Offshore tax cheating could become criminal money-laundering offense

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.

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2 Responses to "Offshore tax cheating could become criminal money-laundering offense"

  1. scrurge1   Mar 4, 2009 at 7:13 am

    Truly you reveal the underbelly of the leviathan. The list of US citizens as customers of Swiss Banks ( UBS ) now known to be “international scofflaws” has grown from the original 19,000 named on the Lichtenstein clearinghouse whistleblowers disc ( w/ $19b in funds hidden ) to a ballooned 52,000!!!WOW!!!

    As you are well aware, a federal court case has been activated against the Swiss government to answer that question: Who are the named scofflaws? Clearly the business as usual banker’s fraud and collusion in hiding the ten’s maybe hundred’s of billions of dollars/euros/yen in the many and several offshore/tax haven banking countries is the foundation that has fostered the crisis we are now facing ( and most likely the funds supporting the various national politicians )….

    You are a welcome breath of fresh air even in the cold NYC weather to this fact. Since they are offshore in rather glamorous sometimes exotic islands or mountain resort nations, it seems as though these culprits remain out of the vision of the common electorate. It behooves you to continue your work. I applaud you and wonder when mankind will stop extolling the wealthy for their aggrandizement and overt affluence which under many occasions was achieved by less than acceptable ( underhanded ??) means. I guess we have Thorsten Veblen to blame! HA!

    Sincerely Richard D. Gordon CP

  2. Harold Manning   May 1, 2009 at 1:00 am

    Thank you for your outstanding honesty in the face of (despite) political economics.
    I am starting to get an understanding of how big this problem gets.

    The wealth of one nation is developed because of the investment of capital and by the rights of the individual since Napoleonic times (in this part of the world at least). That at least explains why some of our wealthiest families are so arrogant about their responsibilities to pay a fair percentage of their fortune to the administration that allowed this investment to take place.

    I’m touching at the edges of political theory as it was expressed by journalists and scholars of the late 18th century in France and America (see “Libertarianism”, from the Wikipedia). “Freewill”, and it’s antonym “Authoritarianism”, were used by Libertarian thinkers to describe the state of individual liberty as opposed to State Authority, sounds familiar doesn’t it. These ideas were debated frequently in public and helped to develop our national interest in the promotion of individual’s rights as opposed to more European traditional authoritarian views about rights.

    When a multi-million dollar business wants to exercise their right to hide their money away from accountability by the US Government, which gave the multi-million dollar business the right to do business, then the issue of the responsibility becomes more a matter of criminal behavior.
    I agree with the US Senators that investigations and criminal penalties should be applied to match these crimes.

    In social behavior, when the actions of an individual or a collective body influence the society, the measure of the effect of hiding taxes seems very reasonable to suggest criminal action should be used to discourage the criminal action of tax evasion.


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