Beanie Babies entrepreneur escapes jail for tax avoidance, but pays $53 million penalty

Beanie Babies founder Ty Warner has narrowly escaped jail time, after a United States federal judge sentenced the entrepreneur to two years of probation for failing to pay income tax on millions of dollars stashed in a Swiss bank account.

Beanie Babies became a popular children’s toy in the mid ‘90s and was recently estimated by Forbes as being worth $US2.6 billion.

The toys had a love-heart TY (as in Ty Warner’s name) label and were made to look like bears and other animals. As collectibles, some are now worth thousands of dollars.

Prosecutors had called for Warner to be jailed, however, the judge ruled “society will be better served by allowing him to continue his good works”, after reading aloud from dozens of letters describing his charitable work.

“Warner’s private acts of kindness, benevolence and generosity are overwhelming,” US district judge Charles Kocoras told the court, according to the Chicago Tribune.

Warner has also been ordered to perform 500 hours of community service and agreed to pay a record civil penalty of $53 million and at least $16 million in back taxes.

The entrepreneur kept $US24 million in undeclared Swiss bank accounts between 1996 and 2008 and also failed to pay $5.6 million in taxes.

When pushing for jail time, prosecutors argued probation would “further a public perception that a defendant of means can avoid further punishment simply by writing a large check”, according to Forbes.

In his judgment, Kocoras said Warner had suffered “public humiliation” and “private torment” as a result of his criminal prosecution.

The high profile case is one of many targeting offshore tax avoidance, as internationally the G20 nations and the Organisation for Economic Co-operation and Development have amped up the pressure on companies and individuals dodging their tax obligations.

Thomson Reuters tax expert Terry Hayes told SmartCompany this case is part of the “globalisation of tax and the breakdown of jurisdiction and country borders”.

“There is a push from the G20 and OECD and revenue authorities like Australia for greater exchange of information between revenue authorities globally to breakdown bank secrecy,” he says.

“It’s gathered a lot of pace and stems from action in the US as it tried to suss out US taxpayers which had hidden money offshore. It’s snowballed from here since this behaviour could be extrapolated offshore.”

Hayes says in Australia the highest profile case has been Project Wickenby, which has seen public figures such as Glenn Wheatley and Paul Hogan targeted by the authorities. 

“It’s all part of a very broad international evasion drive. It’s not stopping yet; it’s gathering more and more pace. Warner was an individual, but it extends to companies like Amazon and Google,” he says.

“They’re complex issues, but they’re being brought into the public arena. It will be a matter of countries cooperating with each other, action won’t be achieved unilaterally.”

Following the judgment, Warner said he felt “shame and embarrassment” for what he’d done and apologised.