US federal authorities are celebrating the first successful prosecution under the Foreign Account Tax Compliance Act (FATCA).
Adrian Baron, former chief executive and chief business officer of Loyal Bank pleaded guilty to failing to comply with FATCA.
He was extradited from Hungary to the US in 2018 on charges of failing to report the assets of US customers of Loyal Bank to the US Internal Revenue Service (IRS) in line with FATCA requirements.
Court papers disclose that Baron was caught in a sting operation when a federal agent claiming involvement in illegal share trading met him and requested he open accounts for the money he was making at Loyal Bank.
The agent explained he wanted to evade FATCA and Baron agreed to help by opening the accounts and providing debit cards.
Shockwaves after guilty plea
Baron told the agent that Loyal Bank would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” US involvement.
At no time did Baron or Loyal Bank request or collect FATCA Information from the federal agent even though he opened the bank accounts and gave the agent the debit cards as promised.
Baron awaits sentencing.
The case will send shockwaves through the offshore banking industry for executives suspected of avoiding their FATCA obligations and shows the reach of the US authorities overseas.
FATCA was devised by former US President Barack Obama as a tool for catching US taxpayers hiding their cash offshore without declaring any profits or gains to the IRS.
FATCA power revealed
FATCA demands foreign financial institutions must make an annual report to the IRS that disclose the details of any accounts controlled by US taxpayers. The IRS cross-checks the information against tax filings to ensure the correct amount of tax is paid on offshore holdings.
FATCA reportedly has allowed the IRS to recover more than $10 billion in ‘lost’ tax since data swapping started in 2015.
Baron’s case papers also reveal that offshore regulators, like the British Financial Conduct Authority, colluded with the US Department of Justice to snare the banker and bring him to justice.
Nearly 320,000 foreign financial organisations in 200 countries are giving the IRS financial information about their US customers under FATCA, according to the IRS.