Stealth wealth is the stuff of fiction. In real life, tax or legal authorities eventually catch up with people who try to hide their money.
Money laundering and failure to disclose foreign bank accounts are among the dozen charges that Robert Mueller filed against three former campaign advisors of President Donald Trump.
George Pappadapolous pled guilty to the charges a couple of weeks ago and agreed to cooperate, while Paul Manafort and Rick Gates pled not guilty on Monday, October 30.
$75 Million in Stealth Wealth
According to the indictment (which you can read on the U.S. Justice Department website at this link), the three officials tried to hide $75 million in payments from Ukrainian leaders and political parties between 2006 and 2016 using “scores of United States and foreign corporations, partnerships, and bank accounts.”
The defendants did not disclose to any of their U.S. tax preparers that the trio had set up a series of shell holding companies and bank accounts were set up in Cyprus, Saint Vincent, Grenadines, and the Seychelles — all of these entities funneled the payments from the Ukraine in a long series of transactions that attempted to evade notice by the authorities.
U.S. laws require financial institutions to report any transaction of $10,000 or more along with anything that might look suspicious.
The defendants clearly tried to evade that reporting requirement by setting up counterparties in countries that aren’t suspicious like the Ukraine might be, and by divvying up the original transactions into oodles of payments beneath the size of the reporting threshold. That’s why it took 10 years to move all the money.
While experienced money launderers might further try to evade detection by keeping funds outside of payment networks, even the movement of hard cash between borders would eventually correspond to plane tickets that are traceable.
The indictment against Manafort and Gates said their laundering scheme included buying luxury goods for his extended family by wiring payments from overseas to U.S. vendors including real estate concerns.
Manafort used these properties as collateral for loans and then defrauded the lenders in order to obtain more favorable interest rates. Apparently, Gates’ spending included his children’s tuition and interior decorating.
Crime and Punishment
While the case might be more elaborate than other attempts to hide money, it still provides some helpful lessons.
For starters, attempting to hide money from tax authorities involves an element of hubris — the perpetrators believe that they stand a chance of getting away with an offense that has actually been the downfall of a long history of criminals.
Tax evasion becomes the one charge that law enforcement officials use to bring down famous criminals.
No Such Thing as Anonymous Bank Accounts
Although criminals in movies wire money to bank accounts in Switzerland, the Cayman Islands and Barbados without detection, in reality these parts of the world cave in to requests by American law enforcement officials.
The U.S. has reciprocal tax treaties hashed out with individual countries so that each side can repatriate funds owned by respective citizens, so complying works to everyone’s benefit.
When the alternative to compliance is a possible trade embargo by the world’s biggest economy, most foreign banks choose to comply with requests for information.
Fines Work Too
Foreign banks often have U.S. branches that become subject to massive fines upon discovery of even unwitting involvement in money laundering. Mobile payment vendors also face penalties of this nature.
One estimate of these fines by PwC suggests that they amounted to hundreds of millions, if not billions of dollars, over the past few years.
PwC said that other countries might follow the U.S.’ lead in pursuing money launderers out of the collective interest in stopping terrorist activity.
The IRS Has a Wealth of Resources
Meanwhile, attempts to hide money don’t have to leave the country to rankle the U.S. Internal Revenue Service. The agency has a growing web of resources for detecting attempts to avoid taxation.
It starts with several decades of laws that make it easier for the IRS to catch those involved in terrorism, drug trade and money laundering (apparently, lawmakers put financial provisions into the Patriot Act after the public learned that Osama Bin Laden had lined up a small fortune in short selling of airline stocks following 9/11).
Then on top of that, the agency continues to upgrade the technology used to detect patterns of behavior that suggest all of the aforementioned crimes — these systems include “compute intensive” applications of artificial intelligence.
A component of all this includes the technology enabling taxpayers to file their returns electronically in order to obtain refunds faster.
Similarly, businesses have numerous incentives to report payments to vendors, contractors, and employees in exchange for more favorable tax treatment. The IRS matches all of these reports against one another in its computer system to determine whether anyone neglected to report any income.
As the agency discovers these discrepancies, the IRS sends out letters to taxpayers asking for the amounts not paid. Timely payment can minimize fines or penalties, but usually doesn’t eliminate them.
If you ever receive one of these letters, it’s in your best interest to pay in full as soon as possible. And if you don’t have the money to pay, contact the IRS about setting up a payment plan.
Just communicating with the IRS about this can save you lots of grief in the form of fees and penalties that would otherwise grow over time.
In fact, it behooves you to grovel or otherwise brown-nose in these situations. The IRS can obtain a court order to garnish your wages or seize your property, and doesn’t need your consent to do it. This usually leaves a black mark on your credit report for seven years.
Additionally, the IRS has the power to confiscate your passport if your tax delinquency reaches $51,000 or more.
Don’t Try To Hide
All of these outcomes could be avoided by simply not trying to hide your money from tax authorities. Get over the stealth wealth idea that you might have gotten from the movies and instead pay your share.
And it’s not like you’re just giving money away when you pay taxes — a chunk of it goes toward funding your retirement benefit from Social Security. The rest pays for government services that benefit you.
You don’t even have to agree on that point — if you want to redirect your money to a nonprofit cause you believe in, it’s possible to do that. Donate to charity and then itemize the deductions, although you need to make a big contribution before you can itemize.
The extra trouble required to make a big enough charitable donation that you could itemize might seem like a hassle, but it beats the heck out of all the punitive alternatives.
Readers, have you wished you could find a legal way to hide your money?