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FATCA conviction shows long arm of U.S. offshore crackdown

The Foreign Account Tax Compliance Act (FATCA) came with a stick as well as carrots. The federal law requires foreign financial institutions to share U.S. taxpayer information for holdings whether through direct ownership or another foreign entity. The aim was to make it harder to hide assets offshore to avoid federal tax.

A former Hungarian banker was the first to plead guilty to failing to comply with the FATCA Information requirement, in effect conspiring to defraud the United States. After extradition in July and a September plea, he faces a maximum of up to five years in prison.

An undercover investigation stretching from Europe to the Caribbean

Over the summer of 2017, an undercover agent claiming to be a U.S. citizen asked about opening multiple corporate offshore accounts at Loyal Bank, Ltd which had offices in Budapest and St. Vincent and the Grenadines. The agent explained he did not want to appear on any opening documents. The banker responded that he could open such accounts and link debit cards for access to funds.

During a subsequent meeting, the undercover agent described a stock manipulation scheme and his desire to stay under the FATCA radar. The banker said the bank wouldn’t need to submit the FATCA declaration if paperwork contained no “obvious” U.S. involvement.

Later that summer, the bank opened multiple accounts. It never requested or collected FATCA Information.

This guilty plea agreement illustrates international reach of United States law enforcement. The IRS-Criminal Investigations unit played a role and continues its crackdown on unreported offshore accounts.

This is also a good reminder for U.S. taxpayers who have investments abroad. If you have any interest in a foreign bank account with a balance of more than $10,000 at any point during 2018, you need to disclose it on a FBAR (FinCEN Form 114). This is separate form from your tax return and filed with the Treasury. Failing to file a FBAR is a crime and when found willful can carry criminal penalties.

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