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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!

2013 FBAR is Due on June 30, 2014

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The most dangerous information report – the Report of Foreign Bank and Financial Accounts (the “FBAR”) – is due at the end of this month. The 2013 FBAR (i.e. the FBAR for the calendar year 2013) is due on June 30, 2014.

Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “Treasury”) has established certain recordkeeping and filing requirements for United States persons with financial interests in or signature authority (and other comparable authority) over financial accounts maintained with financial institutions in foreign countries. If you had such a situation in 2013 and if the aggregate balances of such foreign accounts exceed $10,000 at any time during 2013, the 2013 FBAR must be filed with the Treasury.

What constitutes an account for the purpose of complying with 2013 FBAR can be a complex question. Generally, the IRS is using a very broad definition of the “account” to include the great majority of custodial situations, even those that are not usually associated with the concept of an “account” (for example, a precious metals storage or a foreign life insurance policy may have to be reported on the 2013 FBAR). You need to contact an experienced international tax attorney to determine what accounts need to be reported on your 2013 FBAR.

The FBAR must be filed by June 30 of each relevant year, including this year (2013). Thus, the 2013 FBAR must be received by the Treasury by June 30, 2014. This rule is contrary to your regular tax returns where the mailing date determines whether the filing is timely. There are no extensions available – the 2013 FBAR must be received by June 30 or it will be considered delinquent.

If the 2013 FBAR becomes delinquent, it may be subject to severe penalties.

Contact Sherayzen Law Office for FBAR Assistance

If you have any questions or concerns regarding whether you need to file the 2013 FBAR, please contact Sherayzen Law Office directly. If you have not previous filed FBARs and you were required to do so, you may be subject to severe penalties and you may need to do some form of a voluntary disclosure.

If this is the case, you need to contact our experienced international tax law office to schedule a consultation as soon as possible. Attorney Eugene Sherayzen will assess your situation, determine your potential FBAR liability, explain the available options, prepare all of the required tax forms and the necessary legal documentation, guide you through this complex process of voluntary disclosure, and vigorously represent your interests during your negotiations with the IRS.

Surgeon Indicted for Secret Bank Accounts in Panama and Costa Rica

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Previously, I already discussed the high exposure of the US-owned undisclosed bank accounts in Panama and Costa Rica. Last week, the IRS gave a perfect example (thought with an unusual set of facts) of such exposure of bank accounts in Panama and Costa Rica. On May 23, 2014, the Justice Department and Internal Revenue Service (IRS) announced that a federal grand jury in Anchorage, Alaska, returned a superseding indictment charging Michael D. Brandner, an Anchorage physician specializing in plastic surgery, on three counts of tax evasion.

Facts of the Case

The unusual aspect of this case is that one of the major motivations for opening the accounts in Panama and Costa Rica was the divorce that Dr. Bradner was going through.

According to court documents, Dr. Brandner engaged in a scheme to hide and conceal millions of dollars of assets from the Alaska courts and from his wife of 28 years who was divorcing him. Shortly after the divorce was filed, Dr. Brandner left Alaska and drove to Central America after converting assets into five cashier’s checks worth over $3,000,000.

Then, in 2008, after the Alaska court ordered Dr. Bradner to give up the $1.26 million self-directed IRA, he moved all of that money to his Panama account. Later, he moved another $200,000 to Panama.

In 2011, Dr. Bradner’s tax advisor in Panama (who was an informant cooperating with the IRS) advised Dr. Bradner about the tax treaty signed by Panama in 2010 on the disclosure of foreign accounts. He was able to convince Dr. Bradner to create a foreign corporation which opened a bank account in the United States. This account was supposed to hold the funds from Central America to avoid their disclosure to the IRS, but the Department of Homeland Security seized the funds when Dr. Bradner attempted to wire-transfer them to his corporation’s U.S. account.

According to the superseding indictment, Dr. Brandner attempted to evade his taxes, including making false and misleading statement to IRS special agents and filing false tax returns for 2008, 2009 and 2010. In the three false returns, Dr. Brandner failed to report the existence of financial accounts in Panama and Costa Rica over which he had signature authority, and also failed to report foreign interest income of more than $9,000 for 2008, more than $150,000 for 2009, and more than $150,000 for 2010. The indictment also alleges that Dr. Brandner attempted to evade more than $600,000 in federal income taxes over the three years.

The last interesting fact of this case is that (in a secretly-taped conversation) the Panamanian advisor specifically stated to Dr. Bradner and advised him about the FBAR form – a statement which was allegedly acknowledged by the doctor.

IRS Focus Expands to Undisclosed Bank Accounts in Panama and Costa Rica

There are some very interesting facts about this case. Some facts, like the conceded knowledge of the FBAR and the use of foreign corporation to conceal unreported assets and income, will undoubtedly greatly complicate Dr. Bradner’s legal position. They also correspond to the general pattern of facts for cases which are chosen by the IRS for criminal prosecution.

The most interesting side of this case, however, is that this case testifies to the ever expanding scope of IRS investigation of undisclosed foreign accounts, with the particular focus on the bank accounts in Panama and Costa Rica. About two years ago, I predicted that there will be more criminal prosecutions coming out of Central America once the IRS gradually expands its focus beyond Switzerland and Israel.

While there are other prominent candidates, the bank accounts in Panama and Costa Rica offer special rewards to the IRS: there is a large concentration of retired Americans (and Israeli-Americans) in Central America, the Panamanian tax cooperation and exchange agreement signed in 2010 (i.e. almost two years after the UBS case, allowing the IRS to pursue more cases down the road without any major statute of limitations hassles), and there has certainly been a certain amount of abuse committed by tax professionals in Central America in cooperation with Swiss tax advisors (shockingly, a lot of tax attorneys in Central America are still oblivious to important U.S. tax requirements, including FBARs).

This is why the investigations of the undisclosed bank accounts in Panama and Costa Rica will only grow in prominence in the coming years as IRS will seek to deepen U.S. tax compliance in this region.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Disclosure of Bank Accounts in Panama and Costa Rica

If you have undisclosed bank accounts in Panama and Costa Rica, you may face severe FBAR penalties. This is why you need to contact the experienced international tax law firm of Sherayzen Law Office as soon as possible. We can guide you through your voluntary disclosure options, create and help you implement the voluntary disclosure plan, and defend your interests against the IRS.

Contact Us to Schedule Your Confidential Consultation!

Attorney Jailed for Helping Hide Money for Clients at Their Swiss Bank Accounts

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On March 18, 2014, the IRS and U.S. Department of Justice announced the California attorney Christopher M. Rusch was sentenced to serve 10 months in prison for helping his clients Mr. Stephen M. Kerr and Mr. Michael Quiel, both businessmen from Phoenix, hide millions of dollars in secret Swiss bank accounts at UBS AG and Pictet & Cie. Additionally, U.S. District Judge James A. Teilborg also ordered Rusch to serve three years of supervised release following his prison sentence.

The sentencing following the February 6, 2013, Mr. Rusch guilty plea to conspiracy to defraud US government and failing to file a Report of Foreign Bank and Financial Accounts (FBAR). Mr. Kerr and Mr. Quiel were sentenced in September of 2013 to each serve 10 months in prison after both were tried and convicted of filing false income tax returns for 2007 and 2008. The jury also convicted Mr. Kerr of failing to file FBARs for 2007 and 2008 (with respect to the Swiss bank accounts).

Facts of the Case

According to the DOJ, Mr. Kerr and Mr. Quiel, with the assistance of Mr. Rusch and others (including Swiss nationals) established nominee foreign entities and corresponding bank accounts in Switzerland to conceal Mr. Kerr and Mr. Quiel’s ownership and control of stock and income they deposited in these accounts. Mr. Rusch testified at trial, admitting that he and others caused the sale of the shares of stock through the undeclared accounts.

Rusch further testified that, at Mr. Kerr and Mr. Quiel’s direction, he transferred some of the money in the secret accounts back to the United States through Mr. Rusch’s Interest on Lawyer’s Trust Account before dispersing the money for Mr. Kerr and Mr. Quiel’s benefit, including the purchase of a multi-million dollar golf course in Erie, Colorado. According to court documents and evidence presented at trial, with Mr. Rusch’s assistance, Mr. Kerr and Mr. Quiel each failed to report more than $ 4,600,000 and $2,000,000 of income, respectively, during 2007 and 2008 which they hid in the undeclared accounts with Mr. Rusch’s assistance.

IRS and DOJ Continue Pursuit of US Tax Advisors for US Taxpayers with Undisclosed Swiss Bank Accounts

Since the 2008 UBS case victory, the IRS and the DOJ have been continuously increasing the pressure on the US and foreign tax advisors who help their US clients hide money in offshore accounts, particularly Swiss bank accounts.

“This prosecution serves notice that the Department of Justice will not tolerate fraudulent activity designed to undermine the integrity of our income tax system,” said U.S. Attorney John S. Leonardo for the District of Arizona.

“Today, Mr. Rusch has been held accountable for his actions in assisting wealthy individuals hide millions of dollars in secret offshore bank accounts and dodge the tax system,” said Chief of IRS-Criminal Investigation Richard Weber. “In addition, Mr. Rusch used his attorney trust account to funnel money from the secret offshore accounts back to Mr. Kerr and Mr. Quiel for their personal benefit, including the purchase of a multi-million dollar golf course. As the investigation into offshore tax evasion continues, Criminal Investigation will leave no financial stone unturned as we continue to vigorously pursue new leads.”

Top Three Lessons from Rusch Case

Mr. Rusch has committed three “cardinal sins” of tax advising. First, he helped his clients in their pursuit of tax evasions. Second, he used the nominee corporate structures to help his clients evade taxes, thereby tinting the first sin with additional degree of consciousness, willfulness and complexity, providing the IRS with an additional incentive to pursue criminal charges. Finally, Mr. Rusch abused his position as an attorney with a client trust account (which is an ethical violation in addition to legal violation).

The combination of these factors really hurt the Mr. Rusch’s case and provide the IRS and the DOJ with ample ammunition to pursue criminal charges. Of course, the fact that Swiss bank accounts were involved only aggravated Mr. Rusch’s already difficult legal position.