Complete Guide to Offshore Bank Accounts
By Radar O'Reilly
[From Blackjack Forum Vol. XXVI #1, Winter 2007]
© 2007 Blackjack Forum
[Note: I am not a lawyer, but in writing this article I have relied on the opinions of a number of attorneys, including Allyn Jaffrey Shulman, legal expert at Card Player; I. Nelson Rose, Professor of Law, Whittier Law School, who analyzed the UIGEA at gamblingandthelaw.com (see I. Nelson Rose Analyzes the UIGEA); Lawrence G. Walters, Attorney at Law, of firstamendment.com; and Senate Majority Leader Harry Reid, who has responded in writing to questions about the law. —Radar O’Reilly]
Offshore Accounts as a Practical Solution to Funding Legal Online Play
The Unlawful Internet Gambling Enforcement Act (UIGEA) does not make online poker and online casino play illegal.
But that doesn’t mean the UIGEA hasn’t done plenty of damage to online players around the world. For one thing, the UIGEA intimidated a number of online casinos and poker rooms into closing their doors to U.S. players, as well as players from other jurisdictions where online gambling law could be seen as problematic.
It has seemed to prompt a number of other governments into actions and statements hostile to online gambling. And most important, it created the climate for the big show arrest of the founders of Neteller, on bogus and unrelated money laundering charges, that has caused not only the freezing of U.S. Neteller customers’ accounts but numerous withdrawal problems for Neteller customers everywhere.
I cannot see any reason why players around the world should let the U.S. government, or any other government, intimidate them into obeying laws the government hasn’t actually managed to pass. But players do need to find practical ways to keep their governments from causing their gambling accounts to be frozen and otherwise hassling them.
Foreign (or “offshore”) bank accounts are an excellent and 100% legal way to fund your online casino and poker play, and many foreign banks provide other services you will find competitive with your home country’s banks. This article will help you find honest, safe, well-run offshore banks suitable to your bankroll and needs, and tell you the easiest and cheapest ways to open accounts at them. It will also inform you about legal requirements related to offshore accounts you may open.
Do you really need an offshore account?
Even in the U.S., players do not absolutely require an offshore bank account to continue online casino and poker play. The UIGEA, it is true, makes it illegal for U.S. banks to process money transfers for purposes of illegal online gambling. However, the only online gambling that is illegal under existing U.S. law is wagering on sporting events and contests, and the new law does nothing to change that.
And what if a bill against online gambling has been passed by a state? Here is the opinion of Lawrence G. Walters, Attorney at Law (excerpted from Breaking Down the UIGEA):
While state law supposedly provides the substantive basis for determining whether gambling financial transactions are prohibited under the Act, the application of state law to Internet commerce may result in insurmountable constitutional problems for the government. All state laws that seek to regulate global commerce such as Internet gambling may be unconstitutional under the “dormant” Commerce Clause of the United States Constitution.
Under this argument, state laws which regulate national (or international) commerce are unconstitutional, since such commercial activity should only be regulated at the federal level. The reasoning behind this legal principle relates to the need for efficient and uniform execution of commercial transactions over state lines.
It would be unreasonable to require a merchant to anticipate and comply with a hodgepodge of inconsistent state laws when attempting to engage in commerce at the national level. For this reason, industries such as the railroads and airlines are generally only subject to national, as opposed to state, regulation.
Thus far, the courts have not hesitated in applying dormant Commerce Clause principles to attempted state-level regulation of Internet commerce. Virtually all state-level restrictions on Internet commerce have been struck down on this basis. While this argument has not been considered by the courts in relation to online gambling, the courts should be expected to use a similar analysis to that which has invalided state laws attempting to restrict commercial adult websites.
In addition, the UIGEA specifically allows regulators to exempt banks from responsibility for processing paper checks and many other forms of “uncoded” money transfer, such as bank wires and electronic funds transfers (EFTs), including e-checks.
The banks themselves lobbied hard for this exemption. The problem for banks is that, unlike credit card transactions, which are coded, check payments and EFTs do not indicate the type of business receiving or sending a payment. Laura Fisher, spokeswoman for the American Banker’s Association, gave a statement to the press in which she said, “Analyzing 40 billion checks a year would be a largely manual process.” And in July 2006, the Independent Community of Bankers sent a letter to U.S. Senate leaders that said an earlier version of the law, which included no exemption for uncoded transactions, would promote “an impossible compliance burden.”
So, the UIGEA not only fails to make online casino and poker play illegal, it makes it easy to get around the funding restrictions that were actually passed. It is possible, even now, to continue funding a wide variety of e-wallets, offshore credit/debit cards, and online casino and poker accounts with bank wires, electronic funds transfers, and checks direct from your U.S. bank account.
The real advantages of offshore accounts are that they provide additional (often better) funding mechanisms for online gaming, charge much lower fees for international wire transfers and cashing international checks, and provide additional security against possible interference with your gambling funds by the U.S. government or U.S. bank employees.
Good Offshore Accounts Versus Problem Offshore Accounts
Any bank account opened outside of one's native country is an “offshore” bank account. There is nothing particularly glamorous about opening an offshore account, and nothing sneaky or seedy about it.
There are numerous legitimate financial reasons for opening an offshore account, in addition to funding your online casino and poker play (which is a legitimate reason in and of itself). Residents of a politically or economically unstable country may benefit from having their money saved in a stable currency. Those who travel abroad frequently may benefit from having an account abroad, where they may get a better exchange rate for their home currency. Offshore accounts may provide higher interest rates on your savings.
And offshore accounts with reputable banks are quite safe and convenient to use. There are offshore accounts available even for those who have less than $1000 to deposit. The interest you earn on your deposit is usually not subject to local taxation. Most banking jurisdictions today have strict and exacting regulations in place to ensure liquidity and the safety of depositors. Most accounts are protected by national or international banking insurers. And with the advent of online banking, the holder of an offshore bank account can easily conduct banking transactions from home or anywhere else he has access to a computer, and I have found offshore online banking to be generally much more sophisticated than what I’ve found available at home.
This isn’t to say that every offshore bank is safe. In some jurisdictions, “Brass Plate” banks may be permitted. Such a bank may be a genuine banking business, but it may be operating from an obscure location with just a few employees and only minimum operating capital. How do you protect yourself from banks like these?
Generally, it’s a good idea to look for a bank that is operating as a regular full-service bank for local people, not just foreign clients. And it’s better if the bank has been around for a while, and the search engines don’t turn up dozens of problems for them.
In addition, be aware that any legitimate bank these days must meet a certain set of “due diligence” requirements, which means they must insist on proof of your identity and make sure you have a legal source of income.
Also, these days you have to watch out for anyone promising you an unrealistic amount of account secrecy. The U.S. is using increasingly aggressive and creative means of searching for the offshore accounts of its citizens, and all EU banks now have reporting requirements for EU citizens. (There will be more information on U.S. and E.U. reporting requirements below.) The point is: Anyone who promises complete account anonymity (at least to a U.S. citizen) is most likely either a thief or a fool.
The UK’s Financial Services Authority (FSA) maintains a list of “unauthorized Internet banks” that is worth a look: FSA Unauthorized Internet Banks. Notice that the Griffon Bank, based in Dominica, is on the list. Although the Griffon Bank seems to be a legitimate bank with attractive account offerings, low fees and low minimum balances, they fit the description of a “Brass Plate” bank pretty well, and they have been used for more than one “Nigerian banking scam.”
You also have to be careful to choose an offshore bank that will actually meet your needs for funding your online casino or poker play. If you are seeking an offshore Visa credit or debit card for making online casino deposits, for example, be aware that some banks in Panama offer only a Visa card that cannot be used online.
Recommended Offshore Banks for U.S. Online Players: Canada is the Best Solution
If you can get to Canada, you can open a bank account there as long as you have a passport and other government-issued ID, such as a driver's license or certified birth certificate. (We like RBC Royal Bank for online services, numerous branches, low fees and other account features. Other good banks include Scotiabank and TD Canada Trust, which offers a "borderless account" with the best currency exchange rates and the lowest wire transfer fees.)
Be sure to call the specific branch of the bank at which you wish to open an account to make sure in advance about their requirements, and to make an appointment. Many Canadian banks will not be able to help you open an account without an appointment.
I haven't found any Canadian banks that will allow you to open an account at a Canadian branch without a personal visit. If you open an account online, you will probably find you've opened it at a U.S. branch or partner of the bank, which is not what you need.
Canadian credit cards can't be used to fund online play, but you can use UseMyBank to deposit at online casinos directly from your Canadian bank account, and you can fund and withdraw from your Ecocard account with domestic wire transfers. (In order to fund your Epassporte account, you will have to fund it by EFT from a U.S. checking account.)
If you want to be able to use UseMyBank, be sure the Canadian bank you choose offers an online bill payment feature, and be sure to open your online casino account in Canadian dollars. (If you already have an account in another currency, you will have to call customer support at the casino to close that account and open another one for you in CAD.)
You sign up for UseMyBank from within the online casino cashier. UseMyBank basically allows you to use your Canadian bank's online bill payment service to make deposits. It is 100% free to players, and your privacy is 100% protected by your bank.
Other Recommended Offshore Banks for Online Players: Europe, Asia and the Islands
There are a number of offshore banking options we like in Europe, and all of these accounts can be opened online and by mail as of the writing of this article, so you don't have to travel to the bank to open the account.
For example, we like Swissquote, a reputable Switzerland-based online bank and full-service broker, where you can open an account online. (Once you're at the Swissquote site, click on the link at the left for "Personal Accounts.") After filling out the online application honestly, you will receive an application package in the mail in 3 to 7 business days.
The application package is available in several languages, including English, and it is very clear and easy to deal with. You must sign and date two forms: the account opening contract and the general business conditions booklet. You send those, with a certified photocopy of your passport, back to the bank in the pre-addressed envelope provided in the package (be sure to add the country "Switzerland" to the address if you are mailing it from outside Switzerland).
After Swissquote receives these materials, they will open your account, send you your personal access code for online banking, and you'll be up and running! You can then get a Switzerland-based Visa credit card attached to your Swissquote account for easy deposit at any online casino or poker room, or use the Swissquote online banking service to fund your e-wallet, or online poker account, by bank wire.
Swissquote has no minimum balance requirement and charges no account maintenance fee. Their fees for wire transfers and other services are reasonable, and they offer excellent online banking services. Your credit card limit will be half of your amount on deposit. You can find information on their credit card fees by clicking around the Swissquote Web site.
Another excellent Europe-based banking option (with Visa card) that is suitable even for players with smaller bankrolls is Parex Bank, in Riga, Latvia. Here too you may apply for the account online (you will be required to send in an apostille for both your passport photocopy and the Parex Bank signature card).
Parex offers a current account with online banking, no minimum account balance or initial deposit, and no maintenance fee. (A "current account" is simply a bank account with deposits that you can withdraw at any time.)
The annual fee for the Parex Bank virtual Visa card for online use is $/€25, which is well below the annual fee charged by other honest banks we've found so far. There is also a plastic Visa card available for a fee of $50. There is no need to maintain an extra security deposit for either of the cards—you may use up to the full amount you've deposited to fund the card.
There is no minimum balance for using the Visa card. There are no interest fees unless you somehow overdraw the amount for which you've funded the card. You may fund the card by wire transfer or check, and you may access your account information online. There is a 1% fee for every online purchase or deposit made with the card. Check the Parex bank web site for more information on account options, services, and fees.
Standard Bank Offshore offers a particularly attractive account for players with bigger bankrolls. It's primary attraction is the UK-based Visa debit card, which you can use not only to deposit at online casinos and poker rooms, but also for complete withdrawals. (Most offshore Visa cards can be used for withdrawals only up to the amount of recent deposits. With such cards, withdrawals are treated as refunds. Many offshore debit cards issued by banks outside of Europe cannot be used at all for withdrawals.)
Standard Bank Offshore is a UK branch of a reputable South Africa bank. They offer excellent online banking features, as well as international investment services. The minimum balance for their basic Optimum Account (an Optimum account is required if you wish to obtain a Visa card) is US$5000 or £3000 or €5000. Your credit card limit will be half your amount on deposit. You can obtain further application information
as well as an online application at the SBOff Web site.
Another Europe-based bank we've found particularly easy to deal with is FBME Bank of Cyprus. Again, an FBME current account is available with a Visa or Mastercard, and you may apply for your account online and through the mail. FBME will assign you a personal banker to deal with, and they also offer an option for managing the accounts of more than one individual from one location. Their online banking services are excellent. Their minimum account opening balance is £2050 or $4000.
If you have a still bigger bankroll, and would prefer to open your offshore account outside of Europe, First Caribbean Bank may be a good option for you. The minimum account opening balance is $25,000, and they really want to see at least $100,000 a year turnover in the account.
As of the writing of this article, you can open an account at their Curacao branch online and by mail, and they will get back to you quickly, but if you have this kind of money, you may be better off going and opening an account in person at one of their branches in the Turks and Caicos. What the Turks and Caicos offer is reportedly some of the strongest banking privacy laws available.
(The United Arab Emirates and some Singapore banks are also reportedly still particularly strong on privacy laws, but account minimums will be high.)
First Caribbean offers a current account in a choice of currencies, with the usual Visa card limit of half your amount on deposit. They also offer excellent online banking services and a personal banker. Scotiabank also has offshore branches with good services in Turks and Caicos.
For players who would be interested in an offshore account in Asia, HSBC Offshore offers accounts based in Singapore with excellent online banking services, a Visa card, and a personal banker. The account opening minimum is $10,000, but you have to maintain a $50,000 average balance to avoid a $50 monthly service charge.
If you’re interested in doing further research on offshore banking options, all you have to do is write directly to banks in locations you are likely to be interested in and many will respond with account opening requirements and other information. Offshore financial centers include:
- British Virgin Islands
- Cayman Islands
- Channel Islands (Jersey and Guernsey)
- Cook Islands
- Hong Kong
- Isle of Man
- Labuan, Malaysia
- Saint Kitts and Nevis
- Turks and Caicos Islands
More on How to Apply for an Offshore Account
Banks in most jurisdictions, including all of the jurisdictions you will be interested in if you are looking for an honest, safe, reputable place to put your money, need to show "due diligence" when a new customer applies for an account. Due diligence is a requirement to confirm an applicant's identity and look into how the applicant came by the money he or she will be depositing.
All offshore banks will require at least a certified copy of your passport to confirm your identity if you open your account online and by mail. (They will require your actual passport if you open the offshore account in person.) Sometimes they will require a special certification document, called an "Apostille."
For information on what qualifies as a "certified copy" of your passport, see Wikipedia on certified copies. In many states in the U.S., including Nevada, all that's required is a notarized photocopy of your passport. In some states, you have to make the photocopy in the presence of the notary. In other states, you have to send the notarized photocopy of your passport to your state (NOT national) Secretary of State to certify the notary himself. (You will always have to go to your state Secretary of State for an apostille.)
You will have to include a cover letter asking for the certification or apostille and stating the country where you intend to use the certification or apostille, and you will have to enclose a self-addressed stamped envelope and a check for the fee. Check your Secretary of State's Web site (or equivalent) for the exact requirements where you live.
In most other countries, you can get your passport certified by a local attorney or bank official. Just google your country or state or province and the search term "certified copy of passport" (or "apostille", if your offshore bank requires that form of certification) and you will be able to find out the requirement. If you still have questions, feel free to ask us on the Blackjack Forum message boards.
Other documents that your intended offshore bank may require include:
- Proof of your economic background (most often a photocopy of a recent month's bank statement, or possibly a work contract, tax return, company documents, professional license, or the like).
- Proof of the origin of your deposits. For example, if you state that your deposit has been derived from lottery winnings or the sale of a house, they may require you to produce proof of your winnings or proof of the sale, as opposed to a bank statement or work contract.
- Information about yourself and your deposits, typically on a questionnaire you fill out at the time you first apply for the account.
- Some banks require that you either include a letter of reference from your banker, or provide the contact information for someone at your home bank who can be a reference. If you are asked to provide a bank letter of reference, make sure it includes confirmation of your name and physical address. It also must state how long you've been a customer of the bank (preferably at least a few years), and must state that you are "honest and trustworthy" and "of suitable character to hold an account." Ask your banker to use precisely those terms. Unless you are considered a problem customer at your home bank (repeatedly overdrawn, etc.), you should be able to get a letter of reference by walking in and talking to one of the people who handle wire transfers or open new accounts.
- Some offshore banks require proof of residence, such as an original utility bill less than 6 months old
- If opening a company account, you will be required to send an certified or apostilled copy of the certificate of incorporation and other standard corporate documents.
Of the banks we recommend above, Swissquote and the Canadian banks had the fewest requirements: a passport (or certified copy of passport, if you are opening the Swissquote account by mail), a second ID for the Canadian banks, and a simple questionnaire (on the account application) about your sources of income.
Parex Bank in Latvia requires an "apostilled" copy of a bank signature card as well as an apostilled copy of your passport. This means you are going to have to send the notarized photocopy of your passport, as well as the notarized signature card sent to you by Parex Bank, to your Secretary of State, with a request for an apostille. It won't cost any more than getting a normal certification, but you need a certification that has the word "Apostille" at the top. Go to this link to see what a proper Apostille looks like.
FBME Bank of Cyprus requires a certified photocopy of your passport, an original recent utility bill, a copy of recent bank statements, and a letter of reference from your bank.
Tax Reporting Requirements: The European Savings Tax Directive
In an effort to squeeze more tax money from their citizens, EU governments agreed to the introduction of an EU withholding tax in July 2005. I don’t know the entire contents of the directive, but I do know EU residents who deposit money in offshore EU banks now have to choose between having their EU offshore bank withhold tax on their interest, or allowing the bank to report the interest paid to tax authorities in the account holder’s country of residence.
Furthermore, the rate of tax withheld by the bank will rise in 2008 and again in 2011.
UK residents must also report details about their offshore accounts to HM Revenue and Customs. Residents of other EU countries are often required to report their offshore accounts as well, but enforcement is reportedly less aggressive.
IRS Tax Reporting Requirements for U.S. Citizens with Offshore Accounts
From the instructions for filing Form TD F 90-22.1:
This form should be used to report financial interest in or signature authority or other authority over one or more bank accounts, securities accounts, or other financial accounts in foreign countries as required by the Department of the Treasury Regulations (31 CFR 103). You are not required to file a report if the aggregate value of the accounts did not exceed $10,000. SEE INSTRUCTIONS ON BACK FOR DEFINITIONS. File this form with Dept. of the Treasury, P.O. Box 32621, Detroit, MI 48232
* * *
A. Who Must File a Report -- Each United States person who has a financial interest in or signature authority or other authority over a bank, securities, or other financial accounts in a foreign country, which exceeds $10,000 in aggregate value at any time during the calendar year, must report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30, of the succeeding year.
* * *
B. United States Person -- The term " United States person" means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.
D. Account in a Foreign Country -- A "foreign country" includes all geographical areas located outside the United States, Guam, Puerto Rico, and the Virgin Islands.
* * *
F. Bank, Financial Account -- The term "bank account" means a savings, demand, checking, deposit, loan or any other account maintained with a financial institution or other person engaged in the business of banking. It includes certificates of deposit.
The term "securities account" means an account maintained with a financial institution or other person who buys, sells, holds, or trades stock or other securities for the benefit of another.
The term "other financial account" means any other account maintained with a financial institution or other person who accepts deposits, exchanges or transmits funds, or acts as a broker or dealer for future transactions in any commodity on (or subject to the rules of) a commodity exchange or association.
G. Financial Interest -- A financial interest in a bank, securities, or other financial account in a foreign country means an interest described in either of the following two paragraphs:
(1) A United States person has a financial interest in each account for which such person is the owner of records or has legal title, whether the account is maintained for his or her own benefit or for the benefit of other including non-United States persons. If an account is maintained in the name of two persons jointly, or if several persons each own a partial interest in an account, each of those United States persons has a financial interest in that account.
(2) A United States person has a financial interest in each bank, securities, or other financial account in a foreign country for which the owner of record or holder of legal title is: (a) a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person; (b) a corporation in which the United States person owns directly or indirectly more than 50 percent of the total value of shares of stock; (c) a partnership in which the United States person owns an interest in more than 50 percent of the profits (distributive share of income); or (d) a trust in which the United States person either has a present beneficial interest in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income.
H. Signature or Other Authority Over an Account --
Signature Authority -- A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.
Other authority -- exists in a person who can exercise comparable power over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.
I. Account Valuation -- For items 7, 9, [of the form] and Instruction A, the maximum value of an account is the largest amount of currency and non-monetary assets that appear on any quarterly or more frequent account statement issued for the applicable year. If periodic statements are not so issued, the maximum account asset value is the largest amount of currency and non-monetary assets in the account at any time during the year.
* * *
O. Penalties -- For criminal penalties for failure to file a report, supply information, and for filing a false or fraudulent report see 31 U.S.C. 5322(a), 31 U.S.C. 5322(b), and 18 U.S.C. 1001.
In other words, if you had an average balance of over $10,000 in any or all of your offshore accounts the previous year, including such things as Neteller accounts, Click2Pay accounts, Ecocard accounts, foreign debit card accounts, or Epassporte accounts, or in any other offshore accounts from which you derived benefit, you are required to file the TD F 90-22.1 by June 30th of this year.
Many of you will have been unaware of this requirement, but don't panic if you've missed the deadline. There is a penalty of up to $10,000 for failing to file the form, but if you file the form late, with an explanation for filing late, the penalty will be waived if your explanation sounds reasonable to the government. (If your explanation doesn't sound reasonable, and the IRS determines you've committed fraud, the penalty goes up to $500,000 and 10 years in prison. So be smart.)
Where to File Form TD F 90-22.1
Do not mail TD F 90-22.1 with your tax return, and do not mail the form to the IRS.
Mail your completed and signed TD F 90-22.1 to the Treasury Department at the following address:
Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
Alternatively, you may hand-deliver TD F 90-22.1 to any local office of the Internal Revenue Service, and they will forward the form to the Department of the Treasury.
How to File
You can obtain TD F 90-22.1 (PDF, 4 pages), along with instructions for filling out the form, from the IRS Web site: Form TD F 90-22.1
As you will see, the form requires you to provide information on all your financial accounts held in foreign countries, including:
- Bank accounts
- Investment accounts
- Mutual funds
- Retirement accounts
- Securities and other brokerage accounts
Example: George Jones is a US citizen with a current account at Swissquote, as well as an Ecocard and Epassporte account. Their average balances are $5,000 in the current account, $4,500 in Ecocard, and $1000 in Epassporte. Since the total of all three accounts exceeds $10,000, George must file TD F 90-22.1 to report the three accounts. Sorry, George.
On Your U.S. Tax Return Forms
There is also a dialog box on Part III of "Schedule B" of your 1040 tax return that specifically asks about offshore accounts, holdings or companies.
You are required to answer all questions on the form honestly.
If you earn dividends or interest in your offshore accounts, that income is reported on Form 1040 Schedule B, and you would check the box in Part III Line 7a and indicate the country or countries where you have accounts. Additionally, any foreign taxes paid on your interest and dividends may qualify for the Foreign Tax Credit on Form 1116.
But Do You Really Have to Report Your Offshore Accounts?
Since the banks in many jurisdictions are governed by strong privacy laws and will not be reporting your account holdings or interest, or even the existence of your account, to the U.S. government, do you really have to report these accounts to the U.S. government?
Well, the first thing you need to know before deciding whether to comply with the reporting laws is that when you fail to report income, there is no U.S. statute of limitations on going after you for the taxes and penalties on that income. If the IRS finds out about some foreign bank account twenty years from now, any unreported income is subject not only to the taxes that should have been paid, but also to penalties and interest, plus all the penalties for not filing form TD F 90-22.1.
Another thing you have to consider is that it's nearly impossible to move a lot of money offshore without leaving a paper trail. You probably already know that U.S. banks are required to file CTRs for movements of money over $10,000, and there are a variety of other reports, such as Suspicious Activity Reports, that may be filed for movements of lesser amounts. But even if your offshore deposit amounts stay under the reporting radar, you have to be aware that any withdrawal that is sizeable in terms of the average for your account will be noticed if you are ever audited.
And transfers of money can leave a trail even in years when there is no transfer. For example, if you had $1 million of net assets last year, but this year you have only $850,000 in assets, what happened to the other $150,000? An auditor's livelihood and self-esteem lie precisely in finding discrepancies like this. If you’ve ever known a good auditor [and I do], you know a good auditor will have something like a sixth sense about it, just as a professional gambler will have a sixth sense about a good gambling opportunity.
If an IRS auditor has sufficient reason to doubt the information he is getting from a taxpayer, he can begin a “lifestyle audit.” Now, instead of just looking at your tax returns and supporting records, he can look into every nook and cranny of your personal life for clues to unreported income. The auditor will then try to reconstruct how much income you would need to support a particular lifestyle. If you haven't reported that much income, they dig deeper. The IRS can keep this kind of thing going for years if it wants to.
But that’s not all.
In March, 2000, the IRS issued John Doe summonses to American Express and MasterCard to obtain the identities of U.S. cardholders with accounts at foreign banks. When American Express and MasterCard resisted, the IRS got a judge in federal district court in Miami to order American Express and MasterCard to turn over their records related to cards issued by banks located in Antigua and Barbuda, the Bahamas and the Cayman Islands.
The IRS argued that U.S citizens and residents with such accounts were diverting income to the offshore banks and evading U.S. taxes. After lengthy negotiations, American Express provided the identities and information concerning their offshore cardholders, as well as driver’s license and passport numbers. MasterCard is reported to have provided records of more than 230,000 accounts and 1.7 million transactions. The IRS has said the information obtained will be compared with the taxpayers’ returns and Treasury Department filings to see if the offshore bank accounts were disclosed.
On March 25, 2002, the IRS petitioned the federal district court in San Francisco to require VISA International to produce foreign bank account records in more than 30 countries, including Switzerland, Hong Kong, Singapore, Cyprus, Panama, Latvia and numerous Caribbean countries. In its court filing, the IRS estimated that one to two million taxpayers were using credit and debit cards based in these countries to pay living expenses with income on which they were avoiding taxes.
The U.S. government has even shown a willingness to use strong-arm tactics with other sovereign countries in order to get the information it wants on U.S. citizens’ income.
One of the government’s first actions in its attack on the offshore financial industry was the issuance of Financial Advisories. In late 1998, the Caribbean nation of Antigua and Barbuda revised its money laundering and offshore banking laws to create what was arguably the strictest anti-money laundering jurisdiction in the world. However, it simultaneously enacted very stringent laws prohibiting the dissemination of account information beyond the local regulatory bodies. Most importantly, it made it a crime to disseminate such information to foreign governments without a specific court order.
Although such orders were readily obtainable for the purpose of investigating money laundering offenses, tax evasion was specifically designated NOT to be a money laundering offense. In response, the United States immediately issued a Financial Advisory against Antigua and Barbuda, advising U.S. financial institutions that Antigua and Barbuda’s financial sector now constituted a significant money laundering threat, and all transactions were to be subjected to enhanced scrutiny.
As a result of the Advisory, some of Antigua's offshore banks lost U.S. correspondent relationships. Similar action was taken by the United Kingdom with the encouragement of US-brown-nose Tony Blair. The Advisories remained in place until Antigua and Barbuda gave in, amended its laws, and started forking over account information. And Antigua is not the only country that has caved.
Even if you do as the privacy consultants suggest, and turn yourself into a corporate-type entity or structure (such as a Panamanian Foundation, or Belizian corporation) in one offshore country, and then open the bank and investment accounts for that entity in another offshore country, and even if you try to pick the countries with the strictest privacy laws for all of this, limiting yourself to countries with enough clout and independent resources to stand up to the U.S., all the government really has to do to start unraveling your trail is demand access to your account (through a local court order) based on a drug trafficking and money laundering agreement that almost all countries have signed.
The international hysteria about money laundering, a "crime" dreamed up by the U.S. government about 20 years ago, has compromised even Swiss and Belgian banking privacy to some degree (as when the central bank of Belgium allowed the U.S. government access to SWIFT databases in violation of Belgian privacy laws). And what is "money laundering"? As one offshore banking advisor who wishes to remain anonymous put it, "It is pretty much anything prosecutors want it to say it is."
Here’s the practical reality. In my opinion, the IRS, properly used, is more an asset to a professional gambler than a liability, despite the fact that we all hate pouring our hard-earned money into the bottomless government maw. Report your accounts, pay your taxes, and think of it as protection money.
Professional gamblers tend to live an unusual lifestyle with regards to money. You may tend to travel around with lots of cash much more often than people in other lines of work. If a traffic cop from a cash-starved county stops you for speeding and decides to seize the cash you are carrying from a recent poker tournament win, the tax returns you've been filing showing your profits on your poker tournament play will be the key factor in getting your bankroll back.
If the Department of Justice shows up at your door asking about the tens of thousands of dollars you are wiring all over the world, your attorney’s ability to produce honest tax returns showing your income from online casino and poker play can save you a lot of stress, time and legal expenses.
I don't see why online players should obey laws that haven't actually been passed, but it does make sense to me to comply with those that have. ♠
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