Man arrested for operating a "warehouse bank" from his home in Seattle, WA

A "warehouse bank" is defined by the Department of Justice as "... a bank account at a regular commercial bank in which all clients’ funds are commingled or pooled, for the purpose of concealing the client’s ownership of the funds."

This is tax fraud kiddies, it's bad. Just ask Des Moines, Wash., resident Robert Arant. Arant operated Olympic Business Systems (OBS), which had made promises to customers that they could legally hide their income, assets, and identities from the Internal Revenue Service.

Olympic deposited almost $28 million of customer funds into accounts OBS maintained in its own name at commercial banks, then allegedly used the money to pay its customers’ bills and expenses. And all the while making promises to leave no paper trail for their customers that the IRS could follow.

It may sound, on the surface, like a good deal. Hand your money over to someone else and let them pay your bills and you have no paper trail. Which is what Olympic Business Systems did for its customers. Customers of Olympic were charged around $75 a year in fees, plus fees for wire transfers and for initial account set-up. Another $30 bought them a debit card so they could access their money easier. Standard access was apparently through check, money order or wire transfer.

The website (now taken down) had solicited customers "who would rather not deal directly with the banking system." According to court documents, unsealed Tuesday, people were offered the discretion of a Swiss bank account without their having to go to Switzerland.

Now, most of you reading this should already know what the fellow did wrong, but for the few that might be asking "what's so bad about that?" here's a few details from the press release issued by the Department of Justice yesterday:

Judge Lasnik’s order held that Arant “is or should be aware that courts have repeatedly held that warehouse banks are tax evasion schemes.”

A California federal court in 2004 permanently closed a similar warehouse bank. Details about that case are available at http://www.usdoj.gov/tax/txdv04785.htm.

In 2005 a federal court in Oregon sentenced operators of a warehouse bank to prison, after their criminal convictions. Details are available at http://www.usdoj.gov/tax/txdv05070.htm.

The lesson? Don't run a warehouse bank, it's illegal. Check into any Internet banking you get involved in to make sure that it's not a warehouse bank. One of the identified customers of the bank had no idea they had been involved in such a thing, my guess is they just opened up an online bank account that looked too good to be true. And we all know that if it's too good to be true it's not true. Or is highly illegal. Or both.

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Trivia for the day: The Justice Department obtained injunctions against more than 235 tax preparers and tax-fraud promoters since 2001.