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DOJ Non-Prosecution Agreement with Bank Linth LLB AG

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On June 19, 2015, the Department of Justice announced that Bank Linth LLB AG (Bank Linth) signed a Non-Prosecution agreement pursuant to the DOJ’s Swiss Bank Program.

Bank Linth Background

Bank Linth, one of the largest regional banks in Eastern Switzerland, was founded in 1848. It is headquartered in Uznach, Switzerland, which is approximately 35 miles southeast of Zurich. Bank Linth provided private banking and asset management services to U.S. taxpayers through private bankers based in Switzerland. It opened, serviced and profited from accounts for U.S. clients with the knowledge that many were likely not complying with their tax obligations.

Bank Linth’s cross-border banking business aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts. Bank Linth provided this assistance to U.S. clients in a variety of ways, including the following:

Opening and maintaining accounts in the names of sham entities;

Providing U.S. taxpayers with numbered accounts that hid the taxpayers’ identities;

Facilitating U.S. taxpayers’ withdrawal of cash from undeclared accounts; and

Agreeing to hold bank statements and other mail relating to accounts rather than sending them to U.S. taxpayers in the United States.

On several occasions, Bank Linth opened accounts for U.S. taxpayers through an external asset manager, and one of these accounts was opened in the name of a sham foundation. In that instance, Bank Linth knowingly accepted and included in account records forms provided by the directors of the sham foundation that falsely represented the ownership of the assets in the account for U.S. federal income tax purposes.

Participation in the Swiss Bank Program and the Non-Prosecution Agreement

In accordance with the terms of the Swiss Bank Program, Bank Linth described in detail the structure of its banking business, including its management and supervisory structure, and provided the names of management and legal and compliance officials. Bank Linth further provided detailed and specific information related to its illegal U.S. cross-border business, including the bank’s misconduct, policies that contributed to that misconduct and the names of the relationship managers overseeing the bank’s U.S.-related business. Bank Linth also obtained affidavits from bank employees regarding the bank’s conduct and related matters.

According to the terms of the non-prosecution agreements signed today, Bank Linth agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute Bank Linth for tax-related criminal offenses.

Since August 1, 2008, Bank Linth held 126 U.S.-related accounts, with over $102 million in assets. Bank Linth will pay a penalty of $4.15 million (this is a post-mitigation penalty).

Consequences for US Taxpayers with Undisclosed Bank Linth Accounts

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. This means that, starting June 19, 2015, noncompliant Bank Linth U.S. accountholders will now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Vadian Bank AG Signs Non-Prosecution Agreement with DOJ

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On May 8, 2015, Vadian Bank AG (Vadian) became the second bank to sign a Non-Prosecution Agreement with the US Department of Justice (DOJ) pursuant to the DOJ Program for Swiss Banks.

Program for Swiss Banks: Background Information

On August 29, 2013, the DOJ announced the creation of the “The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program)”. The basic goal of the program was to allow Swiss banks to purge themselves of the prior US tax non-compliance (or complicity with such non-compliance) in exchange for providing DOJ with detailed description of their illegal activities, bank accounts owned by US persons and, in many cases, the payment of monetary penalties.

The Program is a really a version of the 2014 OVDP for foreign banks. However, it was not open to all banks. The banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

As of the time of this writing, the application process has already been completed for the great majority of the Swiss banks, and the Program has entered into the resolution phase (i.e. the review of the banks’ disclosure and penalty calculation).

Vadian bank’s case was the second such case that completed the resolution phase (BSI SA was the first bank to do so).

Vadian Bank Background

Vadian has one office and 26 employees. Prior to 2008, Vadian’s business predominantly consisted of savings accounts, residential mortgage lending and small business loans. In 2007, Vadian hired a marketing firm to assist with its planned growth into private banking, and focused its efforts on attracting external asset managers. In 2008, after it became publicly known that UBS was a target of a criminal investigation, Vadian accepted accounts from U.S. persons who were forced out of other Swiss banks. At this time, Vadian’s management was aware that the U.S. authorities were pursuing Swiss banks that facilitated tax evasion for U.S. accountholders in Switzerland, but was not deterred because Vadian had no U.S. presence. As a result of its efforts, after August 2008, Vadian attracted cross-border private banking business and increased its U.S. related accounts from two to more than 70, with $76 million in assets under management.

Through its managers, employees and/or other individuals, Vadian knew or believed that many of its U.S. accountholders were not complying with their U.S. tax obligations, and Vadian would and did assist those clients to conceal assets and income from the IRS. Vadian’s services included: “hold mail” services; numbered accounts, where the client was known to most bank employees only by a number or code name; opening and maintaining accounts for U.S. taxpayers through non-U.S. entities such as corporations, trusts or foundations; and accepting instructions from U.S.-based accountholders to prevent investments from being made in U.S.-based securities that would require disclosure to U.S. tax authorities.

Vadian Bank: Terms the DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement that was signed on May 20, 2015, Vadian agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $4.253 million penalty in return for the department’s agreement not to prosecute Vadian for tax-related criminal offenses.

In resolving its criminal liabilities under the program, Vadian also provided extensive cooperation and encouraged U.S. accountholders to come into compliance.

Consequences of Vadian Non-Prosecution Agreement for Vadian US Accountholders

If you have (or had at any point since the year 2008) undeclared foreign accounts at Vadian, you may still be eligible to participate in the OVDP (assuming that you can pass the IRS-CI Preclearance process). However, the price of participating in the OVDP has almost doubled from the pre-Agreement 27.5% to the current 50% of the highest value of your undisclosed foreign assets.

Of course, if the behavior was non-willful, Streamlined options remain available at the same penalty rates.

What Should Vadian US Accountholders Do?

If you are a US person and an accountholder at Vadian, please contact the experienced international tax law firm of Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

Cayman Islands FATCA Registration Portal

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On March 20, 2015, the Cayman Islands FATCA Registration Portal was launched by the Department for International Tax Cooperation (which is a department within Cayman Islands Tax Information Authority).

Cayman Islands FATCA Background 

The Cayman Islands FATCA Registration Portal is part of the long process of Cayman Islands FATCA compliance. Cayman Islands FATCA IGA (Model 1) was signed with the United States on November 29, 2013. At the same time, Cayman Islands signed the amended Tax Information Exchange Agreement. Both of these developments led to the creation of the Portal as a way to automatically exchange information required by FATCA between Cayman Islands and the United States.

It is also important to point out that Cayman Islands FATCA compliance was not only driven by the US considerations, but also by the UK considerations. As an overseas territory of the United Kingdom, Cayman Islands had to come to an agreement with the United States that could not have been better the terms negotiated between the UK and Cayman Islands with respect to the exchanges of tax-related information.

Purchase of the Portal

The Portal plays a critical role in Cayman Islands FATCA compliance, because it allows Cayman’s financial institutions (including the investment funds based in Cayman islands) to report information required by FATCA to the Cayman Islands Tax Information Authority, which, as it is mandated by Model 1 FATCA agreement, will turn over the required information to the IRS.

Registration

As part of Cayman Islands FATCA compliance, the Cayman Islands Tax Information Authority warned the island’s financial institutions that they much must register via the Portal by April 30, 2015 and provide their names, FATCA classification, principal point of contact and other information.

Reporting Deadline by May 31, 2015

The deadline for reporting the 2014 (calendar year) information by the Cayman’s financial institutions must be done by May 31, 2015. The information that will have to be submitted through the Portal is the one usually required by FATCA, including:

1. US person’s name, address and tax identification number (and date of birth, where applicable);
2. US person’s account number or its equivalent;
3. Name and ID of the reporting financial institution; and
4. Year-End Balance of the account.

Interestingly enough, the UK FATCA requirement for Cayman Islands is much later – May 31, 2016.

Caymans Islands FATCA Compliance Is Not Unique

Cayman Islands FATCA compliance through a Portal is now a common theme throughout the world. In fact, it is expected that most of the Model 1 FATCA countries around the world have either complied with 2014 US FATCA requirements or will do so soon, and they are likely to be using a Portal of some kind.

For example, it is expected that the following jurisdictions will do their FATCA reporting through an information reporting system (deadlines in parenthesis): Ireland (June 30, 2015), Luxembourg (June 30, 2015), United Kingdom (May 31, 2015), Canada (May 2, 2015), and so on.

What Portal Means for US Persons with Undisclosed Cayman Islands Accounts

If you are a US person with undisclosed foreign accounts in Cayman Islands (any many other jurisdictions around the world), you are very likely to have very little time left before your account will be disclosed to the IRS. The penalties (especially FBAR and Form 8938 penalties) for failure to report foreign accounts can be draconian, including potential incarceration. Moreover, once the IRS learns about the existence of your account and initiates an invest, you may not be able to do a voluntary disclosure to reduce your penalties.

This means that US persons with undisclosed foreign accounts need to immediately contact an experienced international tax lawyer to explore their voluntary disclosure options in order to timely file their request for Preclearance.

Contact Sherayzen Law Office for Professional Help With Disclosing Your Foreign Accounts

Sherayzen Law Office, Ltd. is the experienced international tax firm that can help you with the voluntary disclosure of your foreign accounts. We have already successfully helped hundreds of US taxpayers around the world to conduct various types of voluntary disclosures (SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), Delinquent Information Returns, Delinquent FBAR Submission, and Noisy/Reasonable Cause disclosures), and We can help You!

Contact Us to Schedule Your Confidential Consultation!

Main Differences between Model FATCA IGAs

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As FATCA is being adopted by more and more countries, it is important to understand that there are two types of model FATCA IGAs (i.e. intergovernmental agreements to implement FATCA) that are signed between various countries and the United States. Both model FATCA IGAs were issued by the US Treasury Department and both model FATCA IGAs are perfectly valid, but some countries prefer one model FATCA IGA over the other. In this article, I would like briefly discuss the main differences between the two model FATCA IGAs.

Model FATCA IGAs Background

FATCA (Foreign Account Tax Compliance Act) was enacted by US Congress in 2010 to target tax non-compliance of U.S. taxpayers with foreign accounts. Since that time, this law has established the global standard for promoting tax transparency and has been adopted by a very large number of countries around the globe.

The adoption of FATCA usually occurs as a two-step process. First, a foreign jurisdiction signs one of the two model FATCA IGAs with the IRS. Second, the foreign jurisdiction’s legislature modifies domestic law to implement the provisions of whatever one of the two model FATCA IGAs that the country signed.

Model FATCA IGAs: Model 1

The first of the two Model FATCA IGAs is called “Model 1IGA”. Its principal feature is that it requires foreign financial institutions (FFIs) to report all information required under FATCA to their domestic government tax agencies. The domestic tax agencies would collect all of the FATCA information and turn it over of the IRS.

Since the FFIs would do all of their reporting domestically to their own agencies, Model 1 IGA is sometimes negotiated as a reciprocal agreement. This means that some Model 1 IGAs require the IRS to provide certain information with respect to the tax residents of the country that signed such a reciprocal Model 1 IGA.

Finally, the FFIs covered by a Model 1 IGA do not need to sign an FFI agreement. However, the FFIs will still need to register on the IRS’s FATCA Registration Portal or file IRS Form 8957.

Model FATCA IGAs: Model 2

The second of the two Model FATCA IGAs is called “Model 2 IGA”. Unlike the other model IGA, Model 2 IGA requires FFIs to report the FATCA-related information directly to the IRS and without any intermediaries.

Since the FFIs report all FATCA-related information directly to he IRS, they need to register with the IRS and sign an FFI agreement (which should reflect the specific changes to the model FATCA IGAs negotiated by the foreign jurisdiction).

Both Model FATCA IGAs Lead to Disclosure of Foreign Accounts Held by US Persons

Irrespective of the type of the agreement, it is important to remember that both model FATCA IGAs are designed to perform the same function – disclosure of foreign accounts held by US persons (directly or indirectly). This means that the spread of both types of model FATCA IGAs presents a direct threat to any undisclosed foreign accounts of US persons with potentially catastrophic consequences for these US persons, including potential criminal prosecution and willful FBAR penalties in excess of the balances of these secret accounts.

Contact Sherayzen Law Office for Help with Undisclosed Foreign Accounts

If you have undisclosed foreign accounts, please contact Sherayzen Law Office as soon as possible. Our international tax lawyers will first carefully review the facts of your case and identify the best voluntary disclosure options available to you.  Our international tax professionals will conduct your voluntary disclosure process from the beginning through the end, including the preparation all of the required legal documents and tax forms.

Contact Us Now to Schedule Your Confidential Consultation!

FATCA Attorneys Update: IRS Launches International Data Exchange Service

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On January 12, 2015, the IRS announced the opening of the International Data Exchange Service (IDES) for enrollment. The appearance of IDES is not a surprise to FATCA Attorneys, because most FATCA attorneys knew IDES was the next logical step since its purpose is going to be for foreign financial institutions (FFIs) and host country tax authorities (HCTAs) to securely send their FATCA reports about US account holders under regular FATCA compliance or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.

So far, more than 145,000 financial institutions have registered through the IRS FATCA Registration System. Moreover, the IRS made tremendous progress with IGAs – there are now more than 110 IGAs, either signed or agreed in substance.

FATCA Attorneys Update: How Will IDES Function?

Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information. This means that FFIs and HCTAs can have a high level of confidence in the data about US account holders that they will be transmitted to the IRS.

“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS Commissioner John Koskinen. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”

Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.

IDES runs on all major browsers, including Chrome, Internet Explorer, Safari, and Firefox and will support application-to-application exchanges through the SFTP transmission protocol enabling a wide variety of users to interact with IDES without building additional infrastructure to support transmission.

FATCA Attorneys Update: IDES and Model 2 IGA Jurisdictions

The IRS encourages HCTAs in Model 2 IGA jurisdictions and FFIs to begin the enrollment process well in advance of their reporting deadline. To begin transmitting information in IDES,an FFI or HCTA will need to first obtain a digital certificate. Digital certificates bind digital information to physical identities and provide data integrity. IDES stores each user’s public key and related digital certificate. All IDES enrollees (including host country tax authorities) must obtain a proper digital certificate in order to enroll (there is a list of approved Certificate Authorities available on irs.gov).

FATCA Attorneys Update: IDES and Model 1 IGA Jurisdictions

For HCTAs in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. FFIs will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list. The online address for IDES enrollment can be found here.

FATCA Attorneys Update: IDES and Offshore Voluntary Disclosure

The opening of IDES is considered by FATCA attorneys as an important development in FATCA implementation which is likely to affect a very large number of US persons with undisclosed foreign accounts. It should be remembers that if the IRS receives the information about an undisclosed foreign account through IDES, it may prevent the US owner of such an undisclosed foreign account from being able to enter into the IRS Offshore Voluntary Disclosure Program.

FATCA attorneys also should warn their US clients who closed their foreign accounts prior to 2014 that the closure of such accounts prior to the implementation of FATCA does not mean that these accounts will not be reported later. On the contrary, FATCA attorneys should stress to their clients that the IDES is likely to be used by FFIs and HCTAs to report prior non-compliance with respect to closed accounts to the IRS as early as March 31, 2016 if not earlier.

Contact Sherayzen Law Office for Help With Undisclosed Foreign Accounts

Almost all FATCA attorneys stress that time is running out for US persons with undisclosed foreign accounts to start their voluntary disclosure process. With the introduction of IDES, a significant practical hurdle to FATCA implementation has been removed. This means that your undisclosed foreign account may be reported at any point now to the IRS.

If you have undisclosed foreign accounts, you should contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options. Our experienced FATCA law firm will thoroughly analyze your case, determine your existing exposure to U.S. tax penalties, identify the available voluntary disclosure options, prepare all legal and tax documents for your voluntary disclosure, and vigorously advocate your position against the IRS.

Contact Us Now to Schedule Your Confidential Consultation!