Chief Business Officer of Loyal Bank Pleads Guilty to FATCA Fraud

FATCAThe Department of Justice (DOJ) reported its first conviction of failing to comply with the Foreign Account Tax Compliance Act (FATCA).  The matter involved a former CEO of Loyal Bank.


Based in the Grenadines and St Vincent, Loyal Bank Ltd. is an offshore financial entity with offices in Hungary.  The defendant in this case, Mr. Adrian Brown, was extradited from Hungary and is the former Chief Executive and Chief Business Officer of Loyal Bank.


FATCA is federal legislation passed into law in 2010 that requires foreign or non-US entities to identify and report US-persons who hold accounts or assets in their institutions.  Individuals or entities who fail to do so can quickly become a target of the Internal Revenue Service (IRS).  FATCA is becoming an important transparency tool in secrecy jurisdictions—like St. Vincent and the Grenadines.


In this initial prosecution under FATCA, the IRS conducted a sting operation by approaching Mr. Baron in the guise of an individual looking for help working around FATCA reporting requirements.  Noting that he was conducting a stock manipulation scheme, the undercover agent sought help opening a secret account at Loyal Bank.  By accommodating him, Mr. Baron failed to solicit or gather the information required by the US under FATCA.


Loyal Bank proceeded to open accounts over which the undercover agent was owner, and provided him with debit cards to allow him to access his funds.  According to the DOJ, Loyal Bank opened several accounts throughout July and August of 2017 for the agent—without fulfilling FATCA regulatory reporting requirements.


And it all fell down


The case against Mr. Baron was related to the shutdown of a London Brokerage firm, Beaufort Management Services, Ltd by regulators in the UK.  The general manager of the brokerage, pled guilty to money laundering in July, 2018.


Facing five years in prison, Mr. Baron also pled guilty to defrauding the US through failure to comply with FATCA.  In the Wall Street Journal, a compliance and regulatory specialist, Izabella Koeijers, notes, “Anyone considering avoidance of information disclosure will pay dearly, not just through financial penalties but also, potentially, through criminal proceedings and reputational damage.”


The use of a sting operation by the IRS is not unusual, but worth noting.  Given this first successful prosecution under FATCA, there are undoubtedly more tax fraud, FBAR, and FATCA-associated RS criminal investigations underway.


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