Banks take bigger role in Latin America fight against tax evasion

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By Luc Cohen and Guillermo Parra-Bernal | BUENOS AIRES/SAO PAULO

BUENOS AIRES/SAO PAULO When Argentina launched a
tax amnesty program last year to bring billions of dollars back
into the country, it found support from an unlikely corner: the
banks whose clients had stashed money abroad.

President Mauricio Macri had no shortage of motivation to
initiate the amnesty plan. Some $400 billion in undeclared funds
was being held outside Argentina, the economy was in recession
and the government badly needed to boost revenues.

He offered residents until the end of March to declare
assets and pay a fine to avoid prosecution for tax evasion. But
there was an added incentive – one that marked a break with the
past and had nothing to do with how the policy was designed.

This time wealthy Argentines with offshore accounts at two
of the world’s largest private wealth managers, JPMorgan Chase &
Co and UBS AG, began receiving letters from the
banks asking for proof they had declared their assets to tax
authorities, three people with knowledge of the situation said.

By year’s end, Argentines had declared $97.8 billion, and
are expected to declare much more by the March deadline. That
surpassed initial analyst estimates of $60 billion and dwarfed
the $2.6 billion declared in the 2013-2015 amnesty program.

“You can only explain this with some help from banks,” said
Buenos Aires tax lawyer Eduardo Aguilera of RCTZZ Abogados. He
said he had clients who received letters from JPMorgan and UBS
as well as other clients who had been encouraged to participate
through more informal conversations with bankers at Citigroup
Inc and Wells Fargo & Co.

The banks declined to comment.

It is unclear how much of the tally can be attributed to the
involvement of the banks. But more than a half dozen people
involved in amnesty programs – including lawyers and accountants
– said the banks were instrumental in the effort. They described
similar actions by the banks in recent amnesty programs run by
Brazil and Chile.

Those efforts mark a turnaround from banks’ more passive
approaches toward earlier tax amnesty programs, and reflect a
growing sensitivity to stricter regulations and perceptions they
could be abetting tax evasion.

“They have decided to stop helping clients to hide money,”
said Miami-based lawyer Martin Litwak, founder of Litwak &
Partners, which has advised clients participating in tax
amnesties across the region and had Argentine clients who
received letters from JPMorgan and UBS.

He said the letters from banks ask clients to confirm that
their assets are declared, sometimes requiring certification
from an accountant or lawyer, and for permission to exchange
information regarding their account with authorities.

“The banks play a fundamental role. If the banks are not
involved, there’s nothing the government can do or say to
convince people to participate,” Litwak said.

FAMILY PANIC

The shifting dynamics around amnesty programs can be
attributed to two equally powerful forces: stricter rulemaking
and public outrage.

Across Latin America, many wealthy residents have long
resented paying high taxes for what they considered to be
substandard public hospitals and poor public education. Then
there was the government corruption, the potential for
hyperinflation and fears their savings could be confiscated.

All that could be avoided by stashing money in offshore
accounts, set up by banks and out of reach of their home
country’s tax collectors. Tax amnesty programs launched by
cash-strapped governments to draw back the funds generated
little enthusiasm.

“We had other tax amnesties, but this time there’s a much
broader transparency framework in the world,” said Humberto
Bertazza, a partner at Buenos Aires accounting firm Bertazza
Nicolini Corti & Asociados.

Government crackdowns on tax evasion began in the aftermath
of the 2008 U.S. financial crisis. The United States passed the
Foreign Account Tax Compliance Act in 2010, requiring foreign
financial institutions to share information on U.S. citizens
with overseas accounts with the U.S. government.

Brazil, Chile and Colombia signed on in 2014, and have
reciprocity agreements in which U.S. authorities send those
governments information on their citizens’ assets in the United
States. Argentina has taken steps to follow.

Latin American countries reached additional agreements to
share information with one another – and with traditional tax
havens like Switzerland, under the auspices of the Organization
for Economic Cooperation and Development.

Then came the Panama Papers, a massive leak of offshore
financial data. The revelations in the documents, released last
year, exacerbated public outrage over the extent to which the
rich and powerful masked their wealth through hidden accounts.
The previous year, Brazil had been rocked by revelations that
6,000 Brazilians held secret accounts at HSBC Holdings Plc’s
Swiss private banking unit.

“I convinced several of my clients just by saying, ‘They’re
going to like you more back where your bank is located when you
send them proof that you got into the amnesty,'” Aguilera said.

When Brazil launched its amnesty program last year, wealth
management executives at UBS, Pictet Group AG and Credit Suisse
Group were instructed to tell clients to declare their
secret accounts and join the country’s amnesty program, three
people with direct knowledge of the situation told Reuters.

Some banks went further. Clients who wanted to remain
outside the program in Brazil were told in some cases to move
their money to another bank, one of the people familiar with the
tax amnesty said.

“Our lawyer and our family’s banker basically told us to
disclose every single offshore asset we have, and they said so
in a way that panicked the entire family,” said a Sao
Paulo-based client of UBS Private Bank in Switzerland, who asked
for anonymity to speak about the issue.

“It cost us dearly but now we understand why the pressure
was big on us to do this.”

(Additional reporting by Mitra Taj in Lima, Rosalba O’Brien in
Santiago, Helen Murphy and Carlos Vargas in Bogota and Alonso
Soto in Brasilia)



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