Guilty Plea for Hiding Income from Undeclared Panamanian Bank Account

On September 21, 2016, the IRS and the DOJ scored yet another success in their fight against hiding income in Central American banks – Mr. Saul Hyatt pleaded guilty to hiding income from an undeclared Panamanian bank account.

Facts of the Case: Undeclared Panamanian Bank Account

The Hyatt case falls right within the type of cases that the DOJ loves to prosecute. According to documents filed with the court, Mr. Hyatt conspired with another individual in the United States and others to conceal his assets and income derived from the sale of duty-free alcohol and tobacco products. For that purpose, he used a registered Panamanian corporation, Centennial Group, to buy and sell the duty-free products: alcohol and tobacco. The alcohol was shipped through a customs-bonded warehouse in the Foreign Trade Zone in Fort Lauderdale, Florida. The tobacco products (Chinese-brand cigarettes sold under the names “Chung Hwa” and “Double Happiness”) passed through a customs-bonded warehouse in North Bergen, New Jersey.

It was a very successful business and Mr. Hyatt decided to push it further – he decided to make his profits from selling duty-free products tax free. He opened a Panamanian bank account and, between 2006 and 2012, wire transferred $1,627,832 in profits to this account. Mr. Hyatt never declared the Panamanian bank account on his FBARs.

Then, Mr. Hyatt repatriated at least some of the funds from Panamanian bank account to buy a Mercedes Benz SL 550R automobile and to pay for $19,000 in interior design goods and services. It is possible that these transactions allowed the IRS and the DOJ to trace his undeclared Panamanian bank account.

Consequences of Failure to Report US-Source Income and a Panamanian Bank Account

As a result of his tax evasion scheme and his failure to report his Panamanian bank account, Mr. Hyatt faces a statutory maximum sentence of five years in prison as well as a term of supervised release and monetary penalties. He also agreed to file accurate tax returns and to pay the IRS all taxes and income tax penalties owed. In addition, Mr. Hyatt agreed to pay the FBAR penalty for failure to report his Panamanian Bank Account in the amount of $854,465.50 (looks like a 50% penalty on the highest balance).

Lessons from this Case: How an Undeclared Panamanian Bank Account Led to Criminal Investigation

Mr. Hyatt’s case is a typical case that the DOJ designates from a criminal prosecution. We can distinguish four particular features here. First, he earned a large amount of income in the United States and failed to report it. Mr. Hyatt admitted that his scheme resulted in a tax loss of $521,986.

Second and this is the biggest trigger for a criminal prosecution, Mr. Hyatt decided to actively hide his US-source income by transferring it overseas to a Panamanian bank account.

Third and this is a favored IRS instrument to impose large fines and criminal penalties – Mr. Hyatt failed to declare his Panamanian bank account on FBARs. FBAR (the Report of Foreign Bank and Financial Accounts) is the most severe form in terms of its potential penalties for tax noncompliance and Mr. Hyatt felt it right away; even after negotiating his guilty plea, he still agreed to pay the FBAR penalty in the amount of 854,465.50.

In its press release, the DOJ emphasized the importance of that the fact that Mr. Hyatt failed to file his FBARs. “Concealing income and assets offshore is not tax planning,” said Special Agent in Charge Jonathan D. Larsen of IRS-Criminal Investigation, Newark Field Office. “Plain and simple, this is international tax fraud. The facts in this case are clear. Mr. Hyatt earned income through the sale of duty-free alcohol and tobacco products and intentionally had over $1.6 million of profits wired into an undeclared offshore bank account in Panama. Today’s plea shows how determined we are at the IRS and Department of Justice in uncovering this type of international tax fraud and putting a stop to it.”

Sherayzen Law Office has warned a long time ago that the IRS and the DOJ focused their enforcement efforts not only on Switzerland, but also on Central America, particularly on the schemes involving an undeclared Panamanian bank account.

Finally, Mr. Hyatt used a foreign corporation in his scheme to conceal his US-source profits. It is not known at this point whether Form 5471 was filed for the corporation, but it is likely that it was not.

The combination of these four factors – failure to declare US-source income, attempt to conceal it in a Panamanian bank account, failure to file FBARs to declare the Panamanian bank account and the use of a foreign corporation in a tax evasion scheme – is a typical lethal combination of facts that leads the DOJ and the IRS to decide to criminally prosecute a US taxpayer.

Contact Sherayzen Law Office for Legal Help if You Have an Undeclared Panamanian Bank Account

The penalties for FBAR noncompliance are high and include the possibility of incarceration (as Mr. Hyatt’s case demonstrated once again); therefore, time is of the essence to preempt the IRS and the DOJ through a voluntary disclosure. However, time is of the essence.

Therefore, if you have an undeclared Panamanian bank account or a foreign account in any other country, you should contact Sherayzen Law Office as soon as possible. Our experienced legal team, headed by an international tax attorney Eugene Sherayzen, has helped hundreds of US taxpayers around the world and we can help you!