International Tax Evasion

ABA Tax Fraud Panel to Discuss IRS CI and Crypto Criminals

The Internal Revenue Service – Criminal Investigation (IRS CI) has made it clear that it is focusing on the abuse of digital currencies to further tax evasion, money laundering, and other offenses. IRS-CI also has made it clear that this is an international effort, and that it is trying to partner with law enforcement agencies across the globe in order to coordinate and share investigative leads.

This is a hot topic, and we are honored that Ballard Spahr will be moderating a panel on these very same issues, at the ABA’s annual Tax Fraud/Tax Controversy Conference in Las Vegas on December 12, entitled Charging Cryptocurrency Violations—Tax Crimes or Money Laundering.  We are pleased to be joined by our wonderful panelists, Evan J. Davis, Betty J. Williams, and Ian M. Comiskey.  This is a unique conference, and we invite you to attend if you are interested in the fascinating cross-section of tax evasion and money laundering.

This blog will discuss the recent efforts by IRS-CI to “up its game” in investigating cross-border offenses committed through cryptocurrency, such as its participation in the international Joint Chiefs of Global Tax Enforcement task force. We then will discuss a recent high-profile case which exemplifies these two goals of fighting crypto-related crime and collaborating with foreign law enforcement officials to do so: the notorious “Welcome to Video” case, which led to a global takedown of a darkweb child pornography website, its administrator, and its customers. The Welcome to Video investigation, led by IRS-CI, also illustrates a key point we will discuss at the ABA conference: that cryptocurrency is only “pseudo-anonymous,” and that its protections can yield to a determined combination of modern digital forensics and old-fashioned investigative techniques.
Continue Reading IRS CI Highlights International Efforts to Tackle Cryptocurrency Abuse, Money Laundering and Tax Evasion

Proposed Legislation Creates Rewards Program for Whistleblowers of Foreign Government Corruption

Third Post in a Three-Post Series

Newly proposed legislation, if passed, will authorize a whistleblower program for individuals providing law enforcement with information leading to the seizure, forfeiture, and/or repatriation of foreign stolen assets that come within the possession or control of any United States person.

In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. The first two proposed bills are discussed here and here.

In this post, we summarize the last of the three proposed bills, The Kleptocracy Asset Recovery Rewards Act (the “Bill”). The Bill allows the Department of Treasury to provide whistleblowers not only with monetary incentives but also protective measures, including asylum for the whistleblower and his or her immediate family. As we will discuss, the Bill proposes a unique whistleblower program focused on foreign corruption, and which differs in important ways from other, established government whistleblower programs.
Continue Reading Proposed Kleptocracy Asset Recovery Rewards Act Adds Whistleblower Incentives and Protections

On April 2nd, the New Directions in Anti-Kleptocracy Forum, organized by the Harriman Institute at Columbia University, will identify emerging issue areas relating to kleptocracy. I am excited to be serving as a co-panelist on the forum’s Art Market as a Node of Kleptocracy panel, which will discuss beneficial ownership and the luxury

Conduct Performed Without Knowledge Still Can Lead to the Most Serious Penalties

Under the Bank Secrecy Act (“BSA”), the most onerous civil penalties will be applied for “willful” violations. That mental state standard might sound hard for the government to prove.  For example, in criminal and civil tax fraud cases under the Internal Revenue Code, “willfulness” is defined to mean a voluntary and intentional violation of a known legal duty – a very demanding showing. But as we will discuss, two very new court opinions discussing a required BSA filing – a Form TD F 90-22.1, or Report of Foreign Bank and Financial Accounts, otherwise know as a FBAR – remind us that, under the BSA, a “willful” violation does not require proof of actual knowledge. A “willful” BSA violation only needs to be reckless, and the government can prove it through the doctrine of “willful blindness” or “conscious avoidance.”

The fact that courts in civil FBAR cases have been holding that “willfulness” can mean “just recklessness” is not a new development, and it is well known to those practicing in the tax fraud and tax controversy space. This blog post will not attempt to delve into the long-running offshore account enforcement campaign that has been waged by the IRS and the DOJ; the related case decisions; or the related voluntary disclosure programs for offshore accounts (for those interested in this fascinating but complicated topic, the Federal Tax Crimes blog is one of many excellent resources). Rather, the point of this post is that the case law now being made in the FBAR and offshore account context will have direct application to more traditional Anti-Money Laundering (“AML”)/BSA enforcement actions, because the civil penalty statute being interpreted in the FBAR cases is the same provision which applies to claimed failures to maintain an adequate AML program and other violations of the BSA.  Thus, the target audience of this post is not people involved in undisclosed offshore bank account cases, but rather people involved in day-to-day AML compliance for financial institutions, who may not realize that some missteps may be branded as “willful” and entail very serious monetary penalties, even if they were done without actual knowledge.  This may be news to some, and it underscores in particular the risks presented by one the topics that this blog frequently has discussed: the potential AML liability of individuals.
Continue Reading The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties

But Bank Customer’s Foreign Tax Evasion Scheme Still May Merit a SAR FilingThe Financial Crimes Enforcement Network (“FinCEN”) recently advised that a financial institution is not required to file a Suspicious Activity Report (“SAR”) based solely upon a customer’s inquiry into or participation in a foreign tax regularization program.  FinCEN issued this statement on February 21, 2018 in response to Florida International Banker’s Association’s request for guidance (“FIBA Request”) in 2016, which initiated the request because a number of its members expressed an interest in tax regularization programs and sought clarification on the AML implications of such programs.

This issue, perhaps seemingly esoteric, involves a basic question of increasing practical importance, particularly in light of the Panama Papers related international scandals, and global criticism of the U.S. as a potential haven for foreign tax cheats and money launderers: does the possibility of foreign tax evasion by a bank client necessarily trigger the need to file a SAR? Foreign tax evasion can represent potential violations of U.S. law, such as the federal mail or wire fraud statutes, which in turn may support a prosecution theory that related financial transactions involving foreign tax evasion and the U.S. financial system represent potential U.S. money laundering violations (for a detailed article on this issue, please see here).
Continue Reading FINCEN Advises That Participation in a Foreign Tax Regularization Program By Itself Does Not Trigger SAR Filing Obligation

I am honored to be part of a panel on March 1, 2018 at the Florida Tax Institute in Tampa, Florida regarding potential money laundering risks, reporting obligations and related ethical issues facing U.S. tax professionals with foreign clients bringing money and assets into the United States.  The panel, entitled Working with Inbound Investors &