The IRS’ Criminal Investigation (CI) Division and Her Majesty’s Revenue & Customs (HMRC) from the U.K. recently collaborated on a symposium held over three days in the District of Columbia. The event focused on international financial crimes and cross-border tax evasion, indicating governments are putting a lot of effort into preventing these crimes.
Both IRS CI Chief Richard Weber and HMRC CI Director Richard Summersgill explained their organizations are committed to cracking down on these issues. As technology and international collaboration improve, tax evaders have fewer ways to hide.
“The IRS continues to enhance its international efforts through a number of strategies working with international law enforcement and actively participating in a number of international financial task force groups,” Weber said. “We will continue our recent successes in international cases, following the money across the world to bring criminals to justice.”
The IRS release noted participants shared best practices for tackling the biggest contemporary international financial crimes. These challenges include international tax evasion, repayment fraud, transnational crime and refund crimes.
Combating tax crimes in a shrinking world
Summersgill noted how “there is no safe haven” for individuals who commit these crimes due to the global effort to end international tax crimes.
“The world is becoming a much smaller place for those who want to hide themselves and their assets behind anonymous corporate structures,” Summersgill said.
This cooperation is longstanding between the U.S. and U.K. In fact, the U.K. was one of the earliest governments to sign an intergovernmental agreement (IGA) with the U.S. for the Foreign Account Tax Compliance Act (FATCA). This was a bilateral IGA, which means the U.S. will transmit information to the U.K. as well as receive it. If this was not enough of an indication of the U.K.’s mutual commitment to stopping cross-border tax evasion with the U.S., the U.K. even has its own international tax legislation in the works.
While these two countries have been working diligently, they are not the only nations involved in the effort. The three-day symposium included delegates from various countries, including New Zealand, Australia, the Netherlands, Canada and Norway.
What this means for financial institutions
The intergovernmental cooperation to crack down on cross-border tax evasion and other international financial crimes mainly targets individual taxpayers, but that doesn’t mean organizations are off the hook. This is particularly true for financial institutions (FIs), which now have a plethora of new tax information reporting obligations as result of this collaboration.
Recently, the IRS opened its online system for these organizations to report information on their U.S. clients under FATCA. While the system is meant to be a seamless way to transmit encrypted data, it is likely FIs will have some trouble during the upcoming inaugural transmission.
Additionally, the coming years could see more reporting obligations from other countries. The U.K. is not the only country trying get its own international tax legislation off the ground. Citywire reported China is working on similar regulations, though no specifics of the law are available yet. There’s also the Organization for Economic Cooperation and Development’s Common Reporting Standard (CRS), which is fostering more multilateral and bilateral agreements.
As more governments create these laws and the CRS picks up more ground, financial institutions will need to collect data on more clients, create a larger number of reports and transmit that data to more governments. Considering FATCA alone required significant technological investments at FIs, these organizations should prepare for additional costs and operational demands as more countries work together to curb international tax evasion.
