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BDO Puerto Rico Tax Partner Accused of Trying (and Failing) to Defraud the IRS

Posted on by Jason Bramwell

More accountants behaving badly at BDO Puerto Rico. First it was good ol’ Fernando Scherrer, the BDO Puerto Rico managing partner who got indicted for taking part in a shady corruption scandal last year that also involved Puerto Rico’s former education secretary and the former head of the Puerto Rico Health Insurance Administration.

Gabriel Hernández

Now, the head of tax at BDO Puerto Rico, Gabriel F. Hernández, who is also a co-founding partner of the firm (along with Scherrer), was arrested by federal agents at his home on Oct. 21 and indicted on 10 counts of wire fraud for attempting to gyp the IRS out of some money.

Here’s what Bill Barr’s DOJ had to say about Hernández’s alleged scheme:

According to allegations in the indictment, Hernández, a CPA who served as the tax manager and partner-in-charge of the tax division of a large public accounting, tax, consulting, and business advisory firm, devised a scheme to defraud the IRS.

The scheme, as alleged, related in part to two tax incentive acts: Act 20, also known as the Export Services Act, which offers tax incentives for Puerto Rican companies to export services to other jurisdictions, and Act 22, also known as the Individual Investors Act, which offered tax incentives to individuals who relocate to Puerto Rico.

Under the scheme, as alleged, Hernández unjustly enriched himself and others by receiving fees in exchange for preparing and filing and causing to be prepared and filed a false federal income tax return with the IRS and fraudulent applications and other records related to the acts.

The indictment further alleges that, as part of the scheme Hernández and others evaded the assessment and payment of taxes by engaging in financial transactions devoid of any economic substance (sham transactions). The transactions allegedly were intended to create the illusion that Hernandez’s clients earned income from services performed within Puerto Rico, rather than within the mainland United States.

If found guilty, the defendant faces a maximum statutory sentence of up to 20 years in prison and a fine up to $250,000 for charges relating to wire fraud.

According to El Nuevo Dia, Hernández, 55, pleaded not guilty after his arrest last Wednesday. Magistrate Marcos E. López set Hernández’s bond at $250,000 and prohibited him from continuing to advise clients.

However, López authorized the certified public accountant (CPA) to meet with his co-workers to organize an orderly transition for the rest of the BDO firm’s employees to serve their clients. Hernández will not be able to offer any type of financial advisory and planning service.

Hernández also is not allowed to travel outside of Puerto Rico without the court’s permission and he has to surrender his passport.

According to his bio on BDO Puerto Rico’s website—which BTW says Hernández “has substantial experience in assisting clients in negotiating tax exemption packages under the various tax incentive laws available in Puerto Rico”—Hernández previously worked at PwC, Arthur Andersen, and EY.

Puerto Rico CPA Indicted and Arrested on Wire Fraud Charges in Relation to Act 20 and Act 22 Scheme [Justice Department]
Gabriel Hernández pleads not guilty and is set a $250,000 bond [El Nuevo Dia]
IRS arrests another of the partners of the firm BDO Puerto Rico [Noticel]

Related articles:

BDO Puerto Rico Managing Partner Resigns After Indictment In Massive Corruption Scandal
All Fat Guys Can Relate to Ex-BDO Puerto Rico Managing Partner Trying to Put On a Belt
Accountants Behaving Badly: Ex-BDO Puerto Rico MP Charged, Sick Demands, Stealing $365K

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Doing It Wrong Twitter Case Study: The Sensitive CEO

Usually Adrienne handles these things but I seem to have started a beef, so here goes. Last Friday, I poked fun at BDO Global CEO Jeremy Newman, after he admitted that regulatory intervention in the UK would b up the audit market,” even though that’s the last thing he wants. “It is a shame it has taken so long and that it will require regulatory intervention,” he writes but then immediately qualifies the statement, “though it is not too late for my colleagues in the Big Four, and others, to act on a voluntary basis to create the environment necessary to allow real competition.”

This overt doublespeak caused me to open my post with this:

Perpetual fusspot and BDO Global CEO Jeremy Newman has not been shy about how unfair he thinks the dominance of the Big 4 is. The majority of his blog posts are tagged “Global Accounting” and several consist of bellyaching about Big 4 this and the Big 4 that. Of course, since the mainstream media has finally picked up on the idea that the concentration of auditors could be a bit of a problem […]

Newman wrote another blog post today starting with “I have never understood Twitter” but then did a Twitter search on himself, “not expecting to find anything” but he eventually landed on my blog post. He blockquoted the excerpt above (and linked!) and then wrote this:

Now call me sensitive, but I do not see myself as a “perpetual fusspot” or “bellyaching”- just someone raising a valid concern and one that has now been recognised by others, including the OFT but also the European Commission, MEPs, the UK’s House of Lords and many others, as being a potential issue. I also don’t think the dominance of the Big 4 is “unfair” – I think it is a risk and not in the public interest. And again this view is shared by others – including those who represent the public interest.

Clearly, Mr Sensitive had never graced this fine publication before but I read most of his blog posts and as I pointed out, lots of posts are tagged “Global Accounting” with titles such as “Big 4 bias – can we ever overcome it?,” “Financial Reporting and Auditing: A time for change?,” “There is a Credible Alternative,” and “Restrictive bank covenants keep the Big Four on top….”

Now maybe I’m way off base here but having so many posts (there are more) attributed to this topic, strikes me as someone who is excessively worried about something (i.e. “fussing“). I’m not suggesting he should start doing Mad Men recaps but there is consistent narrative. Plus, the word “fusspot” is funny. Furthermore, evoking “bias,” “can we overcome” and “credible alternative[s]” inherently speak to an unlevel playing field (i.e. “unfair“). Perhaps I’m too wrapped up in semantics but I think my point has been made.

On the bright side, I’m flattered that Mr Newman was offended enough to write a response of sorts (without naming names, unfortunately) and hopefully he finds some things on GC that are to his liking. Unfortunately he still doesn’t appear to be on Twitter, the catalyst to this whole exchange. I encourage JN to join the fun. Then he’ll be able to keep up on himself.

4 thoughts on “BDO Puerto Rico Tax Partner Accused of Trying (and Failing) to Defraud the IRS”

  1. You do realize that the word “gyp” comes from gypsy and could be offensive right? Someone once said to me that they had been “jewed”. I took offence. See what I mean?

    2. Your world is that small that you’re pointing out what “could” be offensive in an article written on goingconcern.com?

  2. BDO tiene un gran problema. Ver lo que ha ocurrido en España en el caso Pescanova, donde BDO eran los auditores.

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