OVDP lawyers: Recent News Regarding the DOJ Program for Swiss Banks

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For OVDP lawyers, one of the most significant recent developments in the US international tax law enforcement was the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (“Program”) announced by the US Department of Justice (“DOJ”) on August 29, 2013. Since the Program began functioning, more than a hundred Swiss banks (out of the approximate total of three hundred eligible banks) elected to enter the Program.

This article will briefly highlight some recent developments concerning Swiss banks participating in the Program, as well as the likely future focus of the DOJ efforts to locate the offshore accounts of US taxpayers (an important focus for OVDP lawyers and their clients). This article is not intended to convey tax or legal advice. If you have an offshore account, you should seek the advice of a tax attorney as significant penalties may be involved. Please contact the experienced OVDP International tax firm, Sherayzen Law Office, Ltd. for professional legal and tax assistance.

OVDP Lawyers: At Least Ten Swiss Banks Have Withdrawn From the Program

It appears that some of the Swiss banks entered the Program out of pure caution. According to a recent article in the Swiss newspaper, NZZ am Sonntag, at least ten Swiss banks have withdrawn their participation in the Program. The paper, citing anonymous sources, did not specify which banks withdrew. However, the banks reportedly determined that they had not broken applicable US laws, and according to various news reports, the DOJ had no objection to the banks withdrawing from the Program.

One Swiss bank that publicly announced that it was withdrawing last month is the Liechtenstein-based private bank, VP Bank. According to a news report citing an official statement, the bank noted, “Thorough internal investigations and external expert opinions showed that the conditions for continued participation did not exist…VP Bank therefore withdrew from the U.S. programme.”

For OVDP lawyers, this maybe an important fact that may affect the voluntary disclosure strategies of their clients.

OVDP Lawyers: Many Swiss Banks May Have to Wait Until 2015 to Resolve Disputes in the Program

An important issue for the Swiss Banks and OVDP lawyers is when the DOJ will reach the final resolution under the Program. In a recent article published in the Swiss financial newspaper, finews.ch, Shelby du Pasquier, a partner at the Geneva law firm Lenz & Staehelin representing more than twenty Swiss banks enrolled in the Program, gave the opinion that for most banks enrolled, settling disputes in the Program would last until spring of 2015. He noted that this was his “personal opinion” and not the official opinion of any of the twenty (unnamed) banks he represents. In a separate news report, Boris Collardi, CEO of Julius Baer, was quoted in July of this year as stating that he expects his bank to find a “fair and equitable solution” within the next few months. Du Pasquier seconded the opinion that Julius Baer will likely be one of the next large Swiss banks to settle, along with an unnamed “smaller bank.”

Du Pasquier also opined that the US DOJ is likely to increase scrutiny of accounts in other offshore jurisdictions, especially the Bahamas, Hong Kong and Singapore, and any Swiss bank subsidiaries operating in such countries.

At Sherayzen Law Office, Mr. Sherayzen already expressed his opinion that the IRS is already in the process of widening its scope of enforcement with the particular emphasis on the Carribean region, Central America, Hong Kong, India, Singapore in addition to its already deep involvement in Israel. Mr. Sherayzen also seconded the opinion that the resolution of the issues under the Program is unlikely to be reached for most of the participants in 2014; most likely, we are looking at 2015 and maybe even 2016 for the most difficult cases.

OVDP Lawyers: Several Swiss Banks Seek More US Customers for Offshore Accounts

While most Swiss banks no longer pursue US customers desiring offshore accounts and funds because of the recent increased IRS and DOJ efforts, several Swiss banks have actually increased marketing for this customer base. The new marketing efforts are legal if such offshore funds are properly registered with the US Securities and Exchange Commission (SEC), or other applicable authorities.

In a recent news article in swissinfo.ch, René Marty, CEO of UBS Swiss Financial Advisers (UBS-SFA) stated, “We only accept clients who have declared all their assets.” The Swiss Bank, Vontobel, not only registered with the SEC, but also established a branch in Texas to pursue US customers.

UBS-SFA, Vontobel, and Pictet North America Advisors are the Swiss leaders in this targeted market. Furthermore, from a practical perspective, these banks may provide the only option for US persons living overseas who have declared their offshore accounts, but are unable to open accounts in various Swiss banks that now view having US customers as a stigma.

For OVDP lawyers, it is important to advise their clients that these offshore banks are likely to be subject to additional US tax reporting requirements.

Contact Sherayzen Law Office for Help with Undisclosed Foreign Accounts and Other Foreign Assets

If you have undisclosed foreign accounts, you may be running a grave risk of IRS detection and investigation due to FATCA enforcement as well as the widening scope of IRS investigations as it goes through the piles of information it collected as a result of the voluntary disclosure programs and the Swiss Program for Banks. This is why you need the help of an experienced OVDP lawyer to properly advise you with respect to your voluntary disclosure options.

We can help you as we have helped hundreds of our clients around the world. Our international tax team is highly experienced in all voluntary disclosure options involving offshore accounts and other foreign assets. Our international tax compliance team will thoroughly review your case, identify the international tax issues involved, analyze the penalty exposure and the available voluntary disclosure options, and implement the preferred voluntary disclosure plan for you (including preparation of all legal documents and tax forms).

Contact US to Schedule Your Confidential Consultation.

Illegal Use of Offshore Accounts in the Caribbeans: Advisor Sentenced

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In an earlier article, we referred to a case where a investment advisors used offshore accounts in the Caribbeans to launder and conceal funds. On September 5, 2014, the IRS ad the DOJ announced one of these advisors, Mr. Joshua Vandyk, was sentenced to serve 30 months in prison.

Mr. Vandyk, a U.S. citizen, and Mr. Eric St-Cyr and Mr. Patrick Poulin, Canadian citizens, were indicted by a grand jury in the U.S. District Court for the Eastern District of Virginia on March 6, and the indictment was unsealed March 12 after the defendants were arrested in Miami. Mr. Vandyk, 34, pleaded guilty on June 12, Mr. St-Cyr, 50, pleaded guilty on June 27, and Mr. Poulin, 41, pleaded guilty on July 11. St-Cyr and Poulin are scheduled to be sentenced on October 3, 2014.

According to the plea agreements and statements of facts, All three advisors conspired to conceal and disguise the nature, location, source, ownership and control of $2 million (believed to be the proceeds of bank fraud) through the use of the Offshore Accounts in the Caribbeans. The Offshore Accounts in the Caribbeans are often used not only to conceal illegal funds, but also perfectly legal earnings of U.S. persons.

In addition to the use of the Offshore Accounts in the Caribbeans, the advisors assisted undercover law enforcement agents posing as U.S. clients in laundering purported criminal proceeds through an offshore structure designed to conceal the true identity of the proceeds’ owners. Moreover, Mr. Vandyk helped invest the laundered funds on the clients’ behalf and represented that the funds in the Offshore Accounts in the Caribbeans would not be reported to the U.S. government.

According to court documents, Mr. Poulin established an offshore corporation called Zero Exposure Inc. for the undercover agents and served as a nominal board member in lieu of the clients. Mr. Poulin then transferred approximately $200,000 that the defendants believed to be the proceeds of bank fraud from the offshore corporation to the Cayman Islands, where Mr. Vandyk and Mr. St-Cyr invested those funds outside of the United States in the name of the offshore corporation. The investment firm represented that it would neither disclose the investments or any investment gains to the U.S. government, nor would it provide monthly statements or other investment statements with respect to the Offshore Accounts in the Caribbeans to the clients. Clients were able to monitor their investments in the Offshore Accounts in the Caribbeans online through the use of anonymous, numeric passcodes. Upon request from the U.S. client, Mr. Vandyk and Mr. St-Cyr liquidated investments and transfered money from the Offshore Accounts in the Caribbeans, through Mr. Poulin, back to the United States.

This case is just one more example of the increased IRS international tax enforcement with respect to the Offshore Accounts in the Caribbeans.

History and Success of the Main Voluntary Disclosure Programs

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In order to bring back into the system the non-compliant taxpayers with undisclosed foreign assets, the IRS created various offshore voluntary disclosure programs. The voluntary disclosure programs have been part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA). Recently, the IRS shared the statistics regarding the success of its three latest and most voluntary disclosure programs: 2009 OVDP, 2011 OVDI and 2012 OVDP (recently updated to become the 2014 OVDP).

Results for All Three Programs

The outcome of the three voluntary disclosure programs is indeed impressive. Overall, the three voluntary programs have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties.

Let’s take a closer look at each program.

2009 OVDP

This was the first of the “troika” of the latest voluntary disclosure programs. The IRS announced the 2009 Offshore Voluntary Disclosure Program (OVDP) in March 2009. It offered taxpayers an opportunity to avoid criminal prosecution and a settlement of a variety of civil and criminal penalties in the form of single miscellaneous offshore penalty. It was based on existing voluntary disclosure practices used by IRS Criminal Investigation.

Generally, the miscellaneous offshore penalty for the 2009 program was 20 percent of the highest aggregate value of the unreported offshore accounts from 2003 to 2008. Participants were also required to file amended or late returns and FBARs for those years.

In the 2009 OVDP the IRS received 15,000 disclosures prior to the October 15, 2009 closing date. It resulted in the collection of $3.4 billion in back taxes, interest and penalties. It also led to another 3,000 disclosures after the closing date.

No doubt that the success of the 2009 OVDP was made possible by the IRS victory in the UBS case in August of 2008 and the action it started to take to follow-up on this victory. The UBS case became the turning point in the offshore compliance for U.S. taxpayers because the victory was achieved over one of the largest banks in the world in the country which was considered to be the most formidable fortress of bank secrecy for centuries.

2011 OVDI

While the 2009 program was the first of the post-UBS voluntary disclosure programs, the 2011 Offshore Voluntary Disclosure Initiative (OVDI) was the program that established the offshore voluntary disclosure programs as one of the main pillars of U.S. voluntary tax compliance. The 2011 OVDI was announced in February of 2011 and lasted until September 9 of that year (originally, it was supposed to close on August 31, 2011, but the IRS extended the deadline to September 9).

Generally, participants of this program paid a 25% miscellaneous offshore penalty on the highest aggregate value of unreported offshore accounts from 2003 to 2010. In addition, some participants were eligible for special 5% or 12.5% penalties, but there were very strict requirements to qualify for this treatment.

The 2011 OVDI was extremely popular. It drew 15,000 disclosures and resulted in the collection of $1.6 billion in back taxes, interest and penalties for the 70 percent of cases that were closed that year.

2012 OVDP

After analyzing the results from the two prior voluntary disclosure programs and reflecting on the best way to induce tax compliance (while intensifying international tax enforcement and looking forward to the implementation of FATCA), the IRS created a new 2012 Offshore Voluntary Disclosure Program (2012 OVDP) in January of 2012 and 2014 OVDP now closed.

In constructing the 2012 OVDP rules, the IRS drew on its experience from the experience from the prior voluntary disclosure programs, revised the terms of the 2011 OVDI program and made the 2012 OVDP permanent until further notice. Under the 2012 OVDP, participants paid a penalty of 27.5 percent of the highest aggregate balance or value of offshore assets during the prior eight years. The 5% or 12.5% penalties remained in effect for certain taxpayers. This 2012 program has drawn 12,000 disclosures since its inception.

2012 Streamlined Option

In June of 2012, the IRS expanded its voluntary disclosure programs beyond 2012 OVDP and added an option to the existing disclosure program that enabled some U.S. citizens and others residing abroad to catch up on their filing requirements and avoid large penalties if they owed little or no back taxes. This option took effect in September of that year.

2014 Changes to Offshore Voluntary Disclosure Programs

In June of 2014, the IRS announced major changes in the 2012 offshore account compliance programs. As a result of these changes, the taxpayers now currently have to analyze up to five different voluntary disclosure paths. The more prominent changes to the voluntary disclosure programs include: new 2014 OVDP with the double-penalty structure of 27.5% and 50%, major enhancement of the Streamlined Foreign Offshore Procedures, introduction of the brand-new Streamlined Domestic Offshore Procedures with its new 5% penalty structure, slightly modified Delinquent FBAR Submission rules, and slightly modified Delinquent Information Return Submission rules (which partially incorporates now the statutory Reasonable Cause exception).

The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations.

Contact Sherayzen Law Office for Professional Advice Regarding Your Offshore Voluntary Disclosure Options

If you have undisclosed foreign accounts and other foreign assets, you are likely to face very steep penalties if the IRS discovers your non-compliance. This is why it is prudent to consider your voluntary disclosure options as soon as possible.

Sherayzen Law Office is a firm that specializes in international tax compliance and offshore voluntary disclosures. Our experienced international tax law firm can offer professional advice with respect to your voluntary disclosure options and conduct the entire offshore voluntary disclosure for you. Contact Us to Schedule Your Confidential Consultation Now!

Underpayment and Overpayment Interest Rates for the Third Quarter of 2014

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Underpayment and Overpayment Interest Rates are important to all taxpayers who are either due a refund or owe taxes to the IRS, because the interest on the refund or the amount due will be calculated based on these Interest Rates. This essay reminds U.S. taxpayers that the IRS announced that the interest rates will remain the same for the calendar quarter beginning July 1, 2014. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.

New Guilty Pleas For Using Cayman Islands Bank Accounts to Conceal Funds

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On July 11, 2014, the DOJ and the IRS announced that Joshua Vandyk, a U.S. citizen, and Eric St-Cyr and Patrick Poulin, Canadian citizens, have each pleaded guilty to conspiring to launder monetary instruments and conceal funds using Cayman Islands bank accounts (mostly through foreign corporations). Patrick Poulin, 41, pleaded guilty on July 11, 2014, Vandyk, 34, pleaded guilty on June 12, 2014, and St-Cyr, 50, pleaded guilty on June 27, 2014. The three defendants were indicted by a grand jury in the U.S. District Court for the Eastern District of Virginia on March 6, 2014, and the indictment was unsealed on March 12, 2014, after the defendants were arrested in Miami.

According to the plea agreements and statements of facts, Vandyk, St-Cyr and Poulin conspired to conceal and disguise the nature, location, source, ownership and control of property believed to be the proceeds of bank fraud, specifically $2 million by using Cayman Islands bank accounts and foreign corporations. Vandyk, St-Cyr and Poulin assisted undercover law enforcement agents posing as U.S. clients in laundering purported criminal proceeds through an offshore structure and Cayman Islands bank accounts designed to conceal the true identity of the proceeds’ owners. Vandyk and St-Cyr invested the laundered funds on the clients’ behalf and represented that the funds and the Cayman Islands bank accounts would not be reported to the U.S. government.

“These three defendants played a shell game by creating offshore entities designed to help their U.S. clients evade taxes and other legal requirements, and they used that same shell game to launder purported criminal proceeds,” said U.S. Attorney Dana J. Boente for the Eastern District of Virginia. “We are committed to working with our law enforcement partners to penetrate and combat these schemes wherever they occur.”

According to the DOJ, Vandyk and St-Cyr lived in the Cayman Islands and worked for an investment firm based in the Cayman Islands. St-Cyr was the founder and head of the investment firm, whose clientele included numerous U.S. citizens. Poulin, an attorney at a law firm based in Turks and Caicos, worked and resided in Canada as well as the Turks and Caicos. His clientele also included numerous U.S. citizens. Vandyk, St-Cyr and Poulin solicited U.S. citizens to use their services (including creations of Cayman Islands bank accounts) to hide assets from the U.S. government, including the IRS. Vandyk and St-Cyr directed the undercover agents posing as U.S. clients to create an offshore corporation (and Cayman Islands bank accounts) with the assistance of Poulin and others because they and the investment firm did not want to appear to deal with U.S. clients. Vandyk, St-Cyr and Poulin used the offshore entity to move money into the Cayman Islands bank accounts and used Poulin as a nominee intermediary for the transactions.

This case just emphasizes again how the focus of the IRS has expanded far beyond Switzerland into Central America, including Cayman Islands bank accounts.

Contact Sherayzen Law Office for Legal Help with Undisclosed Foreign Financial Accounts

If you have any undisclosed foreign financial accounts (including Cayman Islands bank accounts), contact Sherayzen Law Office for legal help. Our international tax firm has experienced professionals who specialize in advising U.S. persons with respect to the voluntary disclosure of their foreign financial accounts. We can help you!

Contact Us to Schedule Your Confidential Consultation.