On November 13, 2014, Hong Kong announced that it had signed a Model 2 FATCA IGA. Under the agreement Hong Kong financial institutions will enter into separate FFI agreements with the IRS and will report information on U.S. account holders directly to the IRS. Hong Kong indicated its intention to sign a Model 2 IGA when it agreed “in substance” to a Model 2 IGA on May 9, 2014.
On October 27, 2014, FinCEN ruled in response to a Request for Administrative Ruling that a company that converts traditional currencies into Bitcoin to facilitate payments must comply with regulations that govern Money Services Businesses under the Bank Secrecy Act. The company at issue operates by receiving payment from a buyer or debtor in “currency of legal tender” and transfers the equivalent in Bitcoin to the seller or creditor, minus a transaction fee.
The significance of FinCEN’s ruling for such a company is that the company must engage in record keeping and reporting that would pierce a customer’s anonymity.
As a money transmitter, the Company will be required to (a) register with FinCEN, (b) conduct a comprehensive risk assessment of its exposure to money laundering, (c) implement an Anti-Money Laundering Program based on such risk assessment, and (d) comply with the recordkeeping, reporting and transaction monitoring obligations set down in Parts 1010 and 1022 of 31 CFR Chapter X. Examples of such requirements include the filing of Currency Transaction Reports (31 CFR § 1022.310) and Suspicious Activity Reports (31 CFR § 1022.320), whenever applicable, general recordkeeping maintenance (31 CFR § 1010.410), and recordkeeping related to the sale of negotiable instruments (31 CFR § 1010.415). Furthermore, to the extent that any of the Company’s transactions constitute a “transmittal of funds” (31 CFR § 1010.100(ddd)) under FinCEN’s regulations, then the Company must also comply with the “Funds Transfer Rule” (31 CFR § 1010.410(e)) and the “Funds Travel Rule” (31 CFR § 1010.410(f)).
On October 20, 2014, Menashe Cohen pleaded guilty in New Hampshire federal court to one count of filing a false income tax return for failing to report the existence of his Swiss and Israeli bank accounts on his 2009 tax return. He did, however, report the existence of his Jersey account. The Swiss account had a high balance of $1.3 million. Cohen faces a maximum sentence of three years in prison. His sentencing is scheduled for January 26, 2015.
On October 8, 2014, Swiss officials announced that they intend to negotiate a reciprocal Model 1 FATCA IGA to replace the Model 2 IGA that they signed in 2013. The motivation for the change is unknown, but the automatic exchange of information under Model 1 is more in line with emerging international norms.
On October 3, 2014, according to a U.S. Attorney’s Office press release and court records, Howard Bloomberg, a forensic accountant and certified fraud examiner, pleaded guilty to one count of failure to file an FBAR reporting his interest in a bank account at UBS in Switzerland. The account, which Bloomberg opened in 1997, held as much as $930,000 in 2001. In April 2008, Bloomberg requested that UBS close his account and wire approximately $540,000 to an American account. His sentencing will take place in federal district court in Atlanta on December 19, 2014.
Reuters is reporting that Bank Julius Baer is cooperating with French authorities in their criminal investigation into an alleged value-added-tax (“VAT”) fraud in the EU Emissions Trading System. In July, Bank Julius Baer announced that it was involved in a tax fraud investigation involving a former client and that it was suspected of exercising a “lack of due diligence in financial transactions.” The article cites sources as saying that the bank received the proceeds of the VAT fraud, which involved moving goods across national borders without paying VAT and re-selling the goods for amounts that included the VAT that was evaded.
On September 23, 2014, Brazil signed a FATCA IGA. The agreement is a Model 1 agreement, meaning that Brazilian financial institutions will report information about U.S. customers’ accounts to the Secretariat of the Federal Revenue of Brazil, which will then send that information to the IRS. The agreement is reciprocal, meaning that the IRS will report information about Brazilian customers’ accounts at U.S. financial institutions to the Brazilian tax authority. This reciprocity is made possible by new regulations requiring U.S. banks to collect more information about their account holders, which this blog covered here.
On August 19, 2014, Bernard Kramer pleaded guilty in the Southern District of New York to conspiracy to defraud the United States and filing a false income tax return relating to his concealment of “at least $1.1 million” in bank accounts in Switzerland and Israel. The criminal information did not identify the banks. For 23 years, Kramer had an undeclared account at a Swiss private bank and repatriated some of the money to the United States in the form of checks drawn for just under $10,000 each. In 2010, after the U.S. government’s investigation of UBS was well known, Kramer moved his money out of the Swiss private bank and into a bank in Israel.
“The alleged acts here likely drew the government’s ire for three reasons,” said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense team. “The defendant allegedly concealed a Swiss bank account, became a so-called ‘leaver’ when he moved his money out of Switzerland, and attempted to structure his financial transactions by keeping them under $10,000 to avoid the bank issuing Currency Transaction Reports (CTR’s) to the U.S. Treasury.” “The odd thing about the allegedly structured transactions is that they accomplished nothing,” added Jay Nanavati, a member of the firm’s Criminal Tax Defense team and a former prosecutor at the Department of Justice Tax Division. “Banks only issue CTR’s for transactions that involve actual currency, and checks are not currency.”
Kramer agreed to cooperate with the government and to pay a civil penalty of $588,042. He faces a maximum of eight years in prison when he is sentenced on February 6, 2015.
On July 30, 2014, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) proposed rules requiring U.S. financial institutions to collect “Customer Due Diligence” information, including identifying the true beneficial owners of accounts. The Treasury’s announcement can be located here. One of the primary uses of the information will be to comply with the U.S. government’s obligations to partner countries under reciprocal Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement (IGA’s). Currently, U.S. financial institutions do not collect as much information about their customers as FATCA requires foreign financial institutions to collect and report to the U.S. government on U.S. customers.
“These proposed rules are aimed at foreigners who have not properly reported their U.S. financial accounts to their home governments,” said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense group. Jay Nanavati, a member of the firm’s Criminal Tax Defense group and a former prosecutor at the Department of Justice Tax Division added, “Customers at U.S. financial institutions who are taxpayers in IGA partner countries that have not yet signed an IGA, for example India and China, will want to pay close attention to whether their governments enter into reciprocal IGA’s.”
For more information on IRS criminal tax investigations and issues relating to criminal tax defense, please contact Jim Mastracchio at (202) 861-1650 (email@example.com) or Jay Nanavati, (202) 861-1747 (firstname.lastname@example.org).
On June 26, 2014, China and the United States agreed on a Model 1 FATCA IGA. The Treasury did not say whether the agreement would be reciprocal. The IGA comes just in time for the July 1 start of 30 percent withholding on FDAP payments to non-participating FFI’s.