Unveiling Offshore Scams
Offshore frauds might seem like relics of the past, given the stringent “Know Your Customer” rules that demand extensive verification for offshore accounts. But the allure of hiding assets and the pursuit of wealth continue to fuel offshore scams. Let me walk you through three noteworthy examples.
#1) The “Anti-Terrorism Clearance Certificate” Scam
In 2014, I received a panicked call from a wealthy client. He had closed on a six-figure business deal in Asia, or so he thought. A couple of days before he was supposed to receive a bank wire from the buyer, he received an unusual request for it. My client would need to provide an “anti-terrorism clearance certificate.” The buyer sent my client instructions to wire $10,000 to an offshore bank to get this certificate. At that point, the client contacted me.
It’s more than a little ironic that measures taken to fight the war on terror have spawned scams like this. But in reality, this is a variation of a very old fraud: the advanced-fee scam.
A criminal offers you a large sum of money. But you’ll only receive it after you pay a smaller amount to have the funds released. Some scammers use tactics such as requesting multiple payments, under the guise of performing “enhanced due diligence” on you. Once you’ve made your final payment, the criminal – and your money – disappears.
#2) FATCA Scam Targets Foreign Investors in US Securities
Another offshore scam targets non-resident investors in US accounts. It is an email message, purportedly from the IRS, that threatens to impose a 30% withholding tax related to the Foreign Account Tax Compliance Act (FATCA). The only way to avoid the tax, according to the message, is to disclose a great deal of confidential information on a fake IRS reporting form.
Leave it to a law like FATCA to lead to this scam. Foreign investors have learned they need to be hyper-compliant to avoid FATCA’s 30% withholding tax on US income and sales proceeds. So they willingly disclose social security numbers, social insurance numbers, and other personal data that make stealing their identity a piece of cake.
There is a grain of truth to the message, in the sense that if you are a non-US resident investor in any bank or securities broker in the world, you’ll need to file a form to confirm this status when you open the account to avoid FATCA withholding. That form is IRS Form W8-BEN. That’s the only IRS form you should need to file to confirm your non-resident status.
#3) Offshore Ponzi Schemes
Several years ago, a client alerted me about a Ponzi scheme that involved investments in 1920s-era German government bearer bonds, redeemable in gold. I was able to steer my client away. But I wasn’t surprised to learn that in 2014, the mastermind behind this scheme was sentenced to 7 ½ years in prison and ordered to repay investors $2 million stolen from them.
The Birth of the Ponzi Scheme
In 1919, a 37-year-old ex-grocery store clerk with a silver tongue borrowed $20 and within six months became Boston’s so-called “wizard of finance.” Adored by the public as he rode throughout the city in his chauffeured limousine, Charles Ponzi promised that he would pay investors $15 for every $10 they invested with him for more than 90 days. With this appeal, he raised millions of dollars.
Ponzi claimed to be taking advantage of “currency fluctuations” and “specialized knowledge” to make 50% profits every 90 days. But in reality, he was pocketing the money. The scheme ran for nearly a year before it collapsed, costing investors more than $20 million.
What Motivates Individuals to Fall for Offshore Scams?
A combination of hyper-compliance culture and the appeal of insider knowledge often lures victims in.
The insistence on disclosing personal information under the guise of compliance or exclusive access to lucrative opportunities can cloud judgment. But it’s essential to scrutinize such requests, verify their legitimacy, and conduct thorough research before investing. Remember, skepticism is your best defense against these sophisticated scams.
Finally, before you invest in an international investment that’s not publicly traded on a securities exchange, do some homework. Find out who is behind the scheme and learn a little about their background. If you can, try to meet them in person. If enough money is at stake, hire a private investigator to check them out. Forewarned is forearmed.
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