By Lucy Komisar
Feb 11, 2009
The U.S. government might finally get a powerful tool against offshore tax evasion by mega-wealthy individuals and corporations. The worst most miscreants face now is negotiated pay-ups years after they are caught.
A bill introduced last week by Senators Patrick Leahy (D-Vermont) and Chuck Grassley (R-Iowa) would make tax evasion using international transfers a criminal money-laundering offense. The law aims at cases in which money passes through tax havens. It targets not just the evaded taxes, but any money that is part of the scam.
The bill is called Fraud Enforcement and Recovery Act & Supplemental Anti-Fraud Enforcement Markets Act, FERA for short.
The proposed amendment would criminalize the transfer of funds into or out of the United States with the intent to engage in conduct constituting a violation of U.S. income tax laws. It will allow the government to bring civil forfeiture actions against tax evasion funds sent abroad. Not just the evaded taxes, but all the funds involved.
Speaking at a Senate Judiciary Committee hearing this morning, Rita Glavin, Acting Assistant Attorney General of the Criminal Division of the Justice Department, explained the impact of amending the existing Money Laundering statute to apply to tax evasion. (Yes, tax evaders are presently exempt from the statute!)
Glavin said: Due to the rapid globalization of the financial system in the last two decades and the development of offshore banking centers, we have seen the development of a troubling growth of income tax evasion that exploits the international funds transfer mechanisms and these offshore centers. In many cases, these tax evasion schemes utilize the same methods and mechanisms as money laundering schemes which involve criminal proceeds.
The law would target scams that corporations use to launder their profits and thereby evade taxes. Among them are phony transfer-pricing and loan-backs. (Ask any major accounting firm for the full list!) A corporation’s continued use of offshore transfers to cheat on taxes could fall under the RICO statute, which calls for treble damages and can win recovery back to the first instance of the criminal conspiracy.
The bill would also help U.S. prosecutors enforce forfeiture orders for foreign tax offenses. Until now, U.S. courts have ruled that the U.S. cannot help other countries enforce their tax laws. This runs counter to the international legal cooperation that exists for other major crimes.
Glavin said: In some, but not all cases, the offshore movement of funds for the purpose of evading income taxes can contribute to the development of offshore centers, and businesses operated by international criminal organizations, that facilitate the laundering of proceeds of drug trafficking and other serious offenses. These activities represent a threat to our financial system beyond the evasion of income taxes.
Let’s see if Congress agrees.