By Patrick Temple-West
WASHINGTON (Reuters) - U.S. Senate investigators have sharply criticized the implementation of a new Obama administration law meant to fight offshore tax evasion by Americans, saying that "gaping loopholes" in the law could let shell companies skirt it.
The Senate Permanent Subcommittee on Investigations included its criticisms in a long report released on Tuesday about how Swiss bank Credit Suisse Group AG allegedly helped Americans dodge taxes over several years.
The report cited concerns about implementation of 2010's Foreign Account Tax Compliance Act (FATCA), which was enacted after a scandal involving another Swiss bank, UBS AG, and its role in helping Americans avoid taxes.
"The U.S. Treasury and IRS should close gaping loopholes in FATCA that have no statutory basis," said the report from the subcommittee, chaired by Democratic Senator Carl Levin.
The subcommittee said FATCA will let foreign financial institutions treat offshore shell entities as exempt from FATCA, even when they are owned and controlled by U.S. taxpayers.
"FATCA's disclosure requirements have been limited and weakened by its implementing regulations," the report said.
Scheduled to take effect on July 1, FATCA will require foreign banks to share information with the Internal Revenue Service about Americans' accounts worth more than $50,000.
In February 2013, Switzerland signed a FATCA agreement with the United States that allows its banks to comply with the law.
A Treasury Department spokeswoman said on Thursday that FATCA implementation efforts had sought to mitigate headaches for foreign banks. "We need to maintain a balance between enforcement efforts and equity, including the burdens that may be placed on financial institutions," the spokeswoman said.
"We are always exploring ways we can further work with Congress and the IRS to improve this process," she said.
FATCA rules for business entities and individuals may create an incentive for tax evasion with shell companies, said John Harrington, a former Treasury Department tax official, who is now with the law firm Dentons.
"That is a legitimate criticism," he said.
(Editing by Kevin Drawbaugh and Lisa Shumaker)