The Government 
Enforcement of Foreign Banking

The U.S. Department of Justice has a mission statement:  To enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans.

While the intention of the Department of Justice is to protect American citizens, many honest U.S.  residents may be targeted for criminal tax fraud.  The Tax Division of the Department of Justice is pursuing  U.S. foreign account holders as criminal tax evaders, regardless of their intent to defraud the government of owed taxes.  In 2008, a report from the Senate determined that these unreported accounts cost the U.S. Treasury in excess of $100 billion annually.

In August 2009, an agreement was negotiated between the Swiss government and the U.S. Tax Division that eliminated the secrecy of foreign accounts held by U.S. taxpayers in Swiss banks. Under the agreement, the IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held, and offshore company nominee accounts through which an individual indirectly holds beneficial ownership in the accounts. Continuing the crackdown on secret accounts, in April 2011 the U.S, the government received permission to authorize the IRS to request information from HSBC Bank USA, N.A. about U.S. residents who may be using accounts at The Hong Kong and Shanghai Banking Corporation in India (HSBC India) to evade federal income taxes.  HSBC Bank will continue to be closely scrutinized, as account holders living in the U.S. have entered tax evasion guilty pleas in recent weeks.

Published statistics from the Justice Department show that approximately 150 grand jury investigations of offshore-banking clients have been initiated, of which 30 cases have been charged, with 24 guilty pleas having been entered, 2 convicted after trial, and 4 awaiting trial. Those who assisted clients with hiding assets are not immune to the law and many been indicted, charged, and await trial.  Further, the government is uncovering additional cases by investigating and prosecuting OVDI cases and holdouts.

All of the civil and criminal litigation publicity has not gone unnoticed by U.S. taxpayers with foreign bank accounts.  With Swiss bank secrecy gone, a voluntary initiative to “come clean” brought in close to 18,000 taxpayers in 18 months and hundreds of millions of dollars to the U.S. Treasury. The success of that initiative ending in February 2011 prompted the IRS to announce a second voluntary disclosure program that will end on August 31, 2011.

The voluntary disclosure programs combined with the Tax Division’s civil and criminal litigation efforts have given the IRS the opportunity to procure significant additional information about tax fraud and those that promote it. The government is aggressive and will only be increasing efforts to find those who believe they are above the law in tax matters.

For more information, contact Moskowitz, LLP.

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