by Brian Mahany
In recent years, governments around the world have started a dangerous new trend; paying criminals for stolen foreign account data. Unreported offshore accounts are an important source of revenue for the IRS and other countries. While the IRS and US Justice Department prefer to indict and arrest lawyers, accountants and foreign bankers in the hopes of forcing them to disclose clients with foreign accounts, some European countries simply steal the information.
Herve Falciani was a computer specialist working for HSBC Bank in Switzerland. Swiss authorities have accused him of leaking sensitive records to tax authorities; records that contained the names of HSBC customers. Stealing client data from a bank is a crime in most countries including Switzerland. They asked a Spanish court, where Falciani was found, to extradite him to face criminal charges. Spain’s National Court said no.
Officials in Spain rationalized their decision by claiming that since many of HSBC’s customers were “possibly” violating the law themselves, there were no grounds to send Falciani back to Switzerland to face criminal charges.
What does this case mean for U.S. taxpayers with accounts at HSBC or other foreign banks? Plenty!
Opening a foreign account is entirely legal if the account is properly reported to the IRS. The Bank Secrecy Act requires U.S. taxpayers (that includes resident aliens) with offshore accounts to annually file a Report of Foreign Bank and Financial Accounts or FBAR for short. Failure to file an FBAR can be a crime if willful and the civil penalties can be huge.
To enforce the FBAR rules, the government has a number of tools including high fines, John Doe subpoenas and criminal investigations of foreign bankers. The IRS also trades information with other tax authorities. While the U.S. isn’t likely to pay a bank employee to steal customer lists from their employer, they can use information stolen or illegally purchased by other countries. If the decision rendered by Spain’s National Court is any indication, apparently it is no longer even a crime to steal identity data if the information might “possibly” include the names of people with unreported offshore accounts.
Privacy is dead. If you have an unreported offshore account and have not filed an FBAR, expect to be caught. As the world gets smaller, trying to hide money from Uncle Sam just doesn’t make sense. There are some amnesty programs and other options available to help taxpayers with unreported accounts and unfiled FBARs come into compliance. Those programs, however, are only available if you apply before getting caught.
No one knows exactly how much information Falciani took with him when he left HSBC. As a bank computer specialist, the potential data breach is huge.
The offshore reporting at Mahany & Ertl have helped many taxpayers with a wide variety of foreign reporting problems. From unfiled FBARs to the new FATCA legislation to the OVDP amnesty program, we can help.
For more information about FBAR compliance and unreported offshore accounts, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
[IMPORTANT UPDATE: The Economic Times reports that Falciani has turned over 24,000 names and that the information has been provided to the IRS. See the update here.]
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