Shell Corps Used in Offshore Tax Evasion Targeted

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The war against international tax evasion took another step forward yesterday with President Obama proposing a federal registry of the owners of all companies created and operating in the United States to aid in the elimination of anonymous shell companies.

Deutsche Bank and BNP Paribas Settle Offshore Tax Evasion Cases

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The Swiss divisions of BNP Paribas and Deutsche Bank AG have agreed to resolve Justice Department investigations into their role in offshore tax evasion by American customers. BNP Paribas agreed to pay nearly $60 million and Deutsche Bank agreed to pay $31 million.

Tax Court Denies Anonymous Proceeding to Serial Whistleblower

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The Tax Court has reminded IRS whistleblowers in a recent decision that the ability to proceed anonymously is not absolute. On June 28, 2017, the U.S. Tax Court denied an anonymous proceeding to Whistleblower 14377-16W after weighing the public interest in knowing who is using the Tax Court to bring serial whistleblower claims against an insufficient fact-specific justification for anonymity (Opinion here).

Fraud and Whistleblower News for Monday, March 31


The Supreme Court denied the cert petition in Nathan v. Takeda today. The petition questioned the Court of Appeals decision with regard to the Rule 9(b) heightened pleading requirement for fraud.

False Claims Act Against Bankrupt Companies – WSJ:Judge Gives $2.3 Billion Hawker Whistleblower Suit New Life
Whistleblowers can pursue their False Claims Act lawsuit against Hawker Beechcraft despite its bankruptcy, according to a ruling in federal court in New York. The whistleblowers alleged that the U.S. Navy and Air Force purchased more than 300 aircraft with defective parts from the company. They argued that the lawsuit was an intentional fraud and a debt to a domestic government unit that should not have been discharged. Last year, a bankruptcy judge ruled that liability from the lawsuit was extinguished by the Chapter 11 bankruptcy plan. Beechcraft was purchased by Textron following bankruptcy.

Currency Manipulation – Bloomberg: Swiss Antitrust Regulator Probes Eight Banks Over Alleged FX-Rigging
The Swiss Competition Commission, known as Weko, says it is investigating foreign exchange rate manipulation at UBS, Credit Suisse, JPMorgan Chase, Citibank, Barclays and a few other banks. At least a dozen regulators are now investigating collusion in currency trading.

Securities Fraud – CNBC: Years later, SEC fraud trial over Texas tycoons to start:
The Securities and Exchange Commission will start jury selection in New York today for the $550 million fraud trial of Samuel Wyly and the estate of his late brother, Charles Wyly. They are accused of committing securities fraud and insider trading. The SEC started investigating the Wyly brothers in 2005.

Medicaid Fraud – New York Times: Settlement in Medicaid Fraud Case Worries Health Providers
A New York Times article expresses concern that increased enforcement efforts against Medicaid providers might cause more doctors and medical practices to stop accepting Medicaid patients. The article cites a recent enforcement action against Carousel Pediatrics by the Office of Inspector General in the Texas Health and Human Services Commission. The percentage of physicians in Texas accepting Medicaid have declined substantially in the past ten years because of Medicaid rate cuts.

IRS Whistleblower Program – Pittsburgh Post-Gazette: Telling for Dollars: Tipsters get few payments in IRS program
The Pittsburgh Post-Gazette reported on the lack of rewards coming out of the IRS Whistleblower program. There have only been 38 recoveries from the 33,000 whistleblower tips the IRS received in the past five years. The IRS paid out $50 million in Fiscal Year 2013 according to the head of the IRS Whistleblower Office, although the majority of the payout went one whistleblower receiving a $38 million dollar award.

Canada to Pay Some Tax Whistleblowers; Australia Report Suggests Rewards


Although the whistleblower programs in the United States gets a lot of attention, the U.S. isn’t the only country to have a program to pay informants about corporate misconduct.

Earlier this year, Canada followed the lead of the United States and started offering rewards for tax whistleblowers. The Canada Revenue Agency will pay for tips about international tax noncompliance through its Offshore Tax Informant Program. The program allows for an award of between 5 and 15 percent when more than $100,000 in federal taxes are collected.

The initial process for providing information to Canada is a bit different than here in the United States. Submitting information to Canada starts with an initial call to their hotline to discuss the information the caller can provide. If the information is of the type that they are interested in, they provide the caller with a case number to include on the cover letter of their written submission.

International Antitrust Awards: Four countries pay for information when the United States doesn’t!

In our research, we discovered that Canada isn’t even the first country outside of the United States to pay for tips. Several members of the international community have adopted rewards programs in an area where the United States does not have one: antitrust. South Korea, United Kingdom, Hungary and Pakistan all pay informants for information about cartels engaged in price fixing. Strangely, this is an area where the United States does not pay. The United States investigated the wisdom of creating a program to pay for information about cartels, but there was substantial internal skepticism. Government employees were concerned that the prosecution could not meet the high burden of proof in a criminal case if the defendant could accuse the informant of bias because of the potential reward.

Australia May Be Next to Pay: Australian Senate Committee Recommends Corporate Regulator Explore Incentives.

The Economics References Committee (“Committee”) of the Australian Senate recently released a report on the Performance of the Australian Securities and Investments Commission (ASIC), their version of the Securities and Exchange Commission (SEC). In the report, the Committee recommended exploration of incentive-based compensation for whistleblowers either by allowing qui tam lawsuits or establishing a reward program similar to the SEC.

Because of the growth of the financial sector in Australia, the Committee examined the performance of their financial regulator. Two case studies it relied upon left it with the firm impression that ASIC had limited resources and power. These limitations may have played a role in allowing misconduct to happen at Commonwealth Financial Planning Limited (CFPL) between 2006 and 2010. The Committee also concluded that ASIC was too slow to act on information provided by whistleblowers about fraud happening at CFPL. The report spends nearly 100 pages of the roughly 500 page report on ASIC’s investigation and enforcement action against CFPL.

Among the suggestions it explored to improve the office was its handling of whistleblowers. Australian law offers protection to certain private sector employees who reveal information about violations of the Corporations Act to the Australian Securities and Investments Commission. But news stories broke in 2013 about the inability of ASIC to protect whistleblowers and consumers after issues were discovered at Commonwealth Bank.

The time may be ripe for Australia to implement this. According to the research cited in the report, the public there overwhelmingly supports whistleblowers. The country is also fresh off the implementation of its Public Interest Disclosure Act (PIDA), adopted last July to protect public sector employees reporting suspected legal violations. The law went into effect earlier this year, setting procedures and protections for government employees to internally and externally disclose waste, fraud and safety issues.

Two of the concerns about the PIDA was that it didn’t cover private sector employees and didn’t provide incentives for whistleblowers to come forward. It now looks like Australia will begin the process of correcting those deficiencies.

United Kingdom Passes on Rewards For Now

Last month, the United Kingdom released its response to the Whistleblowing Framework Call For Evidence and said that it did not believe financial incentives were needed. The effect of this decision is somewhat limited. Both the Financial Conduct Authority and the Prudential Regulation Authority are still considering whether they should implement an incentive program.

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GAO Reports on IRS Whistleblower Program

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The U.S. Government Accountability Office has issued a report on the IRS whistleblower program following a year long audit of the program, its operation and the underlying data generated. The 2015 report concludes that the financial incentives of the rewards program have led to billions collected but that delays and communications problems may discourage whistleblowing.

Voluntary Swiss Bank Tax Evasion Disclosure Program Reaches Final Total of $1.3 Billion

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The Department of Justice has reached the last non-prosecution agreement with a Swiss Bank as part of its voluntary disclosure program which ended in 2013. In total, the U.S. received more than $1.3 billion in penalties from the 80 banks which came forward and settled. The U.S. has received another $8 billion from 54,000 taxpayers who have come forward through the IRS Offshore Voluntary Disclosure Program.

A Review of Recent Clean Energy Fraud

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We have discussed the potential for whistleblower actions grounded in the protection of the environment and compliance with environmental laws here before. Most depend on the unique circumstances of the case and the fraudulent scheme in order to fit within one of the whistleblower programs. With the Trump Administration in office, it is unclear how long these programs will continue in action. But to the extent that there is evidence of a fraudulent scheme that is unlawfully taking millions from taxpayer dollars, we would be interested in hearing about it.

IRS Targets Big Business for Inbound Distributions, Basket Options, Captive Insurance and Asset Transfers

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Almost a year ago (September 2015), the Internal Revenue Service announced the reorganization of its Large Business and International (LB&I) Division. Struggling to keep up with the nearly 300,000 taxpayers within its jurisdiction, and faced with significant declines in the IRS budget from the Congressional appropriation process, LB&I is moving to issue-focused examinations of taxpayer documents. Potential areas of noncompliance within an industry or industries will be identified and then corporate returns examined to see whether those issues are present.

International Cooperation Against Tax Avoidance Growing


There have been a few measures put in place this year that have the potential to drastically cut offshore tax evasion.  Indeed, a few years from now, 2014 may be called a critical year in the fight against multinational tax avoidance being waged by the world’s governments.  It will take a few years for the transparency and information sharing to take hold of course, but the measures have potential.

The Foreign Account Tax Compliance Act will certainly be an important tool for the United States to collect more taxes.  Last week, we posted information about FATCA for potential whistleblowers working at foreign financial institutions. Even though there may be a “transition period” before the IRS is willing to hand down large penalties to banks that have entered into an agreement with the U.S. Government to provide information about payments and assets of U.S. account holders, the large sanctions paid by banks this year concerning mortgage misconduct and forex fraud suggest that penalties and bank withholding will be coming.

There have been other developments as well. Perhaps the one with the most immediate effect for the United States was the revision made to the tax treatment of corporate merger inversions. The Treasury Department issued rules in September to restrict inversions after a number of corporations declared their intent to relocate overseas for tax purposes after merging with a foreign company. These companies included Burger King and Pfizer.

However, there has been at least one setback.  In the final tax whistleblower rules published in August 2014, the IRS excluded penalties for violations of the FBAR reporting requirements. IRS regulations provide for rewards when the individual’s information leads to collected proceeds. According to IRS guidance, collected proceeds includes only money collected from Title 26.  Because FBAR is required under Title 31, money collected for violations is not eligible for a reward.  This should leave open the possibility of rewards under FATCA, however.

The United States is not the only country facing tax avoidance by large corporations. It has become an issue in the European Union, Australia, India and other nations.  Australia, for example, has more than 100 multinational corporations it believes may be underpaying taxes.

Last week, the G20 countries agreed to implement information sharing about tax avoidance by corporations and individuals by 2018.  It will not be easy.  It took the United States four years to prepare for FATCA.

The European Union may not wait for a global solution.  It is already debating the appropriate tax rules between its member states following Luxembourg.  The EU’s probe into the use of Luxembourg as a tax haven led to the release of information concerning its widespread use for tax avoidance.  More than 300 companies including Pepsi, Ikea and FedEx have used the country to avoid taxes according to information released earlier this month by the International Consortium of Investigative Journalists.

If the momentum in favor of change continues, there could be substantial progress internationally in limiting the ability of corporations to move income to tax havens to avoid paying countries with higher tax rates.

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