“Secret” Offshore Account Holders at Increased Risk of U.S. Prosecution
by Asher Rubinstein, Esq.
Recent events have placed U.S. owners of undisclosed “secret” foreign bank accounts at serious risk of I.R.S. prosecution for tax fraud. This is especially true for U.S. owners of Swiss accounts. Non-compliant U.S. owners of foreign accounts (including accounts held by nominees) should give immediate consideration to taking action in order to reduce their risk.
Earlier this year, banking giant UBS was charged by U.S. authorities as being a complicitor in U.S. tax fraud. On November 12, 2008, a grand jury for the federal court in the Southern District of Florida indicted Raoul Weil, the head of UBS’s global wealth management business. Mr. Weil and other UBS bankers are charged with conspiring to help thousands of Americans hide billions of dollars from the I.R.S. in supposedly “secret” offshore bank accounts, often held by nominee shell companies registered in the Bahamas, British Virgin Islands, Panama and other supposedly “confidential” jurisdictions.
Senator Carl Levin stated that the indictment is part of a larger U.S. enforcement effort that includes a subpoena to UBS seeking the names of over 17,000 U.S. clients with accounts that have not been properly disclosed to the I.R.S. UBS has already began disclosing information on some U.S. persons with foreign accounts and has stated that it will cooperate fully with U.S. tax investigations. It is thus entirely likely that UBS will cooperate with the subpoena, and provide the names of more American clients to the I.R.S. In 2001, UBS gave up its policy of bank secrecy and agreed to identify U.S. account holders to the I.R.S.
On August 21, 2008, UBS sent a letter to its American clients with an offer to send a check for the value of the accounts it was closing. The letter further stated that UBS recommends that clients consult with their U.S. tax advisor to file, as needed, amended U.S. tax returns in compliance with the I.R.S. Voluntary Disclosure program.
This recent indictment and subpoena is the latest move by the U.S. government in a continuing, and strengthening, campaign to further eliminate bank secrecy and crack down on non-compliant offshore accounts owned by Americans. In 2007, Senator Levin, together with then-Senator Obama, presented a bill to the Senate to prevent tax shelter abuses and increase disclosure requirements for assets held in many offshore jurisdictions. Stop Tax Haven Abuse Act, S-681. Those familiar with the incoming administration report that President-elect Obama plans to introduce a law to further crack down on non-compliant offshore accounts within weeks after taking office. The law will likely include additional measures to reveal the U.S. owners of “secret” offshore accounts. After revealing the American owners of the offshore accounts, the next step is to prosecute them for tax fraud. The failure to timely and properly disclose an interest in an offshore account can lead to large fines and penalties. If the lack of disclosure is deemed criminal tax fraud, jail time is a frightening possibility.
As Douglas Shulman, IRS commissioner, recently told the Wall Street Journal, “We have a lot of names and we’re pursuing them aggressively. People definitely will be better off if they come to us before we find them. And the chances of us finding them increase every day.”
On December 2, 2008, the U.S. Department of Justice announced that in addition to UBS, HSBC and Credit Suisse were also under investigation. Presumably, more foreign banks will also be targeted.
Beneficial owners of undisclosed foreign accounts (including accounts held in the name of nominees) must evaluate their options and take immediate steps to minimize the risk of I.R.S. prosecution for tax fraud.
Option A: Convert to a Tax-Compliant Structure
Our firm has long counseled proper tax disclosure with respect to foreign accounts and the use of tax-compliant strategies to minimize U.S. taxation of foreign accounts. We also advise clients on the legitimization of non-compliant offshore assets. We counsel clients with regard to the proper steps to transform a non-compliant offshore account into one that complies with current U.S. laws. Although we cannot erase a non-compliant past, we can ensure full compliance going forward. Such steps may significantly reduce the chance of prosecution for previous violations.
Option B: Pre-emptive, Anonymous Negotiation and Disclosure
Additionally, if you currently have an interest in a non-compliant offshore account, you may consider voluntary disclosure of that interest before the I.R.S. discovers it. Such a pre-emptive disclosure is best made by qualified legal counsel, experienced in offshore compliance and in I.R.S. negotiations. We can approach the I.R.S. on a hypothetical “no-name” basis, demonstrate proper current compliance and negotiate on your behalf to prevent criminal prosecution and reduce fines and penalties for past non-compliance. Although fines and penalties may be significant, they pale before the consequences of an I.R.S. criminal prosecution. We have a very successful track record with the I.R.S.
Option C: Liechtenstein: A Short Window of Opportunity is Open
Although not yet widely reported, the I.R.S. and the government of Liechtenstein have recently negotiated a new tax information exchange agreement. The agreement will become effective January 1, 2010 and will require Liechtenstein to share information with the I.R.S. with respect to specific administrative investigations (audits) covering tax year 2009 onward (but not earlier). “Fishing expedition” requests by the I.R.S. will not be honored. This means that if a non-compliant Swiss account, for example, is closed and the funds sent to a compliant Liechtenstein account before December 31, 2008, in the event of an investigation, Liechtenstein will only share with the I.R.S. 2009 information on the compliant account. This may be the quickest and best way to bring a non-compliant account into compliance, as well as minimize the risk of I.R.S. discovery of the account in non-compliant (pre-2009) years. Obviously this option requires immediate implementation.
Regardless of which option you pursue, failing to remedy a non-compliant offshore account puts you at serious risk of harsh penalties, including I.R.S. criminal prosecution, in the event of discovery. As recent events have proven, discovery is very likely.