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.