Undeclared Bank Accounts in Tel Aviv Results in Conspiracy to Defraud the Government

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Undeclared Bank Accounts in Tel Aviv Results in Conspiracy to Defraud the Government

Guity Kashfi lived in Los Angeles. She sat in the same traffic on the I-405 as you, me, and everyone else. She had one secret she chose not to share with the U.S. government, however: That she had an uncleared bank account in Tel Aviv, Israel. Although the account was with an international national bank, she did not disclose those assets on his income tax return, and apparently did not even tell her accountant of the assets. To conceal the accounts, and to distance herself from them, she did not use her name on the accounts. Ms. Kashfi used the offshore assets to secure certain loans from a Los Angles bank—in other words as collateral or to securitize the loans.

The water boiled over for Ms. Kashfi when one of the bankers servicing the loan indicated that he would use the loan collateral to pay off the debt. However, rather than paying off her loans with the offshore asset, she transferred about $2 million to a new, second offshore bank account, this time in Luxembourg.

The reason why Ms. Kashfi decided to transfer the $2 million to the second bank account was to avoid the assets in Tel Aviv from becoming “re-patriated”—which is roughly the procedure of converting foreign currency into U.S. currency. Then, Ms. Kashfi obtained new loans with the Luxembourg bank (specifically, with the Los Angeles branch). Approximately one year later, she went to Luxembourg to close her account. She was met by two foreign bankers, who explained to her that because they were a private bank, her bank account information was immune from U.S. discovery. She eventually transferred all of her Luxembourg accounts to the United States. Ms. Kashfi failed to report approximately $2.5 million (according to her highest account balance).

The Department of Justice got wind of it, and decided to prosecute.

Ms. Kashfi eventually agreed to a plea. She agreed to pay a civil penalty in the amount of 50 percent of the highest balance of her offshore account for failing to disclose her offshore assets. Kashfi faces a potential maximum prison term of five years and a maximum fine of $250,000.

It should be noted that U.S. citizens (and residents) have two reporting requirements for assets of $10,000 or more. First, if a U.S. citizen has an interest in, or other authority over, a foreign financial account, he must disclose that account on his individual income tax return. Second, U.S. citizens (and residents) are required to file an “FBAR”—a Report of Foreign Bank and Financial Reports with the United States Treasury Department—to disclose their interest in a foreign country when that interest exceeds $10,000. This applies even if one does not possess a financial interest but has a level of control over the account.