Singapore Solution Fraud Scheme Co-Creator Pleads Guilty | SDOP lawyer Minneapolis
On December 21, 2023, the IRS and the US Department of Justice announced that Mr. Rolf Schnellmann, a Swiss national, pleaded guilty to conspiring to defraud the United States for his role in the creation and implementation of a fraud scheme related to foreign accounts and foreign income called “Singapore Solution”. In this small essay, I will discuss the Singapore Solution, the facts of the Schnellmann case and the lessons one can draw from this case.
Singapore Solution: Basic Description of the Tax Evasion Scheme
The idea behind the Singapore Solution is fairly simple. Funds owned secretly (i.e. without a proper disclosure to the IRS on FBAR, Form 8938, et cetera) by US persons in a Swiss bank are first transferred to a series of nominee accounts in other jurisdictions (for example, Hong Kong). In the meantime, the Swiss bankers established (usually indirectly through a law firm) a Singapore-based asset management firm which opens new bank accounts in its name in the Swiss bank. After passing through nominee accounts, the US-owned funds are returned to the Swiss bank and placed in the new bank accounts opened by the asset management firm.
In other words, the Singapore Solution basically represents a circular scheme where the ownership of funds is artificially obscured by involvement of third parties. Obviously, the US owners of the undisclosed funds handsomely compensated the Swiss bankers, the managers of the asset management firm and the nominees for their work. Also obviously, this scheme crosses the line between asset/tax planning and criminal tax evasion.
Singapore Solution: Basic Facts of Schnellmann Case
According to court documents and statements made in court, Rolf Schnellmann was the head of Allied Finance Trust AG, a Zurich-based financial services company and a subsidiary of the Allied Finance Group in Liechtenstein. Between 2008 to 2014, Schnellmann and his co-conspirators helped high-net-worth US taxpayers set-up and implement the Singapore Solution concerning their undeclared bank accounts at Privatbank IHAG Zurich AG (IHAG), a Swiss private bank.
According to the Department of Justice, Schnellmann and his colleagues transferred more than $60 million from the US-owned undeclared IHAG bank accounts through a series of nominee accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG in the name of a Singapore-based asset-management firm that Schnellmann helped establish.
IHAG participated in the 2013 IRS Voluntary Disclosure Program for Swiss Banks. Surely, as a result of this process, IHAG disclosed a lot of information concerning the Singapore Solution. This allowed the IRS to track down not only the noncompliant US clients of that bank, but also the Singapore Solution creators and facilitators, like Mr. Schnellamann. He was arrested in August of 2023 in Italy and extradited to the United States.
The IRS Criminal Investigation (IRS-CI) conducted the investigation with the help of the US Justice Department’s Office of International Affairs, Interpol, Italian law enforcement authorities, the Prosecutor General’s Office of Trieste and the Italian Ministry of Justice.
Singapore Solution: Consequences of the Guilty Plea for Schnellmann
As a result of the guilty plea, Mr. Schnellmann is scheduled to be sentenced on July 19, 2024. He now faces a maximum penalty of five years in prison, a period of supervised release, restitution and monetary penalties.
Singapore Solution: Lessons
The Schnellmann case and the Singapore Solution that he co-authored allow us to deduce certain lessons. First and most obvious, one must respect the difference between legitimate even if aggressive tax planning and criminal tax evasion. Mr. Schnellmann crossed that line and will pay a high price for it.
Second, US taxpayers must declare their foreign accounts to the IRS on FBAR, Form 8938 and Schedule B of Form 1040. Failure to do so may bring very painful consequences in the form of high IRS civil and even criminal penalties.
Finally, there is really no safe place for noncompliant taxpayers to hide. Even if they have been lucky to avoid IRS detection of their noncompliance so far, a disclosure from third parties may lead to an IRS investigation that may ultimately result in the discovery of the noncompliance. In this case, the IRS will most likely impose very heavy penalties for noncompliance (made even heavier by the fact that the IRS had to invest a lot of resources and man-hours into the case).
Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Undisclosed Foreign Assets and Foreign Income
For all of these reasons, noncompliant taxpayers should explore their offshore voluntary disclosure options before the IRS finds out about their noncompliance. Otherwise, an IRS audit will make it impossible for them to lower their IRS noncompliance penalties through a voluntary disclosure.
Sherayzen Law Office is a leader in the IRS offshore voluntary disclosures, including disclosures that involve foreign income noncompliance and foreign asset reporting noncompliance (on FBAR, Form 8938, 3520, 3520-A, 5471, 8865, 8858, et cetera). Led by Mr. Eugene Sherayzen, a highly-experienced international tax attorney, our international tax team has helped hundreds of US taxpayers around the globe to bring their tax affairs into full compliance with the IRS while lowering and sometimes even eliminating IRS penalties.
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