U.S. Uses Sting Operation to Secure First FATCA Conviction - Risk & Compliance Journal.

By Anonymous

The first U.S. conviction under a tax law involved a sting operation, and observers expect more cases like it to come.

Adrian Baron, a former chief executive of Loyal Bank Ltd. based in Hungary, pleaded guilty last week in federal court to failing to comply with the Foreign Account Tax Compliance Act, becoming the first person convicted under that law. Mr. Baron was extradited from Hungary in July. He faces up to five years in prison.

The case is connected to the collapse of London brokerage Beaufort Management Services Ltd. U.K. regulators shut down the brokerage in March. Hours later, the firm and many of its executives were charged, as was Mr. Baron. In July, Arvinsingh Canaye, who was the broker’s general manager in Mauritius, pleaded guilty to a money-laundering conspiracy charge.

Mr. Baron, according to prosecutors, dealt with an undercover agent who had described a stock manipulation scheme he was purportedly engaging in and explained why he needed to circumvent FATCA reporting requirements. Mr. Baron opened accounts at Loyal Bank for the agent and didn’t request or collect FATCA information from the agent, prosecutors said.

A lawyer for Mr. Baron didn’t immediately return requests for comment.

FATCA requires foreign financial institutions to identify their U.S. customers and report information on their account-holders, or be subject to withholding payments. The law has also become a tool for the U.S. government to collect information on taxpayers who don’t declare their offshore assets.

Mr. Baron’s guilty plea shows how the law also can be used against foreign bankers who are complicit with helping Americans hide their assets, noted law firm Ballard Spahr LLP in a client alert.

“Despite the evidence of money laundering, Baron’s conviction ultimately rested on a failure to file a required disclosure form,” the client note said.

Using a sting operation in a tax case sends a message to foreign financial institutions, as well as their employees and decision-makers, who are subject to FATCA, observers say.

“Anyone considering avoidance of information disclosure will pay dearly, not just through financial penalties but also, potentially, through criminal proceedings and reputational damage,” Izabella Koeijers, the portfolio director of compliance and regulatory services at TMF Group USA, a consultancy, said in an email.

Write to Samuel Rubenfeld at [email protected] Follow him on Twitter at @srubenfeld.