Tax Fraud is Going Virtual
March 27, 2014
Swiss Banker Fails to Report Foreign Accounts
March 27, 2014

A Global Approach to Foreign Account Tax Issues

The former owners of a Wyoming gas station and convenience store have been indicted by a federal grand jury for tax evasion involving a Caribbean islands bank account.

The indictment accused Robert and Judy Sathre of conspiring to defraud the IRS and of tax evasion in 1995 and 1996. In those years, Robert Sathre allegedly received payments of more than $3 million for an unspecified business in Minnesota he had sold. But his 1995 tax return reported less than $65,000 in total income.

The indictment indicates the man then purchased land in Wyoming to set up the gas station. Allegedly, the Sathres concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts. In a ten-month period spanning 2005-2006, Robert Sathre sent over $500,000 to the account in Nevis to keep the funds out of the IRS’s reach. When Sathre sold the gas station in 2007, he had over $1.25 million from the sale proceeds wired to the trust account of an unspecified Wyoming law firm. The indictment states the Sathres later directed the law firm to wire $900,000 from the trust account to their account at the Bank of Nevis, providing a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer. Robert Sathre had a debit card linked to the foreign account to access the tax-free funds locally.

A trial date has not been scheduled, but the conspiracy and tax evasion charges each carry a maximum potential penalty of five years in prison and a fine of $250,000. The false return charge carries a maximum potential penalty of three years in prison and a $250,000 fine.

THE GREAT EIGHT STOPPING TAX FRAUD

G-8 leaders agreed to work for a new global standard to stamp out bank secrecy and pledged to deter multinational companies’ tax-avoidance strategies.

On the second day of talks in Enniskillen, Northern Ireland, G-8 nations adopted a common approach to standards for cross-border disclosure and tax-data sharing among authorities, saying they “commit to establish the automatic exchange of information between tax authorities” to shine a light on how companies and individuals are meeting tax requirements.

G-8 countries agreed to publish national action plans to make information on who really owns and profits from companies and trusts available to tax collection and law enforcement agencies. One way of doing this is through central registries of company beneficial ownership.

Efforts to close down avenues for multinationals to channel profits through the lowest-tax locations and to crack down on tax evasion reflect a push to secure revenue amid financial turmoil and sluggish growth.

TAX EVADERS: G-8 CRACKING DOWN

The U.S. has strived to bring about greater transparency within and beyond its borders by imposing harsh penalties and criminal sanctions against tax evaders, both corporate and individual. U.K. Prime Minister David Cameron, who is hosting the G-8 meeting, has prodded companies to review what he called “aggressive tax-avoidance strategies.”

European nations are moving toward a common standard on tax-data reporting in response to new requirements for doing business with the U.S.

The Organization for Economic Cooperation and Development urged leaders to cooperate in a report on tax avoidance prepared for the summit. The report finds a clear legal basis for comprehensive automatic exchange with strict safeguards protecting confidentiality. The report noted that offshore tax evasion is a global issue requiring global solutions that will resolve the issue, rather than simply relocate it.

The U.K. has rolled out its own anti-tax evasion measures. Britain’s network of overseas territories and dependencies on June 15 agreed to Cameron’s request that they sign up to extended transparency rules aimed at preventing tax evasion

The islands around Britain known as the Crown Dependencies — Jersey, Guernsey and the Isle of Man — joined the British Virgin Islands, Bermuda, Cayman Islands, Gibraltar, Anguilla, Montserrat and the Turks and Caicos Islands in agreeing to support an automatic tax information exchange begun by the U.K., Germany, France, Italy and Spain.

RUSSIA YIELDS TO U.S. FATCA REQUIREMENTS

Russia has finally yielded to American pressure to adopt the Foreign Account Tax Compliance Act (FATCA). Arguments advanced by Russian economists may have prevailed over the penchant of some Russian politicians to see any and all U.S. initiatives as a threat to Russia’s sovereignty.

In 2012 Britain, France, Germany, Italy and Spain all agreed to join FATCA, which requires the parties to provide the IRS with data on the accounts that American citizens hold with their banks, as a measure directed against tax evasion. Failing compliance, the United States has threatened to withhold 30 percent of the cost of banking operations processed on U.S. soil.

Moscow originally took a guarded view of signing up with FATCA. Talks between a Russian delegation and U.S. officials in late May drew a blank. Russian Finance Minister Anton Siluanov communicated that Russia was ready to provide U.S. tax authorities with information through government structures, but only under a separate agreement.

In April, however, Russia — along with the other G20 members — signed a statement on the automatic exchange of information between countries. However, negotiations had been going slowly, and media sources previously reported that politics could possibly interfere with the financial links between Russia and the United States: The recent cooling in relations between the two countries has led Moscow to see U.S. initiatives as an attempt to impose its laws.

Russia’s leading bank, Sberbank, however, is not interested in seeing further negotiations drag on. Its vice chairperson, Bella Zlatkis, believes that, in the absence of an international agreement, Russian banks would have to sign individual agreements with the IRS, which runs counter to Russian laws.

One more reason to speed negotiations up is that accreditation of banks with the IRS will begin in July. Financial institutions that fail to receive accreditation will have to pay a 30 percent tax — a big chunk of their dollar transactions via the United States — starting January 1, 2014. Zlatkis asked the Russian Central Bank to step in and explain the financial arguments to political leaders.

The number of Americans who hide their money from the tax authorities in Russia is very small, because Russian banks are less attractive for them than, for example, the famously reliable Swiss banks. Thus, Russian banks would risk sustaining heavy losses due to an argument over data concerning a fairly small number of clients.

Russia could still try to haggle the U.S. down. In 2012, Britain, France, Germany, Italy and Spain joined FATCA under pressure from the United States. But they also agreed on the mutual exchange of data, which means that the United States will have to share information with European tax authorities, which could eventually help create a global information sharing system.

OFFSHORE ACCOUNTS BEGIN TO LOSE THEIR LUSTER

If you hold assets outside the U.S., you may be subject to the information exchange described above. Rather than wait for the IRS to catch on, many are turning to the Offshore Voluntary Disclosure Program (OVDP). If you are concerned about your offshore accounts, you should consult a tax attorney well versed in the laws relating to foreign account reporting and disclosure. The attorneys at the Tax Law Office of David W. Klasing explore the nuances of these laws on a daily basis and have helped numerous taxpayers avoid or reduce penalties for failing to report foreign accounts.