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Guam & American Samoa Are Non-Cooperative Tax Jurisdictions | News

On December 5, 2017, the European Union (the EU) Council published its list of the non-EU non-cooperative tax jurisdictions. The list included American Samoa and Guam unleashing strenuous objections from the United States.

Full List of Non-Cooperative Tax Jurisdictions

A total of seventeen countries made it to the list of non-cooperative tax jurisdictions: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and United Arab Emirates.

Criteria for Inclusion in the List of Non-Cooperative Tax Jurisdictions

The list of non-cooperative tax jurisdictions was formed out of tax jurisdictions that failed to meet three criteria at the same time: transparency, fair taxation and the implementation of anti-base-erosion and profit-shifting measures.

The EU Reasoning for Including American Samoa and Guam on the List of Non-Cooperative Tax Jurisdictions

The EU reasoning for including American Samoa and Guam on the list of non-cooperative tax jurisdictions is a peculiar one because it does not seem to care about the fact that both jurisdictions are only US territories with no authority to separately sign international tax commitments (i.e. everything is done through the United States).

In particular, the EU Council specifically criticized American Samoa and Guam for three failures. First, American Samoa and Guam did not implement the automatic information exchange of financial information. Second, both jurisdictions did not sign the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Finally, neither American Samoa nor Guam followed the EU’s BEPS minimum standards.

US Objections to the Inclusion of Its Territories on the List of Non-Cooperative Tax Jurisdictions

In his letter to the Council of the European Union, the Treasury Secretary Steven Mnuchin strenuously objected to the inclusion of American Samoa and Guam on the list of non-cooperative tax jurisdictions. The Treasury Secretary set forth the following reasons.

First, he objected to the publication of the list per se as being “duplicative” of the efforts at the G-20 and OECD level.

Second and most important, Mr. Mnuchin stated that the EU reasoning does not make sense, because American Samoa and Guam “participate in the international community through the United States”. The fact that the United States agreed to implement BEPS minimum standards and the tax transparency standards should be considered as the agreement of American Samoa and Guam to do the same. In other words, he argued that American Samoa, Guam and the Untied States should be considered as one whole legal framework.

Based on this reasoning, Mr. Mnuchin urged the EU to immediately remove American Samoa and Guam from its list of non-cooperative tax jurisdictions. It should be noted that several other jurisdictions also rejected their inclusion on the list.

Sherayzen Law Office will continue to watch for any new developments with respect to this issue.

South Korean Citizen FBAR Guilty Plea| FATCA Lawyer

On October 27, 2017, the IRS and the DOJ announced that Mr. Hyung Kwon Kim, a South Korean citizen and a Legal Permanent Resident of the United States, pleaded guilty to failure to file correct FBARs.

Alleged Facts of the Case Which Led the South Korean Citizen to the FBAR Guilty Plea

Mr. Kim is a South Korean citizen who became a US permanent resident in 1998. At that time, he traveled to Switzerland to identify financial institutions at which he could open accounts for the purpose of receiving transfers of funds from another person in Hong Kong. Over the next few years, Mr. Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann. By 2004, the aggregate value of Mr. Kim’s accounts exceeded $28,000,000.

Mr. Kim engaged in activities to conceal the funds from the IRS. In order to accomplish this, he also enlisted the help of several bankers, including Dr. Edgar H. Paltzer (who was convicted in 2013 for conspiring to defraud the United States). Dr. Paltzer and other bankers assisted Mr. Kim in opening of sham entities organized in Liechtenstein, Panama and the British Virgin Islands as well as bank accounts in the name of these entities.

Mr. Kim also utilized other means to conceal funds from the US, including directing his bankers to issue checks in the millions of dollars payable to third parties in the United States. This is exactly how the South Korean citizen purchased his personal residence in Greenwich, Connecticut.

In 2005, Mr. Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million. Here, Dr. Paltzer and Mr. Kim engaged in a purchase in such a manner as to create the appearance that Mr. Kim was renting a property from a fictitious owner.

Furthermore, between 2000 and 2008, Mr. Kim took multiple trips to Zurich and withdrew more than $600,000 in cash during these visits. He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems. In 2008, for example, Mr. Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler.

After the UBS case i n2008, Mr. Kim’s banker at Clariden Leu informed Mr. Kim that due to ongoing investigations in the United States he had to either disclose the accounts to the US government, spend the funds or move the funds to another institution. Mr. Kim chose to move the funds into nominee accounts at another bank.

In 2011, the South Korean citizen engaged in the ultimate strategy of concealment by liquidating the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from a Greenwich jeweler. Finally, as part of his guilty plea, Mr. Kim also admitted that he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.

FBAR Criminal Penalties and Other Penalties that the South Korean Citizen Faces

As part of his plea agreement, Mr. Kim will pay a civil penalty of over $14,000,000 dollars to the United States Treasury for failing to file, and filing false FBARs. Separately, Mr. Kim faces the sentencing scheduled for January 26, 2018 before the US District Court Judge T.S. Ellis III. The South Korean Citizen faces a statutory maximum sentence of five years in prison. He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.