Special agents with the IRS’s Criminal Investigation division are not only taking the lead in investigating pandemic-related fraud, but are also adapting investigative techniques to the new reality, according to CI Chief Don Fort.
The coronavirus pandemic “has caused us to shift and pivot a little bit in terms of our priorities,” Fort said July 7 on an American Bar Association webcast.
CI is heading up investigations into fraudulent claims for economic impact payments, Paycheck Protection Program loans, and refundable payroll tax credits from the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), Fort said. The division is also exercising its nontax jurisdiction to investigate other pandemic-related fraud, including fake cures and masks, he said.
While the pandemic has elicited the best from some, including doctors and nurses, the amount of money devoted to relief has also drawn out the worst in others, according to Fort. “The scammers came out as soon as the money went out there, and unfortunately it is something that we will be living with the rest of this year, but likely in the next year as well,” he said.
Fort noted that CI’s special agents, unlike some other professionals, still need to be out on the streets and talking to people face-to-face to investigate tax crimes and COVID-19 scams. “You can imagine in certain parts of the country how much of a challenge that is with law enforcement to do enforcement operations and interview people in this type of environment,” he said.
CI’s foreign-posted special agents — its attachés — are just now starting to resume their work-related travel, Fort said. Some posts are 40 to 80 percent open, and some of the attachés have to return to their posts because they had been in the United States, he said.
Updated Initiative
CI’s nationally coordinated investigations unit (NCIU), which Fort created when he took over in 2017, may be getting new investigative priorities. The unit uses data analytics to find potential cases for referral to field agents for further investigation.
The NCIU’s priorities include international tax evasion, but that area may be getting a tweak soon, according to Fort. One area that the unit is looking at is expatriates, “but not only expatriates — U.S. citizens living abroad that may not be meeting their tax obligations,” he said.
In his presentation slides, Fort noted that the NCIU may also start looking into food distributors, whistleblower complaints, and captive insurance arrangements.
Like the whole of CI, the NCIU is interested in taxpayers with cryptocurrency holdings. Fort noted that one of CI’s new attaché postings, posted at Europol in the Netherlands, is intended to help with cryptocurrency investigations and cybercrimes for both tax and nontax investigations.
Nanette Davis, senior litigation counsel in the Justice Department Tax Division, brought up another one of CI’s special international activities — its participation in the Joint Chiefs of Global Tax Enforcement (J5). The J5 brings together tax enforcement chiefs and line investigators from the United States, United Kingdom, Australia, Canada, and the Netherlands for information sharing and operational cooperation.
Davis said she and her Tax Division colleagues have found the J5 helpful for their own work, even though CI is the official member of the group. “It can help us get intelligence information and concrete evidence in a way that is much faster than a typical” tax treaty request, she said.
Peeling the Wrapper
Davis said one outgrowth of the Justice Department’s recent non-prosecution agreement with the Swiss insurer Zurich Life Insurance Co. Ltd. will be a continued interest in potentially fraudulent insurance wrapper accounts.
An insurance wrapper is a financial product that nominally looks like insurance, but is actually used as a vehicle to hold some other financial assets. It can disguise ownership of the assets by making it look like they belong to the insurer when they really belong to the clients.
The government is looking at insurance wrappers, which Davis said aren’t inherently illegal, to find illegally hidden assets. She added that the IRS and Justice Department are mining the vast amounts of data they have at their disposal to look for U.S. taxpayers with undisclosed assets held in insurance wrappers.
The government is also seeing ever more complex trust arrangements, often using non-U.S. friends and relations as nominee holders, as ways to hide offshore assets from the authorities, Davis said.