First FATCA Fraud Goes Before US Courts


US federal prosecutors have laid what is believed to be the first Foreign Account Tax Compliance Act (FATCA) enforcement case before the courts.

Prosecutors in New York claim alleged offenders in the city, Belize and Panama conspired to submit false FATCA documents, fraudulently manipulate shares prices and launder the proceeds.

The $500 million fraud involved trying to cover up a US taxpayer’s role in the conspiracy by submitting forged paperwork to the Internal Revenue Service (IRS).

Lawyers say this is the first time a FATCA violation has led to charges before a court and shows the willingness of the US tax authorities to impose strict compliance with the new rules.

Although FATCA came to the US state book in 2010, years of bickering and technical problems led to a delay in implementation until July 2014.

Shell companies

Under FATCA, foreign financial institutions with bank accounts or investments controlled by US taxpayers must report the balance of account to the IRS each year.

Panama is considered a FATCA compliant financial jurisdiction by the US government with an agreement to swap tax information between the two countries.

Belize has no inter-government agreement with the US although 228 financial institutions there are listed on the FATCA database. Each reports financial information about US customers directly to the IRS.

In the case before the New York courts, prosecutors claim the US defendant, a corporate services company called Bandfield, set up 5,000 shell companies to avoid FATCA reporting on investments and other offshore assets held by 100 US taxpayers.

The authorities were tipped off about the scheme and sent in an undercover officer to learn more.

Undercover investigation

The undercover officer found brokers based in Panama and Belize who were willing to set up a fraudulent network of companies to hide client wealth from FATCA.

The defendants are accused of laundering $500 million through dozens of bank accounts held for clients in the complicated network of shell companies.

Several arrests were made in Miami and New York, while the US Justice Department has started extradition proceedings in Panama and Belize to bring other offenders to book.

Criminal action to seize the fraudster’s cash is also underway.

The prosecutors have taped conversations with the offenders who openly boasted that they had set up a fraudulent network to avoid FATCA.

IRS-Criminal Investigation Acting Special Agent-in-Charge Shantelle Kitchen said: “This inquiry shows offshore tax evasion and money laundering are top priorities for us. FATCA is an example of how it is becoming more and more risky for US taxpayers to hide their money offshore.”

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