Global Tax Enforcement

Global Tax Enforcement

Commentary on Tax Enforcement, News and Developments

FinCEN Imposes Significant Fines In a Warning to Adhere to Due Diligence Requirements

Posted in FinCEN

In its recent decision to impose $20 million in sanctions upon Oppenheimer and Co. for the company’s failure to maintain internal controls to promote enforcement of the Bank Secrecy Act (BSA), FinCEN revealed the emphasis it places on financial institutions that may be inadvertently permitting unlawful transactions by independent bad actors. Although the financial institution may have no intention to assist in the evasion of any legal requirements imposed on its account holders, it is held accountable, to an extent that may even be considered punitive, to its inability to detect violations of legal requirements. These sanctions reaffirm the significance of the responsibility placed on financial services companies to conduct proper due diligence of their account holders, continuously monitor accounts for any potential suspicious activities and ensure full compliance with applicable anti-money-laundering laws. Approximately 10 years ago, Oppenheimer was fined $2.8 million by FinCEN for violations of the BSA. FinCEN’s decision to impose almost 10 times that for similar violations reflects not only its lack of tolerance for holes in due diligence procedures and internal controls of financial services entities, but the severe approach it intends to take for those companies that fail to correct such inadequacies. Oppenheimer’s failures resulting in FinCEN’s sanctions extended beyond actual failures by employees to conduct due diligence and monitor suspicious activities to the lack of measures in place to allow sharing of such information between departments. Thus, FinCEN’s approach to reviewing such policies and procedures is not only severe, but extremely broad.

FinCEN’s sanctions on Oppenheimer should place financial services companies on notice to ensure their procedures, internal controls, due diligence requirements, and availability of all of this information among all departments are sufficient to catch any potential unlawful activities by its account holders.

Former Wegelin Banker Reportedly Arrested on U.S. Warrant in Germany

Posted in Tax Evasion

Multiple outlets are reporting that on February 2, 2015, three years after his indictment in the Southern District of New York, Swiss banker Roger Keller was arrested at the Frankfurt airport. On January 3, 2012, the U.S. Attorney for the Southern District of New York indicted Wegelin Bank, Keller, Urs Frei, and Michael Berlinka, for assisting customers in evading taxes. In 2013, Wegelin pleaded guilty and agreed to cease operations. Keller awaits extradition to the U.S. to face trial, while Frei and Berlinka remain fugitives.

Bank Leumi Enters Into DPA with U.S. Department of Justice

Posted in Offshore, Tax Controversy

On December 22, 2014, the Department of Justice announced its agreement with Bank Leumi:

 Bank Leumi Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts

 A major Israeli international bank admitted that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the Internal Revenue Service (IRS) by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world.  A deferred prosecution agreement between the Bank Leumi Group and the Department of Justice was filed today in the Central District of California that defers prosecution on a criminal information charging the bank with conspiracy to aid and assist in the preparation and presentation of false tax returns and other documents to the Internal Revenue Service.  This unprecedented agreement marks the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10 year period and included an array of services and products designed to keep U.S. taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States. Read the full press release from the Department of Justice >>

Singapore Signs FATCA IGA

Posted in FATCA

On December 9, 2014, Singapore’s Inland Revenue Authority announced that Singapore and the United States had on that day entered into a Model 1 FATCA IGA.  This means that Singaporean financial institutions will report information on certain U.S. accounts to the Inland Revenue Authority, which will then send the information to the IRS. The text of the IGA makes no reference to the U.S. having any reciprocal obligations regarding Singaporean accounts at U.S. financial institutions, but the Inland Revenue Authority’s press release alludes to future reciprocity: “Singapore and the US have been discussing a reciprocal FATCA arrangement, under which the U.S. would extend similar cooperation to Singapore.”

Treasury Announces Relief for Countries with In-Substance FATCA IGAs

Posted in FATCA

On December 1, 2014, the U.S. Treasury Department announced that countries that have reached FATCA inter-governmental agreements (IGAs) in substance but have not signed the agreements by the December 31 deadline will, under some conditions, still be treated as having intergovernmental agreements in effect. Treasury said that to be treated this way, the jurisdictions must demonstrate “firm resolve” to sign the IGAs as soon as possible.  After December 31, Treasury will review the list of countries with in-substance agreements monthly to determine whether it will continue to treat those countries as having IGAs in effect. The determination will be based on a country’s responsiveness to communications from the U.S. regarding the IGA, and whether the country has raised concerns regarding its ability to sign or bring into force the text that was agreed to in substance.

Hong Kong Signs FATCA IGA

Posted in FATCA

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.

FinCEN Strikes at Virtual Currency Anonymity, Rules that Virtual Currency Converter is a Money Services Business Under Bank Secrecy Act

Posted in FinCEN

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.

FinCEN held:

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)).