Offshore Tax Shelters
Offshore tax shelter promoters claim that taxpayers will receive significant tax benefits and asset protection by establishing entities in the "tax havens" of the world. These shady promoters encourage unsuspecting individuals to assign income to offshore corporations or bank accounts in the Caribbean and other countries. The offshore money is retrieved by use of financial instruments, such as offshore credit and check cards, to avoid paying taxes. Unfortunately, many of these shelters are schemes that financially benefit the promoters, resulting in disastrous consequences, including huge civil, monetary, and criminal penalties.
We have experience representing and advising individuals before the Internal Revenue Service and State, involved in offshore tax shelters. We can potentially mitigate exposure to criminal or civil penalties arising from involvement in an offshore scheme. We also advise taxpayers regarding potential liability in any offshore transaction.
Since these practice groups overlap in a number of areas, you may wish to read about our Offshore Tax Compliance Practice Group, and blog, for more information,
Bank Secrecy Act
Passed in 1970, the Bank Secrecy Act (“BSA”) was the first set of laws specifically designed to combat money laundering. In fact, it is sometimes referred to as the “Anti-Money Laundering Law (“AML”)” or “BSA/AML.” The BSA has been amended over the years by the addition of other anti-money laundering laws such as the Patriot Act. The BSA requires business and financial institutions to keep records and/or file reports of certain transactions and activity. The records and reports are especially useful to government and law enforcement activities in detecting money laundering, tax evasion, terrorism and other criminal activities.
As a practical matter, the government knows everything that an individual does with a bank. The government requires banks to have sophisticated computer programs, which are monitored by experienced, knowledgeable professionals looking for any irregularity; whether the irregularity occurs in one branch of a bank, or different branches of a bank, or by multiple banks. Any illegal attempt will result in the bank reporting you and your transactions to the government, which can prosecute you for felony charges resulting in years of imprisonment and large monetary penalties.
Bank Reporting Requirements
The BSA institutes reporting and recording requirements for banks and other financial institutions in addition to mandates for reports or records from individuals and businesses. Every currency deposit, withdrawal, exchange, payment or transfer involving more than $10,000 must be reported on a Currency Transaction Report (“CTR”). While there are certain exemptions, such as transactions between banks, governmental agencies or entities on the NYSE, etc., the financial institution is still required to file a designation of exemption.
Banks must report any suspicious transactions or attempted transactions. A Suspicious Activity Report (“SAR”), found here, must be filed if one or several related transactions involve $5,000 in non-face to face transactions and $2,000 in face-to-face transactions, and the bank knows or believes that the transaction:
- Involves funds from illegal activities;
- Is intended to hide or disguise funds or assets from illegal activities in order to violate or evade any federal law or regulation or to avoid a transaction reporting requirement;
- Is designed to evade the regulations created under the BSA;
- Has no business or lawful purpose or is not the kind of transaction a particular customer normally engages in and, after looking at the background, facts, and possible purpose of the transaction, the bank cannot reasonably explain it.
Penalties for failing to Report Suspicious Acts
Financial Institutions are required to file reports of suspicious activity. A $25,000 fine, or the amount of the transaction (not to exceed $100,000), whichever is greater, will be imposed upon a bank that fails to file a CTR or SAR. Negligence on the part of a bank could cause it to be fined $500 for one violation or $50,000 for a pattern of negligence. Conversely, there is no penalty for reports that are not necessary.
Privacy rights diminish as concerns grow regarding money laundering and terrorism. In 1986, as part of the Money Laundering Control Act, Congress stated that a financial institution would not be held liable for the sharing of information relating to suspicious activity. Financial institutions report a client’s name, address, social security number, driver’s license number and more to the government. Any transaction of $10,000 or more will require that a customer’s information be shared. Also, the language of the regulation may make it necessary to report totally legal transactions of $5,000 or more because the transaction is not customary for the individual. The reports are filed with the Treasury Department’s Financial Crimes Enforcement Network and, thereafter, are available to the FBI, Secret Service, Customs Service, every U.S. Attorney’s Office and several other law enforcement agencies, which can access the reports without normal evidentiary requirements.