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DOJ Program for Swiss Banks: Important June 2014 Developments

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In a series of articles, we covered the U.S. Department of Justice’s new voluntary disclosure program for Swiss banks and the four filing categories involved. In June of 2014, a number of important developments regarding the DOJ Program for Swiss Banks occurred.

In this article, we will explain some of these new developments. This article is intended to provide interested individuals with general information about these developments, and does not convey tax or legal advice. If you have an offshore account, you should seek the advice of a tax attorney as significant penalties are involved. The experienced tax law firm of Sherayzen Law Office, Ltd. can assist you in your voluntary offshore disclosure and other tax and legal matters.

DOJ Program for Swiss Banks: DOJ Extends Deadline for Category 2 Swiss Banks

On June 5, 2014, the U.S. Department of Justice announced that it would extend the original June 30 deadline for category 2 Swiss banks for one month until July 31st. According to various new sources, the deadline was extended because of the difficulties Swiss banks were having in attempting to verify whether the accounts of U.S. taxpayers were undeclared or disclosed in a timely fashion to the IRS.

More than 100 Swiss banks have already applied under the DOJ program for Swiss Banks. For U.S. taxpayers with undisclosed bank accounts in Switzerland, this is highly welcome news.

Goldman Sachs and Morgan Stanley Swiss Units Apply to Enter the DOJ Program for Swiss Banks; Citigroup and J.P. Morgan Maybe Next

Recently, the Swiss units of Goldman Sachs Group Inc. and Morgan Stanley announced that they will enter the DOJ Program for Swiss Banks. According to various sources, Goldman’s Swiss private bank managed nearly $12 billion in assets as of year-end 2013. Morgan Stanley’s Swiss private bank managed about $50.7 billion- most of this amount however, was located in its branches in Hong Kong and Singapore.

Citigroup Inc. and J.P. Morgan also have Swiss operations; according to several news sources, Citibank Switzerland AG did not yet enter category 2, but this is definitely a possibility. Same is true of J.P. Morgan’s private Swiss bank.

DOJ Program for Swiss Banks: Credit Suisse Pleads Guilty

Recently, Credit Suisse pleaded guilty to conspiracy and agreed to pay $2.6 billion in a settlement with the DOJ. Please, read this article for more information.

DOJ Likely to Increase Focus on Undisclosed Accounts of US Taxpayers in the Cayman Islands, Singapore and Cook Islands, Among Others

The DOJ and the IRS have provided various indications that they intend to expand the scope of the U.S. pursuit of undisclosed foreign accounts to other major tax havens, such as Cayman Islands, Singapore, Cook Islands, Panama, et cetera.

For example, in an interview concerning the Credit Suisse case, Kathryn Keneally, former head of the Justice Department’s tax division, signaled the DOJ’s intentions to increase their focus on other tax-havens. After noting that the U.S. has traced (often, using the information collected during the DOJ Program for Swiss Banks) the money transfers to accounts held by U.S. persons in banks located in the Cayman Islands and other Caribbean countries, India, Israel, Luxembourg, and Lichtenstein, she highlighted the following: “It’s fair to say we know where the tax-haven countries are. You’ve got Singapore, you’ve got the Cook Islands… .”

The DOJ Program for Swiss Banks has provided an enormous amount of information regarding not only the Swiss bank accounts, but transfers to other countries. As Dena Iverson, a DOJ spokeswoman noted in a recent news article, “Through the program [the DOJ Program for Swiss Banks], as well as through ongoing investigations and other law enforcement tools, we are confident that we will obtain information that will lead us to account holders who have thought for too long that they can keep hiding.”

U.S. persons who hold accounts in Singapore, Cook Islands, Cayman Islands, Israel, India, Lebanon and other “target” countries should immediately seek advice in disclosing their offshore accounts. The worldwide FATCA compliance, combined with the potential of having another equivalent of the DOJ Program for Swiss Banks in any other of these countries, makes it simply reckless to wait for the DOJ and the IRS investigations.

2014 OVDP

On June 18, 2014, the IRS announced a major update to its 2012 Offshore Voluntary Disclosure Program (OVDP), which includes new opportunities and penalties. See this article for further information.

The 2014 OVDP is directly relevant to U.S. taxpayers with undisclosed accounts in Swiss Banks which are currently working within the DOJ Program for Swiss Banks, because the banks’ disclosure of the unreported accounts may substantially reduce the available voluntary disclosure options for the U.S. taxpayers who own these accounts. Moreover, the US taxpayers with undisclosed accounts in the entities that are categorized under the DOJ Program for Swiss Banks as Category 1 banks may be subject to heightened penalties under the new 2014 OVDP rules.

This is why it is very important to coordinate your voluntary disclosure with the DOJ Program for Swiss Banks.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure

If you have undisclosed foreign accounts in Switzerland, contact Sherayzen Law Office for experienced legal help. Whether or not you received a letter from a Swiss Bank pursuant to the DOJ Program for Swiss Banks, time is likely to be of critical importance for you.

Contact Us today to Schedule Your Confidential Consultation – We Can Help!

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.

Liechtenstein Offshore Accounts After the Non-Prosecution Agreement

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Liechtenstein offshore accounts no longer offer to U.S. taxpayers the bank secrecy protection for which they were famous for a very long time prior to 2008. In fact, after the Non-Prosecution Agreement between the U.S. Department of Justice (“DOJ”) and Liechtensteinische Landesbank AG, after the passage of the 2012 tax law in Liechtenstein, and after achieving the agreement in substance with respect to the implementation of FATCA on April 2, 2014, one can say that Liechtenstein offshore accounts are no longer the tax haven for U.S. taxpayers.

This article explores the substance of the Non-Prosecution Agreement between the DOJ and Liechtensteinische Landesbank AG with respect to Liechtenstein Offshore Accounts, the FATCA triumph in Liechtenstein, and the generally recommended course of action for the U.S. taxpayers with still undisclosed Liechtenstein offshore accounts.

Non-Prosecution Agreement with Respect to Liechtenstein Offshore Accounts

On July 30, 2013, the DOJ and the IRS Criminal Investigation until announced that they reached a non-prosecution agreement (“NPA”) with Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein (“LLB-Vaduz”). Under the Agreement, LLB-Vaduz agreed to pay more than $23.8 million to the United States (a sum of forfeiture of $16,316,000, representing the total gross revenues that it earned in maintaining these undeclared accounts, and $7,525,542 in restitution to the IRS) and turned over more than 200 files of U.S. taxpayers who held undeclared Liechtenstein offshore accounts at LLB-Vaduz, directly or through sham corporations, foundations or trusts (“structures”).

Moreover, as part of the NPA, LLB-Vaduz admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct. Specifically, LLB-Vaduz admitted that it knew certain U.S. taxpayers were maintaining undeclared accounts at LLB-Vaduz in order to evade their U.S. tax obligations, in violation of U.S. law. In addition, LLB-Vaduz admitted that it knew of the high probability that other U.S. taxpayers who held undeclared Liechtenstein offshore accounts did so for the same unlawful purpose because significant numbers of U.S. taxpayers employed structures to hold their Liechtenstein offshore accounts , instructed LLB-Vaduz to use code names or numbers to refer to them on account statements and other bank documents, instructed LLB-Vaduz not to mail such documents to them in the United States, and instructed LLB-Vaduz not to disclose their identity to the IRS, among other things. According to the DOJ, at the end of 2006, LLB-Vaduz held more than $340 million of undeclared assets on behalf of U.S. taxpayers in more than 900 Liechtenstein offshore accounts .

Furthermore, under the NPA, LLB-Vaduz was obligated to continue to cooperate with the United States for at least three years from the date of the agreement.

Finally, though it does not appear to be part of the formal Agreement, LLB-Vaduz has decided to close its wholly-owned Swiss subsidiary, Liechtensteinische Landesbank (Switzerland) Ltd. and has also decided to sell another wholly-owned subsidiary, Jura Trust AG.

In return, under the NPA, the DOJ and the IRS promised that LLB-Vaduz will not be criminally prosecuted for opening and maintaining undeclared Liechtenstein offshore accounts for U.S. taxpayers from 2001 through 2011, when LLB-Vaduz assisted a significant number of U.S. taxpayers in evading their U.S. tax obligations, filing false federal tax returns with the IRS and otherwise hiding Liechtenstein offshore accounts held at LLB-Vaduz from the IRS.

Lesson of the NPA for the Foreign Banks

The NPA with LLB-Vaduz contains a lot of lessons for foreign banks on how to deal with past misconduct with respect to undeclared foreign accounts. The DOJ specifically acknowledged the following factors:

LLB-Vaduz’s voluntary implementation of various remedial measures beginning in June 2008, before the investigation of its conduct began;

LLB-Vaduz’s voluntary cooperation with this Office and the government of Liechtenstein after becoming aware of this Office’s investigation;

LLB-Vaduz’s willingness to continue to cooperate with this Office and the IRS to the extent permitted by applicable law;

LLB-Vaduz’s substantial support for the 2012 Law, which has already permitted the production to the Department of Justice of more than 200 account files of U.S. taxpayers who held undeclared accounts at LLB-Vaduz;

LLB-Vaduz’s representation, based on an investigation by external counsel, that the misconduct under investigation did not, and does not, extend beyond that described in the statement of facts;

The point of cooperation was emphasized by the Assistant Attorney General Kathryn Keneally: “this non-prosecution agreement addresses the past wrongful conduct of LLB-Vaduz in allowing U.S. taxpayers to evade their legal obligations through the use of undisclosed Liechtenstein bank accounts, while also acknowledging the extraordinary efforts of the bank in bringing about significant changes in Liechtenstein law.”

U.S. Attorney Preet Bharara concurred in the following statement: “Today’s agreement with Liechtensteinische Landesbank AG reflects the unprecedented nature of the bank’s cooperation… .”

In its press release, the DOJ recognized that, in 2008, before the IRS and the U.S. Attorney’s Office began the investigation, LLB-Vaduz voluntarily implemented a series of remedial measures to stop assisting undeclared U.S. taxpayers in evading federal income taxes. The DOJ also emphasized LLB-Vaduz’s extraordinary cooperation in the form of its support and assistance in 2012 to obtain a change in law by the Liechtenstein Parliament that permitted the Department of Justice to request and obtain the bank files of non-compliant U.S. taxpayers from Liechtenstein without having to identify the taxpayers by name (the “2012 Law”).

So, a foreign bank that discovers potential U.S. tax non-compliance should be proactive in its conduct, document well its efforts to do due diligence, use an independent counsel to investigate the potential non-compliance, and report such non-compliance to the IRS to the extent permitted by the local law.

Impact of the NPA on US Taxpayers with Liechtenstein Offshore Accounts

The DOJ and the IRS have made it clear – the NPA applies only to LLB-Vaduz and not to any of its subsidiaries or any individuals. Therefore, U.S. Taxpayers with undeclared Liechtenstein Offshore Accounts are not protected by the NPA.

Developments Since the NPA Relevant to US Taxpayers with Liechtenstein Offshore Accounts

Two developments since the NPA are particularly relevant to U.S. Taxpayers with undeclared Liechtenstein Offshore Accounts. First, pursuant to the 2012 Law in Liechtenstein, the Department of Justice submitted a second request to the Liechtenstein government for records relating to various Liechtenstein firms that provided trust administration and other fiduciary services that enabled U.S. taxpayers to hold undeclared accounts through structures at banks in Liechtenstein, Switzerland and elsewhere.

Second, on April 2, 2014, the DOJ and the IRS confirmed that Liechtenstein and the United states have reached an agreement in substance with respect to the implementation of the Foreign Account Tax Compliance Act (“FATCA”).

US Taxpayers with Liechtenstein Offshore Accounts Should Immediately Consider Their Voluntary Disclosure Options.

The NPA, combined with the second request for records and FATCA implementation agreement, presents a potentially highly damaging threat to U.S. taxpayers with undisclosed Liechtenstein offshore accounts. At this point, these taxpayers are under a very high probability of detection and are well-advised to consider their voluntary disclosure options in order to reduce the possibility of criminal prosecution.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

If you have undeclared foreign accounts in Liechtenstein or any other foreign country, contact Sherayzen Law Office for professional help. Our experienced team of international tax professionals can help you with its thorough analysis of your case and the available voluntary disclosure options. We can then implement these voluntary disclosure strategies for you and vigorously defend your case against the IRS.

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