In a sealed case argued and decided earlier this summer, the U.S. Court of Appeals for the D.C. Circuit sided with the IRS against three unspecified Chinese banks, which unsuccessfully attempted to fight U.S.-issued subpoenas. The subpoenas, intended to force the banks to produce information about alleged North Korean front companies, were issued by federal prosecutors, who also called on the Patriot Act. While, on its face, this case may seem irrelevant to the average taxpayer, it could have implications for taxpayers with unreported accounts at Chinese banks or other foreign financial institutions (FFIs). By expanding the U.S. government’s power to, via subpoenas, obtain information from FFIs – which are already beholden to information-sharing requirements under treaties and laws like the Foreign Account Tax Compliance Act (FATCA) – the case could have a ripple effect, making it easier for the IRS to scrutinize foreign accounts and assets. By making it more difficult for foreign banks to hide or withhold information, this case could be placing certain taxpayers in jeopardy.
See our 2011 OVDI Q and A Library
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D.C. Appeals Court Affirms Ruling Against Subpoenaed Chinese Banks
In July 2019, the U.S. Appeals Court in Washington, D.C. ruled with the U.S. government against the appellants: three Chinese banks which, though unnamed, “aligned with a 2017 civil forfeiture action against China’s Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank,” according to Reuters.
The banks, which objected to being held in contempt by a lower court (despite failing to supply the subpoenaed records), attempted to argue that they were not under U.S. jurisdiction, and moreover, that complying would constitute a violation of Chinese law. However, the higher court was unconvinced by the appellants’ arguments, and, ultimately, “affirm[ed] the district court’s contempt orders against all three Banks.” The appeals court found that, by consenting to U.S. banking and financial laws, foreign banks which have U.S. branches also come under U.S. jurisdiction.
So why is this important to taxpayers, including those without financial connections to China? Because, by reinforcing the U.S. government’s power to obtain information from FFIs, the higher court’s decision could have broader implications for all taxpayers with foreign bank accounts, regardless of whether the accounts are located in China or other countries. Alleged violations of the Bank Secrecy Act (BSA) – such as failures to file FBAR (FinCEN Form 114) – could become easier to investigate and prosecute successfully as foreign banks with U.S. branches are forced to obey grand jury subpoenas.
FATCA + FBAR Tax Compliance Attorneys in California
If you have a foreign bank account, including checking, savings, or corporate accounts, you may be subject to FBAR reporting requirements, in addition to related FATCA requirements, such as filing Form 8938 (Statement of Specified Foreign Financial Assets). Foreign banks and FFIs are heavily fined for noncompliance with FATCA – and, as this case demonstrates, can be held in contempt of court for failing to comply with subpoenas or other court orders to produce information. Increasingly, there are powerful legal and financial motivators for FFIs to provide information on U.S. citizens, investors, and business entities. Taxpayers who do not comply with foreign account disclosure requirements are, like FFIs, subject to heavy fines – and moreover, at risk of going to prison. For both FFIs and individual taxpayers, there are serious consequences to not disclosing offshore accounts.
Do not wait until you are already under a foreign account tax audit or, worse, a criminal tax investigation. If you have received a FATCA letter from your bank, need help filing an FBAR, are being investigated for offshore tax evasion, or simply have questions about international tax and estate planning, take action today by contacting an experienced FATCA attorney, like the tax professionals at the Tax Law Office of David W. Klasing. Contact us online to arrange a reduced-rate consultation, or call our law offices at (800) 681-1295 for immediate assistance.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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