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The Senate is Watching Out for Offshore Banking and Reporting Evasion

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    The U.S. Senate has its eyes on foreign banking and “shell banking” being used to dodge FATCA reporting. Reporting under FATCA is required for any foreign investments or business holdings, but many investors & businessmen have set up investment & business vehicles and shell companies to evade offshore taxable income and avoid information reporting requirements.

    However, with the Senate having produced a report on this, it is likely that additional IRS resources will go toward shutting down these loopholes and potentially prosecuting investors & businessmen for these issues. If you are potentially facing legal issues dealing with shell banking, you should get legal counsel immediately.

    The Dual Licensed International Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing can help with any charges and legal issues you face because of your foreign investment and business holdings. Call us today to get started at (800) 681-1295 or click here to schedule a reduced rate initial consultation.

    How “Shell Banking” Evades FATCA Reporting Requirements

    FATCA (the Foreign Account Tax Compliance Act) is intended to combat tax evasion by requiring account holders to report their offshore assets. Form 8938 needs to be filed for any offshore accounts with an aggregate value of $50,000 or more. However, a somewhat popular “shell banking” technique has been used to hide these assets and avoid reporting requirements.

    Since FATCA only requires reporting when U.S. persons hold these offshore accounts, many investors instead use a shell company to hold these accounts. When these companies are registered as foreign financial institutions, they can essentially work as intermediaries that are not U.S. persons. This means that offshore account havens like Switzerland, Bermuda, and the British Virgin Islands potentially no longer need to report transactions or investigate whether the money came from a U.S. person.

    Senate Report on Shell Banking FATCA Evasion

    This technique was outlined in a recent Senate report that has been reported on by multiple sources. In that report, the U.S. Senate noted that it knows about this system, it sees the loopholes people are using, and it wants the IRS to use some of its new funding to work to close them.

    As part of the Inflation Reduction Act, $80 billion in funding went to the IRS for increased Tax Code enforcement. We have written about this funding and the potential increases in audits and criminal tax prosecutions that might arise for many investors and businessmen. This is another specific area where those audits and criminal tax prosecutions could be on the rise.

    At the Tax Law Office of David W. Klasing, our International CPAs and Tax Attorneys can help fight back against the IRS and any new audits or criminal tax exposure you might be facing because of complications with FATCA compliance. If you are currently using a scheme like this to avoid FATCA reporting, our attorneys and CPAs can also help you get back into compliance to avoid potential legal issues including the potential for an audit, criminal tax investigations, prosecution begins.

    The report also noted that the U.S. tax system works on voluntary compliance and that further IRS resources should be put toward these issues, specifically regarding monitoring and identifying issues as well as coordinating with international institutions to uncover noncompliance – more on that below.

    Brockman Case Example

    One case that has been written about dealing with this scheme is the Brockman case. In this case, a whistleblower reported that a shell banking scheme like this was allegedly used to avoid reporting on more than $200 million in taxable income that was moved and held offshore. In this case, Defendants Robert Brockman and Robert Smith were prosecuted, with Brockman ultimately being accused of failing to report $2.7 billion in income and taking intentional steps to hide that income.

    The Senate included a discussion of this case in its report as an example of how this shell banking scheme has been used for tax evasion. It also discussed some of the organizational breakdowns that allowed this and other cases like this to go undetected. This further emphasizes the potential that the IRS will soon initiate a crackdown on this kind of shell banking and reporting evasion.

    The Senate report named this case the “largest tax evasion case brought against an individual in U.S. history.” It ultimately contained 39 counts of criminal tax offenses for evading taxes, failing to file required foreign information reporting, money laundering, and more.

    Foreign Bank Reporting Requirements

    Another route that the Senate report suggested should have been pursued is that the Swiss bank involved in this case potentially should have reported the funds anyway under FACTA. Under the rules for foreign banks that partner to enforce FATCA, they only have to report transactions when they have “reason to know” that the money has a source in the U.S. The Senate argues that even though the money was transferred through a shell company acting as a financial institution, the Swiss bank might have still had “reason to know” that the money had a U.S. source.

    If these banks begin more rigorous investigation and enforcement to protect themselves, the IRS might not even need as much effort to step up its own enforcement, and these schemes could be discovered through the FACTA reporting systems already in place.

    Essentially, the Senate would like to have the burden of investigation shifted to these offshore institutions that can more easily spot the transactions that come through their doors. If this were to happen, more instances of offshore tax evasion and non-reporting of required offshore information returns could potentially be more easily discovered.

    This risk also adds increased urgency for anyone facing potential offshore IRS criminal tax investigation, auditing of foreign financial accounts, or criminal tax prosecution for shell banking schemes. Contact our Dual Licensed International Tax Attorneys and CPAs today.

    Call Our International Tax Lawyers and CPAs Today

    If you are concerned about your own FATCA compliance and offshore holdings, contact our Dual Licensed International Tax Attorneys and CPAs today. To learn more about our services, call the Tax Law Offices of David W. Klasing today at (800) 681-1295 or click here to schedule a reduced rate initial consultation.


    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 disclosure before 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, Kovel CPAs 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!

    If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

    See our 2011 OVDI Q and A Library

    See our FBAR Compliance and Disclosure Q and A Library 

    See our Foreign Audit Q and A Library

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