Some customers may be using offshore credit cards to evade paying income taxes and illegally transferring money out of the country.
PayPal will likely cooperate with authorities should a federal judge in San Jose allow the Internal Revenue Service to request those customer records; a spokesperson for PayPal told Mercury News she could not comment specifically on this case as PayPal hasn’t seen the request.
The IRS believes more than $40 billion in tax revenue goes uncollected due to abuses of credit cards linked to countries with less than stringent money transfer policies, and bank secrecy laws that prevent them from cooperating with American authorities. These tax havens provide a shelter for income that is illegal under US law.
Federal investigators told the court they have already requested information from credit card giants MasterCard and Visa as part of the investigation. The PayPal information would be needed to further identify violators.
The ongoing investigation spans a five year period, from the beginning of 1999 through the end of 2004.
In 2002, the Government Accountability Office (GAO) studied the problem of credit card usage in money laundering. Its report to the Senate said credit cards were not likely to be used at the start of a money laundering scheme, but could figure in the process later:
Some credit card industry representatives and bank regulators we interviewed acknowledged that credit cards could be used in the layering or integration stages of money laundering; however, the extent to which this may be occurring is unknown. These officials, as well as most law enforcement officials we spoke with, were not aware of any cases of money laundering through credit cards in U.S.-based institutions.
David Utter is a staff writer for murdok covering technology and business. Email him here.
