For more than a decade the Internal Revenue Service has devoted substantial resources to pursuing individuals who use offshore vehicles to cheat on their U.S. Tax obligations, as well as banks and professionals that facilitate their misconduct. As the IRS has struggled to tackle the challenges presented by foreign bank secrecy, the introduction of virtual currencies and the increasingly global nature of the economy have complicated its enforcement efforts.
Over the years, the IRS has worked with foreign governments to combat transnational tax crime. For example, IRS regulations permit the exchange of information with foreign authorities pursuant to various types of international exchange agreements including Mutual Legal Assistance Treaties (MLATs). Among other things, MLATs -- bilateral agreements with partner countries -- allow U.S. Law enforcement agencies to seek evidence from (and gather evidence for) foreign authorities to be used in criminal proceedings. Commentators have noted, however, that MLATs have limitations, including delays resulting from the necessary participation of Department of Justice attorneys who draft and review requests, the transmission of requests through diplomatic channels and occasionally a lack of cooperation by partner countries.Show Full Article
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Of course, the United States is not alone in needing to combat international tax evasion and in June 2018, in response to the OECD’s call for countries to increase cooperation and take comprehensive and global action to combat tax crime, tax enforcement authorities in the United States, the United Kingdom, Australia, Canada and the Netherlands formed an alliance called the Joint Chiefs of Global Tax Enforcement or the “J5”. The alliance is comprised of the heads and senior representatives of the tax enforcement divisions of the member countries and it facilitates participants sharing information and expertise and collaborating to combat transnational tax crime, cybercrime and money laundering. Earlier this week, the J5 met "to review [its] progress in their fight against transnational tax crime and set priorities for the year ahead" and public reports suggest that it has already had a substantial impact on tax enforcement.Алексей М / Flickr
At its one-year anniversary, the J5 announced that it had fifty investigations underway “involving sophisticated international enablers of tax evasion, including a global financial institution and its intermediaries who facilitate taxpayers to hide their income and assets.” The J5 further announced that its members had already participated in hundreds of data exchanges and shared more data in one year than in the previous ten years combined and that it was focusing on establishing platforms to enable its members to share information. One such platform is FCInet, a decentralized virtual computer network through which investigators from different countries can “compare, analyse (sic) and exchange data anonymously” thereby obtaining necessary information more quickly and enabling agencies from different jurisdictions to “jointly connect information, without needing to surrender data or control to a central database.”
In November 2019, the J5 hosted an event known as “The Challenge,” which gathered “investigators, cryptocurrency experts and data scientists” in order to make a “coordinated push to track down individuals perpetrating tax crimes around the world.” The Challenge’s mission was to “optimiz[e] data from a variety of open and investigative sources available to each country, including offshore account information.” At the end of the Challenge, the J5 announced that “each country had developed numerous leads, trends, methodologies and investigations touching all of the J5 countries . . . [that] will be used to further current and future investigations under the J5 umbrella.”
Approximately two months later, in January 2020, the J5 announced its first major operational activity: a coordinated “multi-country day of action” in connection with investigations of an unidentified international financial institution located in Central America that is believed to be facilitating global money laundering and tax evasion. By coordinating in exercising search warrants, serving subpoenas and conducting interviews, the J5 obtained “significant information” that it expects will lead to criminal, civil and regulatory action. IRS Criminal Investigation Chief Don Fort noted that the coordinated enforcement actions would be “the first of many” and noted that, “[w]orking with the J5 countries who all have the same goal, we are able to broaden our reach, speed up our investigations and have an exponentially larger impact on global tax administration.”
While there is nothing new about the IRS enlisting the aid of law enforcement agencies around the globe in pursing tax cheats, the formation of the J5 and the volume of data exchanged in its first year suggest that the IRS and its foreign partners will be increasingly proactive in collecting and sharing information needed to combat tax evasion and money laundering. Clearly the IRS and the rest of the J5 anticipate that increased information sharing coupled with coordinated investigations and operational activity will make it easier for tax authorities to penetrate national borders, and lead to increased enforcement activity globally.
To read more from Jeremy H. Temkin, please visit www.Maglaw.Com.
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