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Defense Act Expands Scope of Foreign Bank Records U.S. Can Obtain

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    As a part of the National Defense Authorization Act (NDAA) for the 2021 fiscal year, the United States has increased scrutiny on foreign bank records. For non-operating companies and other financial institutions providing services in the United States, there are several important changes that should be noted. If you believe that the change to the U.S. anti-money laundering laws will affect you or your company, contact a California tax attorney and CPA as soon as possible. The Tax Law Offices of David W. Klasing is skilled in informing our clients of major tax law and tax-related changes that could potentially affect them. This article will serve to inform you on how the NDAA has expanded the scope of the U.S. when seeking foreign bank records.

    How the Defense Act Affects Foreign Bank Record Regulations

    The NDAA is a regulation that primarily deals with funding for U.S. national security. However, like many other pieces of legislation in Congress, the NDAA is also used to pass laws that are wholly unrelated to the purpose of the bill. The 2021 NDAA bill has two major anti-money laundering (AML) laws: The Corporate Transparency Act (CTA) and an increase in U.S. authority to investigate foreign financial institutions.

    While these are the largest changes to AML laws, the NDAA has also implemented a variety of other changes that could affect financial institutions. For instance, the regulators will now have to revamp their AML provisions, and a whistleblower program was started under the Bank Secrecy Act of 1970 (BSA).

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    Corporate Transparency Act Impact on Foreign Bank Records

    The purpose of the Corporate Transparency Act is to deal with shell corporations that decide to hide the identity of their ownership to increase the ease of committing financial crimes, human trafficking, and other serious offenses. The CTA will target limited liability companies, corporations, and other types of companies.

    To manage the commission of a crime that is performed using shell corporations, the CTA requires that the Financial Crime Enforcement Network (FinCEN) create a non-public registry containing the names of the “beneficial owners” of a “reporting company.” Under the terms of the CTA, a beneficial owner of a company is a person who possesses, owns, or controls a minimum of 25% of the company’s ownership interests. The beneficial owner may also be a person that has “substantial control over the business.” However, as substantial control is not currently defined, it may be extremely broad or may get a more descriptive definition in time.

    The CTA identifies reporting companies broadly as those that are created under the laws of the United States or companies established in a foreign country that is registered to do business within the United States. As this description likely covers many companies that operate in the U.S., there are some exceptions that will be made depending on the activities of a company. For example, a company could be exempt from the CTA if the following is true:

    • The company employs over 20 full-time workers operating in the U.S.
    • The company has documented over $5 million in sales or gross receipts on their federal income taxes
    • Possess an office within the U.S. that provides an operating presence

    Note that the CTA regulations will be required to take effect by January 2022. The U.S. Department of Treasury will oversee how the act is implemented. Therefore, you want a California tax attorney and CPA to break down any parts of the bill that may impact your business in the future.

    Subpoenas of Foreign Bank Records Under Defense Act

    Under the NDAA, the U.S. government is now granted the authority to issue subpoenas for foreign bank accounts if the entity has a U.S. correspondent account and may be engaged in money laundering or other criminal activities. Prior to this change, the Attorney General or Secretary of the Treasury could request records related to a correspondent account regarding funds deposited to the account, even if those records were held and maintained overseas. However, the NDAA has now granted these parties the power to subpoena any foreign bank records if they pertain to any of the following matters:

    • The bank records would aid in the investigation of a criminal offense in the U.S.
    • Investigations of financial account reporting violations under the BSA
    • Civil forfeiture cases
    • Investigations that combat money laundering schemes

    It is also important to note that there are several penalties that could be imposed to enforce the CTA and subpoenas of foreign bank records. For example, if a foreign bank chooses to ignore an NDAA subpoena of bank records, they may incur a civil penalty of $50,000 per day. Additionally, if the foreign bank warns the account holder, they could be subject to fines of double the amount of money in the foreign account or $250,000.

    As you can see, the U.S. has shown great interest in regulating foreign companies and banks operating within the country.

    If the changes to the NDAA will create criminal tax and information reporting exposure for you, call our dually licensed International Tax Attorneys and CPAs to make a domestic or offshore voluntary disclosure and avoid criminal tax and foreign information reporting prosecution. At the Tax Law Offices of David W. Klasing, we possess extensive knowledge and experience in problematic and technical areas of domestic and international tax and information reporting requirements. Call (800) 681-1295 today or schedule a reduced rate initial consultation online.

    Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

    It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

    Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

    As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

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