ICC Commercial Crime Service

Offshore Tax Havens

Feds Playing Hardball to Nab Middle Men

Offshore professionals who have made an industry of helping businesses hide assets overseas are finding themselves far from the picturesque locations in which they do business.

Instead, more and more of these professionals are cooling their heels in prison, courtesy of FBI stings morecommonly associated with high-profile cases against mob kingpins, terrorists and, occasionally, unscrupulous politicians. Wire taps, big money hand-offs and snitches are all part of this takedown to stop tax evasion.

The strategy is part of a large-scale U.S. offensive against tax evasion. Internal Revenue Service (IRS) disclosure programs allow taxpayers to seek amnesty if they turn in the professionals they use to incorporate off shore. They are also ratting on Swiss banks and other financial institutions involved. According to the IRS, since 2009 more than 50,000 U.S. taxpayers have avoided charges under disclosure programs that require them to name the banks and professionals who helped them.

Offshore entities set up to exploit a tax advantage are a perfectly legitimate vehicle for individuals and companies to avoid paying taxes. The process only becomes illegal when the intent is to evade paying what is lawfully due to the government.

Offshore tax evasion costs the U.S. billions each year, with some estimates putting the figure as high as $100 billion a year, according to a report released earlier this year by the Congressional Research Service.

While these purveyors of tax crimes may be surprised, those of us who specialize in asset recovery and asset tracing on behalf of victims are not.

It is hardly surprising that U.S. law enforcement has decided to attack the soft-underbelly of facilitators – those who offer their services to U.S. citizens seeking to hide their taxable income offshore – nor that the Feds are using tactics they readily employ against organised crime.

Implementing these stings with skill and ease, FBI officers set traps for the unwary, luring them onto U.S. soil. These sting operations are indicative of the Feds’ determination to prosecute offshore middlemen who act as an illegal enabler to U.S. citizens looking to score a tax haven.

It is for society to debate whether the Feds are using a sledgehammer to crack a nut. After all, these were supposedly just businessmen seeking to evade taxes… or were they? Defense attorneys may rail against the tactics, time and government dollars spent on these non-violent offenders. However, the reality is that the safe-havens these offshore professionals design and implement effectively make them co-conspirators to a criminal act.

In a case featured recently in an article in Bloomberg Business, perpetrators were seeking to hide some $2m dollars from the IRS, allegedly made during property transactions. If this had been somebody seeking to hide $2m arising from an illicit drug deal, people’s perceptions would almost certainly be different; the point is, both are illegal and both amount to money laundering.

The problem is that facilitators can never be certain of the origins of funds. Yes, they will conduct their due diligence and ‘know your client’ (KYC) checks for integrity purposes. However, for the more unscrupulous, it is debatable whether they are concerned about the origin of the funds. It is at these offshore operators that the crackdown is aimed. These new proactive and aggressive tactics by the Fedsare sending a message to facilitators and enablers: if you help U.S. citizens evade taxes, you’re going to jail.

The message is clear: the authorities are watching, listening and planning their next move in order to entrap those who dare flout the tax system. So if you are an unscrupulous enabler based in the Caribbean, Switzerland or elsewhere, it may be time to batten down the hatches and rethink your business model.

Martin S. Kenney is an international expert on asset recovery and commercial litigation and a member of ICC FraudNet. Based in the British Virgin Islands, Martin Kenney & Co. Solicitors focuses on representation of people harmed by international economic crime, as well as on complex insolvency, bankruptcy and commercial litigation work. www.martinkenney.com | @MKSolicitors





ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.