Tandem efforts have successfully increased offshore account compliance

Date: 09/11/12

Topic: Foreign Accounts

The Senate in 2009 determined that hidden offshore accounts were costing the U.S. Treasury upwards of $100 billion annually. To tackle this problem the United States Department of Justice (DOJ) Tax Division rolled out its offshore compliance initiative. The initiative consists of a concerted effort of civil and criminal remedies, which target foreign institutions as well as account holders. To date, as part of a deferred prosecution program the Tax Division has negotiated with UBS, Switzerland’s largest bank, and the Swiss government to settle a civil summons enforcement proceeding. The result has been the disclosure of account information about thousands of U.S. taxpayers that have secret Swiss Bank accounts. The successful disclosure to the United States has led several European countries to take similar action.

According to a statement by the DOJ Tax Division “approximately 150 investigations of offshore-banking clients have been initiated, of which 36 client cases have been charged, with 31 guilty pleas having been entered, 2 convicted at trial, and 5 awaiting trial.” It has not only been the principles that have been charged and convicted, aiders have also come under fire. Those who have helped their clients hide assets abroad have been indicted in several cases. This includes 13 bankers and 2 attorneys being charged and awaiting trial, and one advisor and one banker being charged and convicted.

Not coincidently the opening of Switzerland’s account records and U.S. prosecution of offending taxpayers has driven an unparalleled number of taxpayers to make voluntary disclosures to the IRS of their previously hidden foreign accounts. Over an 18-month period ending in February 2011 nearly 18,000 taxpayers had come forward, which is a drastic improvement over the mere 100 or so in previous years. From those that came forward voluntarily, the U.S. treasury has already collected hundreds of millions in fines and penalties in lieu of criminal prosecution.

The deliberate DOJ Tax Division’s hard-line stance on offshore accounts combined with the timing of the voluntary disclosure program has increased compliance. With the continued cooperation of foreign states the hidden foreign account will not remain so for long.