First FATCA Criminal Conviction: Case Background & Impact

September 18, 2018

On September 11, 2018 Adrian Baron, Chief Business Officer at Loyal Bank Limited, Budapest pleaded guilty for failing to comply with FATCA.


Who Is Adrian Baron?

 

  • 63 year-old UK citizen.

  • Became a St. Vincent and the Grenadines (SVG) citizen after residing in SVG for approximately eight years.

  • Relocated from SVG to Budapest, Hungary in 2015.

  • Former CEO of Loyal Bank and CBO at time of indictment.

  • Business responsibilities included global marketing and sale; public relations; correspondent bank relationships development; contact point for UK and Gibraltar clients and agents with a focus on single and multiple family offices, wealth managers, investment managers and hedge funds.

  • Extradited to the U.S. from Hungary in July 2018.


What Is Loyal Bank?

 

  • An offshore bank with offices in Budapest, Hungary and SVG. 

  • Held an off-shore banking license from the SVG Financial Services Authority.

  • Registered with the IRS as an FFI under FATCA.

  • Marketed itself on its website as an internet-based multicurrency private bank specializing in wealth management, private banking and investment banking for individuals and corporations.

 

What is Loyal Agency and Trust Corporation?

 

  • An offshore management company, located in SVG.

  • Registered with the IRS as an FFI under FATCA.

  • Marketed itself on its website as providing off-shore company formation, provision of nominee shareholders, and trust and foundation formation.


Baron & the Undercover Agent


An undercover agent working with the U.S. Department of Justice (DOJ) met twice with Baron stating that he:

 

  • Was a U.S. citizen involved in stock manipulation schemes;

  • Wanted to open multiple corporate bank accounts at Loyal Bank;

  • Did not want to appear on any of the account opening documentation despite being the beneficial owner; and

  • Described how his stock manipulation scheme operated, including the need to circumvent FATCA.


Baron told the undercover agent that Loyal Bank:

 

  • Could open such accounts and provide debit cards linked to the accounts; and

  • Would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” U.S. involvement.


Loyal Bank:

 

  • Opened multiple bank accounts for the undercover agent; and

  • Never requested or collected FATCA Information from the undercover agent.


What Were the Indictment Counts Against Baron?


Baron was indicted on March 1, 2018 by the U.S. DOJ in relation to a $50 million international securities fraud and money laundering scheme.


Count One charged Conspiracy to Commit Securities Fraud against others but not Baron, Loyal Bank, or Loyal Agency and Trust Corporation.


Count Two charged Money Laundering Conspiracy against, among others, Baron, Loyal Bank, and Loyal Agency and Trust Corporation.


Count Three charged another Money Laundering Conspiracy against others but not Baron, Loyal Bank, or Loyal Agency and Trust Corporation.


The U.S. DOJ gave notice to all defendants that the U.S. would seek forfeiture of any property, real or personal, involved in such offenses, or any property traceable to such property.  If that forfeiture process was not successful, the U.S. would seek forfeiture of any other property of the defendants up to the value of the forfeitable property.


What Did Baron Plead Guilty To?


He pleaded guilty to conspiring to defraud the United States by failing to comply with FATCA.


Sentencing has not yet taken place but Baron faces up to five years in U.S. federal prison.


What Does This Mean for the Industry?


Baron’s guilty plea is the first-ever conviction for failing to comply with FATCA.  The conviction was part of a complex scheme involving six individuals and four entities.  None of the indicted individuals or entities was a U.S. person.


The Baron extradition from Hungary demonstrates the U.S. willingness to work with other jurisdictions on FATCA enforcement.  Individuals and entity management should not consider themselves untouchable because they perceive their activities as occurring outside of the U.S.


The U.S. federal law which FATCA is part of was passed in 2010.  The IRS issued final FATCA regulations in 2012 (which have been amended through the years).  The first round of FATCA reporting was submitted in 2015.


From the IRS’ perspective, there has been sufficient time for the industry to be aware of FATCA and implement internal compliance policies and procedures.  The key is not to simply draft AML/BSA and FATCA policies and procedures and throw them in a drawer but to actively enforce them through process review and training.


For additional blog posts, please go to my website: elizabethmcmorrowlaw.com/blog-index.


 

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