Last October we reported on the indictment and arrest of Martin Lack, a Swiss investment adviser and former UBS banker. This week Lack was sentenced to probation and a $7,500 fine for his role in assisting Americans evade taxes through unreported Swiss accounts. The “story behind the story” is why Lack walked out of court after paying just a small fine.
The Justice Department and IRS say that Lack helped Americans open accounts at UBS and Basel Cantonal Bank. While opening a Swiss account is legal if properly reported, the IRS says that Lack knowingly assisted U.S. clients who were trying to conceal their income or assets from the IRS. U.S. taxpayers are required to annually report offshore accounts on a Foreign Bank Account Report or FBAR.
The government also says that Lack helped customers move their accounts accounts from UBS to Cantonal Bank. That is potentially bad for customers as UBS was under criminal investigation at the time of the account transfers. The IRS says that moving an account to avoid detection is an affirmative act of tax evasion.
On February 26th of 2014, Lack pleaded guilty to a charge of conspiracy to defraud the United States, a felony. This week he was sentenced to probation and a small fine. The court went so far as to say that Lack could return to Switzerland and simply check in once a year. For someone facing years in prison, the sentence ws very light. Why?
Why Lack received a fine and was allowed to return home is a great question. Lacking from the court record is the usual plea agreement and sentencing memorandums. They simply don’t exist. Instead, there is a short reference in a March 31st motion to delay the sentencing that says, “the parties have been reviewing and arranging for the production of thousands of documents spanning over a decade.” The Justice Department says the continuance was in the “best interests of justice.”
Translation? Lack cooperated in return for a light sentence. Typical in the prosecution of foreign bankers, investment advisors and lawyers is an agreement to not seek prison in return for disclosure of client lists and future testimony if needed. By not filing any plea agreements, we will never know for sure all the details but we would be shocked if the Justice Department or court allowed Lack to walk without extensive cooperation.
What does this mean for former clients of Lack and his business, Lack & Partner Asset Management? Plenty. It is very probable that Lack has already turned over the names of all his clients. Beyond the simple client list, the IRS and Justice Department usually require a thorough debrief of each name on the list. If there are incriminating notes or emails, the IRS probably has them.
In a recent case, IRS criminal chief Richard Weber said that it wasn’t a question of “IF” people using unreported offshore accounts would be caught but “WHEN”. The IRS and Justice Department have proven very adept at finding taxpayers with unreported offshore accounts. No matter how secret the account, someone knows about it and sooner or later, the IRS will figure out a way to get the information. Prosecution of bankers and asset managers has been especially effective. Unfortunately for taxpayers, all promises of secrecy fly out the window when the person making that promise is facing jail.
If you have an unreported foreign account, don’t wait to take action. In just weeks, foreign banks worldwide will be required to begin researching their accounts and reporting those with ties to the United States. Even if a country or bank decides not to comply with the new FATCA laws, the IRS has ways of getting the information.
There is an amnesty program available for those who haven’t filed required FBARs – OVDP or “Offshore Voluntary Disclosure Program” – but that is only available if the IRS has not already obtained your name from a bank, banker or through other means. Other options are available for those who can demonstrate that their failure to report was merely negligent and not willful.
Need more information, contact an experienced FBAR attorney at Mahany & Ertl. All inquiries are kept in strict confidence. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464.