Tax News
FATCA, Sure! But Cheaters will be Cheaters
September 11, 2014
I have expressed my views about FATCA before. My belief is that while it is a well-intentioned law standing on a higher moral ground, its added complexity and international fallout overshadow its utility. In other words, I personally think that its benefits outweigh the burdens. There was a very thoughtful letter not long ago by Mr. A. Pelling addressed to the Treasury and published by TNT, asking Treasury to quantify the cost of implementing FATCA and its burden versus the expected benefit in revenues from its implementation.  I’d be curious if Treasury responds. As it may be, the point that wanted to make is that regardless of FATCA’s tantalizing breath and complexity, in its essence, is a paradox. It is designed to catch and deter cheaters but yet it relies to large extent on the honesty of those completing various forms such as Form W-8BEN-E.  Coincidently, there was a very recent indictment here in the U.S. that alleges that the perpetrators designed an elaborate scheme to defraud the Government by avoiding, among other laws, FATCA.  This is probably the first indictment of its sort, but I would venture to say, it would not be the last.

So here is what the indictment alleges.  During a meeting with an undercover agent, the alleged perpetrators touted, inter alia, a shell corporation’s success in establishing fraudulent corporate structures, including six IBCs and two LLCs for the undercover agent in order to conceal the undercover agent’s true beneficial ownership of various brokerage accounts. Bandfield, one of the alleged perpetrators explained that this "slick" structure was specifically designed to counter U.S. President Barack Obama’s new laws, a reference to FATCA. The alleged perpetrators advised the undercover agent that designated nominees, who included a security guard and courier, would sign any stock purchase agreements on behalf of the shell entities at the undercover agent’s direction. As payment for their service, the undercover agent paid $9,600 in cash and was informed that a shell corporation would refund an earlier $3,300 paid via PayPal to erase the paper trail. In this scheme, allegedly, the defendants laundered approximately $500 million for the corrupt clients—who included more than 100 U.S. citizens and residents.

Notice that one of the alleged perpetrators was a U.S. citizen residing in Belize. The others were citizens of Canada and Balize, again residing in Belize.  All of them were indicted in New York. It happens that Belize has a criminal extradition treaty with the United States. So, these individuals, if proven guilty will potentially see the U.S. penitentiary. How would have things turned out if the individuals resided in a country without an extradition treaty and with which the U.S. has a tenuous relationship, such as Russia for example, I cannot tell you.

In any event, you can find the PR on the indictment here
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Tags: FATCA, FATCA and funds, FATCA compliance, FATCA implementation, FATCA indictment