by Brian Mahany
First it was indictments of U.S. taxpayers with offshore accounts. Then the Department of Justice and IRS began indicting individual Swiss bankers. Now, in the latest move against unreported foreign accounts, the U.S. government has indicted a Swiss bank, Wegelin & Co., Switzerland’s oldest private bank.
On Friday, Justice officials in Washington D.C. announced the indictment of the bank on charges of conspiring with American taxpayers to defraud the U.S. Treasury. The indictment supersedes a previous indictment against 3 Wegelin bankers. The case is very unusual in that it marks the first time the government has indicted a bank.
The IRS has been pursuing Americans with unreported offshore accounts for several years. Although many account holders have come forward, most have not. The majority of those who have not come forward simply don’t know about the foreign reporting requirements. These are primarily recent immigrants to the U.S., foreign born Americans, dual nationals and Americans living overseas.
There are believed to be hundreds of thousands of Indians, Chinese and Canadians, for example, not in compliance with IRS reporting rules. Those rules require most holders of foreign bank accounts to file an annual Report of Foreign Bank and Financial Account (FBAR), pay tax on any income from their foreign holdings and this year, to also comply with the new Foreign Account Tax Compliance Act (FATCA). Although the IRS wants all taxpayers to be in compliance, those that have intentionally hidden money to evade taxes have been criminally prosecuted.
In addition to direct prosecution of American taxpayers with unreported accounts, prosecutors recently began a campaign of targeting foreign bankers. Many of these people quickly turned over their records (the names of U.S. account holders) to avoid prosecution or in exchange for leniency at sentencing. Now with the indictment of Wegelin, the government has turned up the heat even further.
Although the government can’t put a bank in jail, it can demand their records and seek to forfeit their money. Prosecutors in the Wegelin case simultaneously filed a civil forfeiture action and seizure warrant. According to a Justice Department press release, prosecutors have already located and seized $16 million. That’s just the tip of the iceberg as the government says Wegelin helped Americans hide $1.2 billion in the bank.
Last week’s indictment reveals that Wegelin used a third party website called SwissPrivateBank.com to solicit Americans to open accounts. While opening a Swiss account is totally legal, the IRS says Wegelin was conspiring with Americans hoping to evade taxes. According to the indictment, the website said, “Swiss banking laws are very strict and it is illegal for a banker to reveal the details of an account number unless ordered to do so by a judge… Swiss banking secrecy is not lifted for tax evasion.” As Wegelin and other Swiss bank customers are now finding out, that’s not exactly true.
The government shows no signs of slowing down its attempts to discover all unreported foreign accounts. Penalties for willful failure to report such an account can include prison (it is a felony to fail to file an FBAR) and loss of the account. The civil penalties include a penalty of 50% of the highest account balance for each year the account was not reported and can be collected even if the account is now closed.
The penalties are lower but still substantial if the violation was caused by simple ignorance and was not willful.
The IRS is currently running an offshore tax amnesty program called the Offshore Voluntary Disclosure Program or OVDP. The program allows most participants to avoid criminal prosecution and offers reduced monetary penalties. The catch, however, is that you must come forward before the IRS finds you. If the IRS discovers your accounts first, all bets are off and the amnesty is no longer available.
Another benefit of OVDP is the ability in most cases to avoid a comprehensive audit.
If you have an unreported foreign bank or brokerage account, contact an experienced tax attorney immediately. Don’t wait until you are caught.
The tax lawyers at Mahany & Ertl have helped many Americans and foreign born nationals with a wide variety of offshore tax reporting problems. We offer both experience and hope. For a completely confidential consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at . Have a question about the new 2012 FATCA requirements? Contact attorney Wassim Malas at .
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; San Francisco, California & Minneapolis, Minnesota. Tax services available across the United States.