Assets Worth $11 Trillion Discovered In Offshore Accounts In 2019

The Common Reporting Standard, or CRS, is a standard of information developed for the Automatic Exchange of Information (AEOI) by the Organisation for Economic Co-operation and Development (OECD). It combats tax evasion on a global level. The CRS is cooperating with tax authorities to root out all of the incidents. Prevention of corporate and individual tax evaders who claim less profit than their actual are being prosecuted.  

The idea was initiated by the United States Foreign Account Tax Compliance Act (FATCA) which has legal authorities in the Convention on Mutual Administrative Assistance in Tax Matters. It is a global union of 97 countries cooperating in order to combat tax crimes on each other`s soil. 

Rooting Out Tax Evasion

The OECD released a report, revealing that automatic reporting in 2019 helped uncover assets worth as much as $11 trillion in offshore accounts. The CRS was officially launched in 2017 and has been reporting annually cases of tax evasion across different industries. A lot of the cases are coming from cryptocurrency exchanges, which provide greatest level of anonymity. This is due to the fact that while the blockchain tracks the transactions, it is hard to associate accounts with owners and identify them. However, rooting these fraudulent users and companies out works in similar ways as other parts of the industry.

A fraudulent exchange trade sets high margin calls. The reason being is that they are usually trading against the traders themselves and thus try to be the winning side of that trade. So basically they are trying to close the trade as soon as possible to walk away with the money. The United States Internal Revenue Service, or IRS, works hard to identify and cease such companies but this is an exhaustive and time consuming process. The fraudulent brokerages usually have terms, proclaiming high margin calls, which are often ignored by the unsuspecting user, or terms remain hidden from their eyes. The way they handle this is extremely similar to a margin call in forex but the way it works in the foreign exchange market is much more sophisticated and hard to fake. This is mostly because forex brokers usually conduct trades straight on the international market, whilst crypto exchanges have their local capital used for trades. This makes fraudulent businesses get away with such activities easier. 

The CRS itself is different from other international tax reporting standards. This is due to a major caveat where the countries are forced to automatically report all financial activities in accounts held by foreigners. Considerable amount of bureaucracy is extracted through this way of operation, and a lot of issues associated with information requests from governmental institutions are being solved. 

The pack of 97 countries supporting this initiative are responsible for this achievement. All of them seek to root out tax evasion cases in their countries utilized by fraudulent individuals and companies using offshore bank accounts. It is worth noting that the considered as an “offshore haven” for a lot of institutions interested in tax avoidance, Cayman Islands, adopted CRS. This makes it much harder for fraudulent users to hide their activity.

When CRS was first introduced in 2017, the first report stated that $1.2 trillion were utilized to avoid taxes. Just 3 years later this number has increased tenfold making it $11 trillion. This showcases that the formed venture behind the initiative is increasing the global standards against crimes. 

Cryptocurrencies

The cryptocurrency, as we already mentioned, are a good substitute of traditional offshore banks. For example, in 2019 the IRS issued a Revenue Ruling 2019-24 outlining the new framework for the 2019 tax filing draft. The United States is not the only country to be interested in controlling the tax evasion cases through such regulations. The United Kingdom's tax agency, Her Majesty’s Revenue & Customs (HMRC) issued a contract for 100,000 British Pounds searching for a candidate to assist in gathering intel data through cluster analysis. The HMRC aims to counter crypto-asset transactions that are used to hide revenue from the government institutions. 

The idea is that if an individual or a company holds any digital assets (currencies) and sells or exchanges their assets, they will have to pay taxes. If the cryptocurrency is paid as a salary it is considered a taxable income. However, when received as a gift, cryptocurrencies are not subject of taxation. 

Generic blockchains like Bitcoin and Etherium are quite possible to track. Investigations, conducted by authorities are initiated when suspicious activities have been observed. In many cases, cryptocurrency payments are not taxed, as most the vast majority of the world do not recognize crypto as real money.  

There are locking and freezing systems available in some of the cryptocurrencies blockchain, similar to Tether (USDT). It is worth noting that while cryptocurrencies may offer something offshore banks did in the past, it is still extremely hard to move trillions of dollars through blockchains.