Saturday, August 6, 2011

Yet another plea deal for UBS Depositor (8/6/11)

Taxpayer: Michael Reiss
Bank : UBS AG; two other unidentified Swiss bank, but one is pseudonymed "Swiss Bank No. 1"
Swiss Enabler: Beda Singenberger (see blogs here)
Entities: Yes (sham foundation and apparently sham corporation)
Guilt: By Plea Agreement - False FBAR (1 count)
Maximum Incarceration Period: 5 years.
Admits: Other false FBARs and failure to file FBARs
Tax Loss: $400,000 (at least)
FBAR Penalty: $1,200,000 + (FBAR penalty; perhaps 50% of highest balance for one year).
Court: SD NY
Judge Accepting Plea: Henry B. Pitman, Magistrate Judge, USDC SDNY

The press release from USAO SDNY is here. I cut and paste below the relevant portions:

PREET BHARARA, the United States Attorney for the Southern District of New York, and CHARLES R. PINE, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation Division ("IRS-CID"),announced that MICHAEL REISS, a Princeton, New Jersey, doctor, professor, and medical researcher, pled guilty today to willfully failing to file Reports of Foreign Bank and Financial Accounts ("FBARs") with the IRS, regarding Swiss bank accounts that he maintained and controlled. REISS utilized the services of BEDA SINGENBERGER, a Swiss financial adviser who was charged in an Indictment returned in the Southern District of New York on July21, 2011. As part of his agreement resolving the criminal charges, REISS agreed to pay back taxes of at least $400,000, and to pay a civil penalty of over $1.2 million. REISS entered his guilty plea before U.S. Magistrate Judge HENRY B. PITMAN.

* * * *

According to the Information filed today in Manhattan federal court, the previously filed Singenberger Indictment, and statements made in connection with REISS's guilty plea: From 2000 until 2010, REISS was required to file an FBAR annually with the IRS for various accounts he held at Swiss banks. He was required to identify the financial institution with which his account was held, the type of account, the account number, and the maximum value of the account during the calendar year for which the FBAR was being filed. He failed to do so.

Specifically, starting 2000, REISS held an account at UBS AG in Switzerland ("UBS"). In 2002, REISS transferred the assets held in that account to another Swiss bank. Later, in September 2003, REISS, with the assistance of SINGENBERGER, opened an undeclared account at yet another Swiss bank ("Swiss Bank No. 1") in the name of a sham foundation, the Floranova Foundation. The foundation, of which REISS was the sole beneficiary, had previously been formed by SINGENBERGER under the laws of Liechtenstein. By opening the account at Swiss Bank No. 1 in the name of the Floranova Foundation, REISS was attempting to obscure his ownership of the assets in the account from the IRS. As of March 31, 2008, REISS's account at Swiss Bank No. 1 in the name of the Floranova Foundation account held assets valued at approximately $2.588 million.

In November 2008, REISS, again with SINGENBERGER’s assistance, opened another undeclared account at Swiss Bank No. 1. The account was opened in the name of Upside International Ltd., a corporation previously formed by SINGENBERGER under the laws of Hong Kong. The assets of REISS's account at Swiss Bank No. 1 in the name of the Floranova Foundation were then transferred shortly thereafter into REISS's Upside International Ltd. account.

For each of the calendar years from 2000 through 2007, REISS filed and caused to be filed with the IRS an FBAR. On each of these FBARs, REISS indicated that he had an interest in one or more bank or securities accounts at ABN AMRO Bank in the Netherlands, but he failed to disclose financial accounts at UBS and Swiss Bank No. 1, as well as an account at the Swiss branch of another bank that REISS held. For the calendar years 2008 and 2009, REISS did not file an FBAR with the IRS disclosing his signatory or other authority over his account at Swiss Bank No. 1. REISS's tax returns for the years 2000 through 2009 were similarly false in omitting the information about his Swiss bank accounts.


  1. This, the Greeley and the Swiss enabler indictments, all this week, are timed to incentivize taxpayers to consider the OVDI, which expires at the end of this month. I think we can expect to see more IRS prosecution and sentencing news as the deadline approaches.

    The Reiss case also involves the use of intermediary entities (Liechtenstein foundation and Hong Kong corporation), facts which seem to
    draw the attention of prosecutors, as it shows an added level of obscuring the true ownership of the foreign account. Of course, prosecutors are not only going after taxpayers who utilized intermediary entities. Non-compliant accounts in taxpayers' own names are also vulnerable to prosecution.

  2. Asher,

    According to my information (see the spreadsheet), of the almost 50 taxpayer indictments, all except possibly 3 have involved entities. The three are (and I can't be sure as to them that entities were not involved):

    Ahuja, Arvind
    Ginzburg, Anton
    Bhasin, Josephine

    And each of these involved very large amounts (well over $1,000,000 and, in one way or another, some really bad collateral facts.

    So, although not having entities is certainly not a pass on prosecution, I don't think DOJ Tax is evidencing the appetite for criminal prosecution of ordinary taxpayers who just had individually owned accounts in moderate amounts. I realize that could change (and would be loathe to guarantee that those moderate taxpayers will not be prosecuted), still with so many known and yet to be discovered big fish taxpayers who affirmatively gamed the system and create obscurity in the ownership path, I suspect that the pattern we have observed to date will be the pattern going forward.

    Having said all that, since I don't control prosecution decisions, I have to agree with your statement that Non-compliant accounts in taxpayers' own names are also vulnerable to prosecution." I would have to add to that that that vulnerability is in proportion to other bad facts.

    Thanks as always for your very good comments.

    Jack Townsend

  3. Jack, of the 50 taxpayer indictments, do you know how many are from the first batch of 250 names that UBS handed over?

    I've recently had a number of instances where, for OVDP clients, the IRS has disclosed that it received information "pursuant to the treaty" (which is stamped on the banking documents). This means that these clients were part of the next batch of names handed over by UBS, the 4500 names, and it was a good thing these clients came forward under the OVDP.

  4. Asher, you raise a good point as to how many of the 50 taxpayer indictments are in the batch of 250. I don't know the answer to that question, but I'll address something that came to mind when I saw the question.

    I think that the Swiss agreed to turn over the first 250 under the treaty and that first 250 probably all had entities involved. Indeed, I think the presence of entities perhaps alone or in conjunction with other factors (parameters) let the Swiss reach the conclusion that fraud was involved and thus disclosable under the Swiss narrow interpretation of the treaty.

    Assuming that the first 250 had entities (whether or not that was the precise reason for disclosure), then it might not be surprising that the overwhelming number of the prosecutions to date have entities because those names are the ones that the IRS has had the longest and, presumably, investigated the longest.

    Accordingly, it might not be wise to infer from that the absence of an entity alone that, when DOJ Tax gets around to other foreign account holders who did not get into OVDP or OVDI or otherwise make a recognized voluntary disclousure, it might not prosecute direct account holders. Again, if it does go to that subset, given the fact that it will have many to chose from, I would expect that DOJ Tax would choose the more egregious (rather than the less egregious). Accordingly high tax loss and account deposits will likely be required and the presence of other indications of skullduggery will likely be required.

    Jack Townsend

  5. Remembering back to the drama prior to the disclosures of UBS' American depositors:

    While the DOJ was threatening UBS, the Swiss government played a "diplomacy" card: we will "nationalize" the data (American's names) so it is out of the banks' records and into ours. This way if the DOJ/IRS wants the info it has to ask us, the bank no longer has the data.

    At this point Obama and the US State Dept stepped in because the DOJ/IRS has no jurisdiction in Switzerland, and not even the Swiss government can get info from Swiss banks, on their own tax cheats. Unless you are dictator and absconded with a country's funds, i.e. a political situation, there is not much of a valid reason to break bank secrecy.

    So it became a political situation with Obama, Clinton, etc. At that point a "treaty" started being negotiated.

    I think the arguments went as follows:
    -- UBS was doing business on US soil, so it has to comply with US laws.

    -- Yes, but UBS bankers are Swiss citizens, following Swiss banking laws. The money is in Switzerland, and is subject to Swiss laws (and culture). But extension, so is the data on depositors, no matter what country they are from.

    At this point it was no longer a legal fight, but a political/diplomatic fight. Legally, the DOJ won, but politically, the Swiss won. And politics usually trumps laws, even in the US. After all it is politicians who wrote the tax laws (and can also erase them).

    At this point, the Swiss decided to parlay this political strength into a treaty, not with the DOJ, but with Obama and the State Dept. They knew they could not stay aloof forever because they would be ostracized.

    The treaty went something like this:
    We realize that the American depositors owe US taxes. Even though it is their obligation to report, not the banks.

    (Swiss lecture: Since when is a bank required to report information to anyone? Can you imagine a government law requiring attorneys to make annual reports to the DOJ on the crimes of their clients? Or doctors required to report on patients with illegal drugs in their bodies?

    Attorney-client and doctor-patient is considered privileged information, in most developed countries. In some countries, with (a tradition of) bank secrecy laws, banker-depositor information is also considered privileged information.)

    With this background, we would like to help you with your tax-collection problem. We'll give you some names so you can scare the others into complying, however because we are of a superior culture, we will lecture you and you must follow our dictates (if you want the information, and money).

    Our depositors are to be treated leniently (as far as "crimes" are concerned. Since this is a tax issue (it is only money), you may fine them (and fine them big because they are millionaires), and collect your tax. However they are not to be jailed.

    This, I speculate, is the understanding behind the "treaty". This was a private exchange between the State departments, and not put in writing, but implicit. The names were released by the Swiss embassy, not by UBS.

    So it is interesting that the info coming from the Swiss has "treaty" stamped on the paperwork. Perhaps the DOJ was told of some special treatment that is required because they were UBS depositors, and the info was released by the Swiss govt.

  6. M, I am curious why you think that the Swiss would advance a position as to sentencing of US depositors by US courts (i.e., fines and not jail). Wouldn't this be a US internal judicial matter? There were various details and points to negotiate - why would US sentencing be important enough to the Swiss as yet another point of contention?

  7. Some speculations:

    -- Europeans have their own standards of justice and try to impose it on the rest of the world (particularly their former colonies). Americans try to do so too, but the Europeans have more colonies, and have been at it for longer, and are better at it, including the art of diplomacy.

    -- Americans are occasionally seen as barbaric as to how they mete out justice. For example the death penalty. It is outlawed in the EU and countries will not extradite in such cases, without guarantees. Another example is mentally ill criminals. They are confined to mental hospitals, not jailed.

    -- Europeans also see through politically (or public service) motivated prosecutions: for publicity, or to make an example of the defendant, i.e. a "public hanging". Or plea bargaining, adversarial system, they don't get it.

    -- Americans authorities don't react well when challenged, or snubbed.

    Recent examples are Polanski and Bobby Fisher. Both were granted "asylum" by European countries, where courts/parliaments did not agree with the American prosecutions.

    As regards the tax case, I don't know that much about the Swiss, but from what I read and from the European culture I know:
    -- The Swiss (and most tax havens) take a personal interest (and form a personal relationship with you). It is similar to the relationship with an employee, servant, and business partner. I found amazing what some of those private bankers did. Deliver $100,000 and a untraceable cell phone, move funds to better hidden accounts without you asking them, etc. Remarkably, one banker was advising a deceased depositor's children how to hide money ("like your father did, and would have wanted you to"). This might be out of a mafia movie.

    -- Part of it is economic, they get paid with the money, and if something happens to you, they won't get paid. But part of it is personal. They wish for your success, safety, family, etc.

    -- It also may be an exclusive, wealthy mentality. "We are all wealthy and hunted by tax agencies (and all thieves) and must all work together and help each other to survive and keep our wealth."

    -- They do not see the US as a "jurisdiction". Their entire world is their jurisdiction. Everyone wealthy banks with the Swiss: Arabs, Russians, Chinese, as well as Europeans and Americans.

    -- Most offshore services provide not just banking, (and identity masking) but also relocation and residencies. The wealthy do not see borders as obstacles.

    The Swiss are a combination of these cultures, plus take a lot of pride in their neutrality, history, etc.

  8. (cont.)
    Given that the Americans came to them (and were also apparently solicited) with money, and the Swiss provided a paid service, it would be natural that they would be concerned for their welfare as well. Perhaps it is how I was raised, but I would too. If 50 wealthy professionals entrusted their life savings to me, I would probably act just like the Swiss bankers did: deliver cash, security, and advise their children, in order to continue this culture.

    Most good asset managers and investment advisers act in the same way (I would hope). Now if you take this to the national (Swiss) level.

    From Wikipedia:
    In 2003, the financial sector comprised an estimated 11.6% of Switzerland's GDP and employed approximately 196,000 people (136,000 of whom work in the banking sector); this represents about 5.6% of the total Swiss workforce.

    Swiss neutrality and national sovereignty, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World Wars, is not a member of the European Union, and was not even a member of the United Nations until 2002.

    Currently an estimated 28 percent of all funds held outside the country of origin (sometimes called "offshore" funds) are kept in Switzerland.

    And they want to keep it this way. If their depositors end up jailed, what message does that send to their other depositors?

    Furthermore, how many members of the Swiss parliament worked for, or have family in this banking culture? I would venture many. How many have Swiss bank accounts? All of them.

    So part of it is identification with the American depositors as compatriots of sorts. So if they have the power of negotiation, which they did (and still do, at least over other cases), they would use it to help their compatriots out of jam, the best way they could.

    Keep in mind also that it was the American depositors who first "delivered" their own Swiss bankers to the IRS/DOJ, blaming them for everything. That started the investigation and the indictments of the Swiss bankers as "enablers."

    This is likely why the Swiss gave the names to begin with. "If our own depositors don't know to keep their mouths shut, why should we? If they don't respect banking privacy, let them learn the consequences the hard way."

    But even after all this, they have to be treated according to our standards, and our standards are that these are not crimes, but economic errors, and should be rectified economically, and only economically

  9. Can i ask you a question. I'm a temporary immigrant here and don't want to do OVDI. giving away 25% of my hard earned savings (around 30K USD) just because of honest ignorance is hard to digest. This is US taxed money and the tax on the interest income is total $2500.
    I'm thinking that if ever I get a audit letter, I'll leave the country for good. If audit doesn't come, I'll stay till my visa expires and leave. Question is, if there is an audit, will I be still able to leave the country or will I be stopped at the airport?

  10. "Question is, if there is an audit, will I be still able to leave the country or will I be stopped at the airport?"

    The IRS has a "Departing Alien Clearance" form that you (technically) need to obtain before you can leave the US:,,id=97256,00.html

    Up to now it's hardly been enforced, if ever. The same could have been said about FBAR a few years ago though, but that's all in the past now. The US govt has an increasingly desperate need for (other people's) money and a politically motivated inclination to extract it from groups with low to no representation in the US. This suggests that they may think about more rigorous enforcement of this requirement in future.

  11. Anon --- I don't understand what you mean when you say you're a temporary immigrant here, since by definition an immigrant is not temporary. I think it would be almost impossible for the IRS to stop someone from leaving on receiving an audit letter, both procedurally and legally.

    But if you don't think it would impact your personal, professional or financial situation to leave the country for good on receiving an audit letter, then you can consider doing that, although you should talk to a tax pro to help decide what to do.


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