Additional Criminal Prosecutions for Undeclared Offshore Accounts
By Asher Rubinstein, Esq.
This week, Anton Ginzburg, another taxpayer with a non-compliant account at UBS, plead guilty in a Federal Court in New York to criminally concealing his account and failing to disclose the account on the required FBAR form. This taxpayer faces a jail sentence of up to five years and a fine of approximately $1.5 million, constituting fifty percent (50%) of the value of the account during 2007. In fact, the law allows the government to impose a 50% penalty for every year that the account was non-compliant, although the pattern in recent criminal prosecutions is that if the defendant enters a guilty plea, the government imposes a 50% penalty for one year.
This potential jail sentence and monetary fine stands in contrast to taxpayers who voluntarily disclose their foreign accounts. A proper voluntary disclosure would avoid a criminal prosecution and jail time, and the fine would be capped at twenty five percent rather than fifty percent.
On June 28, Dr. Arvind Ahuja, another Indian-American taxpayer, was indicted in Federal Court in Wisconsin for failing to disclose his foreign accounts at HSBC India and the Channel island of Jersey. We have written at length about the particular focus that the government has on accounts in India owned by Indian-Americans. See our articles here, here and here.
Also in late June, taxpayer Kenneth Heller pled guilty in Federal Court in New York to failing to disclose his foreign account at UBS. His fine was close to $10 million and he faces a potential prison term of up to fifteen years. Mr. Heller’s case also involved his attempts to avoid detection by moving his foreign funds from UBS, which was under IRS scrutiny, to Wegelin, a smaller Swiss bank. However, as we know, many Swiss banks are under investigation for providing non-compliant accounts, including Wegelin, Julius Baer and the regional Cantonal Banks.
Also in late June, taxpayers Sean and Nadia Roberts pled guilty in Federal Court in California to failing to disclose their offshore accounts at UBS in Switzerland, as well as other accounts in Liechtenstein, Isle of Man, Hong Kong, South Africa and New Zealand.
Finally, also in June, taxpayer Robert Greeley was charged in Federal Court in California with failing to disclose a foreign account at UBS.
Comments and lessons from these latest prosecutions:
- This recent wave of criminal prosecutions for undeclared foreign accounts appears to be timed to incentivize taxpayers with such accounts to come forward under the Offshore Voluntary Disclosure Initiative, which runs until August 31, 2011.
- Accounts in various countries (not only Switzerland) are being targeted. Accounts in India (see above) and Israel are particular targets. Accounts of various sizes are being targeted. The IRS has opened field offices in Panama, Hong Kong, China and Australia to investigate offshore tax noncompliance. Efforts to move assets from large banks to smaller banks supposedly “under the radar” are ineffective and could result in additional criminal charges.
- Some of the taxpayers prosecuted for non-compliant foreign accounts utilized foreign corporations in attempt to obscure the true beneficial ownership of such accounts. As these prosecutions show, such a strategy is not effective. Using a foreign entity like a corporation, trust or foundation seems to draw even more anger by the IRS, as it exhibits an additional level of willful non-compliance and obfuscation of the foreign assets. However, even taxpayers whose foreign assets are in their own names and not in the names of foreign entities are being prosecuted. The lesson is that non-compliant foreign assets, whether in your name or the name of an entity, are vulnerable to investigation and criminal prosecution.
- Based on recent criminal prosecutions, plea deals and sentences, we can make the following rough conclusions:
Fight the IRS accusations at trial and lose: long jail sentences (e.g., ten years) and large fines.
Plead guilty to the IRS accusations and avoid a trial: shorter sentences, house arrest and probation, plus 50% penalty during one year (rather than 50% each year).
Voluntarily disclose the account: no jail, 25% penalty.