Kenneth Rijock

Kenneth Rijock

Wednesday, September 24, 2014

WILL NEW TREASURY REGULATIONS ON INVERSIONS INADVERTENTLY CATCH MONEY LAUNDERERS ?


With all the frenzy appearing in the financial media, involving coverage of Treasury's new regulations aimed at discouraging inversions, legal efforts US companies make to avoid taxes, by merging with an overseas entity, this might be a good time to note that the increased enforcement of new regulations that close tax loopholes, might just catch a few sophisticated money launderers.

American companies routinely engage in having their foreign subsidiaries lend them a portion of their profits, to gain access to those funds, without having to pay US corporate income taxes on the money.* A new Treasury regulation treats these loans as dividends, thereby making them a taxable event.

Money launderers working for US clients, who have cleaned funds overseas, routinely set up controlled offshore companies, disguised as non bank financial entities, to "loan" their criminal proceeds to a domestic company, which will use the "borrowed" funds to purchase real estate. With increased US scrutiny of legitimate loans from overseas subsidiaries, American law enforcement agencies or regulators may accidentally stumble upon some of these contrived loans. Let us hope that the agents who happen upon such bogus transactions recognize them for what they really are: repatriation of laundered criminal proceeds being invested in the Continental United States. This could represent an unexpected bonus, due solely to the new rules restricting inversions.
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* Sometimes known as hopscotch loans.

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