Offshore Bank Account and Asset Alert: March 2014

Another 106 Banks will be turning over customer information to the United States Department of Justice (DOJ) –   What this means for those with Offshore Bank Accounts and Assets – Especially in Japan, Hong Kong, Taiwan, Mainland China, and South Korea

The United States has succeeded in obtaining huge fines from UBS (780 million dollars), put Weglin out of business, and has induced fear in banking and investment firms worldwide as it continues in its offshore bank account an asset inquest to quash evasion of its tax laws and revenues.    By offering foreign banks amnesty from criminal and civil tax prosecutions and fines, the Department of Justice has secured the turnover of additional American citizen and green-card individuals and entities, names and information.     Over 106 banks joined the initiative as of December 31, 2013.

What this means to foreign account holders:

  • Those who are in compliance with reporting requirements:  While invasive to individual privacy, the turning over of your name and data won’t affect you.  However, it will give the Internal Revenue Service additional means to match data and be sure that all information was properly reported.   Thus we expect an increase in audits related to reported informational returns and the corresponding entries on tax returns (such as, interest income, passive losses, PFIC calculations, etc.)
  • Those who have not reported their foreign bank accounts and assets on FBARs, form 5471, form 3520, and form 8938:   It is important for individuals to realize that every bank in the program, or pursued by the U.S. Department of Justice, will provide detailed information about their practices and transactions  -local Banks, Banks around the world, or private banks.    Thus similar to the account holders whose names were turned over by UBS or HSBC (where, those making a voluntary disclosures after the turnover of information were denied relief, because the government’s position was that it was too late if the DOJ had information before the account holder attempted to enter voluntary disclosure), will not be eligible to avail themselves to Offshore Amnesty Initiative Programs and will face significant criminal tax exposure and a lack of leverage when negotiating criminal and civil tax and penalty settlements.

Moreover, American individual account holders need to know that that Swiss Banks have strong relationships with Chinese Banks (there are a number of major Swiss banks in China, Hong Kong, Singapore, and Taiwan), Credit Suisse has an asset management joint venture with the Industrial and Commercial Bank of China.   Moreover, both Credit Suisse and UBS have been alleged to have assisted Chinese individuals and their relatives move assets to offshore locations and disclosed the names and information of more than 22,000 clients.    What this means is that under the US treaty with China (for example; see Finding Offshore Bank Accounts and Real Estate in China), the United States will also have access to this information as well.

Now that smaller and more private banks have joined the amnesty along with the thousands of individuals who have already participated (and turned over names as part of it) we expect to see an increase in the number of individuals being charged with crimes and given large tax penalties for the tax and money crimes related to having money and assets outside of the United States.
For people with foreign accounts and assets overseas worried about the IRS enforcement regime, here are suggestions:

  • If you have international ties, seek expert advice from an international tax attorney (utilize the confidentiality afforded by the attorney-client privilege) about:
    When and what you do-and don’t-have to report to the IRS:

    • How will they find you?
      • IRS Reporting forms and requirements,
      • Foreign Retirement Accounts,
      • The number of years for which you have exposure?
      • Amnesty Program Advantages and disadvantages?
    • Entity Planning to Save Tax and Wealth:
      • Smart planning can avoid mandatory tax withholdings, preserve investments, and maximize return on investment.

The bottom line is that, it is the IRS and DOJ’s belief that they “have a lot of avenues for getting information now, some of them visible and some of them not visible. Anyone who thinks they can hide their money in Switzerland or elsewhere is full of themselves and has been for a long time,” Assistant U.S. Attorney, Kathryn Keneally.   On March 18, 2014, addressing the International Tax Enforcement Conference in Washington DC (of which Moskowitz LLP was an attendee), Ms. Keneally went on to state that “just because you [us tax attorneys] don’t see the prosecutions from originating from bank accounts outside of Europe, doesn’t mean they are not going to happen soon.” (referring to the fact that the vast majority of offshore bank account holders targeted thus far have been from Swiss and Lichtenstein banks).    She then went on to name several areas world-wide, and Korea specifically, where US tax evasion investigations are active.

If you have any questions regarding this information or would like to discuss it further, please do not hesitate to contact us.