U.S. Prosecutors Claim First FATCA Criminal Conviction

Businessman in handcuffs

The Foreign Account Tax Compliance Act (FATCA) was designed to help the U.S. government track down undisclosed taxable assets overseas. Many say enforcement has been ineffective so far. Now U.S. prosecutors are claiming their first FATCA criminal conviction. Find out what that means for taxpayers with money overseas.

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) was passed in 2010 and took full effect in 2014. It requires U.S. taxpayers to report foreign assets to the IRS as part of their annual tax return if they meet certain thresholds:

  • $50,000 at year end or $75,000 throughout the year for individuals living in the U.S.
  • $100,000 at year end or $150,000 throughout the year for married couples filing jointly and living in the U.S.
  • $200,000 at year end or $300,000 throughout the year for individuals living abroad
  • $400,000 at year end or $600,000 throughout the year for married couples filing jointly and living abroad

The law is designed as a tool for the IRS and the Treasury Department to fight tax evasion. Individuals can face civil fines and penalties including:

  • $10,000 for failure to file penalty
  • Up to $50,000 for continued failure to file after IRS notification
  • 40% penalty on any understated taxes related to the non-disclosed assets

FATCA also requires foreign financial institutions and certain other foreign entities to report assets they control on behalf of U.S. taxpayers.

Experts Question FATCA Enforcement

Despite the penalties built into the law, many have felt the FATCA has not been effectively enforced. In July 2018, the Treasury Inspector General for Tax Administration found that the IRS had spent nearly $380 million on enforcing FACTA and “is still not prepared to enforce compliance.” Some also question whether it can be enforced at all, at least against foreign countries and their financial institutions.

U.S. Foreign Sting Operation Leads to FATCA Criminal Conviction

In the face of this criticism, the U.S. began an investigation into stock fraud including a number of Belize-based brokers. Over time, the investigation came to include London-based Beauford Securities Ltd., Beaufort Management Securities, Ltd., and Loyal Bank Ltd. The government sent in an undercover agent posing as a U.S. fraudster involved in several stock manipulation schemes. The agent was looking to open corporate bank accounts overseas that he could control but that wouldn’t be traced back to him.

According to prosecutors, Adrian Baron, the former chief executive officer of Loyal Bank Ltd., met with the agent, set up the corporate accounts, and told them Loyal Bank wouldn’t submit a FATCA declaration unless there was obvious U.S. involvement. He also allegedly said he didn’t see any U.S. involvement in the agent’s portfolio.

As a result of this investigation, in September 2018, Baron pleaded guilty to conspiracy to defraud the U.S., a federal felony with a maximum sentence of 5 years. Baron’s sentencing was scheduled for late January 2019.

In their sentencing letter, the U.S. prosecutors claimed Baron’s case as the first FATCA criminal conviction:

“The sentence imposed in this case should send a strong deterrent message to offshore banks and bankers about the importance of complying with FATCA and, as a result, prevent tax evasion in the United States.”

The Future of FATCA Enforcement

By claiming this first FATCA criminal conviction, the prosecutors raise the possibility of future criminal charges for violating this civil tax law. However, tax law commentators doubt that this level of enforcement will be widespread. They note that this prosecution was the result of a carefully crafted set of facts with an undercover agent who could set things up for an easy conviction. They suggest that less complicated investigations will likely not result in FATCA criminal convictions. While the fines for FACTA violations are still substantial, individuals most likely do not need to worry that they will be sent to federal prison for failing to disclose foreign bank assets.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions FATCA criminal convictions, contact Joe Viola to schedule a free consultation.

Categories: FATCA