First Indictment for FATCA Violation Announced

Federal prosecutors charged six men Tuesday with running a complicated offshore scheme that allegedly enabled clients to manipulate stocks, avoid U.S. taxes and launder hundreds of millions of dollars.  An indictment unsealed in federal court in Brooklyn alleged the men laundered some $500 million in proceeds from fraudulent securities transactions for more than 100 U.S. citizens and helped commit tax fraud.

The FBI issued a statement announcing the indictment.  U.S. authorities claim, between January 2009 and September 2014, the men masqueraded as financial professionals and developed three interrelated schemes on behalf of themselves and their clients. Authorities claim they:

  • Defrauded legitimate investors in several U.S. stocks by manipulating prices.
  • Helped their own corrupt clients to evade paying U.S. taxes on those bogus profits.
  • Laundered approximately $500 million US in criminal proceeds.

“The investigation of offshore tax evasion and money laundering are top priorities for IRS-Criminal Investigation, and we are committed to using all of our enforcement tools to stop this abuse. The enactment of the Foreign Account Tax Compliance Act (FATCA) is yet another example of how it is becoming more and more risky for U.S. taxpayers to hide their money globally. Moreover, this partnership of IRS-CI, the FBI, HSI, and the U.S. Attorney’s Office demonstrates the government’s resolve to combat international crime,” stated IRS Acting Special Agent-in-Charge Shantelle P. Kitchen.

The indictment is the first time a FATCA violation has been charged as an “overt act” in furtherance of a tax conspiracy and securities fraud and strikes a cautionary note for financial institutions and financial service providers that may be used as instrumentalities of crime.  The indictment alleges that the defendants, operating in Belize and Panama, engaged in a conspiracy to: (1) defraud investors in US publicly traded companies by manipulating the price of microcap or “penny” stocks, (2) help their clients avoid US taxation, including by completing false Forms W-8BEN, and (3) launder the proceeds of the fraudulent securities transactions.

The scheme in the Bandfield indictment follows the same path of prior offshore financial frauds, but the prosecutors’ focus on the defendants’ alleged attempt to avoid FATCA compliance, coming only two months after the complex statute’s implementation and a full six months before the initial FATCA reporting deadline, sends a strong message of aggressive FATCA global enforcement. Over 100 countries have now signed or consented to sign FATCA compliance agreements and thousands of foreign banks have registered under FATCA.  FATCA violations may now be used as indicia of fraud. The indictment confirms the coordinated and aggressive tactics US law enforcement is now employing to investigate and prosecute offshore financial fraud.  This may the first time in history that a FATCA violation is be used to prosecute an individual.  More are expected.

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