Renegade Bank Employees Further Erode Offshore Banking Secrecy
by Asher Rubinstein, Esq.
In an article from December 2009, titled “Get Ready for a One-Two Punch: More Taxes and More IRS Audits” , I wrote the following:
Taxpayers are not only at risk of discovery by the IRS; they face an increased danger of being turned in by private informants seeking recently enlarged rewards. . . . Foreign tax haven banks offer an opportunity for underpaid employees to get rich by becoming IRS informants. Additionally, taxpayers are at risk of being turned in by ex-partners, ex-spouses, ex-companions, ex-employees, litigation/arbitration adversaries, estranged children, or anyone else with a grudge who senses an opportunity to get even and get a reward.
Back in 1999, John Mathewson, the former owner of Guardian Bank and Trust, a defunct Cayman Island Bank, was charged with money laundering involving his Cayman bank. When Mr. Mathewson was arrested, he gave Federal investigators computer records which he had stolen from the bank and brought to the U.S. These computer records contained information regarding American depositors at the bank who evaded U.S. tax obligations. In that case, the motivation for sharing banking data was not money, but cooperation in criminal prosecution and leniency in sentencing.
In 2008, a renegade employee of LGT Bank in Liechtenstein stole data about client accounts and sold the data to the German intelligence service in return for a few million Euros. With that data, the German government prosecuted Germans for tax fraud. The German government also shared the data with other governments around the world.
In 2009, an employee of HSBC shared bank account data with the French government.
In January 2010, it was reported that an employee of a Swiss bank offered confidential client banking data to the German government in exchange for a multi-million Euro payment. As of today, indications are that the German government will again purchase the banking data in order to investigate tax fraud by German citizens.
An article in Bloomberg, “Swiss Banks Achilles Heel Is Workers Selling Data” , echoes our warnings.
As the events of last year have shown, Swiss banking secrecy laws caved under pressure from the IRS, resulted in the disclosure of account information once thought to be sacrosanct, and led to prosecution of many US taxpayers for tax fraud.
In addition to weakening secrecy laws and greater information exchange among governments, we must add one more threat: the threat by bank employees looking to deliver confidential banking information in return for payment. Thus, last week’s Swiss court ruling that the UBS-IRS settlement violated Swiss law becomes only a secondary issue if the underlying foreign account data is sold by a renegade bank employee. Exchange of account information at the governmental level is sidelined when an inner employee of the bank poses a more immediate and direct threat to banking secrecy.
As we have long-counseled, any of these threats – – whether from weakening bank secrecy laws, exchange of information by governments, or from renegade bank employees – – is not material if the foreign account is tax-compliant. It is completely legal to have funds offshore, for many reasons, so long as the funds are disclosed and taxes are paid on the income. If the accounts are compliant, the threat of information sharing, from whatever source, is eliminated. The lesson: if you have assets in foreign banks, make sure they are tax compliant. As the window of banking secrecy closes further, taxpayers with tax-compliant accounts need not worry.