The IRS’ war against unreported foreign accounts began with a bang. In 2009, Swiss bank UBS entered into a deferred prosecution agreement after the Justice Department accused the bank of helping Americans evade taxes by placing money in unreported Swiss accounts. The bank was able to keep its doors open but paid a steep price, a record $780 million fine. Six years later and UBS is once again facing Justice Department problems. This time, the bank is alleged to have helped U.S. taxpayers commit tax evasion by using bearer securities.
The Wall Street Journal reports that Brooklyn’s U.S. Attorney is working with the FBI to determine if the bank violated any criminal laws. Helping Americans commit tax evasion could be prosecuted is a crime.
Bearer shares have long been used by those engaged in money laundering and tax evasion. They are often used in connection with nominee or shell companies. The IRS considers all to be “affirmative acts of tax evasion.”
In 2010, Congress passed the Foreign Account Tax Compliance Act or “FATCA.” Beginning this year, FATCA requires foreign banks and other financial institutions to search their records and report those accounts with ties to the United States. Bearer shares and nominee accounts makes that task difficult for banks. Since bearer shares are not registered, determining the identities of a company’s beneficial owners is difficult. Anyone holding the share certificate is the owner of those shares.
The Journal indicates that UBS is being investigated for a particular type of bearer security, unregistered bonds. The U.S. Treasury stopped issuing those in 1982. We believe that the problem with bearer shares goes well beyond bonds.
The investigation appears to be in its very early stages. The Justice Department has reportedly issued a subpoena to UBS seeking records. No charges have been filed and no one is commenting on the investigation.
The investigation, however, should be a clear warning to those taxpayers using nominee shares in order to disguise ownership. We have seen several foreign “asset protection” boutiques selling offshore corporations that come with bearer shares and preexisting bank accounts. Several appear to be offering off-the-shelf Panamanian companies with bearer shares and a full slate of offshore directors (complete with undated resignation letters.)
Do you have an unreported offshore account? The penalties for failing to report a qualifying account or file an FBAR form are huge. Civil penalties can be up to the greater of $100,000 or 50% of the highest historical account balance. Willful failure to file an FBAR is a felony punishable by 5 years in prison.
If the IRS believes that a taxpayer has used bearer shares as a way of avoiding taxes, additional charges for tax evasion may be brought.
Need more information? Contact an experienced FBAR lawyer at Mahany & Ertl today. Most cases can be handled for a reasonable flat fee. IRS services are available worldwide. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries protected by the attorney – client privilege and kept in complete confidence.