International Tax Evasion

Subscribe to International Tax Evasion via RSS

United States “Beats” Switzerland as a Perceived Global Haven for Money Laundering and Tax Evasion

By Peter D. Hardy & Alicia M. Went on February 20, 2020

Posted in Beneficial Ownership, Foreign Account Tax Compliance Act (FATCA), Information Sharing, International Tax Evasion, Offshore Account, Organization for Economic Cooperation and Development (OECD)

The Cayman Islands Receive “Top Honors.” But, Global Financial Transparency is Reportedly Improving in General

The United States has overtaken Switzerland as a financial secrecy haven, according to the latest rankings – the Financial Secrecy Index 2020 (“2020 Index”) – issued by the Tax Justice Network (“TJN”), which describes itself in part as an independent international network conducting research, analysis and advocacy on international tax and financial regulation and the impact of tax evasion and avoidance. According to the 2020 Index, the U.S. now has the dubious distinction of holding second place in these rankings, having “lost” only to the Cayman Islands for first place.

As always, such reports and rankings, which purport to present incredibly complex and fluid systems as neatly distilled rankings, based on numerical factors presented with seeming objective precision, must be taken with a grain of salt. Invariably, they simplify issues and reflect implicit, subjective and potentially biased judgments. Nonetheless, the 2020 Index represents the latest in a string of international pronouncements turning an uncomfortable spotlight on the U.S., which (as we have blogged here, here and here) appears to be increasingly viewed by the rest of the world as a (hypocritical) haven for money laundering and tax evasion. Switzerland may regard having been “trumped” by the U.S. in these rankings with a bit of irony and schadenfreud, given the lengthy campaign by the U.S. to battle Switzerland’s banking and tax secrecy laws and customs, including many prosecutions by the U.S. involving undisclosed offshore accounts held by U.S. taxpayers in Switzerland (and elsewhere). Certainly, the 2020 Index highlights the substantial intersection between money laundering and tax evasion, both of which thrive in environments where anonymous shell companies may proliferate.
Continue Reading United States “Beats” Switzerland as a Perceived Global Haven for Money Laundering and Tax Evasion

IRS CI Highlights International Efforts to Tackle Cryptocurrency Abuse, Money Laundering and Tax Evasion

By Peter D. Hardy, Alicia M. Went & Shauna Pierson on December 9, 2019

Posted in Criminal Enforcement, Cybersecurity, Extraterritorial Application of US Law, Internal Revenue Service (IRS), International Tax Evasion, Tracing, Undercover Investigations, Virtual Currency

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 Kleptocracy Asset Recovery Rewards Act Adds Whistleblower Incentives and Protections

By Priya Roy on April 8, 2019

Posted in Bribery, BSA AML Reform, Foreign Corrupt Practices Act (FCPA), International Tax Evasion, Panama Papers, Terrorism Financing, Whistleblower

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

New Directions in Anti-Kleptocracy Forum at Columbia University to Discuss Luxury Art, FCPA and Oligarchs

By Peter D. Hardy on March 25, 2019

Posted in Art and Antiquities, Beneficial Ownership, Bribery, Criminal Enforcement, Foreign Corrupt Practices Act (FCPA), International Tax Evasion

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…

First U.S. Indictment Relating to Panama Papers Charges Lawyer, Asset Manager, Accountant and Client

By Peter D. Hardy & Alicia M. Went on December 13, 2018

Posted in Attorney Liability, Beneficial Ownership, Department of Justice (DOJ), Internal Revenue Service (IRS), International Tax Evasion, Offshore Account, Panama Papers

DOJ Targets Professional Enablers of Alleged Tax and Laundering Schemes

On December 4, the Office of the U.S. Attorney for the Southern District of New York unsealed an elaborate indictment charging three professionals — a lawyer, an asset manager, and an accountant — along with a client in connection with an alleged tax evasion scheme arising out of the international Panama Papers scandal. At the heart of the Panama Papers story is the former Panamanian law firm of Mossack Fonseca, which had been a key offshore legal services provider until April 2016, when it became the center of a massive global controversy because approximately 11.5 million of the firm’s internal legal and financial documents were leaked to the media. These leaked documents – publicized primarily by the International Consortium of Investigative Journalists (“ICIJ”) – allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion, and how the rich and powerful around the world use shell companies to conceal assets and possible illegal activity.

The indictment and accompanying government press release stress the potentially pernicious role which professionals can play in facilitating criminal money laundering and tax schemes, as well as the role played by foreign shell companies in masking beneficial ownership. However, this indictment ultimately describes a scheme to evade taxes and hide assets. It does not allege that any of the assets were the proceeds of a separate crime, other than the tax scheme itself. Although the indictment charges a single count of conspiracy to launder money, it relies on the “international” money laundering provision, which does not require that the relevant financial transactions involve the proceeds of underlying criminality, so long as the transactions are designed to promote a criminal scheme.

In this post, we will focus solely on two of the many issues presented by the indictment: (i) the indictment “bootstraps” what are basically general tax fraud allegations into wire fraud and money laundering charges (thereby enabling the government to pursue higher statutory maximums, higher potential sentences, and criminal forfeiture, which the government would be unable to obtain through “pure” tax fraud charges), and (ii) the indictment serves as another reminder to defense lawyers of the potential consequences of presenting a client’s purportedly exculpating factual representations to the government during an investigation.
Continue Reading First U.S. Indictment Relating to Panama Papers Charges Lawyer, Asset Manager, Accountant and Client

DOJ Secures First Ever Conviction for Violating FATCA

By Peter D. Hardy & Alicia M. Went on September 17, 2018

Posted in Beneficial Ownership, Broker Dealer, Criminal Enforcement, Department of Justice (DOJ), Foreign Account Tax Compliance Act (FATCA), Internal Revenue Service (IRS), International Tax Evasion, Offshore Account, Undercover Investigations

Superseding Indictment Alleges an International Web of Tax and Money Laundering Schemes, Facilitated by Professionals and Pierced by an Undercover Agent

The Department of Justice (“DOJ”) has secured its first conviction ever under the Foreign Account Tax Compliance Act, or FATCA, through the guilty plea of Adrian Baron, a former executive of Loyal Bank Ltd., a bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines.

FATCA, passed in 2010, generally requires that foreign financial institutions identify their U.S. customers and report information on the foreign assets held by their U.S. account holders, either directly or through a foreign entity, or be subject to withholding payments. FATCA has become an important tool in the government’s ability to collect information and pursue its enforcement campaign against U.S. taxpayers with undeclared offshore assets. Now, FATCA has demonstrated its utility in enforcing U.S. law against foreign bankers who allegedly may be complicit in attempting to assist U.S. taxpayers hide their assets.

Baron, a citizen of the U.K. and Saint Vincent and the Grenadines who was extradited from Hungary, had been charged in a very detailed Superseding Indictment with assisting an undercover law enforcement agent with attempting to hide the supposed proceeds of fraudulent stock schemes in foreign corporate bank accounts which the undercover agent could control but which could not be traced to him, and which he could use to pay future kickbacks to U.S. brokers involved in other supposed schemes. The Superseding Indictment also charges Loyal Bank itself; a now-insolvent broker-dealer and investment management company located in London, U.K., Beaufort Securities Ltd.; and six individuals, including Baron.

Because the primary goal of FATCA, which we describe in more detail herein, is to deter the direct or indirect use of foreign accounts to facilitate the commission of U.S. tax offenses, it also has a potentially strong and related role in deterring potential money laundering offenses, given the role of foreign shell companies in masking beneficial ownership. Indeed, Baron’s co-defendant, Arvinsingh Canaye, who previously worked as the general manager of Beaufort Management Services Ltd., an entity related to Beaufort Securities but located in Ebene, Mauritius, pleaded guilty on July 26, 2018 to a related charge of conspiring to launder money. This case also highlights once again the potentially pernicious role which professionals can play in facilitating criminal schemes.

Continue Reading DOJ Secures First Ever Conviction for Violating FATCA

The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties

By Peter D. Hardy on August 1, 2018

Posted in Anti-Money Laundering (AML), Civil Penalty, Compliance Program, FBAR, Individual Liability, Internal Revenue Service (IRS), International Tax Evasion

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

“Panama Papers” Law Firm Announces Its Closure Due to Fallout from Massive Data Breach

By Edward J. McAndrew, Peter D. Hardy & Alicia M. Went on March 15, 2018

Posted in Attorney Client Privilege, Attorney Liability, Cybersecurity, International Tax Evasion, Offshore Account, Panama Papers

The beleaguered law firm at the center of the international Panama Papers scandal – Mossack Fonseca – has announced that it is closing its doors. It offered no apologies.

Founded in 1977 by Jurgen Mossack and Ramon Fonseca, Mossack Fonseca had been perched at the top of offshore legal services providers until April 2016, when it became ground zero for a global controversy because approximately 11.5 million of the firm’s internal legal and financial documents were leaked to the media. These leaked documents – publicized primarily by the International Consortium of Investigative Journalists (“ICIJ”) – allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion, and how the rich and powerful around the world use shell companies to conceal assets and possible illegal activity.

The incident is the largest publicly disclosed data breach involving a law firm. Following the April 2016 publication of data, founding partner Ramon Fonseca and other public sources claimed that the firm’s network had been compromised by hackers sometime in 2015. Security researchers and other public sources identified numerous unpatched vulnerabilities in Mossack’s website and email server, which could have been very easily compromised by hackers. Approximately 2.6 terabytes of data – including 4.8 million emails, 3 million database files, and 2.1 million.pdf files – were leaked, including client documents dating back to the 1970s.

The Panama Papers scandal not only sharpened the national and global focus on the general risks of money laundering, tax evasion, and terrorist financing, but it also helped fuel the international critique of the United States as a potential haven for money laundering and tax evasion due to opportunities in the U.S. to form legal entities without having to disclose the entities’ true beneficial owners. The scandal also reminded the world how lawyers potentially can facilitate their clients’ money laundering.

The incident and resulting scandal also illustrates the growing frequency, ease, and potentially devastating consequences of data breaches. Cyber incidents – whether malicious or non-malicious in nature – can threaten even the richest and most powerful people, and the breach of client confidential information held by a law firm can have serious potential legal consequences for both the firm and its affected clients.
Continue Reading “Panama Papers” Law Firm Announces Its Closure Due to Fallout from Massive Data Breach

FINCEN Advises That Participation in a Foreign Tax Regularization Program By Itself Does Not Trigger SAR Filing Obligation

By Jessica C. Watt on March 13, 2018

Posted in Bank, International Tax Evasion, Suspicious Activity Report (SAR)

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

Ballard to Co-Present on Potential Money Laundering and Ethical Risks Faced by U.S. Tax Professionals Serving Foreign Clients Bringing Funds Into the U.S.

By Peter D. Hardy on February 21, 2018

Posted in Attorney Client Privilege, Attorney Liability, Beneficial Ownership, Financial Action Task Force (FATF), Financial Crimes Enforcement Network (FinCEN), Foreign Corrupt Practices Act (FCPA), Internal Revenue Service (IRS), International Tax Evasion, Panama Papers, Report of Foreign Bank and Financial Accounts

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 & …

Menu

Money Laundering Watch