Since at least the time of the global financial crisis, the IRS, DOJ, and all relevant branches of the U.S. government have stepped up their tax enforcement efforts. These enforcement efforts have been aided by the passage of legislation such as FATCA, international tax information sharing agreements, information provided by banks through Swiss Bank program, and through a number of other sources. In short, the U.S. government has access to a vast amount of international tax data from more than 100 that would have been thought impossible only decades early.

The net effect of this new enforcement regulatory environment is that secret offshore entities and trust no longer provide the anonymity or benefits that users of these entities desired. In fact, the use of secret offshore accounts is not only an ineffective, it is a form of tax fraud or tax evasion. Offshore trusts, entities, accounts, and assets that are not identified are regularly identified and the taxpayer comes to face significant fines, penalties, and interest. In cases where willfulness is present, the taxpayer is also likely to face criminal tax penalties.

FATCA & Prosecutions of Cross-border Bankers & Advisors Keeps Pressure On

For decades taxpayers, Swiss banks, and the employees of these banks relied on Swiss Banking laws. Taxpayers relied on the privacy provisions of these laws while employees of the banks relied on Swiss law to provide the legal justification for the practices, procedures, and services offered to international clients. However, starting with the 2008 investigation of UBS and the subsequent deferred prosecution agreement signed by the bank and the U.S. government, the first signs of a drastic regulatory and enforcement shift were clear.

Following UBS, a significant number of other foreign financial institutions from across the globe faced enforcement actions by the U.S. government. Of particular note is Wegelin & Co. because the bank agreed to plead guilty to a felony. Credit Suisse would later join Wegelin as banks convicted of felonies after its 2014 trial and conviction resulting in a fine of $2.6 billion. However, in most cases the U.S. government sought deferred prosecution agreements with bank and foreign financial institutions. Banks that have agreed to deferred prosecution agreements through the Swiss Bank Program and other means include Bank J. Safra Sarasin AG, BNP Paribas (Suisse) SA (BNPP), KBL (Switzerland) Ltd. (KBL Switzerland), Bank CIC, Rothschild Bank, and many others.

As part of the terms of these deferred prosecution agreements, the banks themselves are required to provide information to the U.S. government regarding:

  • Accounts believed to be linked to U.S. persons.
  • Cross-border banking activities.
  • Banks accepting or making secret transfers
  • Agree to close accounts of clients who refuse to come into compliance with U.S. law

Furthermore, the U.S. government has also pursued financial advisors, bankers, and others individually  regarding instances of suspected tax evasion. Absent a strong confidentiality privilege, such as the attorney-client privilege, taxpayers should not expect criminally charged financial advisors to protect their anonymity.

IRS and DOJ Continue to Pursue Anonymous Holders of Offshore Accounts through John Doe Summons

The U.S. government often investigates and pursues both known and unknown taxpayers once it gains knowledge of a U.S.-linked undisclosed account. The agencies have  shown a willingness and it is perhaps common practice to file John Doe summons to identify unknown holders of foreign banks accounts, assets, and entities. The U.S. can issue these summons to banks with a presence in the U.S. Furthermore, the agencies can utilize these summons against foreign financial institutes with no presence or operations in the U.S. because these foreign financial intuitions rely on having access to the U.S. banking system to permit transactions in U.S. dollars. Access to the banking system is gained through correspondent banks based in the U.S. – banks upon which the DOJ and IRS can serve summons. While some people still seem to believe that dealing with banks with no physical branches or operations provides protection, this belief is clearly erroneous. The IRS can and will identify accountholders at foreign banks with no U.S. operations.

Offshore Disclosure Can Offer a Way Out of Foreign Account Nondisclosure

Taxpayers who have failed to comply with disclosure obligations under FATCA and FBAR or who have failed to pay taxes on offshore income face serious penalties. However these penalties can often still be mitigated through one of the IRS voluntary disclosure programs. While a taxpayer will typically have to pay some penalty, he or she will also receive protection from prosecution for potential tax evasion and other crimes. To schedule a reduced-rate consultation with an experienced tax professional, call the Tax Law Offices of David W. Klasing at 800-681-1295 or contact us online today.