IRS Crackdown On Offshore Credit Card Schemes Could Be Heading For Impasse

by Mike Godfrey, Tax-News-com, New York

13 August 2001

In October last year, the IRS announced that it was taking aim at US tax evaders through their use of credit cards and attempted to force credit card companies such as American Express and MasterCard to disclose the identity of customers who have registered accounts in Caribbean tax havens.

However, despite serving summonses against the credit card companies the IRS has so far failed to secure any legal action against them or their clients, and the department continues to lose out on revenue which it suspects could be between $9 billion and $23 billion a year.

Thomas Cash, managing director at investigative firm Kroll Associates and former head of the US Drug Enforcement Agency in Florida and the Caribbean, explained to reporters the advantages of credit card money laundering: 'It's a lucrative business all around - the bank gets a fee, the credit card company gets a fee, the bill gets paid, and you get access to your money. Your biggest mission in life, if you're involved in money laundering or hiding income, is being able to use your ill-gotten gains.'

He added: 'Credit card companies are very competitive, they are very much compensated by how much people spend on their cards. It's not in their interest to go around finding out who is spending what on what.'

Although the cards themselves are not deemed illegal, it is the use of them with the intent to launder money that is the problem. John Buchanan, who leads the IRS abusive tax schemes program, estimates that 100,000 - 250,000 people use offshore credit cards. 'The major credit cards all maintain systems, through monitoring and paying the credit cards and debit cards so you and I can use them,' Buchanan said, 'there are only four or five major players in the world in that market. They are going to have access to moving that money back and forth if you use a credit card for it.'

The main credit card companies served with summons were MasterCard and American Express. They were called upon to reveal the names of US taxpayers who were issued credit, debit and charge cards by banks in Antigua and Barbuda, the Cayman Islands and the Bahamas in 1998 and 1999.

The other top U.S. card network, Visa, was not served with a summons, and the IRS wouldn't comment on the reason. No charges have been brought against the networks, which are owned by major banks.

American Express described the summons as 'extremely broad,' and is currently discussing the details of the document's requests with the IRS but so far no information has been disclosed. MasterCard has said that it is also conducting talks with the IRS and has not yet submitted any information.

So it appears, say many observers in the US, that a 'legal standoff' between the IRS and the credit card companies, which are fighting to preserve client confidentiality, could take place. 'This will go all the way to the upper levels of the judiciaries,' predicted Thomas Cash.

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