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The Anti-Money Laundering Act of 2020 Allows Subpoenas of Foreign Banks that Have U.S. Accounts

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    Money laundering using foreign corporations has long been a problem that the United States has wanted to eliminate. With the passing of the Anti-Money Laundering (AML) Act of 2020, the United States has taken a big step forward in combatting crimes committed using foreign banks. If you want to understand your exposure for undisclosed foreign financial accounts and income generating assets and business entities, you should speak with a dually licensed California Tax Attorney and CPA today. At the Tax Law Offices of David W. Klasing, we are experienced and skilled in helping our clients navigate complex international tax and information reporting issues that could affect them or their business. This article will discuss the AML Act of 2020 and how it allows subpoenas of foreign banks with U.S. accounts.

    How the Anti-Money Laundering Act of 2020 Impacts Foreign Banks with U.S. Accounts

    The National Defense Authorization Act (NDAA) of 2021 is an annual bill that is mainly used to set a budget for the military and the defense of the United States. As the NDAA is a large piece of legislation, other ancillary measures will be added to the bill if legislators believe that there is a problem that should be addressed. In the most recent iteration of the NDAA, the anti-money laundering provisions have increased the level of authority that the U.S. has over foreign banks and their U.S. account holders.

    Previously, the AML laws in the U.S. passed under the Patriot Act of 2001 permitted the Secretary of the Treasury Department or the Attorney General to subpoena foreign banks for information on a U.S. account holder and records of money deposited into the account even if the record was maintained outside the United States. Now, the AML Act of 2020 allows the government to issue a subpoena for foreign bank records that have an account in the United States or any other account that is opened at the foreign bank provided that one of the following requirements are met:

    • The account in question is the subject of an investigation for being utilized to commit a crime in the United States
    • The account holder has violated the Bank Secrecy Act (BSA) of 1970 reporting regulations
    • A civil forfeiture action has been initiated regarding the foreign account
    • The account, bank, or transactions made in the account have been identified as a money-laundering issue

    With these new regulations, foreign banks will be held more accountable for the actions committed by clients that may be engaged in illegal activities in a U.S. account or a foreign account. Our dually licensed California Tax Attorneys and CPAs want to guide you through AML Act changes that have been enacted through the NDAA.

    Penalties for Refusing to Answer Subpoenas of Foreign Bank Records

    As a part of the AML Act of 2020, the U.S. also implemented stiffer penalties for foreign financial institutions that elect to ignore or refuse to answer a subpoena of U.S. bank records or foreign bank records. This will make it easier for the U.S. government to enforce AML laws against foreign banks and those that would use them to mask their illicit financial activity.

    For foreign financial institutions, refusing to cooperate with AML investigations would potentially yield civil penalties of $50,000 for every day the bank is in violation. As you might imagine, this would cause massive losses for a foreign bank that believes it is protecting the financial transactions of its U.S. clients.

    Additionally, when a foreign bank is issued a subpoena for bank records under the new AML laws, they are not permitted to disclose the existence of the subpoena to the client in question. If a foreign bank violates the nondisclosure clause, it could be subject to more severe penalties. Specifically, the foreign institution may be subject to one of two penalties:

    1. Double the amount of funds that were transmitted through the U.S. account, or
    2. $250,000 penalty if the U.S. Treasury Department cannot discover the transactions made using the account

    Penalties for U.S. Financial Institutions

    Foreign banks are not the only institutions that are subject to penalties for violating AML Act regulations. For example, if a U.S. financial institution has a foreign bank as an account holder and the bank is not compliant with AML subpoenas, the U.S. bank is required to close the account of the foreign bank. If the U.S. bank does not comply and terminate the foreign bank’s account, they may now incur $25,000 per day penalties for the violation.

    Defenses for Foreign Banks for Refusing Subpoenas of Records

    For a foreign financial institution, there are few complete defenses to refusing to comply with a subpoena request. Under the NDAA, a foreign bank cannot use foreign confidentiality laws as a basis for their defense to a request for U.S. bank or foreign bank records. However, this defense may be partially used in conjunction with other legal provisions.

    AML Act provisions will continue to be defined by the Treasury Department and the Financial Crime Enforcement Network as they are implemented. Make sure you are ready for those changes by working with a dually licensed California tax attorney and CPA to come into compliance over offshore financial accounts and unreported foreign income.

    Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-reported offshore income and non-disclosed foreign financial accounts) coupled with affirmative evasion of U.S. income tax on domestic or offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

    It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

    Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

    As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

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