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Senate Finance Committee: FATCA Loophole Costing U.S. Billions

By:
S.J. Steinhardt
Published Date:
Aug 24, 2022

The 2010 law intended to capture revenue from wealthy Americans who stash their cash overseas and out of the reach of U.S. tax authorities still has some loopholes, a U.S. Senate Finance Committee report states. 

The report, “The Shell Blank Loophole,” found that several Americans devised a way around the provisions of the Foreign Account Tax Compliance Act by setting up shell corporations in tax havens such as the Cayman Islands, the British Virgin Islands and Guernsey as a way if evading taxes on their overseas income. Other popular tax havens are Switzerland, Singapore, Bermuda and Malta.

The report focused on billionaire software developer Robert Brockman, who died two weeks ago at 81. He was indicted in October 2020 for what was deemed to be the largest tax evasion case against an individual in U.S. history, and was due to stand trial in February.  

Brockman allegedly set up shell companies abroad and registered them with the IRS as offshore financial institutions. When such entities acquired unique Global Intermediary Identification Numbers (GIINs) from the agency, Brockman was able to turn shell companies into "shell banks."

According to the Senate report, "Federal statute, regulations, and FATCA agreements with partner jurisdictions provide that when the account holder is believed to be a non-U.S. financial institution in a partner jurisdiction with an IRS issued GIIN number, 'no further review, identification, or reporting is required with respect to the account.'" As a result banks around the world were "not required by FATCA to affirmatively investigate whether the account [was] held by a U.S. person."

The Senate report found that the IRS issued GIINs to more than 128,000 entities in eight FATCA partner jurisdictions linked to Brockman. It is estimated that he was able to hide $2.7 billion in income from the IRS due to his exploitation of this loophole, most of it from his investments in Vista Equity Partners.

The committee faulted the IRS’s severe lack of resources for the failure to enforce the law. It acknowledged that the operation was uncovered due to information provided by a Vista whistleblower and the cooperation of several co-conspirators. 

The report recommends stepped-up enforcement, including tougher GIIN application screening and due diligence for large-money transfers. 

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