2019 - not happy for some

Happy new year to all readers of my Note – may it be the best year ever.


Sadly, it won’t be happy for Ramses Owens and Dirk Brauer, two senior employees of Panamanian headquartered law firm Mossack Fonseca who have been charged with a string of offences. The Department of Justice (DOJ) alleges that both employees were connected in a decades long criminal scheme’ to conspire to evade US taxes on behalf of their clients.


The DOJ goes on ‘The charges announced today demonstrate our commitment to prosecute professionals who facilitate financial crime across international borders and the cheats who utilize their services’ said Assistant Attorney General Brian A. Benezkowski.


But, before we shrug our shoulders and say ‘tut, tut’ let’s pause a moment and compare this with the claim against Credit Suisse in May 2014 for a similar charge.


Credit Suisse, it was claimed was guilty of criminal conspiracy to evade US taxes. It was fined a staggering $2.6 billions, roughly equivalent to the net profit for 2013. But, it was well publicized, that the deal with Credit Suisse was part of a plea bargain – with the Department of Justice – and was ‘structured in such a way as to allow the bank to ‘continue operating’’.


It has been said that the Zurich based bank was ‘on the regulator’s list of 29 global institutions which was considered to be systemically important and whose failure would be considered a threat to the entire financial system!’


In short, the DOJ had no choice, but to allow the bank to continue operating, and Credit Suisse had no choice, but to put in a plea of guilty.  For many, what it was guilty of, was ‘to recruit US clients to open Swiss accounts to help them conceal monies from the IRS’. This may not have been something which IRS liked, but at the time opening a Swiss bank account was legal and part of the bread and butter business of global international private banks.


The IRS was transparent in its intention behind its harsh treatment of Credit Suisse. It wanted to ‘name and shame’, it wanted the fine and the guilty plea bargain to be a ‘warning to foreign banks believed to be helping US taxpayers conceal assets’ from the IRS. AND IT WORKED.


In charging the two senior employees of Mossack Fonseca are we seeing a re-run of the claims in 2014? But rather than focussing on international private banks, is the IRS now, focussed on vulnerable employees in professional firms, starting with lawyers and accountants?


The Department of Justice alleges that the employees of Mossack Fonseca ‘defrauded the US Government through a large scale, intercontinental money laundering and wire fraud scheme’ it goes on to say ‘For decades, the … employees.. of global law firm Mossack Fonseca allegedly shuffled millions of dollars through offshore accounts and created shell companies to hide fortunes’.


These prosecutions are yet again expressed to be ‘a warning’ to all professionals, that what was considered acceptable yesterday, needs to be carefully reviewed today.


Trusts are not illegal, neither is owning assets through an offshore company, provided all taxes which are due are properly and correctly declared and paid.


The problems start, when the client has been advised that by setting up a trust or company offshore he or she has put in place a structure which is perfectly legal to mitigate taxation. The tax authorities however, may take the opposite view, that what is being done is a conspiracy to defraud taxation. If proved successful this is tax evasion, which carries criminal sanctions – and a possible jail sentence.


Most Swiss private banks now refuse to have clients with any US connections, and refuse to recommend any of their clients to any professional which could advise them how to mitigate their tax bill in the US – or elsewhere. If the allegations against the two senior employees of Mossack Fonseca succeed maybe professional service providers will similarly refuse to act for US citizens for fear of imprisonment!


The US may have been the first to initiate the automatic exchange of information under FATCA, but every time it is proved successful the OECD and the rest of the world follow. Many were of the opinion that the automatic exchange of information under FATCA was a breach of the human right to privacy, but as financial institutions across the globe invested huge sums to provide the IRS with the information it requested, it was seen as a success and the OECD took no time to follow suit.


So, what should we do?


Now is not the time to sit back and watch the hurricane gather speed, we each need to do what we can to put one’s house in order.


But insisting nothing is wrong, is simply not good enough. What is needed is a fundamental change of view; back to basics and embrace the fact that changing times require a change of approach.


There is a silver lining; many have already adopted it, but others simply refuse to believe anything can or need be done to avert the damage. It may blow over, but it is unlikely; so it is better to be safe now, than sorry later.


If you would like to find out more please write to me at caroline@garnhamfos.com or call on 020 3740 7422 for an appointment.


Please also contact the above or go to www.garnhamfos.com or Amazon to buy both or either of my books ‘When you are Super Rich who can you Trust?’ and ‘Uncovering Secrets, how to Win business from Private Clients’