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Prosecutors from the United States and agents from the Internal Revenue Service (IRS) are reportedly investigating wealthy crypto traders and fund managers suspected of illegally benefiting from Puerto Rico’s tax breaks. 

According to a June 12 report from Bloomberg, investigators are currently building civil and criminal cases against several hedge fund managers, crypto traders and other wealthy Americans who may have lied about the nature of their residency and key elements of their income to take unfair advantage of the tax breaks.

U.S. officials are also looking into attorneys and accountants responsible for marketing the island territory’s tax program, with at least two criminal investigations expected to result in charges in the near future. Prosecutors are reportedly looking at conspiracy and wire fraud charges.

Recalling a conversation with a U.S. federal prosecutor, attorney Carlos Ortiz said the prosecutors were working with IRS agents and officials from Puerto Rico.

“The message is the noose is tightening.”

Since Puerto Rico introduced its new tax policy in 2012, more than 5,000 American individuals have relocated to the country; one benefit of doing so is saving on federal income tax.

Puerto Rico’s tax policy grants individuals a 100% exemption on dividends, a 60% exemption on municipal taxes and zero federal taxes on source income earned within the region.

Additionally, more than 3,600 businesses have been able to avoid paying tax on dividends from earnings and profits, and are only required to pay a 4% tax on exports.

While the tax benefits stand as some of the most relaxed in the world, the requirements to take advantage of them are quite strict.

To qualify for the tax breaks, new residents must be able to prove that they live on the island for at least 183 days each year and that the island territory is their “tax home.”

These stringent rules reportedly tempt many individuals to fudge numbers and cheat on their returns, according to lawyers familiar with the regime.

Notable residents who relocated to Puerto Rico for tax reasons include gold bug Peter Schiff and crypto investor Michael Terpin. On July 4, Puerto Rican regulators closed down Schiff’s bank for not meeting the net minimum capital requirements.

Speaking at Miami’s annual Bitcoin Conference on May 19, Terpin praised Puerto Rico as the “only place that you can go and not have to pay on your global tax without renouncing U.S. citizenship.”

Unlike some, Terpin didn’t seem too concerned by the rigorous tax policy:

“I’ve been told that every single person is going to get audited, and that’s fine. I keep incredibly precise notes. I get them run past both a tax lawyer and a CPA, and I’ve got two bookkeepers. So bring it on; I’m not afraid of an audit.”

While the island’s wealthy residents have commended the tax breaks for bringing top fund managers and entrepreneurs to the island, the tax program has been subject to protests declaring the new hyper-wealthy residents to be low-tax “colonizers” that have driven up the cost of living.

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