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Lifespan of Secret Offshore Accounts Dwindling

Yesterday, the U.S. Department of Justice announced a major guilty plea in line with their goal of curtailing the use of foreign bank accounts by Americans to conceal taxable assets.

Credit Suisse bank pleaded guilty to one count of conspiring to aid Americans evade taxes by hiding their wealth in undisclosed Credit Suisse accounts. The guilty plea underscores the vulnerability of parent banks and their subsidiaries, and indicates that all are subject to the United State’s prosecution efforts in this regard. Credit Suisse, as part of yesterday’s guilty plea, admitted to helping Americans conceal their wealth from the United States government, and will pay $2.6 Billion in fines and penalties to the Federal and New York State governments. The plea saves Credit Suisse from potentially losing its license to operate in the United States, a power Federal regulators may exercise over violator banks. The criminal charges were also prompted as a result of actions taken by the bank to impede the federal investigation, including failing to comply with investigators’ requests for employee interviews, delays in providing requested documents, and destruction of relevant e-mail communications. France’s largest bank, BNP, is expected to enter a similar guilty plea in the next few weeks.

Interestingly, the guilty plea entered into by Credit Suisse does not require the bank to provide names of its American account holders, an element receiving criticism by lawmakers wanting future compliance from the banking industry. However, a new law independent from this guilty plea that takes effect this summer likely renders this negotiating point moot, as Credit Suisse, and all banks, stand to lose significant investment income for failing to share such information with the United States.

The Foreign Account Tax Compliance Act of 2010 (FATCA) requires foreign banks, investment funds, and insurers to enter into information-sharing agreements with the Internal Revenue Service under which the institutions will turn over account and holder information for accounts with amounts greater than $50,000 held by U.S. citizens.

Failing to comply with these information-sharing requirements, which take effect July 1, 2014, results in a 30% withholding tax on the institution’s investment income. The institutions operating in countries that have failed to enter into such information-sharing agreements with the United States must comply and deal with the IRS directly, or face the same stiff penalty. This puts them in a difficult situation, since compliance with the IRS could violate the foreign country’s local privacy or state secrecy laws.

These guilty pleas and new law indicate an increased focus by the Internal Revenue Service to ensure Americans report all their taxable income, and eliminate any opportunities for concealing wealth and evading their tax liabilities.

For decades, the Internal Revenue Service has attempted to create information-sharing treaties with foreign companies to ensure U.S. citizen tax compliance. U.S. citizens who maintain foreign bank accounts without ever reporting income to the IRS and who rely on foreign countries’ bank secrecy laws to ensure the bank accounts will go undetected by the U.S. Government are now at risk of severe penalties and possible criminal charges once banks begin to release information pursuant to the new law.

Currently, the Internal Revenue Service offers an Offshore Voluntary Disclosure program, allowing eligible taxpayers who come forward to avoid criminal prosecution and severe penalties, but requires them to pay back taxes, some penalties and interest.

For more information on eligibility requirements for the IRS Offshore Voluntary Compliance Initiative, or other tax issues, contact us for a free consultation with an experienced Criminal Tax Attorney.

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