"These deductions were a sham,'' Manhattan District Attorney Robert Morgenthau said at a press conference. "Although the books and records of Cipriani USA reflected that the payments had been made, in fact no money was ever transferred or otherwise paid to Cipriani SA.''
The men will be placed on probation at their sentencing Oct. 10, said their lawyer, Stanley S. Arkin. They and their companies must pay $10 million in back taxes in the next 3 1/2 years, and a monitor will ensure the businesses pay the taxes they owe until 2011, prosecutors said.
"We're happy to have resolved our disputes with the state and the city and the district attorney,'' Arkin said in an interview. "It's time for this very unique and extraordinary brand to get back to doing what we're doing.''
At least one Cipriani business is being audited by federal tax-collectors, Arkin said.
Cipriani Restaurants
The Luxembourg-based restaurant empire owned by Arrigo Cipriani, whose age was reported as 73 by his lawyer and 75 by the government, traces its origins to 1931 when Giuseppe Cipriani Sr., Arrigo's father, opened Harry's Bar.
Beef Carpaccio and the Bellini, a drink made of peach puree and sparkling wine, are among "notable influences of Harry's Bar on the art of gastronomy,'' the company Web site says.
Cipriani New York restaurants and banquet spaces include Harry Cipriani in the Sherry-Netherland hotel, where a Bellini is $19.95; Cipriani Dolci in Grand Central Terminal, where it's $12.95; Cipriani 42nd Street; Downtown Cipriani; and Cipriani Wall Street, in a building at 55 Wall Street that once housed the Merchants' Exchange and the New York Stock Exchange.
Three Cipriani corporations pleaded guilty today through Arkin: Cipriani Fifth Avenue, doing business as the Rainbow Room; Downtown Cipriani New York; and GC Alpha LLC, doing business as Cipriani Dolci.
Tax Deductions
The tax deductions were for royalty payments supposedly made by the U.S. unit to the parent company, Morgenthau said.
Cipriani USA claimed to have paid $30.7 million from 1998 to 2004, 11.5 percent of sales, to the parent company in exchange for the right to use the family name and other trademarks, Morgenthau said.
"For tax years 2003 and 2004, New York State and New York City taxes were evaded in the amount of approximately $10,000,000,'' the elder Cipriani said in a statement read to the court. No royalties were actually paid for those years, he said.
In a press release, the Ciprianis said the case resulted from their failure to abide by a 2003 change in New York tax law that required a company paying royalty to a foreign entity to account for the difference in taxes between the two jurisdictions.
Arrigo Cipriani could have faced as much as four years in prison for the crime he admitted. Giuseppe Cipriani's offense has a maximum punishment of a year in jail.
Plea Bargain
Morgenthau said his office will recommend probation for both men. The plea bargain was struck because investigations involving other countries are difficult and time-consuming, the district attorney said.
The restaurant chain has been the subject of an investigation by the district attorney's office since November 2005.
On July 2, Dennis Pappas, a former vice president of Cipriani USA, was sentenced to 1 1/2 to 4 1/2 years in prison for defrauding insurers of more than $1 million in disability payments.
William J. Comisky, deputy commissioner of enforcement for the New York Department of Taxation and Finance, said the state is increasing its efforts against tax cheats, quadrupling the number of investigators.
Morgenthau said the case should send a message to other companies. "You're not going to get away without paying taxes by hiding behind offshore jurisdictions,'' he said.
