Int'l Tax Enforcement Cooperation Archives | Page 3 of 4

J5 Chiefs Conduct First Coordinated Tax Enforcement Actions Arising from Investigations into a Central American Financial Institution

January 27, 2020 by Bruce Zagaris 1 Comment

On January 23, 2020, the members of the Joint Chiefs of Global Tax Enforcement (J5) announced on the preceding day its first coordinated set of enforcement actions undertaken on a global scale by the J5. The operation results from a series of investigations in Australia, Canada, the Netherlands, the United States, and the United Kingdom.

For instance, as part of the operation, HMRC officers executed a search warrant in the Stoke area and arrested a man as part of their investigation. The HMRC questioned the man and then released him pending further enquiries. A 59-year-old man, the HMRC arrested him on suspicion of cheating the public revenue.

As a result of the significant information it has collected, the HMRC expects further criminal, civil and regulatory action will occur in each country.

The law enforcement operation took place as a part of a series of investigations in multiple countries into an international financial institution located in Central America. The J5 believes that through this institution a number of clients may be employing a sophisticated system to conceal and transfer wealth anonymously to evade their tax obligations and launder the proceeds of crime.

The operation of the first major operational activity for the J5 illustrates the role played by law enforcement networks, which in this case is an informal group of tax chiefs. An important breakthrough in international enforcement has been the development, as part of regime enforcement, of governmental networks. The identification of governmental networks has arisen in part out of the emergence of a world politics paradigm that conceptualizes transnational relations as transcending the nation-state and broadening the conception of actions to include transnational actors, such as nongovernmental organizations (e.g., J5).

OECD Trumpets Results of Work of Global Forum on its 10th Anniversary Meeting

November 28, 2019 by Bruce Zagaris Leave a Comment

On November 26-27, 2019, at the 10th Anniversary Meeting the OECD trumpeted the achievements of the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) in Paris. The meeting brought together more than 500 delegates from 131 member jurisdictions for discussions on efforts to advance the tax transparency agenda.

According to the information in the Global Forum’s 10th anniversary report, the work of the Global Forum has produced thousands of bilateral exchange relationships, enabling more than 250,000 information exchange requests over the past decade. In 2018, nearly 100 member jurisdictions automatically exchanged information on 47 million financial accounts, covering total assets of US $4.9 trillion. Since 2009, more than €100 billion in additional tax revenue has been obtained.

A recent OECD study demonstrates that wider exchange of information arising out of the Global Forum is associated with a global reduction in foreign-owned bank deposits in international financial centers (IFC) by 24% ($410 billion) between 2008 and 2019. The start of automatic exchange of information (AEOI) in 2017 and 2018 is associated with an average reduction in IFC bank deposits owned by non-IFC residents of 22%.

Since 2009, almost all Global Forum members have eliminated bank secrecy for tax purposes. Almost 70 jurisdictions have changed their laws during this period. Almost all members either prohibit bearer shares or ensure that the owners can be identified. Since 2017, members must also ensure the transparency of the beneficial owners of legal entities, so these cannot be used to conceal ownership and evade tax.

The OECD has underscored the importance of tax transparency for developing countries. The Global Forum has helped 85 developing country members use exchange of information to strengthen their tax collection capacity. The Africa Initiative has helped African members identify over € 90 million in addition tax revenues in 2018, thanks to information exchanges and voluntary disclosures. In order to improve developing countries’ uptake of automatic exchange of financial information, the OECD-UNDP Tax Inspectors Without Borders Initiative announced at the meeting a pilot project aimed at supporting the effective use of the data.

The 10^th Year Report looks at future actions. The Global Forum will continue ensuring that all jurisdictions effectively participate in exchange of information on request (EOIR), do not fall back and continue advancing the transparency and exchange of information agenda as a matter of high priority. In the second round of the EOIR peer reviews, the most problematic issue concerns the availability of beneficial ownership information.

A key goal is to realize the effective implementation of the automatic exchange of information (AEOI) standard and the level playing field. An important player in this regard will be the United States, the largest financial contributor to the OECD. The U.S. has not fully reciprocated on information exchange in the Foreign Account Tax Compliance Act Intergovernmental Exchange Agreements and has failed to sign or implement the Common Reporting Standard.

Another goal is to help developing countries develop their regulatory regimes and practices in order to benefit from the exchanges of tax information.

As the world rapidly develops, new challenges emerge. Hence, the Global Forum must be agile to such new risks and respond to them quickly.

The current issue of the IELR will have a more comprehension discussion of the report, meeting, and future of the Global Forum.

IRS Targets Former OVDP Applicants, Expatriates, and HNWIs

August 1, 2019 by Bruce Zagaris Leave a Comment

On July 19, 2019, the IRS Large Business and International Division (LB&I) announced the approval of additional compliance campaigns, including ones on taxpayers who participated in the Offshore Voluntary Disclosure Program (OVDP) and United States taxpayers who expatriated.

With respect to Post-OVDP Compliance, John Cardone, director of Withholding & International Individual Compliance, is in charge. The campaign observes that U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former OVDP taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The Internal Revenue Service (IRS) has a list of all the participants in the OVDP. The IRS will address tax noncompliance through soft letters and examinations.

A second area are persons who have expatriated or surrendered their U.S. citizenship or residency. Cardone is also in charge of this campaign. The announcement notes that U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The IRS will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.[1]

The IRS intends to find taxpayers who used the OVDP, but have since fallen out of compliance. The agency will use its audit-based tools in order to bring them back into compliance. Since the IRS has the communication points for the taxpayers who participated in the OVDP, the IRS should not have difficulty communicating with them.

Since the taxpayers had to admit wrongdoing in order to participate in the OVDP and pledged to be compliant in the future, any audits done by the IRS would have potentially significant risks for taxpayers who are found to not be in compliance again. The IRS may conclude that the post-OVDP non-compliance arises from some sort of willful intent to evade taxes or report obligations.

Another risk is that, while the penalties of the prior OVDPs kept increasing, now taxpayers not in compliance no longer have potential to resort to the lower penalties of the OVDPs.

Another category targeted is High Income Non-filers. Cardone is also in charge of this project. The project description notes U.S. citizens and resident aliens are subject to tax on worldwide income. Taxpayers must file and pay worldwide tax on income, whether or not they receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return), or its foreign equivalents. Through an examination treatment stream, this campaign will focus on bringing those taxpayers who have not filed tax returns into compliance.[2]

The current issue of the IELR will have a more comprehensive discussion of this matter.

OECD and IBA Issue Report on Proper Roles of Lawyers and International Commercial Structures

June 26, 2019 by Bruce Zagaris Leave a Comment

On May 31, 2019, the International Bar Association and the Secretariat of the Organization for Economic Co-operation and Development published a Report of the Task Force on the Role of Lawyers and International Commercial Structures.

The Report observes that lawyers’ professional obligations and clients’ rights are regulated by domestic laws and regulations, and/or ethical and deontological codes. The Task Force states that there are certain key principles that should apply in this context in order to balance between the rights of, and duties to, the client on the one hand and a lawyer’s other professional or legal duties on the other. The Report sets forth seven principles without prejudice to the rule of law and related legal conventions, a lawyer’s duty of confidence and laws relating to privilege.

The Task Force recommends the Statement of Principles to national bar associations and law societies with a view to encouraging them to adopt the principles and engage with their governments to explain the role of the principles in ensuring the proper administration of justice and in upholding the rule of law. The sponsors also published an executive summary of the report

The Task Force advocates that, where the Principles are adopted and become part of domestic law and/or professional regulations, their disregard should result in the application of proportionate disciplinary measures, including, where appropriate, disbarment, recognized also in foreign jurisdictions.

Principle 1: Non-facilitation of illegal conduct – Although a lawyer may be unwittingly associated with illegal conduct, including financial crimes, a lawyer should not facilitate illegal conduct, and should undertake the necessary due diligence to avoid doing so inadvertently.

Principle 2: Misuse of the duty of confidence and privilege. Notwithstanding the lawyer’s duty of confidence to a client and the concept of legal professional privilege, a lawyer should not use the confidential nature of the lawyer-client relationship or the principles of legal professional privilege to shield wrongdoers. A lawyer should give due and proper consideration to refraining from acting for a client if the lawyer is aware of, or has reasonable grounds to believe, that the primary purpose of the retainer is to permit the client to be able to rely on the confidential nature of the lawyer-client relationship or privileged communication) so as to permit or encourage the client to engage in illegal conduct.

Principle 3: Client due diligence. A lawyer should undertake and document all reasonable and proportionate inquiries in order to identify and verify a client, as well as identify any ultimate beneficiary of the conduct or transaction, the origin of the funds for the transaction (consistent with applicable anti-money laundering or counterterrorism financing legislation), the substantive nature of the conduct or transaction (including expected revenue and taxation consequence of the transaction) and, subject to Principle 5, be satisfied that the conduct and/or transaction is legal in the lawyer’s jurisdictions.

Principle 4: Action where client conduct is may be or becomes illegal. When the conduct of a client is, may be, or becomes illegal, even if it was originally legal and the lawyer continues to be retained by the client, a lawyer should advise the client of the consequences of the conduct and recommend that the client pursues alternative solutions. If the client persists in the conduct, the lawyer should give due and proper consideration to ceasing to act, and terminate the retainer.

Principle 5: Multijurisdictional risk. Where a transaction involves conduct by a client, agents or representatives of a client in more than jurisdiction and the lawyer has reasonable grounds to believe that the conduct may be or may become illegal in a jurisdiction(s), a lawyer should verify that expert advice is or has been obtained by the client from a lawyer experienced in the conduct or transaction in that jurisdiction. If such advice has not been obtained and the client wants to proceed with the transaction, the lawyer should recommend that such advice be obtained (at the cost of the client). If the client declines to obtain such advice and persists in the conduct, then the lawyer should give due and proper consideration to ceasing to act and terminate the retainer.

Principle 6: Use of illegal obtained information. Lawyers should strongly discourage a client from paying private parties or public officials to obtain illegally obtained evince, which of itself may constitute a criminal offense in many jurisdictions. To facilitate this, legal frameworks should be consistent across jurisdictions as much as possible, since it is often through cross-border conduct that confidential or secret information in country A is accessed (without the consent of the owner of the information) and then disclosed to a person in country B. An independent court should, where necessary, resolve the question as to what use can be made of such information, based on the applicable domestic framework.

Principle 7: Disclosure of beneficial ownership. A lawyer should obtain and maintain up-to-date beneficial ownership information and take reasonable measures to verify its accuracy in relation to the lawyer’s clients. Domestic laws should provide for the disclosure of ultimate beneficial ownership of any corporation, trustor other legal entity formed within that country’s jurisdiction. Beneficial ownership information should be available to state regulators, investigators and enforcement agencies. Governments must address whether it needs to be publicly available.

Principle 8: Advertising by lawyers on international commercial structures. Any advertising by lawyers should be transparent, accurate, and truthful. Domestic regulation, bar associations, and law societies should ensure the lawyer advertising is accurate and truthful.

The Report does not seek to duplicate existing international or other national guides for the legal profession in terms how a lawyer should act or not act in certain circumstance. The Report does not seek to cover the many anti-money laundering and counterterrorism financing laws, obligations and disclosure duties that exist in many countries. Instead, it focuses on high-level issues of principle that should assist governments in policy formulation and in guiding lawyers as to how they should conduct themselves, consistent with a lawyer’s underlying domestic legal and ethical obligations.

The Report also sets form the minimum good practice required when a lawyer proposes to accept instructions in a cross-border commercial matter, especially, but not exclusively, from a new client or a client with whom the lawyer has not worked for at least 12 months.

The Report provides detailed guidance for the eight above-mentioned principles with citations to guide legal professionals.

Annex B contains existing guidance concerning the role of lawyers with regard to international commercial structures.

The July issue of the IELR will have a more comprehensive discussion of the Report.

U.S. Court Authorizes John Doe Summonses about Finnish Residents Using 3 U.S. Bank Payment Cards Linked to Non-Finnish Bank Accounts

May 1, 2019 by Bruce Zagaris Leave a Comment

On May 1, 2019, the U.S. Department of Justice announced that a U.S. Court in North Carolina authorized the Internal Revenue Service to serve John Doe summonses on Bank of America, Charles Schwab, and TD Bank in an order that was unsealed on April 30. The John Doe summonses seek information about persons residing in Finland that have Bank of America, Charles Schwab, or TD Bank payment cards linked to bank accounts located outside of Finland. The summonses are known as “John Doe” summonses because the IRS does not know the identity of the persons under investigation.

The U.S. petitioned the U.S. District Court for the Western District of North Carolina to authorize the summons at the request of the Finnish government under the tax treaty between Finland and the U.S. The treaty permits the two countries to cooperate in exchanging information that is required to carry out each country’s tax laws. The IRS summons requests the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the so that the Finnish tax authority can determine if those persons have complied with Finnish tax laws. Finland has told the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland.

The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts.

Finnish Foreign Payment Project

The request is part of a foreign payment project that Finnish Tax Administration (FTA) . The FTA uses information on the use of payment cards issued by foreign financial institutions to identify non-compliant Finnish taxpayers. Prior FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar way have resulted in high rates of tax non-compliance, as explained in the U.S. government’s memorandum in support of the petition. It indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.

Analysis

The court order in this case authorizing the enforcement action is part of ongoing international efforts by the U.S. and its treaty partners to stop persons from using foreign financial accounts to evade taxes. U.S. courts have previously approved John Doe summons allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summons to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations, such as those in the Netherlands and Norway.

The current matter also shows an increase in efforts by foreign tax authorities to bring request assistance from the IRS and directly bring enforcement actions in the U.S.

The current issue of the IELR will have additional discussion of the case.

EU Adds 9 Jurisdictions to Tax Haven Blacklist

March 13, 2019 by Bruce Zagaris 1 Comment

On March 12, 2019, the EU Finance Ministers updated the EU list of non-cooperative tax jurisdictions. The list now has 15 countries and is part of the EU’s fair taxation initiative.^[1]

The Commission explained that it assessed 92 countries based on three criteria: tax transparency, good governance and real economic activity, and the existence of a zero corporate tax rate. As a result of the assessment and pressure to avoid the blacklist, 60 countries acted and eliminated over 100 harmful regimes.

The Ministers blacklisted 15 countries. 5 have taken no commitments since the first blacklist adopted in 2017: American Samoa, Guam, Samoa, Trinidad and Tobago, and the U.S. Virgin Islands. 3 others were on the 2017 list, but were moved into the grey list following commitments they had taken. However. They have been blacklisted again for not following up: Barbados, the United Arab Emirates and the Marshall Islands.

7 additional countries were moved from the grey list to the blacklist for the same reason: Aruba, Belize, Bermuda, Fiji, Oman, Vanuatu, and Dominica. Another 34 countries will continue to undergo monitoring in 2019 (grey list), while 25 countries from the original screening process have been cleared.^[2]

The EU members have agreed on a set of countermeasures against listed countries. They can choose to apply them, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The Commission will continue to support EU members’ work to develop a more coordinated approach to sanctions for the EU list in 2019. Additionally, new provisions in EU law forbid EU funds from being channeled or transited through entities in countries on the tax blacklist.

The EU will send a letter to all jurisdictions on the EU list, explaining the decision and what they can do to be de-listed. The Commission and Member States (Code of Conduct Group) will continue to monitor the jurisdictions that have until the end of 2019/2020 to deliver, and assess whether any other countries should be included in the EU listing process. The Commission will continue the dialogue and engagement with the jurisdictions concerned, to provide technical support and clarifications whenever needed and to discuss any tax matters of mutual concern.^[3]

Some of the targeted countries sent letters or made press releases, protesting their listing.

Approximately one week ago pressure from the U.S., Saudi Arabia and Panama prompted EU governments last week to block another blacklist of countries that show deficiencies in countering money laundering and terrorism financing.^[4]

A criticism of the EU listing initiative is that is does not include the many EU countries with international financial services, such as Ireland, Luxembourg, the Netherlands, Cyprus, Austria, Hungary, and the U.K. A continuing criticism is that, notwithstanding the EU’s statements of open and vigorous engagement, the targeted countries complain about ever-shifting and obscure standards and insufficient communication over the standards and the expectations from the EU. A continuing complaint is about the overlapping standards of the EU and OECD.

The March issue of the IELR will have a more comprehensive article on the new listing, including the responses of the targeted countries. See also EU Q & As on the list

[1] European Commission, Fair Taxation: EU updates list of non-cooperative tax jurisdictions, IP/19/1606, March 12, 2019.

[2] Id.

[3] European Commission, Fair Taxation: EU updates list of non-cooperative tax jurisdictions, supra.

[4] Id.

French Court Issues Largest Fine Ever against UBS for Tax and Money Laundering Crimes

February 22, 2019 by Bruce Zagaris Leave a Comment

On February 20, 2019, a French trial court issued the largest judgment against a bank for tax-related and money laundering crimes. The court found UBS AG and UBS (France) SA guilty of illicit solicitation and laundering of the proceeds of tax fraud. It imposed a penalty of € 3.7 billion and € 15 million respectively and civil damages of € 800 million.

UBS issued a press release that it “strongly disagrees with the verdict. “ It argues that the conviction is not supported by any concrete evidence. Instead, UBS says it is based on “the unfounded allegations of former employees who were not even heard at the trial.” UBS says the decision is devoid of evidence that any French client was solicited on French territory by a UBS AG client advisor to open an account in Switzerland. UBS criticized the decision as effectively applying French law in Switzerland, thereby undermining the sovereignty of Swiss law and posing significant questions of territoriality.

During the trial Hervé d’Halluin testified about a practice of poaching of clients and pressure by UBS Swiss bankers to provide tips about potential clients.

It appeared that the court relied significantly on the creation by UBS of a parallel accounting system known as milk books. Milk books are the small notebooks Swiss cow farmers use as ledgers. They were used to account for and simultaneously disguise transfers of illicit money between France and Switzerland. UBS has said the milk books were to determine whether a French or a Swiss bank should receive the credit for landing a French client. UBS’s French bankers obtained annual bonuses linked to new business from abroad.

French judges ruled the milk books were evidence UBS was attempting to hide financial transfers from its official books and to assist French clients avoid paying taxes.[1]

UBS in its press release states the verdict is devoid of evidence and a credible methodology for the calculation of the fine and damages. UBS states the charges of laundering the proceeds of tax fraud do not stand up, since the predicate the decision lacked proof of an original tax fraud offense of French taxpayers. UBS says it respected and met its obligations under Swiss and French law as well as the European Tax Savings directive, which became effective in 2004.

UBS will appear the verdict and evaluate whether the written decision requires any further steps. French law provides that an appeal suspends the judgment of the trial court and results in a transfer of the case to the Court of Appeals, which then retries the case in its entirety.

Initially French financial prosecutors and UBS representatives discussed a plea bargain, but UBS rejected the out-of-court settlement, reportedly € 1.1 billion.

The case illustrates the growing criminal prosecutions of so-called enablers, including banks, lawyers, asset managers, and fiduciaries, for tax and money laundering crimes. Already 5 UBS employees received suspended prison sentences and fines from €50,000 to €300,000 in 2018 in the case.[2] The verdict occurs as France is competing with other countries, especially Ireland and Germany, to attract banks leaving London as a result of Brexit. Other tax authorities and prosecutors have targeted so-called enablers of tax crimes. In the context of the implementation and enforcement of the Common Reporting Standard, the OECD and EU have taken initiatives targeting enablers.

The March issue of the IELR will have a more comprehensive article on this story and its implications.

[1] Liz Alderman, French Court Fines UBS $4.2 Billion for Helping Clients to Evade Taxes, N.Y. Times, Feb. 21, 2019, at B4, col. 1.

[2] Id.

Oregon Senators introduce Bills to Counter Foreign Embassies and Consulates Helping Nationals Flee U.S. Justice

January 28, 2019 by Bruce Zagaris Leave a Comment

On January 25, 2019, Oregon’s Senators Jeff Merkley and Ron Wyden introduced two bills that would impose significant consequences on foreign consulates that help their citizens escape legal accountability within the U.S.

Merkley and Wyden’s legislation follows investigative reporting by the Oregonian that found Saudi consular officials within the U.S. helped Abdulrahmeen Sameer Noorah, a Saudi national, escape the U.S. soon before his trial. Noorah was charged with manslaughter, felony hit-and-run, and reckless driving after fatally striking an Oregon teen with his car. A Saudi consulate posted $100,000 bail for Noorah before he escaped, and the U.S. Marshalls Service suspects Saudi officials helped Noorah escape the country on a private flight.

In addition to the Noorah case, the Saudi government is alleged to have helped at least four other Saudi nationals charged with serious crimes evade accountability in Oregon. Reportedly, the Saudi government bailed out Ali Hussain Alhamoud, a Saudi national, from Lincoln County Jail in 2012 after he was indicted on multiple sex crime charges. Alhamoud subsequently fled successfully to Saudi Arabia, and his case remains open in the United States. The Saudi consulate in Los Angeles posted bond for Saudi nationals in two of the three other known cases where Saudi nationals fled prosecution.

The first bill being introduced today, the ESCAPE (Examining Saudi Consular Activities Promoting Extraction) of Saudi Nationals Act, would:

“Urge the President to declare any Saudi diplomat involved in the extraction of Noorah or Alhamoud as a persona non-grata, which would trigger their expulsion from the United States.

Urge the State Department not to accredit any Saudi diplomat at the Los Angeles Consulate until those two fugitives are returned to the United States.

Require the State Department, in coordination with the U.S. Attorney General, to deliver a report within 90 days investigating any involvement of the Saudi Consulate in Los Angeles in aiding the disappearance of Noorah and Alhamoud.

Amend the State Department Basic Authorities Act of 1956 to require the State Department to shut down any consulate or embassy in the United States that is found to have aided in the removal of one of its citizens in order to evade criminal accountability, provided Saudi diplomats found to have aided such a removal are not expelled from the United States.”

The second bill, the Preserving American Justice Act, would:

“Charge the Department of Justice with maintaining an annual report about foreign nationals who flee before facing justice in the United States. Currently, no agency formally tracks this information.

Require the Director of National Intelligence to maintain a list of countries that facilitate the escape of foreign nationals.

If Department of Justice determines that the Saudi government assisted any alleged criminal in escaping justice in the United States, the bill would prohibit the issuance of all visas and travel to the United States to the following groups of Saudi nationals: the Council of Ministers, their respective families, King Salman, all of his direct descendants and full-relatives.

Create a tax penalty for any countries that land on such a list, removing a tax exemption that foreign governments and sovereign wealth funds are able to access on certain types of investment income. This penalty could significantly impact the Saudi sovereign wealth fund, which is estimated at near $400 billion.”

The press release also refers to the need for accountability on the murder of former Washington Post journalist Jamal Khashoggi,

U.S. Indictment Charges Professionals and U.S. Taxpayer for Tax and Related Offenses Arising From Panama Papers

December 5, 2018 by Bruce Zagaris Leave a Comment

On December 4, 2018, U.S. law enforcement announced the unsealing an indictment in the U.S. District Court for the Southern District of New York, charging four individuals with wire fraud, tax fraud, money laundering, and other crimes for their alleged roles in a decades-long criminal scheme perpetrated by Mossack Fonseca & Co. (“Mossack Fonseca”), a Panamanian-based international law firm, and related entities.

The 11-count indictment charges Ramses Owens, 50, a Panamanian citizen; Dirk Brauer, 54, a German citizen; Richard Gaffey, a U.S. citizen, of Medfield, Massachusetts; and Harald Joachim Von Der Goltz, 81, a German citizen. Owens, Gaffey and Von Der Goltz are charged with one count of conspiracy to commit tax evasion, one count of wire fraud, and one count of money laundering conspiracy. Owens and Brauer are charged with one count of conspiracy to defraud the U.S. and one count of conspiracy to commit wire fraud. Gaffey and Von Der Goltz are also charged with four counts of willful failure to file an FBAR. In addition, Von Der Goltz is charged with two counts of making false statements.

On November 15, 2018, French authorities arrested Brauer, who worked as an investment manager for Mossfon Asset Management, S.A., an asset management company closely affiliated with Mossack Fonseca, in Paris, France. On December 3, 2018, British authorities arrested Von Der Goltz, a former U.S. resident and taxpayer in London, England. On December 4, U.S. authorities arrested Gaffey, a U.S.-based accountant in Boston, Massachusetts. Owens, a Panamanian attorney who worked for Mossack Fonseca, remains at large.

The indictment alleges that, from at least in or about 2000 through in or about 2017, Owens and Brauer conspired with others to help U.S. taxpayer clients of Mossack Fonseca hide assets and investments, and the income generated by those assets and investments, from the IRS through fraudulent, deceitful and dishonest means. Owens and Brauer allegedly worked to establish and manage opaque offshore trusts and undeclared bank accounts on behalf of U.S. taxpayers who were clients of Mossack Fonseca. Owens and Brauer allegedly marketed, created, and serviced sham foundations and shell companies formed under the laws of countries, such as Panama, Hong Kong, and the British Virgin Islands, to conceal from the IRS and others the ownership by U.S. taxpayers of accounts established at overseas banks, as well as the income generated in those accounts. Typically the sham foundations “owned” the shell companies that nominally held the undeclared assets on behalf of the U.S. taxpayer clients of Mossack Fonseca.

In exchange for additional fees, Owens and Brauer allegedly helped clients who had bought the sham foundations and related shell companies by preparing corporate meeting minutes, resolutions, mail forwarding, and signature services. Owens and Brauder are also alleged to have intentionally established the bank accounts in jurisdictions with strict bank secrecy laws, thereby impeding the ability of the U.S. to obtain bank records for the accounts. Additionally, Owens and Brauer allegedly instructed U.S. taxpayer clients of Mossack Fonseca about how to repatriate funds to the U.S. from their offshore bank accounts in a manner designed to keep the undeclared bank accounts concealed. Among other things, Owens and Brauer instructed clients to use debit cards and fictitious sales to repatriate their funds covertly.

Von Der Goltz was allegedly one of Mossack Fonseca’s U.S. taxpayer clients. Von Der Goltz was a U.S. resident and was subject to U.S. tax laws, requiring him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts. As a U.S. taxpayer, Von Der Goltz was required to file a Report of Foreign Bank and Financial Accounts (FBAR). Von Der Goltz allegedly evaded his tax reporting obligations by establishing a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS. These shell companies and bank accounts allegedly made investments worth tens of millions of dollars. Owens and Gaffey, a partner at a U.S.-based accounting firm, helped Van Der Goltz in this scheme. Van Der Goltz, Gaffey, and Owens allegedly falsely claimed that Von Der Goltz’s elderly mother was the sole beneficial owner of the shell companies and bank accounts at issue because, at all relevant times, she was a Guatemalan citizen and resident, and, unlike Von Der Goltz, was not a U.S. taxpayer.

The indictment alleges Gaffey, besides helping Von Der Goltz evade U.S. income taxes and reporting requirements, also worked closely with Owens to help another U.S. taxpayer client (Client-1) of Mossack Fonseca defraud the IRS. Client-1 allegedly maintained a series of offshore bank accounts, which Mossack Fonseca helped Client-1 conceal from the IRS for years. The indictment also alleges that, on the advice of Owens and Gaffey, Client-1 covertly repatriated approximately $3 million of Client-1’s offshore money to the U.S. by falsely stating on Client-1’s federal tax return that the money represented proceeds from the sale of a company. After Client-1 repatriated approximately $3 million in this way, approximately $1 million still remained in Client-1’s offshore account, the existence of which remained hidden from the IRS.

The indictment illustrates the trend by U.S. and law enforcement around the world to investigate and prosecute law firms, asset managers, accountants, and other enablers for their key roles in the global financial system. Assistant Attorney General Benczkowski said “the charges…demonstrate our commitment to prosecute professionals who facilitate financial crime across international borders and the tax cheats who utilize their services.” IRS-Criminal Investigations Chief Don Fort said the indictments send a message that “more investigations are on the way.”

With respect to prosecuting tax enablers, on July 2, 2018 the heads of tax crime and senior tax officials of the U.S., U.K., Canada, the Netherlands, and Australia announced an alliance on tax enforcement cooperation. At their first meeting they agreed to develop tactical plans and identify opportunities to pursue enablers of international tax crime. This new indictment shows a tangible result.

The indictment also is the latest of many indictments brought by tax authorities and prosecutors arising out of the publication on April 3, 2016 by the International Consortium of Investigative Journalists (ICIJ) of the Panama Papers investigation. As of December 1, 2016, governments in more than 70 countries have started over 150 investigations, inquiries, audits and probes into the affairs of thousands of people and corporations linked to Panama Papers.

U.S. Treasury Expands GTO to 12 Metropolitan Areas and Lowers Reporting Threshold to $300,000

November 20, 2018 by Bruce Zagaris Leave a Comment

On November 15, 2018, the U.S. Department of Treasury Financial Crimes Enforcement Network (FinCEN) announced the issuance of revised Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported.

Prior GTOs resulted in valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime,fraud, narcotics trafficking, and other violations. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

The latest GTOs cover certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu;Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

FinCEN also realized Frequently Asked Questions. The FAQs explain that one of the four criteria that triggers a Covered Transaction, is that “(s)uch purchase is made, at least in part,using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, a funds transfer, or virtual currency.” Accordingly, payment of at least part of the purchase price using one of these methods, such as virtual currency, a wire transfer, a cashier’s check (sometimes referred to as a “bank check,” “official check,” or “treasurer’s check”), a personal check, a business check, or a certified check, triggers a Covered Transaction, assuming the other criteria to trigger a GTO are met: “residential real property”; foreign beneficial owner,which means each individual who,directly or indirectly, owns 25% or more of the equity interests of the Purchaser; and a Covered Business’s “agents” refers to people or entities that are authorized by the Covered Business, usually through a contractual relationship, to act on its behalf to provide title insurance underwritten by the Covered Business (or its subsidiaries).

The U.K. already has initiated a New Beneficial Ownership Register for UK Properties owned by Overseas Companies and other Legal Entities that will go live in 2021. The British Columbia government has released regulations to create a new condo and strata assignment register, in part in response to the significant number of foreign purchases of residences, some of which appear to be connected to proceeds of crime. With the international developments and the continuing extension of the GTOs by FinCEN, pressure is building for the GTOs to become permanent.