On October 7, 2016, the IRS and the DOJ (US Department of Justice) announced yet another conviction related to an undisclosed Swiss Bank Account owned through a Hong Kong shell company.
Facts of the Case: Hong Kong Shell Company Used to Hold Undisclosed Swiss Bank Account
The facts of the case contain a fairly typical scenario for tax evasion criminal convictions based on offshore abusive tax schemes. Nevertheless, the case contains some interesting facts that indicate the growth in the IRS ability to detect willful FBAR and income tax noncompliance.
Mr. Bernhard Rumbold, a resident of Clarkston, Michigan, and an owner of several businesses in Michigan (United States) and Ontario (Canada) decided to use a Hong Kong Shell Company to hide certain income. In November of 2004, he transferred more than $2.6 million from his parents’ trust account (which he managed) into a Swiss bank account registered in the name of a Hong Kong shell company called Wisdom City Limited. This was not just any bank, but Credit Suisse Bank AG.
According to the guilty plea, the Hong Kong shell company existed for the sole purpose of being the named account holder of foreign bank accounts. Mr. Rumbold was the beneficial owner of the account. In December of 2008, however, he decided that he needed further protection against the IRS and transferred the control over the account to a relative. The Credit Suisse bank account was in reality an investment account that produced interest, dividends and capital gains.
None of that income was disclosed on Mr. Rumbold’s 2006-2008 individual income tax returns. It appears that no box was checked on Schedule B either with respect to the his ownership interest in the foreign financial accounts. In October 2010, Rumbold filed his amended 2008 US tax return but he still failed to report the interest, dividends and capital gains generated by the Swiss investment account.
Guilty Plea for Abusive Tax Scheme Involving Hong Kong Shell Company
Under the terms of the guilty plea, it appears that the IRS dropped the FBAR-related charges (or, perhaps, the statute of limitations presented a problem for the case), but focused on the restitution of unpaid tax liabilities (most likely with penalties and interest) for the years 2006 and 2008. Furthermore, Mr. Rumbold is going to be sentenced on February 8, 2017 and he faces a statutory maximum sentence of three years in prison as well as a period of supervised release and monetary penalties.
Lessons of the Rumbold Case: Hong Kong Shell Company is No Longer a Protection Against IRS Investigation
The primary lesson to be drawn from the Rumbold case is the fact that having a Hong Kong shell company no longer protects the beneficial owner from the IRS detection. The Principal Deputy Assistant Attorney General Ciraolo was explicit on this point: “the days when a shell company created in Hong Kong or other jurisdictions could be used successfully to hide funds in foreign financial accounts are over, and those who continue to engage in this conduct will be held accountable.”
On the contrary, having a Hong Kong shell company now simply provides the IRS with additional evidence of a taxpayer’s willfulness in his failure to pay the income taxes due on his foreign income.
Contact Sherayzen Law Office for Help if You Have a Hong Kong Shell Company or Undisclosed Foreign Accounts
If you have undisclosed foreign bank and financial accounts through a Hong Kong shell company, you should contact Sherayzen Law Office as soon as possible. As the Rumbold case demonstrates, the situation can be very dangerous and you need to act quickly to preserve your voluntary disclosure options. We have helped numerous taxpayers who owned undisclosed foreign accounts through shell companies and we can help you!