In 2010, President Obama broke the hearts of tax-hating gazillionaires everywhere when he passed the Foreign Account Tax Compliance Act (FATCA), which requires banks around the world to report the accounts and assets of US clients to the IRS.
But as they say, one door closes and another opens. A new report from the Senate Finance Committee sheds light on how ridiculously easy it is for rich Americans to exploit a loophole in the US law to shield “vast amounts of income.”
Offshore Assets, Onshore Perks
There are only two countries in the world with tax regimes based on citizenship instead of residency: the United States and the Horn of Africa’s Eritrea. That means when someone from Topeka, Kansas decamps for a lucrative new job in Paris, they are still on the hook for taxes with Uncle Sam (subject to certain allowable credits).
But according to the Senate report, skirting FATCA is as easy as Sunday morning in the Caribbean:
- First, tax dodgers can set up shell companies and register them with the IRS as offshore financial institutions. From there, the IRS issues what’s known as a Global Intermediary Identification Number, or GIIN, which relieves the banks of their duty to investigate whether they are owned by a US citizen.
- According to the report, there are hundreds of thousands of entities with GIINs in domiciles like the Caymans and BVIs. The agency noted it is “extraordinarily difficult to do meaningful due diligence” on these entities.
Bern with Blinders On: The senate report sprang from an investigation into Robert Brockman, the now deceased software billionaire who was subject to the largest tax-evasion case against a single person in US history. The report asserted that Brockman hid $2 billion from the IRS using Swiss banks that determined “no further review, identification, or reporting is required with respect to the account[s].” Brockman, who named his 209-foot yacht Turmoil, died on Aug. 1 at the age of 81.