Federal authorities Tuesday secured a guilty plea involving Adrian Baron, the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, for failing to comply with the Foreign Account Tax Compliance Act (Fatca).
The U.S. extradited Baron from Hungary in July 2018 after an undercover sting where agents enticed him to use Loyal bank, an off-shore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, to evade requirements to report the assets of individuals with U.S. indicia to their home government or directly to U.S. tax authorities.
Fatca is a broad federal law with powerful extraterritorial reach enacted in 2010 requiring foreign financial institutions to identify their U.S. customers and report information about financial accounts held by U.S. taxpayers either directly or through a foreign entity.
The law’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses. For a list of current Fatca governmental agreements, which come in two key forms, please click here.
Nations that sign Fatca “Intergovernmental Agreements” with the United States adopt Model I or Model II IGAs.
Model I IGAs establish procedures for “Foreign Financial Institutions” (FFI) to report financial account information about US persons to the pertinent local authority, which transmits the information to the US IRS. Under Model II agreements, an FFI reports directly to the IRS.
The case relied heavily on cooperation with foreign authorities, including the City of London Police; the U.K.’s Financial Conduct Authority and the Hungarian National Bureau of Investigation. He faces five years in prison.
According to court documents, in June 2017, “an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank,” according to court documents.
The undercover agent then made it clear to Baron he did not want to appear on or be connected to any of the account opening documents for his bank accounts at Loyal Bank, even though he was adamant he would be the true owner of the accounts.
Baron responded, according to federal prosecutors, that Loyal Bank “could open such accounts and provide debit cards linked to them.”
Roughly a month later, in July 2017, the undercover agent again met with Baron and described “how his stock manipulation scheme operated, including the need to circumvent the IRS’ reporting requirements under Fatca.”
During the meeting, Baron stated that Loyal Bank would not submit a Fatca declaration to regulators unless the paperwork indicated “obvious” U.S. involvement, according to U.S. authorities.
Undaunted, Baron made his bank an enabler of the fraud scheme and Fatca evasion moves.
Subsequently, in July and August 2017, Loyal Bank “opened multiple bank accounts for the undercover agent,” according to the DOJ. “At no time did Baron or Loyal Bank request or collect Fatca Information from the undercover agent.”