Update on IRS Offshore Initiatives: Investigations and agreements with financial institutions worldwide

In our last post, we noted that the U.S. government goes to great lengths to identify and prosecute noncompliant taxpayers, as well as promoters and financial institutions who assist U.S. taxpayers avoid their tax obligations by hiding their offshore income and assets.

Some recent plea agreements with large financial institutions worldwide demonstrate the results of the U.S. government’s efforts to identify noncompliant taxpayers and tighten the reigns on offshore tax evasion:

  • 2014 – Bank Leumi, Israel. Following 10 years of assisting U.S. taxpayers hide offshore assets through methods such as secret meetings, nominee corporate entities, assumed names, numbered accounts, and opening new accounts for taxpayers under investigation during and after the UBS tax evasion scandal, Israel’s Bank Leumi Group and some of its subsidiary banks entered into a deferred prosecution agreement with the U.S. Department of Justice, agreeing to pay $270 million (a figure that includes a $157 million penalty) and to make a full disclosure of its U.S. taxpayer-held accounts. Bank Leumi Luxemberg and Leumi Private Bank also agreed to cease private banking and investment services to
    U.S. taxpayers.
  • 2015 – Finacor, Switzerland. For decades, the Swiss asset management firm Finacor assisted U.S. clients to maintain assets and income in its asset management accounts and fiduciary accounts held at custodial banks in Switzerland (primarily at UBS). Finacor concealed the identity of its U.S. clients through its fiduciary account services, sent checks to the U.S. only in amounts less than $10,000 to avoid reporting requirements, held mail for U.S. clients, used code words for money transfers, and took other actions that undermined its qualified intermediary (QI) agreement with the IRS. As part of its non-prosecution agreement with the DOJ, Finacor agreed to pay a penalty of $295,000, make a complete disclosure of its cross-border activities, cooperate in requests for account information per the terms of mutual assistance treaties, provide information on U.S. taxpayer accounts, and close the accounts of clients who fail to come into compliance with their U.S. reporting obligations.
  • 2016 – Cayman National Securities Ltd. and Cayman National Trust Co. Ltd., Cayman Islands. Cayman National Securities Ltd. (CNS) and Cayman National Trust Co. Ltd. (CNT) helped its U.S. taxpayer clients hide approximately $137 million from the IRS and evade paying income taxes by setting up (or instructing them to set up) sham Caymanian companies and trusts, treating those sham companies and trusts as account holders, allowing U.S. owners to trade in U.S. securities through those accounts, and failing to disclose their clients’ identities to the IRS in contravention to their QI agreements (even after the UBS scandal). CNS and CNT plea agreements included an agreement to pay $6 million in restitution and fines and produce U.S. taxpayer account files, among other things.
  • 2017 – Prime Partners, Switzerland. The Swiss asset management firm spent years helping U.S. taxpayer-clients conceal their foreign assets through sham entities, using prepaid debit cards to funnel money from its client’s undeclared accounts, facilitating cash transfers with undeclared accounts, and advising clients not to retain their account statements or faxes and to call its offices from pay phones. This past year, however, Prime Partners was acknowledged for its “extraordinary cooperation” by voluntary producing approximately 175 files of noncompliant U.S. taxpayers, and agreeing to pay $5 million in forfeiture and restitution.

In addition, more than 30 bankers and financial advisors have been indicted for participating in these and other tax schemes. If you have been hiding assets overseas or have been otherwise involved directly or indirectly in U.S. tax evasion, contact the skilled tax compliance and litigation attorneys at Moskowitz, LLP today.

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