Update: Prosecution of Americans with Foreign UBS Accounts, and What’s Next for US Clients at Other Foreign Banks.
The following is a question-and-answer between a Swiss journalist and Asher Rubinstein:
Does the speed and vigor of the IRS/Department of Justice legal proceedings meet with your expectations?
I don’t think that the IRS/DOJ are being “speedy”. For instance, since UBS provided the initial 250-300 names of Americans, back in early 2009 when the UBS settlements were first announced, there have been twenty or fewer prosecutions to date. I believe that the IRS is being thorough in its investigations and bringing charges once the evidence is in place and the case is strong. As for “vigor”, yes, I do believe that the IRS is, and has been, pursuing Americans with non-compliant foreign accounts with absolute vigor. Even in cases where the taxpayer has cooperated with the prosecution, the IRS has asked for significant penalties and jail time, rather than token sentences.
Are these UBS clients being so publicly dealt with to send out a signal to clients of other banks?
Yes. The IRS is sending a message that it is being vigilant and aggressive in its pursuit of Americans with non-compliant offshore accounts. The IRS does not want American taxpayers and foreign bankers to think that it is easing its campaign now that the UBS matter is almost over. Rather, the IRS is now investigating other banks in other jurisdictions. The IRS wants foreign banks and financial institutions to cease providing non-compliant accounts and strategies for tax fraud. At the same time, the IRS wants to scare Americans to come forward and voluntarily disclose their foreign accounts, which will save the IRS significant resources in investigating and then litigating against the account holder.
Would you expect the same pace of convictions to continue as the whole 4,450 UBS names are handed over during the course of time?
Yes, the investigations, prosecutions and guilty pleas will indeed continue. If a person on the list of 4,450 names has made a voluntary disclosure to the IRS before his or her name is handed over, then that person can take some degree of comfort that a criminal prosecution will likely not ensue, and penalties will be capped. On the other hand, if a person on the list did not come to the IRS before the release of his or her name, then that person can expect a subpoena and should be thinking about consulting a criminal tax lawyer.
How will the US Department of Justice pursue Swiss-based lawyers/tax advisors it feels have aided and abetted US tax evasion? Can these people be brought from Switzerland to stand in US courts?
Charges are brought in the US against foreign nationals not located in the US. This makes it very difficult to actually bring the defendants to trial in the US. The mechanism would be via the extradition process, and we have very recently seen a well-publicized extradition request for Roman Polanski denied by the Swiss. The issue also opens the diplomatic rather than merely judicial process, with the attendant complexities of the diplomatic realm. But one thing is certain: the Swiss bankers and lawyers will probably be avoiding traveling to the IRS out of fear of arrest.
Is there any slack being cut UBS tax cheats in regards to plea bargaining etc – or is it too late for these people?
There is little slack being shown by the IRS. Even in cases where a taxpayer cooperates and gives the IRS names of bankers, lawyer and even other taxpayers, the IRS is still asking for significant penalties and jail terms. The courts, however, are showing some degree of leniency when defendants cooperate. Out of ten prosecutions of UBS clients, seven have avoided jail terms. The IRS requested jail terms, but the court rewarded the defendants’ cooperation. While the defendants may have avoided jail in some cases, they have been sentenced to house arrest, probation, restitution and significant monetary fines and penalties.
The key for Americans with foreign accounts is to avoid a criminal prosecution for tax fraud. The way to avoid a criminal prosecution is to come forward with a voluntary disclosure before the IRS gets the name of the taxpayer. A timely voluntary disclosure avoids criminal prosecution and lessens the penalties.