Trump Backer Barrack Denies $190 Million Italian Tax Fraud Claim

(Bloomberg) -- Colony NorthStar Inc. Chairman Tom Barrack is denying an Italian prosecutor’s accusation that he conspired to evade 170 million euros ($190 million) in taxes when he sold luxury Sardinian properties.

Barrack, a billionaire real-estate investor who led President Donald Trump’s inaugural committee and frequently advocates for Trump, issued the denial through a lawyer in response to accusations by prosecutor Domenico Fiordalisi in the town of Tempio Pausania, on the island of Sardinia. 

The prosecutor had said in a May 4 filing seen by Bloomberg that Barrack was the head and promoter of the tax scheme that involved the 2012 sale of properties to Qatar.

The lawyer for Barrack and Colony, Daniel Petrocelli of O’Melveny & Myers LLC, said the Luxembourg investment company that Colony used for the transaction paid all taxes owed under Luxembourg and European Union law. "The Prosecutor’s claim was without any basis and was asserted even though Italy was not the applicable taxing jurisdiction under the operative treaties and rules existing in the European Union," he said in a statement to Bloomberg.

To avoid a prolonged dispute, a Colony investment company settled with Italian tax authorities last year, paying 22.7 million euros, Barrack’s lawyer said. However, that didn’t put an end to the criminal probe.

Neither Barrack, 70, nor the 32 other individuals and companies named as suspects by the prosecutor in the filing, have been charged with any crime. The prosecutor’s 24-page filing is a notice that he’s concluded a preliminary investigation and marks the final stage before he can request formal indictments. The document replaces a previous notice the prosecutor had filed in October.

If the case were to proceed, a judge would be asked to rule on the prosecutor’s request to pursue a criminal trial. The Guardian reported on the probe on May 29.

The investigation focuses on Colony’s sale of four hotels, a golf course, marina and some undeveloped land on Sardinia’s Costa Smeralda to Qatar Holding LLC, the investment arm of the Persian Gulf country’s sovereign-wealth fund. According to the prosecutor, Barrack and others used a Luxembourg company to artificially load their Sardinia firm with debt, falsely reducing the taxes due from the resort sale.

In response, Barrack’s lawyer said, "The use of Luxembourg companies to conduct business throughout the European Union is common and perfectly lawful." Colony was advised in the transactions "by the most sophisticated international legal and accounting professionals."

"These claims have no basis and even frivolously name Tom Barrack even though he was not an employee, officer, or director of Colony Sardegna Sarl or any subsidiary," he said.

The prosecutor has named as suspects five Colony companies, including Santa Monica, California-based Colony Capital LLC.

Colony bought Sardinian properties in 2003 for 290 million euros. In 2007 and 2012, the Colony investment company sold the Sardinian interests, Barrack’s lawyer, Petrocelli, said. The sale to Qatar in 2012 was for about 600 million euros, according to media reports at the time of the deal.

Developed by the Aga Khan in the 1960s and 1970s, the strip of coast is where billionaire Silvio Berlusconi and others have vacation homes. To mark the 2012 deal, Qatari Emir Sheikh Hamad bin Khalifa Al Thani held a news conference in Rome with then-Italian Prime Minister Mario Monti.

A spokesman for the Qatar Investment Authority, which incorporates Qatar Holding, declined to comment.

Barrack founded Colony in 1991 and began investing in property in the wake of the savings-and-loan crisis. Colony Capital had raised more than $25 billion before a takeover of NorthStar Asset Management Inc. last year.

Italian media have published stories on the Italian probe since 2015.

--With assistance from David Carey and Dinesh Nair

To contact the reporters on this story: Vernon Silver in Rome at vtsilver@bloomberg.net, Sergio Di Pasquale in Milan at sdipasquale1@bloomberg.net.

To contact the editors responsible for this story: Robert Blau at rblau1@bloomberg.net, Elisa Martinuzzi, Alan Katz