Credit Suisse, More Secret Bank Accounts and the Israeli Connection

In 2014, Credit Suisse pleaded guilty in U.S. federal court to facilitating tax fraud by Americans via secret bank accounts in Switzerland.  This was among the largest guilty pleas ever by a foreign bank, and Credit Suisse agreed to pay $2.6 billion in fines to the U.S. and New York State.  (Our previous report from 2014 is here, along with a Bloomberg Businessweek article that quoted Asher Rubinstein in 2014.)  Now, Credit Suisse is again facing similar allegations, this time for the bank’s “Israel desk” facilitating tax fraud by Israeli-Americans.

The current accusations stem from the Department of Justice prosecution of Dan Horsky, who held joint U.S. and Israeli citizenship and kept millions of dollars in cash and stock accounts at unreported Credit Suisse accounts in Switzerland.  Mr. Horsky pled guilty, cooperated with DOJ and provided information about Credit Suisse that could result in a new prosecution or punishment of Credit Suisse.  Following the 2014 guilty plea, a new prosecution will likely have severely negative results for Credit Suisse and other U.S.-Israeli taxpayers with unreported secret bank accounts at Credit Suisse and other banks.

We have written extensively about non-compliant foreign accounts in Switzerland, Israel and other jurisdictions around the world.  There is a limited opportunity to bring such accounts into U.S. tax compliance, but only if the IRS does not already know about the accounts.  If Credit Suisse, as part of an investigation, settlement, fine or penalty, reveals the names of its account holders to DOJ, it would be too late for the account holders to make a pre-emptive disclosure in order to avoid prosecution, severe penalties and even jail.  Banks have routinely disclosed the identities of their account holders in order to settle charges of facilitating tax fraud, including UBS, Credit Suisse and Bank Leumi.

If you have unreported foreign accounts, commonly known as secret bank accounts, contact us to discuss your options.

Please also see the following related articles:

Israel Is Becoming the IRS’ Strictest Enforcer of FATCA, by Asher Rubinstein, published in Tax Notes International

Should Everyone with Undeclared Foreign Assets Make a Voluntary Disclosure to the IRS? Are there Less Costly Alternatives to a Voluntary Disclosure?

The Next Wave of IRS Offshore Account Enforcement: Israeli Banks Under Scrutiny

IRS Targeting Undeclared Accounts in Israel for Tax Fraud

UBS Clients Prepare For The Worst

Kenneth Rubinstein was interviewed by Forbes regarding strategies to address non-compliant offshore accounts at UBS: convert to a tax-compliant offshore strategy, or preemptively disclose the account to the IRS.

UBS Clients Prepare For The Worst
Vidya Ram , 02.27.09, 2:00 PM ET
LONDON –
UBS has pledged to fight against the Internal Revenue Service’s demand that it spill details of 52,000 clients suspected of having secret Swiss bank accounts. But its clients are preparing for the worst.

Some clients are already beginning to approach the IRS under its voluntary disclosure program. “We have been going to the IRS without giving names and explaining we represent the clients, to get assurances from the IRS that if they come forward and declare those assets they will not be prosecuted criminally,” says lawyer Ken Rubinstein, of New York-based Rubinstein & Rubinstein. “Unless they already have the client’s name, the IRS is agreeing to treat it as a civil matter.” Several other clients are converting their foreign accounts that aren’t compliant with U.S. law.

UBS pledged to dig its heels in and not hand over the details of the clients, a day after it reached a settlement to pay a $780.0 million fine to U.S. authorities and release details of clients suspected of tax
fraud — estimated to be around 250, according to Swiss press reports. (See “52,000 Had Secret UBS Accounts.”)

That settlement has already put UBS in hot water: On Wednesday, a criminal case was filed against the company, Chairman Peter Kurer and the Swiss regulator for violating the country’s banking secrecy laws – a charge that the bank deems “without merit.”

The Swiss President Pascal Couchepin had defended the decision to hand over the details of those 250 clients, warning that UBS’ existence would have been threatened had it been indicted. For Switzerland, the fate of that bank matters enormously: UBS and Credit Suisse’s balance sheets total around seven times Switzerland’s gross domestic product, while their revenues amount to just under 9.0% of GDP.

Rubenstein, who has been advising clients either to convert their accounts or pre-emptively disclose to the IRS, believes that that economic threat will force UBS and the Swiss authorities to comply with U.S. demands. “My prediction is that the details of the 52,000 will be handed over for pragmatic reasons,” he said. “They will have to capitulate.”

Swiss Banking Secrecy is Fading; Americans with Non-Compliant Offshore Accounts Must Take Immediate Defensive Action

Swiss Banking Secrecy is Fading; Americans with Non-Compliant Offshore Accounts Must Take Immediate Defensive Action

by Asher Rubinstein, Esq.1

Faced with a criminal tax prosecution by the U.S. government, a civil lawsuit by the I.R.S., and criminal indictments against some of its top managers for promoting tax fraud, UBS capitulated on February 18, 2009. In agreeing to a “deferred prosecution”, UBS will pay $780 million to the U.S. and disclose the names of Americans with undisclosed foreign accounts. If UBS fully complies, the U.S. will drop the criminal charges in 18 months. Contemporaneous with the February 18 settlement, UBS disclosed to US authorities the identities of some 250 American account holders. Thousands of additional Americans with undisclosed foreign accounts are still at risk of their identities being revealed by UBS in the civil lawsuit, which was not settled by the deferred prosecution. Various reports estimate that between 17,000 and 52,000 additional non-compliant accounts were created at, or by, UBS, containing both cash and securities.

In a further initiative to access those accounts and determine the identities of their U.S. owners, the day after agreeing to the deferred prosecution of the criminal case, the IRS sued UBS in the parallel civil proceeding for disclosure of account information. In addition, the Senate Permanent Subcommittee on Investigations is conducting hearings regarding the U.S. government’s efforts to uncover the identities of Americans with non-compliant offshore accounts. The Senate Subcommittee hearings will address other foreign tax havens and non-compliant foreign accounts, in addition to the specific initiative against UBS.

The intensity of the multi-pronged U.S. offensive against UBS is further demonstrated by three additional remarkable facts. First, the Swiss Financial Market Supervisory Authority apparently allowed UBS to disclose the American account holders, thereby ignoring long-standing Swiss bank secrecy law and tradition. Second, U.S. prosecutors were given the account information without going through the normal procedure whereby the request for account information is submitted to a Swiss court of law, which then adjudicates whether or not the information should be released. Third, the account holders were not notified before the banking data was released, a further procedure that was ignored. In overcoming these once formidable legal and customary hurdles, the U.S. demonstrated its resolve and ability to discover the identities of Americans with non-compliant offshore accounts.

Credit Suisse and HSBC are also under investigation for promoting U.S. tax fraud, and will likely follow UBS in revealing U.S. client banking information, as will other banks, as the U.S. investigation widens.

UBS’ surrender is the latest event in a continuing, and strengthening, campaign to eliminate bank secrecy and crack down on non-compliant offshore accounts owned by Americans. In 2007, Senator Levin, together with then-Senator Obama, introduced a bill in the Senate to prevent tax shelter abuses and increase disclosure requirements for assets held in offshore jurisdictions. Stop Tax Haven Abuse Act, S-681. President Obama is expected to introduce a law to further crack down on non-compliant offshore accounts. 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 criminal 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 intentional, criminal prosecution for tax fraud and jail time is a frightening possibility.

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. criminal 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 on foreign assets. 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. law. Although we cannot erase a non-compliant past, we can ensure full compliance going forward. Such steps may significantly reduce the chance of discovery and 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 avoid 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.

If you are one of the thousands of American taxpayers with a foreign account that you thought was secret, you have very little time to bring it into compliance. Given that UBS has caved in and already revealed the identities of some U.S. account holders, we can expect that UBS, Credit Suisse, HSBC and other banks will provide a complete list of U.S. account holders in the near future.

Regardless of which strategy 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. The window of opportunity is closing fast.

"Secret" Offshore Account Holders at Increased Risk of U.S. Prosecution

“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.

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