U.S. Attorney Preet Bharara for the Southern District of New York and Acting Special Agent in Charge Shantelle P. Kitchen of the Internal Revenue Service-Criminal Investigation (IRS-CI) New York Field Office announced on November 18, 2014, the unsealing of an indictment against Peter Canale, a U.S. citizen and resident of Kentucky, for conspiring to defraud the IRS and evade taxes by establishing and maintaining secret Swiss bank accounts. Canale was arrested on November 18, 2014, at his residence in Jamestown, Kentucky, and is expected to be presented later today in the US District Court for the Eastern District of Kentucky. Canale is scheduled to be arraigned before US District Judge Katherine B. Forrest in Manhattan federal court on December 3, 2014, at 3:00 p.m.
Facts of the Case With Respect to Secret Swiss Bank Accounts According to Indictment
According to the allegations in the indictment unsealed on November 18, 2014, in Manhattan federal court, Canale conspired with others – including Michael Canale, his brother, Beda Singenberger, a Swiss citizen who ran a financial advisory firm, and Hans Thomann, a Swiss citizen who served as a client adviser at UBS and certain Swiss asset management firms – to establish and maintain secret Swiss bank accounts and to hide those accounts from the IRS. Canale used a sham entity to conceal from the IRS his ownership of the secret Swiss Bank Accounts and deliberately failed to report the accounts and the income generated in the accounts to the IRS.
One of the most surprising facts in this case is the source of money – it was foreign inheritance. In approximately 2000, a relative of Canale’s who held an undeclared bank account in Switzerland died and left a substantial portion of the assets in the undeclared account to Canale and Michael Canale. Canale and his brother met with Thomann and Singenberger and determined they would continue to maintain the assets in the secret Swiss Bank accounts for the benefit of Canale and his brother.
Thereafter, in approximately 2005, Canale, with Singenberger’s assistance, opened secret Swiss Bank Accounts at Wegelin bank (no longer in existence). The account was opened in the name of a sham foundation formed under the laws of Lichtenstein to conceal Canale’s ownership.
Equally surprising is that a criminal case was brought against an account that was under $1,000,000. As of December 31, 2009, the account held assets valued at approximately $789,000.
For each of the calendar years from 2007 through 2010, Canale willfully failed to report on his tax returns his interest in the secret Swiss Bank Accounts and the income generated in those secret Swiss Bank accounts. For each of these years, Canale also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS, as the law required him to do.
Canale, 61, is charged with one count of conspiracy to defraud the United States, evade taxes, and file a false and fraudulent income tax return, which carries a statutory maximum sentence of five years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Secret Swiss Bank Accounts Charges Related to a Client List Obtained from Indicted Swiss Banker
The Canale case is another example of an indictment stemming directly from a misplaced letter mailed by a Swiss financial adviser Singenberger (the same advisor who helped Canale open his secret Swiss Bank Accounts) that ended up in the hands of the US tax authorities. The IRS has been picking off the clients on the list one by one since 2013 (including Jacques Wajsfelner and Michael Reiss).
Lessons to be Learned from Canale Case
As I mentioned in a recent article regarding the Cohen case, there has been a growing trend where the IRS is pursuing criminal prosecutions in cases that involve smaller balances on secret Swiss Bank Accounts as long as the IRS is comfortable with its ability to establish willfulness with respect to FBAR non-reporting.
Canale case is just one more example of this trend. The balances were not large at all – the highest balance was far under $1 million. However, the Canale case also included an aggravating factor of allegedly using a sham foundation to conceal his identity; these cases usually carry a higher than usual probability of an IRS criminal prosecution.
What was unusual about the Canale case is how little weight was given to the source of the funds on the secret Swiss Bank Accounts – inheritance. It appears that, in all likelihood, other circumstances were so negative as to simply overwhelm the positive nature of this factor.
If you had undisclosed foreign accounts at any point since the year 2006, you should consider your voluntary disclosure options as soon as possible. While the DOJ Program for Swiss Banks makes the maintenance of secret Swiss Bank Accounts extremely dangerous at this point, the implementation of FATCA since July 1, 2014, carries a far more potent chance that you undisclosed foreign accounts will be discovered even if they are outside of Switzerland.
If you need help, contact Mr. Sherayzen, a voluntary disclosure professional and international tax attorney at Sherayzen Law Office. Our team will thoroughly analyze your case, evaluate your current voluntary disclosure options, and proceed to implement your voluntary disclosure plan (including preparation of all legal documents and tax forms).