Foreign Financial Institutions or Facilitators List Rapidly Expands to 29

Late last week, the Department of Justice announced that they had come to terms with two new banks that are taking part in the non-prosecution program offered to Swiss financial institutions. As a result of the agreement, Banque Pasche and ARVEST Privatbank AG will be added to the Foreign Financial Institutions or Facilitators list. The list is a collection of banks that the United States has deemed to have helped U.S. taxpayers hide money overseas. When a bank’s name appears on the list, the IRS will assume that all Americans with accounts at the institution willfully failed to comply with Foreign Bank Account Reporting (FBAR) laws. The severe consequences of the “willful” label are discussed in detail below.

The Proliferation and Popularity of the Non-Prosecution Agreement

As the Department of Justice has closed in on Swiss banks that have assisted U.S. taxpayers set up and keep secret foreign accounts, there was a need for a program that would allow banks to come forward and receive a less-severe penalty for its actions. After several criminal actions were taken against Swiss banks, the DOJ announced their non-prosecution program that allows Swiss banks to admit that they helped Americans create and maintain secret bank accounts, fully disclose their conduct, make available any information requested by the Justice Department, and pay a penalty. In exchange, the United States agrees to not bring criminal charges against the institution.

The program has been wildly popular as the remaining Swiss banks that have not agreed to participate come to the realization that it is only a matter of time until the United States discovers their activities and comes down on them with the iron fist that hit Swiss bank Wegelin & CO. a few years ago. In fact, the list of Swiss banks that have agreed to the terms of the non-prosecution agreement now sits at 29, with the addition of Banque Pasche and ARVEST Privatbank AG, the newest banks to cooperate.

Banque Pasche, headquartered in Geneva, helped Americans set up accounts in their branches knowing that the monies would be kept a secret from the IRS. In addition to assisting Americans set up the accounts, Banque Pasche provided services that would prove to be particularly helpful to the American trying to keep their overseas money a secret including hold mail services as well as code names or numbers to reference accounts. These offerings would make it very difficult to establish a paper trail to link the overseas account to its beneficial owner(s) in the United States. Banque Pasche also allowed U.S. account holders to create fictitious nominee entities in Panama and the British Virgin Islands to serve as a conduit between the taxpayer and the bank. Banque Pasche will be required to pay a penalty of $7.2 million under the terms of the agreement.

ARVEST Privatbank AG also set up accounts that it had reason to know were being used to stash hidden money from the IRS. It also provided a wide range of services that made it easier for Americans to ensure that there was no paper trail connecting them with their accounts in the Swiss bank. An example of such a service was a travel debit card that didn’t include an account holder’s name. Much like Banque Pasche, ARVEST helped its American customers set up sham entities in foreign jurisdictions such as Liechtenstein. Under the terms of the agreement, ARVEST will pay a penalty of just over $1 million.

Although taxpayers may read this news and other stories that detail the non-prosecution agreement between the DOJ and Swiss banks and wonder “what does this have to do with me?” this news is of prime importance to anyone with a foreign bank account that hasn’t been declared to the Untied States government. The penalties for being caught with a bank account in a foreign bank that has had a balance of $10,000 or more can be harsh. Furthermore, when the government finds out about the foreign account, they will make a determination as to whether the failure to file an FBAR was willful. If it was, the penalty is increased and the reality of being criminally prosecuted becomes a very real possibility.

The government allows taxpayers that have not yet declared a foreign bank account to avoid some of the high penalties that are associated with the failure to file the required documentation related to an interest in a foreign account. If a taxpayer that enters the Offshore Voluntary Disclosure Program (OVDP) has not willfully acted, they will be subject to a 27.5 percent penalty on the high balance of the account in question. Though, a taxpayer that acted willfully will face a 50 percent penalty on the same amount. If the taxpayer fails to enter the program altogether and takes their chances with the United States finding their account on their own, the taxpayer will face a 50 percent penalty and a criminal prosecution that will likely result in a federal prison sentence. And again, if a taxpayer is found to have banked at one of the financial institutions on the Foreign Financial Institutions or Facilitators list, they will be deemed to have acted willfully.

Thus, every day that a taxpayer with an undeclared bank account wait to take action, the government gets closer and closer to discovering the account on their own and opening a criminal investigation into the matter. Once that happens, it is more difficult to mitigate the penalties, interest, back taxes, and federal prison time. The best move for a taxpayer with an interest or signature authority in a foreign bank account is to seek the advice of an experienced tax attorney.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have years of experience assisting taxpayers make the right decisions when it comes to their undeclared foreign bank accounts. When the IRS audits and investigates you, make sure that you have a team of knowledgeable and experienced advocates to stand up for your freedom. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.