At the G8 meeting in Ireland, the White House announced it's intent to facilitate international tax and business arrangement transparency by promising a plan to assist law enforcement and tax authorities in identifying those who own and control entities outside of the United States.
We have been reporting on the data mining and ability of the IRS to cross-check records by utilizing technology and requiring informational returns, including but not limited to, the Report of US Persons with Respect to Certain Foreign Corporations (Form 5471), the plethora of other reporting returns now required, and the ability for the government agencies to check the information against information provided by banks and other FFI's, as required by FATCA.
One has to wonder, knowing how serious tax crimes are charged and penalized in the US, how else will the US use this information. Further, what are the ramifications for individuals residing within the United States whose information is turned over to other countries? Finally, the irony is not lost on the author that this announcement was made in Ireland, whose tax advantageous climate has been used by Apple and others for legal tax minimizing strategies. (see What a Tax Attorney Can Do for You - Understanding how Apple Pays No Income Tax)
The Official White House Release states in our National Action Plan, the United States commits to:
- Draft a National Risk Assessment: Led by the Treasury Department, the United States is updating its national risk assessment to identify major money laundering threats and vulnerabilities. This assessment will include an analysis of vulnerabilities posed by corporate entities and how criminal use them to launder funds.
- Advocate for Comprehensive Legislation: The Treasury Department, along with other federal agencies, will continue to advocate for comprehensive legislation on beneficial ownership. There is currently no federal or state requirement to disclose beneficial ownership information. This legislation would be an important step to protect the U.S. financial system and should include: Clarify and Strengthen Customer Due Diligence Standards for U.S. Financial Institutions: As part of the U.S. government’s broader efforts to increase financial transparency, the Treasury Department is currently drafting a rule to develop an explicit customer due diligence obligation for U.S. financial institutions, including a new requirement to identify the beneficial owners of legal entity customers. This proposed rule would require that financial institutions understand who their customers actually are and provide important information and resources for law enforcement and tax authorities.
- Requirements for covered legal entities to disclose beneficial ownership to states or regulated corporate formation agents at the time of company formation.
- Requirements for verification of the identity of the beneficial owner.
- Options for covering legal entities depending on whether the applicant forms the legal entity directly or uses a regulated company formation agent.
- Requirements for law enforcement authorities, including tax authorities, to be able to access beneficial ownership information upon appropriate request through a central registry at the state level.
- An extension anti-money laundering obligations to company formation agents, including an obligation to identify and verify beneficial ownership information.
- A mandate that entities provide updated information when changes of beneficial ownership occur within 60 days; and
- The imposition of civil and criminal penalties for knowingly providing false information.
Work to Enhance International Cooperation: The U.S. will continue to advocate for increased mutual legal assistance and other forms of international cooperation designed to enhance the transparency of the international financial system including working with our partners to enhance build a framework for identifying beneficial ownership of companies.
Already in the midst of cracking down on offshore tax and banking violations as part of its war on global tax evasion, the Internal Revenue Service (IRS) has recently revealed that it sees the rise of virtual currencies as an avenue for tax evasion and money laundering schemes. "Clearly the increasing use and misuse of cyber-based currency and payment systems to transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to, " IRS official Victor Lessoff told the Financial Times in an interview. Lessoff also said that, "it doesn't take much of a leap to assume that these currencies may be used to avoid paying taxes."
In the past, web-based transactions made it difficult for law enforcement agencies and tax-collecting bodies alike to accurately monitor the transfer of funds for legitimate and illicit reasons. However, technological advances as well as reporting and data mining programs, such as OVDP, FACTA, and Grand Jury investigations are facilitating the identification of individuals and potential investigation targets, faster and with more accuracy.
The Wall Street Journal reported on May 31, 2013:
The federal crackdown intensified Tuesday when prosecutors accused Costa Rica-based Liberty Reserve of operating a $6 billion money-laundering ring that was tied to an Internet-based currency. It marked the first time authorities have invoked the 2001 Patriot Act against a virtual currency.
Liberty Reserve couldn't be reached late Friday for comment. Its website, libertyreserve.com, says the site has been seized by the "United States Global Illicit Financial Team."
The criminal indictment was filed in U.S. District Court in the Southern District of New York. The company and seven of its principals and employees were charged with money-laundering and operating an unlicensed money-transmitting business.
The Liberty Reserve charges came two weeks after authorities froze an account tied to the largest bitcoin exchange.
We expect that the Internal Revenue Services' investigative authority and resources will be of great value to government in seeking out individuals who may be involved with virtual currencies.