What’s New with Foreign Bank Accounts and Voluntary Disclosures?
by Asher Rubinstein, Esq. 

With regard to the UBS matter, the SFTA (Swiss Federal Tax Authority) continues to transmit once-”secret” banking files to the IRS, as per the UBS settlement agreement.  Americans whose UBS accounts are being revealed to the IRS and who have not already come forward and voluntarily disclosed their accounts can expect to be on the receiving end of an IRS investigation or subpoena and should consult with a tax attorney.  Americans with accounts at foreign banks other than UBS must consider that the IRS is now targeting other banks, including but not limited to Credit Suisse, HSBC and Julius Baer, and these account holders must give thought to cleaning up non-compliant accounts before the IRS discovers the accounts.
 
Now that the UBS settlement is finalized (i.e., approved by the Swiss Parliament) and the transfer of account information to the IRS is proceeding, the IRS is analyzing the account information that it is receiving, launching investigations against account holders, and prosecuting account holders for not reporting the accounts and not paying taxes on income earned in those accounts.  The IRS is also moving past UBS and investigating other banks, in other countries.  India is one target of investigation.  We also understand that the IRS is focusing on accounts in Israel.  We are getting many calls from people with accounts in India and Israel, and also Hong Kong and Singapore, who are looking to put their banking affairs in order.
  
Also important are the subtle but significant changes in IRS voluntary disclosure practice.  First, there are rumors that voluntary disclosures made after June 18, when the Swiss Parliament approved the UBS settlement, will not be accepted.  The theory is that once the Swiss Parliament approved the settlement, disclosures are not sufficiently voluntary.  In practice, however, we are still representing numerous clients who are still coming forward and making disclosures after June 18, and their disclosures are not being rejected.
 
Second, the “pre-clearance” process of the voluntary disclosure (whereby the IRS lets us know whether the IRS already has the name of the account holder, which would render the disclosure too late), has also changed, slightly but significantly.  In the past, to request pre-clearance, we would only have to provide the individual’s name, address, social security number and date of birth.  This is sufficient information whereby the IRS could tell us whether it already had knowledge of the individual, in which case pre-clearance would come back denied, or whether the individual was pre-cleared to continue the voluntary disclosure.  Now, however, the IRS is asking for the name of the foreign bank in order to process the pre-clearance.  The name of the bank is potentially incriminating information.  If pre-clearance is denied, then the IRS already has the person’s name, plus the foreign bank, which makes investigation and prosecution easier for the IRS.  The IRS has changed its procedure to require incriminating information in advance of any indication of acceptance into the voluntary disclosure program.  This could have a chilling effect on future voluntary disclosures, because people will not be handing over incriminating information without the slightest indication of whether they will be accepted by the IRS.  However, if the individual is not concerned with being rejected from the program (for example, the foreign funds are not illegal source funds), then it may still make sense to provide the bank information and proceed with the disclosure.  The benefit of disclosure – lower penalties and avoidance of criminal prosecution – may outweigh the provision of potentially incriminating information, especially when there is little risk of non-acceptance into the voluntary disclosure program. 

We can assist foreign account holders in addressing such risks, navigating the changing rules and procedures of the voluntary disclosure program, and cleaning up non-compliant foreign accounts.

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.

Kenneth Rubinstein interviewed on CNBC Asia regarding offshore bank accounts

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The Estate Tax and . . .  Baseball?
by Asher Rubinstein

As we noted earlier , it’s not often that there is a confluence of professional sports and matters of taxation.  George Steinbrenner, who owned the New York Yankees for some four decades, died at the right time . . . from a tax perspective.  By passing away in 2010, his family will probably not have to pay federal estate tax.  Had Steinbrenner died last year, 45% of his $1.2 billion fortune would have gone to the IRS in estate taxes, rather than to his family.  Had he died next year, 55% would have gone to the IRS rather than to his family.  By dying in 2010, his family avoids the estate tax and will probably get to keep all $1.2 billion, including the $500 million that would have gone to estate taxes.  Why “probably”?  Because Congress might still vote to impose an estate tax for 2010, retroactive to January 1.  But there isn’t much time left for Congress to act, and such retroactive legislation will certainly be challenged in the courts.

Suppose you have a large estate and don’t want to die in 2010, is there something you can you do to preserve your wealth for your loved ones, rather than the IRS?  Yes, you can contact us to discuss tax planning strategies to minimize or possibly eliminate the estate tax and preserve your wealth for your family or worthy charities.  George Steinbrenner conveniently died in 2010 and saved his family a bundle.  You can take the proper active steps to make sure your wealth goes where you want.

Wealth Preservation, Tax Planning and . . . Sports?
by Asher Rubinstein

Sports isn’t something we usually write about on a blog dedicated to matters of wealth preservation and taxation.

Say what you will about LeBron James signing with the Miami Heat, his decision may have been based as much on taxation as on proximity to the nightclubs of South Beach.  By moving to low-tax Florida from high-tax Ohio, it has been estimated that $11 million more may remain in Mr. James’ pockets, rather than going to taxes.  I’ve been to Cleveland, and it has its charms, but saving $11 million from taxes is on par with sunshine and palm trees as reasons to move south.

Regular mortals of more modest height may also avail themselves of tax planning maneuvers to keep more wealth for themselves and their families.  We can advise on tax-compliant structures and strategies to minimize income tax, capital gains tax and estate tax.  And if, like LeBron James, moving somewhere new may minimize your tax bite, we can advise on where to go, including expatriation.  Contact us to discuss your situation.

Asher Rubinstein’s article, “After UBS Deal, Does Offshore Banking Have a Future?” was published on Forbes.com.  Please click here to view the article on Forbes.com.

After UBS Deal, Does Offshore Banking Have A Future?

Swiss-account holders will still get stability, privacy and protection from private parties—but not from the IRS.
Asher Rubinstein 06.17.10, 4:45 PM ET

In Zurich this week, the talk of the town is the Swiss Parliament’s vote to approve the settlement by which UBS banking files will be handed over to the IRS. People are questioning whether the erosion of Swiss banking secrecy will lead to a decline in the prestige of Swiss banking overall.

Now that the UBS matter appears to be heading toward resolution, another question is whether charges will be filed against other banks, in Switzerland or elsewhere, for facilitating tax fraud by hiding income in accounts once thought to be impervious to tax authorities, but now shown to be vulnerable.

The Swiss Parliament’s vote to approve the UBS settlement was expected. Most Swiss bankers and lawyers understood that UBS files would be surrendered to the IRS, because the results of refusing to disclose the bank data would likely have been the Department of Justice re-instituting further civil and criminal actions against UBS in federal court in Miami.

The Department of Justice, which prosecuted on behalf of the IRS, would likely have argued that UBS was in contempt of court and violated the settlement agreement. The penalties might have included revocation of UBS’ lucrative banking license in the U.S., and seizure of UBS’ billions of dollars of assets in the U.S. The consequences would have been devastating to UBS, its account holders and the broader financial markets.

But still, the world–and especially some Americans with Swiss accounts they thought were “secret”–waited for Parliament to act. Delays in Parliament were caused by political maneuvering and the tacking on of special interest provisions to this must-pass legislation (just as happens in the U.S. Congress), but everyone expected the UBS settlement to be approved eventually because of the potential downside if it were rejected.

Now that it has passed, one question is whether Parliament’s approval is good for Switzerland. Many Swiss people do not think so. For one thing, the Swiss are historically and proudly independent, and many were not pleased at having to back down to the U.S. Many Swiss people were prepared to sacrifice UBS for its misdeeds, in return for Swiss sovereignty standing firm and Swiss banking secrecy laws left intact.

Had Parliament not voted in the affirmative, the debates may have extended to a referendum among the Swiss population. The Swiss populace may well have rejected the settlement, standing up against the U.S. and in favor of longstanding Swiss banking secrecy which has, until recently, served Switzerland so well.

Switzerland has for decades benefited from being the premier banking nation in the world, the country where everyone from other countries–business oligarchs, shady dictators and retirees alike–put their money. Switzerland has much of the world’s wealth in its vaults, under its management and earning huge fees for its banks. Switzerland, and the Swiss, have grown rich as the bankers of the world.

Will this notion of elite Swiss banking change because of Parliament’s vote and the defeat of Swiss banking secrecy? Probably not. What has changed is the reason for banking in Switzerland. Tax evasion by hiding income in Swiss accounts is no longer a viable reason. Yet the political, social and economic stability of Switzerland are all still intact. And notwithstanding Parliament’s vote, Swiss banking confidentiality is also still intact, so long as the account is tax-compliant. Confidentiality from one’s private creditors and other financial challengers remains. Switzerland will continue to be a strong banking and financial services center, even a confidential one, albeit a tax-compliant one.

While the IRS offensive against UBS may have been the first significant dent to Swiss banking secrecy, other recent events have demonstrated that banking secrecy vis-a-vis governmental tax authorities is no more, whether in Switzerland or elsewhere. For instance, all the “tax haven” countries, including Liechtenstein and Monaco, along with Switzerland, have signed Tax Information Exchange Agreements with the U.S. and other countries. The tax havens have also agreed to abide by banking transparency standards and bank information sharing standards set forth by the OECD, the Organisation for Economic Co-operation and Development, a transnational quasi-governmental organization supported by the European economic powers and the U.S.

Moreover, information sharing and cooperation among governments is now routine, as seen by Germany paying millions of Euros for stolen bank data, using that data to prosecute German tax evaders, and then sharing that data with multiple other foreign governments.

The HIRE Act, recently passed by the U.S. Congress, sets very rigid rules requiring Americans to disclose offshore accounts and foreign entities, and punishes noncompliance with very severe penalties.

It is not illegal to have a foreign bank account, and there are many good reasons for having one: asset protection, access to foreign investment products, international diversification, doing business globally, owning real estate in a foreign country. But the disclosure and tax reporting obligations are now stringent. While banking privacy and asset protection from private civil creditors may be ongoing, there can be no expectation of banking secrecy in the context of tax reporting and disclosure.

As UBS surrenders its client data to the IRS, we can expect the IRS to set its sights against other banks. The 15,000 U.S. taxpayers who have already made voluntary disclosure to the IRS about their foreign accounts, and the U.S. taxpayers who were indicted for tax fraud and have been cooperating, have provided the IRS with a wealth of information about other banks, in Switzerland and other countries, that have aided and facilitated tax noncompliance. It is unlikely that the IRS will stop with UBS, but will use this public relations victory as leverage to pursue other banks in Switzerland and elsewhere.

The bottom line for foreign accounts once thought to be secret: they’re not. Account holders must bring their accounts, wherever located, into compliance. Switzerland and other foreign banking centers offer safety and stability, but they no longer offer tax secrecy.

Asher Rubinstein is a partner in the law firm of Rubinstein & Rubinstein, LLP, in New York. His practice is devoted to domestic and offshore asset protection, wealth preservation and tax planning. He may be reached via www.assetlawyer.com

Update from Switzerland: Time Running out for UBS Accountholders
by Asher Rubinstein, Esq.

I landed in Zurich a few days ago, en route to speaking at an Asset Protection conference in neighboring Liechtenstein. My presence in Zurich coincided with the Swiss Parliament’s rejection of legislation that would have approved the UBS settlement agreement with the IRS. The Parliament vote was the talk of Zurich when I landed. I met with many Swiss bankers and lawyers, and they all wanted to discuss the American perspective, and what I thought might happen next in the UBS case.

First, I noted that Parliament’s rejection of the UBS settlement was due to political parties maneuvering and trying to add their special interests (such as tax on bonuses to bankers), rather than addressing the issue at hand, which is whether or not to approve the UBS settlement. Like in our US Congress, political interests often get tacked on to larger issues and cloud those larger issues. One Swiss lawyer at the Asset Protection conference called the parliamentary debate “political grandstanding”.

Next, I am hearing from Swiss colleagues, bankers and other attorneys, that the Swiss politicians expect to approve the settlement. In other words, apart from the other issues tacked on, there is an expectation that the settlement will pass Parliament, this week.

Much of the Swiss populace, however, is against the settlement because the Swiss people like banking secrecy and want it to continue. There is also an element of “stand up to the US”, or, in other words, don’t cave to the demands of the IRS and don’t compromise Swiss sovereignty. There is a possibility that if the settlement does not pass Parliament, it would have to be put to a public referendum across Switzerland. If that happens, it is expected that the UBS settlement would not pass public referendum because of the opposition of the Swiss people. And, if this does go to public referendum, a referendum would take months, which would cause UBS to miss its August 2010 deadline to hand over banking information to the IRS.

Yet another viewpoint in Switzerland is for Parliament to reject the settlement and to let UBS pay for its misdeeds. This viewpoint would sacrifice UBS, in return for Swiss sovereignty standing firm, and Swiss banking secrecy laws left standing.

If the settlement does not pass the Swiss Parliament, or if UBS does not otherwise comply with the settlement, then I can foresee two outcomes, both very negative.

First, the Department of Justice (DOJ) could bring UBS back to Federal Court in Florida, and argue that UBS is in “contempt of court”. UBS might counter with a defense of “impossibility”; in other words, UBS tried to comply with the settlement, but was prevented from complying by the Swiss courts and Swiss Parliament. UBS could even argue that it did what it agreed to do, i.e., deliver the banking information to the Swiss Federal Tax Authority (SETA), but the SFTA was prevented by Swiss law and the Swiss Parliament from passing the information to the IRS. I am not sure that a US court would agree with this argument, inasmuch as UBS and the Swiss government were both parties to the settlement agreement.

Second, the DOJ might argue that UBS violated the settlement agreement and is not cooperating.  The consequences might include the revocation of UBS’ banking license in the USA, with severe effects on UBS and the stock market. Because some 50,000 Americans are employed by UBS in the US, this would have additional negative consequences in the US. The US federal court might also seize UBS’ significant assets in the US. This would have severe implications for UBS and the Swiss economy, with ripple effects outward in the broader economy.

Because of these potential consequences, it is expected that the settlement will pass the Swiss Parliament, this week.

Americans with undeclared accounts at UBS are mere hours away from exposure and the IRS obtaining account data. Americans with undeclared accounts at Swiss banks other than UBS may have some more time, but eventually, non-UBS accounts will be discovered as well.

Time is Running Out: Swiss Parliament to Agree on Providing Bank Account Data to IRS
By Asher Rubinstein, Esq.

For a few months, it seemed that the 2009 legal settlement between UBS and the Swiss and US governments was in jeopardy.  In January 2010, a Swiss court ruled that UBS would be in violation of Swiss law to abide by that settlement and hand over “secret” banking data to the IRS.  So, when that court made its controversial ruling, just like in the American system of government, the focus turned to the legislature to enact a law to get around the court decision.  For the last few months, we watched as the Swiss political parties maneuvered in favor or against proposed legislation to ratify the UBS agreement and to allow UBS to give up account data to the IRS.

It appears that the major political parties in Switzerland all now support the proposed legislation, which is expected to pass the Swiss Parliament sometime in June, and as early as one week from now.  The effect of this law will be to elevate the UBS settlement to the status of Swiss law, and thus overcome the Swiss court’s January ruling. 

Along the same lines, a Protocol to the Swiss-US tax treaty, signed in March 2010 by Switzerland and the US, is also expected to be approved by the Swiss Parliament.  This Protocol ends the long-standing distinction, under Swiss law, between tax fraud and tax evasion.  In the past, this distinction prevented cooperation and information exchange between a Swiss bank and US authorities except in cases of overt fraud.  Now, under the new Protocol, cooperation and exchange of banking information would be mandated even in civil tax audits and investigations, far short of an actual tax fraud case.

The result of both of these actions by the Swiss Parliament: the end of Swiss banking secrecy vis-a-vis the IRS.

Our clients with bank accounts in Switzerland have already received letters from the Swiss Federal Tax Administration (SFTA) advising that the SFTA has determined to share their account information with the IRS.  The SFTA is merely waiting for the Swiss Parliament to meet in June and approve the new legal changes.  In just a few weeks, or even days, the bank account information will be on its way to the IRS.  However, because our clients authorized us to bring them to the IRS and make a pre-emptive disclosure of their Swiss accounts, the SFTA action and the Swiss Parliamentary process are non-issues.   These clients are already tax-compliant and need not fear disclosure by the Swiss authorities.

If you have a Swiss bank account and have not yet brought it into US tax compliance, the window is closing quickly.  Swiss Parliamentary approval is expected to occur imminently and will be a mere formality before banking data is handed over to the IRS.  Once the IRS learns of your Swiss account, the IRS will not accept your voluntary disclosure.  You would then be subject to criminal prosecution for tax fraud.  The time to make the account tax compliant via voluntary disclosure is right now, before the Swiss Parliament meets in June, and the SFTA starts sending files to the IRS.

Contact us for more information

Asher Rubinstein interviewed by Swiss TV regarding Swiss bank accounts

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Asset Protection for Money Managers, Investment Advisors and Financial Professionals

(Or, We hate to say “I told you so” #2, but look here)

by Asher Rubinstein, Esq.

New York’s attorney general has sued Ivy Asset Management, a hedge fund manager, and two of its former executives, its CEO and its CIO, claiming that they knew years ago that Bernard Madoff was a fraud, but did not disclose that knowledge to the fund’s investors.

Attorney general suits against hedge funds are not new.  Lawsuits related to Madoff’s fraud are not new.  But recently, we have seen more and more lawsuits filed against fund managers and investment advisors personally.  In other words, the plaintiffs not only target the funds or financial institutions, but the people who make the investment decisions, naming these people personally and putting their personal assets at risk.

We wrote about this development just last week; please click here. 

In that article, we discuss why indemnification is often of little comfort.  We outlined domestic and international asset protection strategies that will effectively protect personal assets from these kinds of claims.  

Recent events make clear the need for asset protection by financial professionals.  Following the charges filed last month by the Securities and Exchange Commission against Goldman Sachs, there is a real possibility that individual Goldman Sachs executives may face government investigation and charges.  Investors in Goldman products may also file civil charges, in addition to charges filed by the government.  In today’s news, Morgan Stanley is being investigated for wrongdoing in connection with investment activities.  Actions against Morgan Stanley executives are a possibility also.  The need for asset protection by financial professionals is continually reinforced in today’s climate.

Contact us for additional information.