UPDATE: Panama Papers Reveals US Taxpayers with Offshore Entities

CA CEO Magazine published two of my articles in their August 2016 edition:

1. UPDATE: Panama Papers Reveals US Taxpayers with Offshore Entities

2. The Pasquantino Case: US Money Laundering Law and Foreign Tax Evasion

The former is posted below, the latter was sent as a newsletter on July 21, 2016. If you missed it, click on the link above to access from CA CEO.

Update: Panama Papers Reveals US Taxpayers With Offshore Entities

In 2016, the Panama Papers showed the worlds wealthiest people used offshore entities: corporations, trusts, foundations and nominees (i.e. “straw persons”) to conceal ownership of trillions of dollars in assets. These offshore companies, though not illegal if formed for legitimate purposes (e.g. Privacy, confidentiality for assets) seem to be part of a worldwide corruption of political bribery, money laundering, tax evasion, terrorism financing, and illegal income (from drug dealing, arms sales, and human trafficking).

The fall-out has been explosive: the Prime Minister of Iceland resigned, the Prime Minister of Pakistan is under “fire”, the former President of Argentina Nestor Kirchner, deceased, and former President his widow, Fernandez de Kirchner are embroiled in money laundering allegations as their top aide, Sergio Todisco (who Argentina prosecutors reveal had $2000 per month income) spent nearly $65m on ultra-luxury Miami condos, NY apartments and Florida strip malls without apparent funds needed to make these often all-cash purchases. Argentina’s current President, Mauricio Macri has been linked to an offshore company in the Panama Papers. A judge in Argentina has ordered an inquiry into his tax returns.

International soccer star Lionel Messi (and father) were convicted in Spain of tax evasion and assessed multi-million dollar fines and sentenced to 21 months in jail based on evidence uncovered in the Panama Papers.

If the allegations were unsupported by evidence they could be easily ignored and dismissed as an “attack on the rich” or demonizing “political opponents. In the Panama Papers case, hundreds of international journalists (in nearly 80 countries, working in 25 languages, with more than 100 media companies around the world) reviewed 11.5m files leaked from Panamanian law firm Mossack Fonseca, and analyzed 2.6 terabytes of information: e-mails, financial information and spread sheets. They found Hundreds of thousands of wealthy people set up hundreds of thousands of offshore companies (known as shell companies) with straw persons i.e. Nominees to act as Owners of record, company officers, directors and agents. The offshore tax havens in the British territories were the jurisdiction of choice for the companies e.g. Over 100,000 companies set up in the British Virgin Islands alone.

The Panama Papers links offshore assets, the world’s wealthiest people, major tax and other crimes to money laundering where the illicit funds (whether from tax evasion, drug dealing, arms trafficking or other crimes) are used to purchase expensive assets with real estate being the “asset of choice”. In the words of Charles Intriago, a former Federal Prosecutor and anti-money laundering expert “Real Estate is the major open territory for criminal, corrupt public officials, and money launderers.

The rewards are too great and the risks of being caught are too low.”

For US taxpayers with offshore entities there are highly specialized, intricate US tax rules for disclosure and tax compliance required annually. The Foreign Grantor Trust, Controlled Foreign Corporations, and Passive Foreign Investment Company tax rules require extensive compliance and the risk of non-compliance are both serious Civil and Criminal penalties. In addition, for those US taxpayers in the “chain” of asset purchases with illicit funds used to launder money by buying expensive assets face a trilogy of felonies money laundering, wire fraud, and mail fraud (all 20 year felonies). If the US taxpayers involved in the asset purchases receive any funds from foreign Investors which were the subject of tax evasion in a foreign country, under a recent Supreme Court case Pasquantino (2005) they may be held liable for wire fraud (in this Case the wire fraud was an inter-state telephone call) as well as additional prosecution for money laundering (i.e. Tax evasion as a predicate offense also known as an “SUA” specified unlawful activity for money laundering).

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