Recent News Related to Offshore Banking
by Asher Rubinstein, Esq.
1. The Continued Risk of “Quiet Disclosure” of Offshore Accounts
Americans with a non-compliant foreign account are faced with various choices about what to do with the account. One option is to make a voluntary disclosure. This will bring the account into tax compliance and avoid criminal penalties, but comes at the cost of back taxes, interest and some civil penalties. Another option is to do nothing, or transfer the account somewhere else, and hope that the IRS doesn’t find the account. A sort of middle ground is to not make a formal voluntary disclosure (a “noisy” disclosure), but instead to file back taxes and retroactive FBAR forms in an attempt at retroactive tax compliance. This is known as a “quiet” disclosure. We have, in the past, advised against “quiet” disclosures. Please see our article, “Quiet Disclosure of Foreign Bank Accounts Still Causes Noise“.
There has been at least one criminal prosecution that involved a “quiet” disclosure. See: U.S. v. Schiavo, U.S. District Court, Massachusetts, involving offshore accounts at HSBC which the defendant attempted to “clean up” via a quiet disclosure. The charges against Schiavo specifically referred to a “silent disclosure”.
More recently, IRS personnel have stated that the IRS is currently and actively examining “quiet” disclosure cases. In the event that a “quiet” disclosure is caught, the taxpayer will not have the protection of a “noisy” voluntary disclosure. This means that all penalties are potentially applicable, including criminal penalties.
It seems to us that a “quiet” disclosure is easily detected. The sudden filing of FBARs for prior years is an obvious “red flag”. Moreover, comparing a newly filed amended tax return that shows foreign income, to an originally filed tax return that did not show foreign income, is a clear indication of a “quiet” disclosure. We reiterate our prior position that quiet disclosures are not advisable.
2. Incarceration of US taxpayer with UBS and Wegelin Accounts
Last week, another criminal offshore account defendant was sentenced. The defendant, Kenneth Heller, eighty two years old and in ill health, received a sentence of forty five days in jail.
Forty five days in jail for an eighty two year old in ill health seems harsh, especially when we consider that most of the offshore banking defendants have received sentences like probation and house arrest. The Assor/Cohen-Levy defendants did get multi-year sentences, but that was a rare case that went to trial rather than plea agreement. Heller did not go trial and took a plea. He also already paid an FBAR penalty of almost $10 million.
We can only speculate on why Heller received jail time. Perhaps it was because he was not a sympathetic person, having been disbarred from practicing law previously. Perhaps it was because of the large amount of undeclared foreign income. Perhaps the judge wanted to make a point, irrespective of the defendant’s age.
3. U.S. Clients Not Welcome at Offshore Banks
We’ve been keeping a tally of foreign banks that no longer welcome U.S. clients. While UBS and Credit Suisse have been closing offshore accounts for U.S. clients and transferring the clients to on-shore, tax-compliant divisions, other offshore banks have been firing U.S. clients outright.
Banks that no longer welcome U.S. clients include: Clariden Leu (Switzerland), Mirabaud & Cie (Switzerland), Basler Kantonalbank (Switzerland) Mizrahi Tefahot (Israel), Bank Hapoalim (Israel), LGT (Liechtenstein) and Liechtensteinische Landesbank (Liechtenstein). These firings are happening notwithstanding years-long banking relationships and many years of fees paid by the clients.
In other cases, foreign banks are willing to keep U.S. clients, but only if they provide evidence of U.S. tax compliance, such as Form W-9. Most recently, Aargauische Kantonalbank advised clients that for the banking relationship to continue, the client must present evidence of tax compliance. Interestingly, while Basler Kantonalbank is firing U.S.. clients outright, Aargauische Kantonalbank still welcomes tax-compliant accounts.
The Foreign Account Tax Compliance Act (FATCA) will introduce additional requirements applicable to foreign accounts.
Still, having a foreign bank account is not illegal, provided it is tax-compliant. And, there are many legitimate reasons to have a foreign account: international trade and business income; ownership of foreign assets including real estate; international investment diversification; currency trading; providing money to relatives in foreign countries; children studying abroad.
We can help you navigate the changing world of offshore banking, including compliance with U.S. tax laws and regulations, and the changing requirements of the foreign banks.