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Did FATCA Reporting help catch Manafort and Gates?

by Stanley I. Foodman on Categories: fatca reporting

Did FATCA Reporting help catch Manafort and Gates?

Did FATCA Reporting Help Catch Manafort and Gates?

International tax compliance enforcement is a priority effort for the United States Government. Tax avoidance schemes, cross-border transactions and complex “hard to understand” business structures have heightened IRS tax compliance concerns. The Foreign Account Tax Compliance Act (FATCA) enacted by President Obama in 2010 has combating offshore tax evasion as its main purpose. Known to be a real “headache” for most U.S. Expatriates and Foreign Financial Institutions (FFIs), FATCA requires FFIs to report information about accounts held with them by U.S. citizens and U.S. Permanent Residents. Meaning, FFIs gather information of U.S. taxpayers who have accounts in their financial institutions and report it back to the U.S. Government — the IRS.

Over the last ten years, and particularly since the FBI’s case against UBS, the global financial landscape has changed. Major initiatives have been undertaken on a worldwide basis to combat tax evasion. Information exchange programs like FATCA in the U.S. and the Common Reporting Standard (CRS) implemented by the Organization for Economic Co-operation and Development (OECD) are aimed at ensuring that foreign financial accounts owned by and/or controlled by taxpayers around the world are disclosed to appropriate taxing authorities. The first exchange of the CRS took place in September, 2017 with 49 Jurisdictions exchanging information and an additional 53 have committed to exchange in September, 2018.

Under FATCA, the IRS has been receiving tax information from U.S. taxpayers that have reportable ownership or signing authority over foreign accounts around the world for the last 3 years. Furthermore, the IRS and the Department of justice ongoing efforts have focused on ensuring compliance by taxpayers with U.S. reporting obligations and raising awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments.

Many taxpayers have “bitten the bullet” and have become tax compliant by disclosing their assets and earnings through IRS programs such as the Streamlined Filing Compliance Procedures and the Offshore Voluntary Disclosure Program (OVDP).  Many are still taking risks through not entering into existing IRS amnesty programs and becoming tax compliant. This is hard to understand given the reality that taxpayers that are not tax compliant face hefty penalties that could include incarceration.

FFIs have had to expand the capabilities of their compliance departments to meet increasing regulatory demands under FATCA. Furthermore, a number of FFIs have closed existing accounts or simply denied new accounts to U.S. citizens and U.S. Permanent Residents. U.S. taxpayers living overseas in certain jurisdictions have become “financial pariahs” where they live because of the expensive account servicing costs for local banks (FFIs) caused by the requirements of FATCA. FFIs will not open bank accounts for U.S. Citizens and/or U.S. Permanent Residents without a W-9, or other pertinent tax documentation; an issue for many the almost 9 million U.S. expats living worldwide.

The main focus of FATCA is to combat tax evasion by preventing U.S. Persons from offshoring assets to avoid reporting their existence and paying taxes on the taxable income that they produce. FATCA requires FFIs to report information to the IRS about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The FFIs are encouraged to either directly register with the IRS to comply with the FATCA regulations or comply with the FATCA Intergovernmental Agreements (IGA 1A) treated as in effect in their jurisdictions in order to avoid being withheld upon. This means that the FFIs have to comply under threat of a 30% withholding penalty on certain of their U.S. transactions. FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA. That said, FFIs and their bankers have been drafted as “reporting and withholding agents” for the U.S. Government.

Did FATCA reporting have anything to do with the Manafort and Gates Indictment?

IRS currently has three years of FATCA derived U.S. Taxpayer data under its belt. There are currently 117 Jurisdictions that have entered into IGAs with the U.S. Government. Within the 117 Jurisdictions are the three countries that are named in the Manafort/Gates Indictment dated 10/27/17. These three countries have IGAs with the U.S. Government. The 3 countries are:

Cyprus: has in Force a Model 1 Agreement dated 9/21/15. This means that the tax authority of Cyprus sent their first report in 2016 to cover the year 2015 (and perhaps part of 2014) and prior to September 30th of 2017 sent the report
for 2016.

Seychelles: has an “Agreement in Substance” with the U.S. Government dated 6/30/14. In this case, it is difficult to determine if there has been an information exchange.

St. Vincent and the Grenadines: have a Model 1 Agreement dated 5/13/16 in Force. This means that prior to September 30th of 2017, the tax authorities of St. Vincent and the Grenadines sent their first report to cover years 2015 and 2016.

How were Manafort and Gates able to open and maintain their accounts at the FFIs domiciled in these countries? Were their accounts reported to the IRS through the FATCA exchange? Is it through FATCA reporting that the Special Counsel learned that Manafort and Gates had undisclosed foreign accounts? If so, the FATCA report led to the fact that Manafort and Gates also failed to file required FBARs (Report of Foreign Bank and Financial Account).

While FATCA has been a “headache” for many, if it is indeed a source for the Manafort/Gates Indictment, it just won a “gold medal” for the U.S. Government.

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