Mogul Sentenced to 9 Years For Tax Evasion and Fraud

By Carol D. Leonnig
Washington Post Staff Writer
Wednesday, March 28, 2007

Eccentric Washington telecommunications mogul Walter C. Anderson was sentenced yesterday to nine years in prison for failing to pay $200 million in taxes -- but a federal judge ruled the Internal Revenue Service won't be repaid for now because prosecutors botched the plea agreement.

Anderson, the biggest convicted tax cheat in U.S. history, received the longest punishment ever given in a tax crime case for his admitted effort to hide $365 million in personal income in the 1990s. He avoided paying taxes by using aliases, shell companies, offshore tax havens and secret drop boxes abroad.

"I agree I'm responsible for what I did . . . but I'm not a criminal person," Anderson told U.S. District Judge Paul L. Friedman before he was sentenced. "I believe I've tried to do the right thing most of my life."

In a major embarrassment to the government's seven-year prosecution of Anderson, the judge ruled he could not order Anderson to make restitution to the IRS for an estimated $140 million of his unpaid federal income taxes. Friedman blamed prosecutors for making a sloppy plea agreement with Anderson.

But Friedman ordered Anderson to pay the D.C. government $22 million in restitution -- barely half the taxes he owed the District.

IRS spokeswoman Peggy Thomas said the agency will "do everything in our power to get this money" from Anderson in civil proceedings.

The punishment came after a tense four-day sentencing hearing during which federal prosecutors described D.C. public schoolchildren, ailing and elderly D.C. residents, and even inmates at the crowded D.C. jail harmed by Anderson's avoidance of more than $40 million in taxes he owed to the District over the past decade. Prosecutors say Anderson also failed to pay an estimated $140 million to $178 million in federal income taxes.

"At the Dunbar High School gym, the place is an embarrassment," said prosecutor Karen E. Kelly. "The toilets don't work; soap, paper towels and toilet paper are missing; . . . and students choose to go back to class rather than use the showers.

"The Cardozo High School pool has been closed for 10 years, and the sports program for the entire D.C. school system is run on $1.9 million." she continued. "Do you dare to imagine the program they could have implemented with $40 million of Anderson's tax money?"

Friedman said Anderson had "no excuse" for his crimes given all the advantages he had in life compared with other defendants: supportive parents, economic opportunities and business acumen.

"This is a serious crime, and it requires a serious punishment," Friedman said. "It is taking money from taxpayers."

During the sentencing hearing, Anderson's relatives, friends and business colleagues described a caring man who made the mistake of trying to avoid paying his fair share of taxes. They said he wasn't motivated by personal greed or a pursuit of luxury. They told the judge how Anderson made billions in the telecom boom, then gave away millions to explore space, nurture budding entrepreneurs and start a philanthropic foundation devoted to promoting world peace.

Anderson, 53, pleaded guilty in September to tax evasion and defrauding the government. The central issue at his sentencing hearing was how much more time he would serve behind bars. He has been at the D.C. jail since his arrest at Dulles Airport in February 2005, although the average stay in the jail is four days.

Anderson admitted receiving more than $126 million in 1998. That year, he claimed he earned $67,939 on his federal return and paid $495 in taxes.

"He thought he was too clever by half and he could avoid paying his share of taxes," his former tax accountant, John Kilday, told the court. "In that way, he was no different than many of my business clients."

Before the guilty plea, Anderson had insisted that the hundreds of millions of dollars in assets the government said he had hidden belonged to the Smaller World Foundation. He controls the foundation and endowed it with full ownership of various companies he also runs, such as Space Inc. and Iceberg Transport SA. He said he planned for the foundation to begin giving away money in 2006 to promote such causes as world peace, family planning and space exploration, but then he was arrested.

In a lengthy jailhouse interview with The Washington Post in 2005, he asserted his innocence.

"I don't need to steal money from the U.S. government to be successful," Anderson said. "I don't want their money."

Yesterday marked a sad moment in the life of the wildly successful but eccentric Anderson, who never graduated from college and made millions when he took his first company public. He gave away and lost millions, and the government cannot find any major assets to seize for unpaid taxes. He is represented at taxpayer expense by the court-appointed federal public defender and declared personal bankruptcy in the same courthouse where he faced criminal charges.

He owned part of a private plane and bought a $5 million mansion outside Madrid, but his favorite lunchtime hangout was Rumors, where he usually ordered a cheeseburger and iced tea.

Anderson grew up in Silver Spring and graduated in 1971 from W.T. Woodson High School in Fairfax. He was one of the original employees of MCI Corp. and founded a series of telecommunications companies, including Mid Atlantic Telecom Inc., Esprit Telecom Group PLC and Telco Communications Group Inc. It was Telco company that made him a multimillionaire overnight. It was also at that time, prosecutors said, when he began hiding his income.

"There's no chance I'll be before you again," Anderson told the judge. "Next time I set up any organization, I will get an unbelievable amount of legal advice."