Noose Closing on Offshore Tax Evasion – The Year in Review

The year 2013 may have proved to be one of the most detrimental years for those Americans (and even non-Americans) who have attempted to avoid paying tax in the United States by using offshore tax havens. With actions ranging from targeting foreign banks to criminally prosecuting citizens, the Justice Department has shown during the past year, that the days of off tax evasion and avoidance through the use of offshore accounts is coming to and end.  The need to make an Offshore Voluntary Disclosure has never been more critical if you have not already done so and have undisclosed foreign accounts or foreign assets with associated unreported foreign income.

Swiss Banks

2013 marked a rough year for Swiss banks as the Justice Department continued their investigations into institutions that may be helping U.S. citizens shelter monies in an attempt to avoid federal income tax in the States. These investigations led to Switzerland’s oldest, privately owned bank pleading guilty to criminal conspiracy charges and agreeing to pay nearly $75 million in restitution and fines to the United States. Wegelin & Co. was accused of helping U.S. citizens open and keep foreign accounts for the purpose of tax evasion with assets totaling $1.2 billion. This was the first foreign financial institution ever to be indicted on U.S. criminal tax charges.

Not only do foreign financial institutions have the threat of criminal charges as an incentive to cooperate with the Justice Department, the United States has created a program rewarding foreign banks with a non-prosecution agreement in exchange for detailed information about U.S. citizens (and their accounts) who are keeping money overseas. This is bad news for Americans with money in overseas accounts.

Further, the Justice Department has made it clear that they will not stop at Swiss banks. They intend to force the agreement that many financial institutions in Switzerland have entered into, requiring disclosure of detailed account information on other like situated institutions worldwide and thus the ability of the Justice Department to identify banks aiding offshore tax evasion of U.S. Taxpayers will eventually reach around the world. The United States has already established tax-related information sharing agreements with the United Kingdom and Australia.

Prosecution of Individuals for Evasion

Banks weren’t the only ones in the crosshairs of the Justice Department. Three notable criminal cases involving offshore tax evasion progressed in 2013. H. Ty Warner, most notable for creating the Beanie Baby, pled guilty to federal tax evasion for funneling money into a secret Swiss bank account and earned millions of dollars of income on investments that went unreported. He is expected to be required an offshore account penalty greater than any other in history.

Edger Paltzer and Raoul Weil, both working in the legal and banking businesses, respectively, pled guilty to conspiracy charges for assisting U.S. citizens set up and maintain offshore accounts. Weil was taken into custody in Italy on an international arrest warrant issued by the United States. He assisted Americans conceal over $20 billion hidden in Swiss accounts.

As the criminal investigations continue in the Alps, the Justice Department has indicated that they will soon be looking into U.S. citizens’ foreign accounts in India for similar activity found in Switzerland.  The United States has already begun working with Israel regarding Americans with accounts located there.

John Doe Summonses

Just because the Justice Department doesn’t know the name of the taxpayer who has an offshore account with unreported taxable U.S. income within it, doesn’t mean that information about that account is safe from government investigation. In 2013, the Justice Department had much success in being granted John Doe summons from federal courts to serve upon foreign banks to gain access to account information. Most notably, UBS and Wells Fargo were hit with the John Doe summons. The attempt to gain account access from Wells Fargo stems from the U.S. Government’s attempt to get information about First Caribbean International Bank, an institution that serves 18 Caribbean nations including the Bahamas, Barbados and the Cayman Islands.

In Closing

Even one of the biggest computer companies in the world can’t escape investigation by the United States. At a recent meeting of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee, Tim Cook, the CEO of Apple was berated with questions regarding the company’s utilization of loopholes to avoid payment of U.S. taxes.

2013 was a busy year for the Department of Justice and it seems obvious that their efforts are just beginning.  If you have income in a foreign account that you have failed to disclose to the United States, all hope is not lost. The government has brought back its’ Offshore Voluntary Disclosure Program (2012 ODVI). This program allows qualifying taxpayers to avoid criminal charges in exchange for disclosing their foreign accounts and agreeing to pay penalties.  Some taxpayers have opted to try to come clean to the government with hopes of forgiveness without the help of a tax attorney with disastrous results, accepting on offer under the OVDP and later finding out that they were determined to be ineligible under the program. Others have tried to make quiet disclosures without participating in the OVDP or consulting an attorney. Those taxpayers, if detected by the IRS, have no shield from an all-out criminal prosecution by the Department of Justice.

If you have any foreign bank accounts with unreported income, the United States government has spoken loud with their actions: make a voluntary disclosure now, or be prepare to go to prison.  Don’t let your foreign bank give your account information to the Department of Justice to save themselves.  We are ready, willing and have years of experience of working for our clients to take full advantage of the Voluntary Offshore Disclosure Program. Let us help you lift this heavy burden off of your shoulders. Contact us now and we can walk you through the Steps to Participate in the 2012 ODVI Program.