Evaluating the Financial Institution’s Tax Evasion Risk

Investigations by governments are no longer hindered by country borders. Financial institutions (“FIs”) and their account holders have been the focus of an ever-growing number of criminal tax enforcement actions. Those actions range from voluntary disclosures by account holders that require the payment of back taxes, interest, and fines to a full-blown criminal plea as demonstrated recently by Credit Suisse, which was required to pay a $2.5 billion fine to settle claims it helped American taxpayers evade their tax obligations.1

Obscuring one’s beneficial ownership interest in an entity is often a vital part of avoiding tax reporting and committing other financial crimes. By hiding their identities, individuals can commit numerous illicit acts, including launder money, finance terrorism, and tax fraud. As a result, over the past few months the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury,2 the Financial Action Task Force (“FATF”),3 and the Organization for Economic Co-Operation and Development (“OECD”)4 have all made or proposed significant changes to their rules and recommendations to ensure greater transparency when determining who the actual ultimate beneficial owners of an entity are and the cross border exchange of that information. The efforts of these organizations have relevance not only in the anti-money laundering (“AML”) compliance landscape, but also in regards to compliance with the Foreign Account Tax Compliance Act (“FATCA”)5 and other anti-tax evasion measures globally. Because all of these organizations have implemented unique requirements, each will have a different impact on the efforts of FIs to combat tax evasion. In this article, we explore how the recent announcements by FinCEN, FATF, and the OECD affect an FI’s anti-tax evasion compliance efforts and how compliance on a going-forward basis may not negate past behavior that could be viewed negatively by a government investigating the FI for facilitating offshore tax evasion.

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1. Credit Suisse Pleads Guilty to Conspiracy to Aid and Assist U.S. Taxpayers in Filing False Return (DOJ May 19, 2014),

http://www.justice.gov/opa/pr/credit-suisse-pleads-guilty-conspiracy-aid-and-assist-us-taxpayers-filing-false-returns.

2. FinCEN is a bureau of the United States Department of the Treasury created to combat money laundering, terror financing, and other financial crimes.

3. FATF is an international organization established by the G7 to combat money laundering, terror financing, and other financial crimes.

4. The OECD is an international economic organization established to stimulate economic progress and world trade.

5. FATCA is part of Chapter 4 of Subtitle A of the Internal Revenue Code, and is further clarified by the Final Chapter 4 Treasury Regulations (found in the Federal Register at 78 FR 5874)

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