United States’ Global Efforts To Uncover Foreign Account Holders
Several developments in the government’s ongoing investigation of U.S. persons with foreign bank accounts have taken place this month. First, another seven banks have signed non-prosecution agreements pursuant to the Department of Justice’s “Swiss Bank Program.” Second, indicative of the government’s desire to expand its inquiry beyond Switzerland, a federal court in Miami approved an IRS request to serve a so-called “John Doe summons” to seek records of Belize Bank International Limited and Belize Bank Limited’s correspondence accounts at Bank of America, N.A. and Citibank, N.A. Finally, the U.S. Court of Appeals for the Eleventh Circuit affirmed the conviction of Patricia Lynn Hough who, along with her husband, was charged with criminal tax offenses for utilizing undeclared bank accounts at UBS AG in a scheme to avoid paying taxes on income earned through their sale of Caribbean medical schools. Hough’s conviction remains in place, however, the Court of Appeals sent the case back to the trial court for additional proceedings to determine the appropriate tax loss attributable to her for sentencing purposes; a ruling that could impact her 24 month sentence.
The Swiss Bank Program, first announced by the Department of Justice’s Tax Division on August 29, 2013, provides a path for banks who had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts to resolve potential criminal liabilities. Under its Swiss Bank Program, DOJ requires banks to:
- Make a complete disclosure of their cross-border activities;
- Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
- Cooperate in treaty requests for account information;
- Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
- Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
- Pay appropriate penalties.
Banks that meet these requirements are eligible to sign non-prosecution agreements with the United States as did seven banks thus far in September: Migros Bank AG, Graubündner Kantonalbank, St. Galler Kantonalbank AG, E. Gutzwiller & Cie, Banquiers, Bank La Roche & Co AG, Valiant Bank AG, and Schroder & Co. Bank AG. Illustrative of the type of information disclosed by banks entering the Swiss Bank Program, Bank La Roche & Co AG “provided information concerning 10 U.S. client accounts held at La Roche in Switzerland since August 2008 sufficient to make treaty requests to the Swiss competent authority for U.S. client account records.” Bank La Roche also agreed to pay a $9.296 million penalty in exchange for immunity from prosecution. So far under this DOJ initiative, foreign financial institutions have agreed to pay collectively over three billion dollars in penalties to the United States.
There are several options available to taxpayers with noncompliant offshore accounts, including the IRS Offshore Voluntary Disclosure Program (OVDP) and streamlined compliance procedures for taxpayers who can certify their lack of “willfulness.” There are certain factors that increase the potential for onerous civil penalties and possible criminal prosecution in these cases. First, persons attempting to make a voluntary disclosure of accounts held at one of the more than fifty foreign financial institutions listed here as publicly “being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement” would face higher penalties under the OVDP regime, essentially 50% of the high value of the accounts compared to 27.5% for other banks. Second, the punishment options available to the government increase when it can demonstrate that a given taxpayer’s failure to declare their foreign account was done willfully. “Willfulness” is a legal principle that, in theory at least, distinguishes knowing and intentional violations of the tax laws from mistaken or unintentional violations. Not surprisingly, the government may take a different view than the taxpayer as to whether his or her conduct was willful. This standard not only impacts the potential civil penalties imposed for failing to file an FBAR (Report of Foreign Bank and Financial Accounts) but will also be evaluated by the IRS and Department of Justice in determining whether to pursue a criminal prosecution.
U.S. citizens, residents, and legal entities with undeclared foreign accounts should consult counsel experienced in dealing with the IRS and Department of Justice, especially for the fact-sensitive assessment of willfulness. Those individuals who have undeclared accounts at the more than fifty listed banks face a heightened risk of audit and/or criminal tax investigation. According to the IRS, chronicled here, over fifty clients and their enablers at UBS AG alone, including Hough, have been prosecuted since 2009 for tax fraud and FBAR violations relating to undeclared foreign accounts. The government has subsequently expanded its focus to banks in other jurisdictions, including India, Israel, Belize, and the Caribbean.
For more information, please contact Matt Mueller at email@example.com or 813.347.5142. Mr. Mueller is a former federal prosecutor with the Department of Justice’s Tax Division and the U.S. Attorney’s Office in Tampa where he handled criminal tax investigations involving, among other things, offshore tax shelters and taxpayers with undeclared foreign bank accounts. He is now Of Counsel in the Tampa office of Guerra King P.A.