DQ is continuing to see an increased use of undercover agents by the IRS and other tax authorities in offshore jurisdictions.

The indictment in September 2014 of a Belize corporate service provider (CSP) and investment management company in the US is evidence of this trend. In the case US v. Robert Bandfield, et al. a number of US citizens together with the offshore CSP and investment company were accused of conspiring with numerous US citizens to violate securities and tax laws, including evading reporting obligations under FATCA. According to US prosecutors, the defendants engaged in a US$500 million offshore securities fraud, tax avoidance and money laundering scheme. For further information on the Bandfield case, please click here to read the case summary prepared by our friends and colleagues in Latham & Watkins' Washington DC office.

This indictment follows on from the recent conviction and sentencing of three investment managers (Joshua Vandyk, Eric St-Cyr and Patrick Poulin) who were caught assisting undercover IRS agents evade tax and launder the proceeds of supposed bank fraud via the Turks & Caicos and the Cayman Islands.

Vandyk, St-Cyr and Poulin conspired to conceal and disguise the nature, location, source, ownership and control of property believed to be the proceeds of bank fraud, specifically $2 million. Vandyk, St-Cyr and Poulin assisted undercover law enforcement agents posing as U.S. clients in laundering purported criminal proceeds through an offshore structure designed to conceal the true identity of the proceeds' owners. Vandyk and St-Cyr invested the laundered funds on the clients' behalf and represented that the funds would not be reported to the U.S. government.

Vandyk and St-Cyr lived in the Cayman Islands and worked for an investment firm based there. St-Cyr was the founder and head of the investment firm, whose clientele included numerous U.S. citizens. Vandyk, St-Cyr and Poulin solicited U.S. citizens to use their services to hide assets from the U.S. government, including the IRS. Vandyk and St-Cyr directed the undercover agents to create an offshore corporation with the assistance of Poulin and others because they and the investment firm did not want to appear to deal with U.S. clients. Vandyk, St-Cyr and Poulin used the offshore entity to move money into the Cayman Islands and used Poulin as a nominee intermediary for the transactions.

Joshua Vandyk was sentenced to 30 months imprisonment on 5 September 2014. Click here to read the IRS' press release from earlier this month on the Vandyk, St-Cyr and Poulin case.

The message that DQ's specialist regulatory & compliance team repeatedly passes on to clients is this: it is now absolutely crucial for regulated businesses to ensure that they have appropriate FATCA compliance procedures in place and, importantly, that they properly risk assess all new business to ensure that only legitimate and legal business is accepted.

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