International Tax Evasion and Money Laundering

International tax evasion has been the “Sport of Kings” for centuries.  Cloaked in secrecy, done surreptitiously, no one could ever prove it.  The “Super-rich” (i.e. the top 1%) get away with “tax cheating” and used their “tax cheating proceeds” to buy assets; e.g., real estate, boats, planes, cars, diamonds and art (all of which may constitute “money laundering”).

The willful “tax cheating” by the super-rich may be “tax treason” defined:  the betrayal of a trust, treachery; the offense of attempting by overt acts to overthrow the government of the state to which the offender owes allegiance.

So why do tax cheats get away with treason?  Why do governments all over the world let the richest people cheat on their taxes and commit “tax treason”?  What is the “bottom line” to “tax treason”, is it that billions of people around the world suffer and live without adequate nutrition, housing, clothing, health care and education?  Who is responsible for this “tax mess”?

With the proliferation of the internet as an information database, after centuries of secrecy, the “truth is coming out”.  “Transparency” is coming of age, and for the “super-rich tax cheats”, their days appear numbered.

Consider recent events in Spain and Africa.

In Spain, there are 1,600 cases involving embezzlement, tax evasion, “kickbacks” and Swiss bank accounts, including:  the former treasurer of Spain’s ruling party, indicted, the former head of the country’s Supreme Court resigned in disgrace.  And now, Spain’s Princess, Cristina, could land in jail and topple King Juan Carlos and the Spanish monarchy.

In April 2013, Princess Cristina was indicted on charges of complicity in fraud, tax evasion, money laundering and embezzlement, the first member of a European royal family to be charged in a serious crime in centuries.

The case revolves around her husband, Duke of Palma, Inaki Urdangarin, who is accused of fraud, tax evasion, forgery and the embezzlement of $7.8M from regional governments through inflated contracts via their non-profit organization, Institute Noor.

Judge Jose Castro oversaw the Princess’ indictment, saying she gave her consent to her husband’s “shady deals”.  A specially appointed anti-corruption prosecutor requested the indictments be dropped.  On May 7, 2013 an appeals court ruled to dismiss the case in a preliminary judgment.  Judge Castro is likely to pursue another indictment.

In Africa on 5/10/13, a 120 page Africa Progress Report was issued stating $63B is lost annually in Africa through tax evasion, corruption, secret business deals, more than all the money coming into Africa through aid and investment.  Despite Africa’s surging economic growth, fueled by a global resources boom, poverty and inequality have worsened.

Kofi Annan, the former U.N. Secretary General, who heads the panel that wrote the report, stated:

“It is unconscionable that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximize their profits while millions of Africans go without adequate nutrition, health and education.”

The Report stated:

“Revenues that could have been used to impact lives have instead been used to build personal fortunes, finance civil wars and support corrupt and unaccountable political elites.  Revenue losses on this scale cause immense damage to public finance and to national efforts to reduce poverty.  Some political elites continue to seize and squander the revenues generated by natural resources, purchasing mansions in Europe or the U.S. or building private wealth at public expense.”

In the U.S., tax evasion is a felony (under IRC Sec. 7201) with a penalty of up to five years in prison.  In addition, the crime of tax evasion includes other crimes for which a U.S. taxpayer may be prosecuted, including:

1. Obstruct Tax Collection:  (under IRC Sec. 7212), with a penalty of up to three years in prison;

2. Conspiracy to Impede Tax Collection:   (18 U.S.C. 371) a “Klein Conspiracy” where two or more persons agree to “impede” IRS tax collection, with a penalty of up to five years in prison;

3. Filing a False Tax Return:  (IRC Sec. 7206(1), up to three years in prison);

4. “FBAR” Violation:  (willful violation re: disclose foreign aggregate accounts over $10,000 (31 U.S.C. Sec. 5322(b), up to ten years in jail;

If federal prosecutors “throw the book” at “tax cheats” they may face over 25 years in prison.

Tax evasion by itself is punishable by over 25 years in prison.  In addition, separate crimes may include:  money laundering, wire fraud and mail fraud (each of which are separate felonies punishable by 20 years plus, in prison).  So if a “tax cheat” commits tax evasion, money laundering, wire fraud and mail fraud, their maximum penalties may be over 85 years in prison (with an additional 10 years if the violation affects a financial institution).

For U.S. persons who are involved with international tax evasion (i.e. they “collaborate” with “tax cheats” from other countries helping those international tax cheats commit tax evasion and launder money), they may be held liable for money laundering, a separate offense, since “foreign tax evasion” is a “predicate offense”, a Specified Unlawful Activity (“SUA”); i.e. a foreign crime, which subjects the U.S. person to penalties for money laundering.

In the Pasquantino case, (96 AFTR 2d 2005-5392 (2005), the U.S. Supreme Court determined that a foreign government (i.e. Canada) has a valuable “property right” in collecting taxes (in Pasquantino, “excise taxes”), The Supreme Court held that international tax evasion (i.e. taxes due to a foreign government) is a “Specified Unlawful Activity (“SUA”), which is both a predicate offense for money laundering (i.e. it is a “foreign crime”), and is a violation of the wire fraud statute (18 U.S.C. Sec. 1343) (i.e. the uncollected Canadian excises were “property” for purposes of the “fraud” element in the “wire fraud statute”).  In Pasquantino, the U.S. Supreme Court held that the defendant’s failure to pay taxes inflicted economic injury on Canada “no less than had they embezzled funds from the Canadian treasury.  (Defendants) used interstate wires to execute a scheme to defraud a foreign sovereign of tax revenues.  Their offense was complete the moment they executed the scheme inside the U.S., the wire fraud statute punishes the scheme, not its success.

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