There are a myriad of reasons why wealthy individuals would want to devise a plan to move U.S. assets into secret offshore accounts. Perhaps the most common and obvious reason is for tax minimization purposes. By moving the funds and assets into secret accounts, taxpayers can fraudulently reduce their tax liability. While foreign asset reporting obligations like Report of Foreign Bank and Financial Accounts (FBAR) have existed for decades, Congress only adopted a more rigorous offshore enforcement approach within the past decade. The most notable legislation passed to ensure that Americans do not utilize offshore accounts located in foreign tax havens is the Foreign Account Tax Compliance Act (FATCA). This act and other government efforts means that it is more difficult and increasingly impossible to conceal funds in foreign accounts.
In fact changes to the law, international tax treaties, and other enforcement measures are so effective that they are sweeping up individuals who concealed assets for purposes other than tax fraud. For instance, during or prior to divorce proceedings involving extremely wealthy individuals, one party may attempt to conceal assets to protect them from being lost in the divorce settlement. Concealing these funds requires the individual to engage in questionable and illegal activities including tax fraud and also breach fiduciary duties towards the marital estate. For one wealthy doctor who attempted to conceal funds for divorce purposes, he found that even taking the money “off the grid” and personally transporting it in secret to foreign nations was not sufficient to avoid detection and prosecution for tax crimes.
Panamanian and Costa Rican Accounts Do Not Insulate Taxpayers from Detection and Prosecution
After being advised of his spouse’s intention to divorce, plastic surgeon Michael Bradner engaged in a sophisticated scheme to conceal assets from the divorce proceedings. Somewhat inexplicably to an outside observer, in 2007, Brander dropped everything, packed his bags and drove more than 4,000 miles from Washington State to Costa Rica. Unbeknownst to all but Bradner, this was not a leisure trip or merely a means to blow off steam. Rather, Bradner had withdrawn roughly three million of his and his wife’s assets converting some of the money into cashier’s check and other assets into gold. Once in Costa Rica, Bradner deposited some of the money and one thousand ounces of gold into the safe deposit box. He then continued his journey and traveled to Panama.
Once in Panama, Bradner formed a sham entity known as Dakota Investment. Bradner would use this entity in 2008 to transfer an additional $4.6 million in assets out of the United States. At no time did Bradner disclose this account or other foreign assets on an income tax filing, an FBAR report on FinCEN Form 114, or through an FATCA disclosure via IRS Form 8938.
What led to the unraveling of Bradner’s scheme was the fact that the individual who assisted Brander to form the Dakota Investment entity became a U.S. government witness due to an independent investigation into a stock fraud scheme. Furthermore, a 2010 tax treaty between the U.S and Panamanian governments gave U.S. investigators access to information regarding Panamanian bank and financial accounts. The federal witness who assisted Bradner also leveraged the tax treaty as a means to convince Bradner to transfer some of the money back to the United States where it was seized by U.S. authorities.
Offshore Asset Concealment for a Divorce can lead to a Conviction for Tax Crimes
While Bradner’s intended use of the offshore accounts for divorce proceedings rather than for tax purposes may seem somewhat novel, the fact is that these tactics are not unusual for the wealthy. Like in many similar circumstances, his lawyer argued that Bradner never intended to commit tax fraud. The lawyer claimed that Bradner simply did not have experience with foreign assets or realize that he needed to declare these items and pay taxes on potential interest. Rather, Bradner was merely concerned with accomplishing other goals. These goals included protecting assets “on behalf of his heirs” during a difficult time in his marital relationship. He maintains that he did not intend to defraud his ex-wife.
However, a federal judge found differently. In an April 4, 2016, verdict Bradner was found guilty of committing wire fraud and tax evasion. He was sentenced to serve 48 months in prison and other penalties. Bradner is currently appealing the decision on Sixth Amendment grounds.
When Facing Tax Evasion Charges, Work with an Experienced Attorney
Protecting your assets and the things you have worked for is a legitimate goal but not if your trying to minimize a marital settlement agreement through illegal / immoral means. However, individuals must be certain to avoid taking action that exposes them to criminal tax liability. If you are facing criminal tax prosecution due to actions, work with an experienced tax attorney. David W. Klasing is a dually licensed tax attorney and CPA with more than 20 years of experience. He can put his knowledge and experience to work for you regardless of whether you face an audit or criminal tax proceedings. To schedule a reduced-rate consultation call 800-861-6708 today or contact us online.
