We’ve written extensively about the IRS offensive against non-compliant foreign bank accounts and criminal prosecution of Americans with such accounts. Two recent criminal prosecutions are noteworthy because they represent a widening of the IRS campaign.
First, the criminal indictment against Samuel Upham is based on charges of conspiracy and aiding the filing of false tax returns. Mr. Upham himself was not the owner of a non-compliant UBS account at issue. The actual account owner was Mr. Upham’s mother, Sybil Upham, who is already facing criminal charges regarding her UBS account. Ms. Upham is one of the 4,500 Americans identified by UBS to the IRS in settlement of the criminal prosecution against the bank, notwithstanding prior promises of account secrecy.
The indictment against Mr. Upham is significant because although he was not the account owner (his mom was), he allegedly assisted the tax non-compliance, assisted in the filing of false tax returns and smuggled money into the U.S. The charges also include use of a Liechtenstein foundation and Hong Kong corporate entity in order to obscure the true ownership of the account. As we’ve written, prosecutors seem to be focusing on use of sham entities (trusts, foundations, corporations, etc.), although taxpayers who had accounts in their own names have been IRS targets as well.
The lesson here is that the IRS is not only investigating and prosecuting the owners of the undeclared foreign accounts. The IRS is also targeting people who facilitated and assisted in the non-compliance, including family members of account holders.
The second case involves a former UBS banker, Renzo Gadola, accused of advising and assisting Americans to evade taxes. Criminal charges against foreign bankers, and even lawyers, who facilitated tax fraud are not new. But the allegations in this latest prosecution are noteworthy.
First, Mr. Gadola utilized a smaller bank, Basler Kantonalbank, rather than UBS which was being investigated by the US Goverment, in the hopes of avoiding detection. Lesson one: even smaller banks are “on the radar”. We can now add Basler Kantonalbank (and presumably, other regional Swiss banks like Zurich Kantonalbank) to the list of banks being investigated, which include Credit Suisse, HSBC, Julius Baer, Liechtensteinische Landesbank and Bank Leumi.
Second, it is alleged that Mr. Gadola advised the US account holder that the account at Basler Kantonalbank would be too small to be detected. Lesson two: accounts of all sizes are vulnerable. The IRS does not want taxpayers to believe that an account under a certain size is “safe” from discovery.
Third, it is alleged that Mr. Gadola kept his US client’s funds in cash, advising “There is no paper trail.” Lesson three: there is always a paper trail or a wire transfer trail.
Fourth, it is alleged that Mr. Gadola advised his US client to falsify banking records to make the money look like a loan. Lesson four: this strategy will not work. It will also likely result in additional criminal charges.
Finally, Mr. Gadola advised his US client not to enroll in the Voluntary Disclosure Program by which the US client could have made his account tax-compliant and avoid criminal prosecution. Obviously the lesson here is that owners of non-compliant foreign accounts should consider the IRS voluntary disclosure program.
These two new criminal cases, both commenced in the last few weeks, show the vulnerability of non-compliant offshore accounts to discovery. Moreover, they show that the IRS is aware of the tactics and methods used by taxpayers, and their advisors, to avoid detection.
Please contact us if you have questions related to foreign accounts. We can advise on how to bring a foreign account into compliance. We can also advise if you are being investigated by the IRS in regard to an offshore account.