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Secrecy key to offshore accounts linked to Hot Lotto case

Investigation into mystery ticketholder continues

Secrecy is the main reason people stash cash in offshore accounts like the one that would have received a Hot Lotto jackpot worth millions, according to Iowa tax and accounting professors.

In this case, secrecy was more important than the money.

The trust that held the ticket for a jackpot worth $7.5 million after taxes abandoned its claim this week after the Iowa Lottery refused to pay out without knowing who bought the ticket and who was behind the trust.

Lottery officials said the would-be winner was a corporation in Belize, a Central American country of about 330,000 people.

“Belize is known as one of those countries that won’t give information to the United States about its account holders,” said Andy Grewal, a University of Iowa law professor and international tax law specialist.

Unlike Switzerland, Belize hasn’t signed treaties with the United States to provide information about people who may be hiding money overseas to avoid taxes, Grewal said. Setting up a corporation in a country like Belize could take from two weeks to two months, he said.

Storing money offshore accounts is legal, but you have to report it to the Internal Revenue Service and pay taxes.

The Tax Justice Network, an international group opposed to tax avoidance, estimates the amount of money held offshore by individuals is about $11.5 trillion, with a resulting annual loss of tax revenue of about $250 billion.

There are plenty of stories of jackpot winners trying to hide their wealth to avoid sharing it with spouses or others with claims to the cash.

An Idaho woman went into hiding in early 2011 after claiming half of a $380 million jackpot, which media reports said she might have to share with her estranged husband.

In 1999, a judge ordered a California woman to turn over her $1.3 million jackpot to the husband she divorced without telling that she won the prize.

Jon Perkins, an assistant accounting professor at Iowa State University, said hiding money overseas might be one way to avoid sharing a windfall with creditors. But giving up the entire jackpot to protect your identity?

“There must be something else,” Perkins said about the Iowa Lottery case.

The Iowa Lottery saga started Dec. 23, 2010, when someone purchased the winning ticket from a Des Moines QuikTrip.

On Dec. 29, 2011 — just hours before the deadline — Des Moines law firm Davis Brown turned in the winning ticket on behalf of Hexham Investment Trust, which has a post office box in Bedford, N.Y.

Crawford Shaw, a 76-year-old New York attorney representing the trust, signed the ticket on behalf of Hexham Trust. Shaw met with Iowa Lottery officials and attorneys from Davis Brown on Jan. 17, Iowa Lottery spokeswoman Mary Neubauer said.

Shaw did not reveal the name of the person who bought the ticket or the person or people who make up Hexham Investments. He has since said he did not know the identities and was hired by an attorney representing the prize winner. Shaw agreed to represent the purchaser’s attorney on the condition that both of their identities and all discussions would remain secret because of attorney-client privilege, his attorneys said.

The Iowa Lottery set a deadline of 3 p.m. Friday to find out the names of the players in the case. Thursday, Davis Brown issued a statement saying the trust had withdrawn its claim on the prize.

The Iowa Lottery won’t provide the name of the corporation slated to receive the cash or release the store video showing the person who bought the winning ticket. It has also declined to provide a copy of the Hexham Investments Trust agreement, which Shaw gave to lottery officials.

These clues are evidence in the lottery’s ongoing investigation, Neubauer said.

The Iowa Division of Criminal Investigation announced Thursday it has opened a criminal probe into the case.

In another unusual twist in this story, Davis Brown tried to strike a deal with the Iowa Lottery earlier this week by saying the recipient would give the prize to charity.

“100 percent of the net cash prize, after taxes, shall be paid to the Davis Brown Law Firm for deposit in an interest-bearing trust account,” Davis Brown attorney Julie Johnson McLean in a letter dated Wednesday to the Iowa Lottery. Shaw and Hexham Investments were copied on the letter.

“Within 60 days of the payment of the funds into the client trust account, a trustee will submit to the ILA (Iowa Lottery Authority) a list identifying the proposed contributions to charities ... Not less than 50 percent of the total dollar amount of the contributions shall be paid to charities whose principal operations and beneficiaries are based in Iowa,” McLean wrote.

The letter stated Davis Brown should receive at least $50,000 for its expenses and time and that Shaw receive $5,000.

Davis Brown spokeswoman Megan Jorgensen would not say Friday how the plan to give the money to charity came about.

Neubauer said the Iowa Lottery did not consider agreeing to the proposal.

“We read the document, but ultimately, that offer was based on a flawed assumption that Hexham Trust was the valid winner,” Neubauer said. “We didn’t think it would be the responsible thing to do.”

Since no one else stepped forward to claim the jackpot, the ticket’s value will be divided among the 15 jurisdictions that take part in the Hot Lotto game. Iowa’s share, which comes to about $1.3 million, will go toward a new promotion for this spring, Neubauer said.

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