Asia tipped as next target of US tax crackdown

Asian financial institutions could come under closer scrutiny by US authorities that are seeking to expand a probe into offshore tax avoidance activities across more jurisdictions, according to consultancy firm AlixPartners.

The US government has stepped up efforts to counter tax evasion activities by its citizens in recent years. Last year, the Department of Justice (DoJ) rolled out an amnesty programme for Swiss banks that faced the threat of criminal prosecution in the US due to potential wrongdoing in helping clients to conceal assets. The programme provided the banks with immunity from prosecution in exchange for one-time penalties and detailed disclosure of offshore bank accounts. More than 100 Swiss banks have opted to participate by disclosing information about their US clients.

Harvey Kelly, managing director at AlixPartners, said at a media conference that the amnesty programme revealed how some money concealed in Swiss banks has since migrated to Asia. “So the next step in the process would be for the government to continue to follow that trail of money and to explore whether similar patterns have happened in other parts of the world; where people should pay US taxes, and conceal assets in financial institutions in Asia or other countries besides Switzerland,” he said.

Mr. Kelly expects that the amnesty will be extended to Asia at some point. “The government in all likelihood will target foreign financial institutions in other parts of the world, including Asia,” he said.

The amnesty programme has enabled the US government to become more familiar with how US citizens have evaded tax in the past. Furthermore, the government has put in place the Foreign Account Tax Compliance Act (FATCA), which requires reporting of foreign financial accounts and offshore assets held or owned by US taxpayers.

Lawyers believe Asian financial institutions need to maintain a high level of compliance with anti-tax avoidance regimes, including FATCA, as US authorities actively seek to trace money concealed by Americans.

“Financial institutions which have not been a part of that compliance environment are at a disadvantage because the government knows and understands how money moves and how the offshore world works at this point; because it has more than 50,000 Americans, together with more than 100 banks, coming in and explaining to them,” Brian McManus, partner at international law firm Latham & Watkins, said at the conference.

The firm added that it is pushing for financial institutions to achieve FATCA compliance at this stage, due to the absence of a universal agreement on the application of the regulations involved. It does, however, expect clearer rules to materialise in future.