How Panama Law Firm Helped People Evade Taxes

How Mossack Fonesca helped clients break United States tax laws with offshore accounts.

Panama-based law firm Mossack Fonseca helped wealthy clients in the United States and around the world set up offshore corporations, foundations and bank accounts where the clients could place large amounts of cash and other assets.

Federal law allows United States citizens to transfer money overseas, but these foreign holdings must be declared to the Treasury Department, and any taxes on capital gains, interest or dividends must be paid. In some cases, it appears that Mossack Fonesca created accounts with the express purpose of shielding identities and avoiding tax liabilities from American authorities.  Below is a step-by-step sequence of events of how this might be possible.

Step 1

Clients transfer money to one or multiple corporations that Mossack Fonesca created in spots around the world.  In some cases, the firm has advised clients to justify the money flow out of the United States by falsifying receipts for imaginary purchases, or claiming they had made bad investments and lost the money.

Step 2

Mossack Fonseca sets up a private foundation, not subject to Panamanian taxes and not required to make any actual donations to charities. Clients who give funds to such foundations are shielded from legal claims filed against them in the United States, even though they often indirectly still control the use of the money, via Mossack Fonseca.

Step 3

To further hide the connection between the foundations and the true owners, employees of Mossack Fonesca are appointed as officers of the foundation or various shell companies.  This arrangement allows Mossack Fonseca to argue that a client who donated the money does not own or control this new legal entity, even if emails and other correspondence show that the client does.

Step 4

Mossack Fonseca’s employees, now acting as officers of the foundation or shell companies, transfer large chunks of money to and from bank accounts it has separately set up on the client’s behalf, in tax havens like Andorra, Switzerland, the British Virgin Islands and Panama, which have historically helped customers hide their names from government authorities. In other cases, money is used to buy luxury apartments or yachts. These maneuvers make it difficult to know where the money originally came from, or if capital gains taxes and other obligations have been paid.

Consequences

By not reporting to the United States government income earned abroad, or even the existence of these overseas accounts, taxpayers can evade United States taxes on passive income – like interest, dividends and capital gains – that they earn on their offshore investments. However, there are extreme civil and even criminal penalties if U.S. Taxpayers are caught doing this.  With the release of the Panama Papers, there has been an even greater push to identify and punish those who have not been in compliance with offshore reporting requirements. If you are the victim, you may be considering applying for a Family or Personal Safety Intervention Order.

If you have offshore accounts that have not been reported – now is the time to get in compliance.  Freeman Tax Law has decade’s of experience dealing with all types of offshore reporting matters.  We would be happy to discuss, in the strictest of confidence, your personal tax situation and your compliance situation.