Piercing Asia – U.S. Offshore Bank Account Crackdown results in data on undeclared bank accounts with Hong Kong Connections

On August 20, 2012, the United States Attorneys Office issued a press release regarding their most recent Offshore Bank Account Plea Agreement reached.   The taxpayer, Jacquez Wajsfelner pled guilty to willfully failing to file foreign bank account reports (FBAR) for several Swiss Bank Accounts.

Slightly outside the average age of those being prosecuted for FBAR violations, here the defendant is 83 year old.   He faces a maximum term of five years in prison and three years supervised release in addition to fines and penalties.  Based on plea agreements reached under similar circumstances, we do not believe that he will be sentenced anywhere near the maximum time period.  Hopefully the defendant will have a category I criminal history and unless his activity is egregious, a variance under 3553 of the Federal Sentencing Provisions may allow for the potential of home detention or other alternative sentencing.      His civil FBAR penalties and taxes will be approximately $2.8 million dollars.

Of a particular note is his previously undeclared bank account found within his Hong Kong Corporation.    Hong Kong has traditionally been used as a legitimate tax-planning jurisdiction (offshore tax planning) attractive because Hong Kong does not tax corporations that do not engage in business transactions, or in a trade or business within the territory, making Hong Kong an attractive jurisdiction for tax planning.   With that said, Hong Kong does not have a tax treaty with the United States and has come under fire from the Internal Revenue Service for not sharing tax information.   Many U.S. individuals have been ‘taking advantage’ of this lack of information sharing to mitigate their perceived risk of being identified by the U.S. government for tax crimes and established Hong Kong corporations to be the owners of their Swiss Bank Accounts and other offshore bank accounts.    In some cases, Americans would establish multiple Hong Kong entities and set up sham loans between the corporations to repatriate undisclosed bank account funds to the United States.

This plea agreement is another example of the data that the Department of Justice and Internal Revenue Service have been able to mine through the Offshore Initiatives, John Doe Summons, and Agreements to identify individuals with offshore assets.   Special Agent in Charge Toni Weriauch said:

“Anyone who contemplates hiding assets offshore should be concerned about the Internal Revenue Service’s commitment to investigating offshore tax evasion.   We continue to access more and more information about individuals who hide their assets, the individuals who help them, and the institutions where the assets are hidden.”

Our tax law firm believes that the continued offshore compliance initiatives and FATCA will only serve to expedite the data available to the taxing authorities for the identification of individuals and their assets.