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

2016: The Offshore Year in Review

Offshore account

The year 2016 was an epic year in the offshore world due to the leaks of confidential offshore financial information known as the “Panama Papers”.  In addition, in 2016, more countries began to report offshore financial information to the IRS under FACTA (the Foreign Account Tax Compliance Act).

Also in 2016, the IRS and U.S. Department of Justice (DOJ) continued to successfully attack offshore banking “secrecy”, moving beyond Switzerland to other foreign jurisdictions.  “Going offshore” for the purposes of hiding money from the IRS is now impossible.  Going offshore for asset protection from civil creditors and for tax minimization is still viable and effective, but must be tax-compliant.

Further Erosion of Offshore Bank Secrecy and Encouraging Tax Compliance

  • In 2016, the International Consortium of Investigative Journalists (ICIJ) released a massive amount of once-confidential offshore information known as the “Panama Papers”.  The files included sensitive foreign banking information, including identities of owners of offshore accounts, secretive corporations and other entities established by Panamanian law firm Mossack Fonseca.  Also in 2016, ICIJ released data from the Bahamas including names of directors, shareholders and “nominees” of shell companies, trusts and foundations in the Bahamas.  These most recent breaches of offshore secrecy followed the 2013 release of information, also by ICIJ, regarding offshore accounts in the British Virgin Islands (BVI) and Singapore, the 2008 theft of banking data at HSBC in France, and the 2006 leak at LGT Bank in Liechtenstein.  The lesson, once again, is that hacking, leaks and whistle blowers are as significant a threat to banking secrecy as laws such as FATCA (the Foreign Account Tax Compliance Act) and inter-governmental cooperation and exchange of information.  Another lesson is that offshore asset protection should not — indeed, cannot — be dependent upon “confidentiality” and “secrecy”, simply because offshore “secrecy” no longer exists.
  • During 2016, the IRS and DOJ continued to investigate and prosecute many U.S. taxpayers with undeclared offshore assets. U.S. taxpayers with undeclared foreign accounts in Switzerland, Cayman, Belize, India, Israel, Singapore, Panama and other jurisdictions have been targeted.  In 2016, the IRS collected a $100 million penalty from a U.S. taxpayer who hid his Swiss account.
  • In 2016, most Swiss banks settled with DOJ and reported accounts with a U.S. nexus.  In return for deferred prosecution, these Swiss banks are paying fines to the U.S. and revealing the identities of their American account owners.  Clients of these banks who have not already come into IRS compliance can make a voluntary disclosure of these accounts, but will pay increased penalties in return for no criminal exposure (but not if the IRS already has their names!).  Swiss banking secrecy, seriously weakened since DOJ forced UBS to disclose its U.S. clients in 2009, is now extinct.  Moreover, now the Swiss banks report to the U.S. without advance warning to their U.S. clients.  New legislation in Switzerland imposes penalties on a Swiss bank or bank employee who is aware of a U.S. request for information and then notifies the U.S. account owner prior to transfer of the requested information.
  • All reputable countries are agreeing to the exchange of tax information and banking transparency.  In 2016, Singapore implemented FATCA.  In 2015, Luxembourg began exchange of bank depositor information.   Likewise, Austria, the last remaining EU member holdout, agreed to share banking data.   During 2016, over 100 countries (and hundreds of thousands of foreign banks and other financial institutions)  have agreed to sign on to FATCA and automatically report foreign account and income data to the IRS, including: India, Cyprus, Singapore, Liechtenstein, Switzerland, Barbados, Bahamas, Hong Kong, Brazil, Jersey, Guernsey, Cayman, etc.  If you have financial ties to foreign countries, you must address IRS compliance for foreign accounts and assets.  The fact that a foreign bank has no branches in the U.S. is now irrelevant.
  • The reach of the U.S. Government to foreign banks is undeniable.  In 2016, Bank Julius Baer settled with DOJ, paying a fine of $547 million.  Also in 2016, two Cayman Islands financial institutions pleaded guilty to conspiring to hide millions from the IRS in Cayman accounts.  The IRS is investigating HSBC, the Swiss Kantonal banks, Pictet, Bank HaPoalim, Mizrahi Tefahot and banks in the Caribbean.  During 2016, the IRS focused on Panama, Singapore and the Cayman Islands.  DOJ also issued summonses to U.S. banks for information on U.S. correspondent accounts used by owners of foreign accounts to access funds.  Banks in Switzerland, Israel, India, Singapore and the Caribbean are currently under investigation.  We expect more banks, in other countries, to be targeted in 2017.  Again, the fact that a foreign bank has no branches in the U.S. is now irrelevant.
  • In positive news, the IRS issued recent guidance on FBAR penalties that seems to indicate a trend toward lower penalties for both willful and non-willful failure to file the FBAR.  The new penalty structure allows for a single penalty, rather than multi-year penalties.  In addition, the penalties should not exceed the value of the foreign account.  The new guidance is applicable to cases currently in audit.
  • Recent appellate court cases all uniformly have held that foreign bank statements must be handed over to the IRS regardless of any Fifth Amendment claim against self-incrimination.  This means that the IRS can compel, via Information Document Request (IDR) or subpoena, a taxpayer or his bank to provide his offshore account records even if those records are incriminating.  Prosecutors may then use those records to prove commission of tax crimes, including failure to file bank disclosures, filing false tax returns, tax evasion and tax fraud.
  • In light of the above events, many clients have retained us to make their foreign accounts and other assets tax-compliant.  We have represented many clients in Offshore Voluntary Disclosure Programs (OVDP) introduced by the IRS in 2009, 2011, 2012 and 2014.  The 2014 OVDP is still in effect (although the IRS warns that it may close the program at any time).  We have represented clients with accounts and assets on every continent (except Antarctica), brought them into IRS compliance and avoided prosecution.  In 2014, the IRS changed the terms of its OVDP, and also began new “Streamlined” voluntary disclosure procedures for non-willful conduct.  The Streamlined procedures have greatly reduced penalties (5% for U.S. residents; 0% for non-residents).  We can advise you on which program is best for you.  The penalties within the OVDP are usually less than if the IRS discovers the foreign account via audit, investigation or information the IRS receives from a bank or foreign government.
  • Within the OVDP, the penalty is 27.5% of the highest value of the foreign asset(s).  However, this penalty increases to 50% if the foreign financial institution housing the foreign account is under investigation or is cooperating with DOJ/IRS.  There are approximately one hundred foreign banks on the so-called “naughty bank” list, most but not all in Switzerland.  On November 15, 2016, the “naughty list” increased to approximately one hundred and fifty.  The new additions are foreign “facilitators” of U.S. tax fraud, i.e., the foreign bankers, lawyers, trustees, investment advisors and other service providers who worked with U.S. clients to hide assets and income from the IRS.
  • Clients should bring their accounts into tax compliance on the state level as well.  Some states, such as New York, New Jersey and California, have formal programs for offshore accounts.  Other states, including Connecticut, had a formal program in the past, and we have been successful in applying the favorable terms of the past programs to current clients.  The IRS shares information with state governments, including that a federal tax return was amended to report foreign income.  Please contact us regarding tax compliance on the state and federal levels.
  • Against the background of the U.S. offensive against undisclosed offshore accounts, FATCA and new compliance burdens, many foreign banks have “fired” their U.S. clients and closed even compliant accounts.  In 2016, we assisted clients in keeping open their compliant foreign accounts, or locating new foreign institutions to take their business.  While many foreign banks no longer welcome U.S. account holders, we have relationships with foreign institutions which still service our clients’ tax-compliant accounts.

This year has been an unprecedented year both domestically and offshore.  We can assist you in navigating through the changing offshore world and advise you regarding offshore (and onshore) assets.


IRS Announces Dozens of Additional Offshore Tax “Facilitators”; Offshore Penalties to Increase after November 15, 2016

Throughout 2016, the IRS and Department of Justice (DOJ) have continued to aggressively pursue offshore tax fraud investigations of many foreign banks in countries across the world.  Moreover, according to the DOJ Tax Division, DOJ is “now fully staffed [with] 370 attorneys and 500 employees to pursue the department’s priorities, including offshore enforcement.”  Now, more than ever, U.S. taxpayers are subject to the risk of criminal prosecution and various financial penalties if they fail to report foreign assets.

Taxpayers may, however, eliminate these risks by voluntarily becoming tax-compliant through the IRS’s Offshore Voluntary Disclosure Program (OVDP), but they must do so before the IRS learns about the unreported foreign assets.  There are many ways for the IRS to learn about unreported foreign assets.  The Foreign Account Tax Compliance Act (“FATCA”), a U.S. law passed in 2010, requires foreign banks and financial institutions to automatically report to the IRS (without IRS subpoena or request) information regarding accounts held by Americans.  Over one hundred countries around the world and many thousands of foreign banks have agreed to report financial information to the IRS rather than face the penalty of 30% withholding on U.S. source income.  The IRS has also learned about unreported foreign assets via TIE (Tax Information Exchange) Agreements, “John Doe” summonses, “Nova Scotia” summonses, MLATs (Mutual Legal Assistance Treaties) and from other friendly governments which share information.  The IRS has multiple sources of information around the world.

If, however, the IRS does not already have information about a taxpayer’s foreign account, that taxpayer can make a preemptive disclosure to the IRS in exchange for lower penalties.

In exchange for immunity from criminal prosecution and myriad penalties, taxpayers accepted into the OVDP will only pay back taxes owed (including interest and an “accuracy” penalty) and a “miscellaneous” penalty on the highest aggregate value of their foreign financial accounts.  Generally, under the OVDP, this miscellaneous penalty is 27.5% of the highest asset value during the last eight years and is generally much lower than the penalties that the IRS would impose if the IRS learned about the unreported foreign assets.  However, the OVDP penalty increases to 50% if, at the time the taxpayer makes a voluntary disclosure, the financial institution where the account is held is already under investigation or is negotiating a settlement with the IRS or DOJ.  The IRS has published a list of the banks giving rise to the 50% penalty.  The list is known colloquially by tax lawyers as the “naughty bank” list.

The list of foreign “facilitators” of U.S. tax fraud subject to the increased 50% penalty continues to grow.  This month, the IRS added forty-seven individual facilitators to the list of banks and institutions triggering the higher 50% penalty.  The new names on the “naughty list” are individual bankers, lawyers, trustees or financial advisors who assisted their U.S. clients in hiding assets and income from the IRS.  Although these forty-seven new facilitators were added in October 2016, taxpayers can still avoid the higher penalty associated with these facilitators if taxpayers make a voluntary disclosure by November 15, 2016.  After that date, the penalty will jump to 50%.  Because the IRS and DOJ continue to add to the list of institutions subject to the increased penalty, the longer a taxpayer waits to come forward, the more likely they are to be subjected to the 50% penalty.

The IRS and DOJ’s continued persistence in attacking offshore banking “secrecy”, combined with the reach of the Foreign Accounts Tax Compliance Act (FATCA) and inter-governmental cooperation, makes it almost certain that the IRS will discover taxpayers’ undeclared foreign assets.  Therefore, now is the time to consult with U.S. tax counsel on the best ways to come into IRS compliance, while minimizing exposure and ensuring continued access to the foreign funds.


Foreign Accounts in Israel Heading Toward IRS Scrutiny: Are You Compliant?

We have previously written about Israel’s willingness to enforce the Foreign Accounts Tax Compliance Act (FATCA) on behalf of the IRS.  See, for example, my article “Israel Is Becoming the IRS’s Strictest Enforcer of FATCA” (Tax Notes International, Volume 75, No. 6, August 11, 2014).  Recent events in Israel further support that conclusion. The lesson is that if you have foreign financial accounts in Israel that are not in U.S. tax compliance, the window to come into compliance is closing rapidly.

Earlier this month, the Israeli Supreme Court rejected a challenge to the implementation of FATCA in Israel.  The plaintiffs in Israel argued that FATCA violated Israeli sovereignty and violated their individual privacy.  The Israeli Supreme Court rejected these arguments and thereby cleared the way for banks in Israel to report account information to the Israeli Tax Authority, which will then transmit the information to the IRS.  This most recent challenge to FATCA failed in Israel, following similar failed challenges in the Cayman Islands and Canada.

September 30, 2016 is the FATCA implementation date in Israel.  Any financial accounts in Israel belonging to a U.S. citizen or green card holder or with any connection at all to a U.S. person (including a U.S. telephone number or email address), will soon after be transmitted to the IRS.

Note that taxpayers still have thirty days to object to the inclusion of their banking information in the transmission from Israel to the United States under FATCA.  However, under U.S. law, such a challenge must be reported to the U.S. Attorney General.

It is not too late to bring Israeli assets and Israeli income (whether bank interest, investment gains, rental income, business income, etc.) into U.S. tax compliance.  However, every additional day of non-compliance only heightens the risk of discovery by the IRS because the transmission of information from Israel to the U.S. is imminent.  As long as the IRS does not already know about the foreign assets and as long as the taxpayer is not already under IRS audit or investigation, a taxpayer can come forward voluntarily, declare the foreign assets and pay a much lower penalty than if the IRS discovers the foreign assets or learns about the Israeli assets from the FATCA transmission.  Moreover, taxpayers whose non-compliance is deemed to “non-willful” (i.e., more benign, less “guilty” of intentionally hiding assets or income), the penalties are even lower (0% if the taxpayer resides abroad).

Please contact us for a consultation regarding U.S. tax compliance for offshore assets, whether in Israel or elsewhere. FATCA has now been adopted by 113 foreign countries, all of which will report account information and income data to the IRS.


The IRS Streamlined Offshore Procedures — A Current Assessment

The IRS Streamlined Offshore Procedures—A Current Assessment“, by Asher Rubinstein, has been published in the latest issue of the Journal of Taxation and Regulation of Financial Institutions.


“The IRS Offshore Voluntary Disclosure Program (OVDP) allows taxpayers to pre-emptively confess their undeclared foreign assets and foreign income, pay back taxes, avoid criminal prosecution, and cap their penalties. But the OVDP was criticized for applying to non-willful taxpayers (like immigrants and expats) who didn’t know to report their foreign accounts the same penalties that were imposed on more culpable actors, such as businessmen who diverted income to “secret” accounts in tax haven jurisdictions. The Streamlined Filing Compliance Procedures were introduced to allow more benign, non-willful taxpayers to come into tax compliance with far lower penalties. The Streamlined procedures appear to indicate a kinder, gentler IRS that is focused more on encouraging compliance than exacting penalties, and thus far have been extremely successful for both taxpayers and the IRS. But there’s a catch: The Streamlined procedures are not without risk, and clients often believe that they are less “willful” than the IRS might conclude. Practitioners must carefully vet their clients to determine whether they are qualified for the Streamlined procedures.”

A link to the published article is here.

Our prior post on this article is here.

For additional information on the Streamlined Offshore Procedures, please also see our articles:

Foreign Accounts: the Best Way Toward US Tax Compliance, and Assessing Eligibility for the Streamlined Disclosure Program

Regarding Foreign Accounts, Are You Willful? Or, Should You Apply for the Streamlined Disclosure Procedures?

Contact us to discuss the Streamlined Offshore Procedures, the IRS Offshore Voluntary Disclosure Program (OVDP) and IRS compliance for foreign assets.



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