100,000 to KWF, $100,000 to The Key, and $20,000 to Singer personally.
313. On or about July 28, 2014, USC sent WILSON and his spouse a gift receipt for their purported $100,000 charitable contribution to USC Athletics, which was, in fact, a payment in exchange for facilitating their son’s admission as a purported athletic recruit. HOMAYOUN ZADEH
314. On or about April 5, 2017, Masera e-mailed an invoice to ZADEH and his spouse for their purported “pledge” of $100,000, which was in fact a payment for facilitating ZADEH’s daughter’s admission to USC as a purported lacrosse recruit.
315. Between on or about May 30, 2017 and September 7, 2018, ZADEH made eight payments totaling $55,000 to KWF.
316. On or about December 27, 2017, KWF issued a letter to ZADEH and his spouse falsely attesting that “no goods or services were exchanged” for their donations.
317. On or about March 6, 2019, ZADEH’s spouse e-mailed Singer, copying ZADEH, noting that she had sent an additional $5,000 to KWF and requesting a tax receipt for the money ZADEH and his spouse had purportedly contributed to KWF in 2018. 45 ROBERT ZANGRILLO
318. On or about September 20, 2018, ZANGRILLO wired $200,000 to one of the KWF charitable accounts in exchange for Singer facilitating his daughter’s admission to USC as a purported crew recruit.
319. In a call from Boston, Massachusetts on or about October 25, 2018, Singer told ZANGRILLO, in sum and substance, that the IRS was auditing KWF. ZANGRILLO asked: “What was [my daughter’s] payment for? Just so I know, so we have the story straight.” Singer responded, in substance, that the payments would appear to be “for our programs that handle underserved kids.” ZANGRILLO replied: “Okay, great, perfect.” Other Co-Conspirators
320. Singer likewise funneled bribes through KWF and The Key to athletic coaches and university administrators in the District of Massachusetts and elsewhere, on behalf of other coconspirators known and unknown to the Grand Jury, in order to conceal and disguise the nature, location, source, ownership, and control of bribe and other payments in furtherance of the fraud scheme.
321. Other co-conspirators known and unknown to the Grand Jury also transported, transmitted, and transferred monetary instruments and funds from a place outside the United States to and through KWF and The Key accounts inside the United States in furtherance of the fraud scheme.