Tuesday, May 8, 2012

Swiss Bank Pictet Turns Over U.S. Client Data (5/8/12)

Swiss bank Pictet & Cie, here, is reportedly swept up in the milieu, although it was not one of the 11 banks previously in the IRS's cross-hairs.  See Swiss bank Pictet gave data to U.S. in tax probe (Reuters 5/6/12), here.  Pictet, of course, had U.S. clients all along, but had a much lower profile than other Swiss banks.  As reported in the article the particular accounts in issue were accounts transferred to Pictet from UBS after UBS was targeted by the IRS. According to the article, Pictet turned over the information to the IRS in November 2010 pursuant to a treaty request.  Pictet says it is not targeted by the IRS..

It is not clear whether Pictet disclosed U.S. customers than the two mentioned in the article.  There were others.

Pictet is the unidentified Swiss Bank A in the indictment of Messrs. Kerr, Quiel and Rusch, which I previously discussed in the blog entitled 2 Taxpayers and their U.S. Lawyer Indicted re Foreign Accounts (2/1/12), here.  I don't know if the disclosure of documents discussed in the article relates to any of those individuals or not.


  1. What I find interesting is that (a) Pictet is not on the list of banks under investigation and yet it revealed bank information, and (b) it gave the information a year and a half ago and this is being reported now. This means that there are more banks under scrutiny and subject to information requests from the US than has been publicly revealed. This is not a surprise, of course. To think that the IRS is only interested in 11 banks would be folly. I believe that many more banks are under the IRS/DOJ microscope, and more have been the subject of information requests, than what has been publicly revealed.

  2. Well, you have to remember that some 35k - 40k folks haves spilled the beans in the last three initiatives to date. Anywhere IRS sees a pattern, they have a likely target. Also, at the conclusion of the initiatives, IRS randomly sent out follow up surveys to some of the participants asking some 10 potentially incriminating questions about the financial institutions. I know this first hand cause I got one. I have yet to see my bank in the headlines though. It was not a Swiss bank.


  3. As I see it, this is a widening inquiry. Those who have the slightest doubt as to whether they have complied with the requirements of the law need to consult with an experienced white collar defense attorney post haste.

    As for those who are hesitant to assert the 5th amendment, I would commend the following to your reading:

    Scott Michel's article, entitled "Advising a Client with Secret Offshore Accounts - Current Filing and Reporting Problems", published in September 1999, in the Journal of Taxation (Available at: http://www.capdale.com/advising-a-client-with-secret-offshore-accounts-current-filing-and-reporting-problems) (Last Visited on 042512).

    Mr. Michel makes the following compelling point regarding the Fifth Amendment option:

    "Because of annual disclosure requirements, taxpayers engaged in ongoing concealment of foreign accounts are forced to "return to the scene of the crime" every year. This provokes a tricky set of issues for tax practitioners advising these clients, especially those already under IRS scrutiny. In such cases, lawyers must reconcile their professional responsibility to protect the client's interest with their legal and ethical obligations not to counsel, condone, or join in an unlawful cover up. Although there are no ideal answers, through the judicious and careful use of the taxpayer's Fifth Amendment privilege, the practitioner can recommend a course of action that complies with the tax and BSA reporting requirements, while disclosing the least amount of information that could damage the client."

    I would also like to draw attention to Scott Michel's more recent article, entitled "Criminal Tax Investigations and Current-Year Returns: New Thoughts on a Perennial Issue", published in December 2004, in Andrews Litigation Reporter (Available at: http://www.capdale.com/files/White%20Collar%20Crime%20Reporter.pdf) (Last Visited 042512).

    Further, I would like to commend Baird v. Koerner, 279 F 2d 623 (9th. Cir. 1960).

  4. Supplementing the subject of asserting the 5th amendment, I would like to offer a compelling article authored by Richard B. Stanley, entitled "CONFLICT BETWEEN THE INTERNAL REVENUE CODE AND THE FIFTH AMENDMENT PRIVILEGE", published in the Spring, 1986 Issue of the University of Baltimore Law Review (15 U. Balt. L. Rev. 527, 555-560), for your's and your readers consideration.

    Significantly, Mr. Stanley advances the following at p. 560:

    "Although a taxpayer may not be privileged from filing a return, the IRS may engulf the filing requirement within the fifth amendment's protection. [FN304] If a taxpayer is privileged from disclosing incriminating information and the IRS refuses to accept a return without the incriminating information, Marchetti indicates that the taxpayer is privileged from filing the entire return. [FN305] There is essentially no difference between the IRS requiring incriminating information before accepting a return and the situation in Marchetti. In Marchetti, the Court found that gamblers were privileged from paying tax because the government refused to accept payment without a return, and filing a wagering tax return incriminated the taxpayer. [FN306] The theory in Marchetti is relatively simple-the government cannot require self-incrimination as a condition of complying with nonincriminating requirements without equally subjecting both the nonincriminating and the incriminating disclosures to the fifth amendment's protection."

    (Citations omitted).

    Mr. Stanley also offers the following (at pp. 560-561) as to failing to pay the tax due:

    "Few situations arise that permit exercising the fifth amendment's privilege when failing to pay the tax due. Earning money from illegal activities does not make payment of federal income tax privileged. [FN307] Similarly, a legal obligation to make restitution or another form of repayment of illegal receipts does not prevent liability for income tax. [FN308]
    In Marchetti, the Court relied on two factors to hold that a taxpayer properly exercised the fifth amendment by failing to pay the wagering tax. First, Marchetti was privileged from filing a return because every *561 disclosure on the entire return required self-incrimination. [FN309] Second, the government rejected tax payments made without an accompanying wagering tax return. [FN310] Even if a taxpayer is privileged from filing an income tax return, [FN311] an attorney may make an ‘undisclosed taxpayer’ payment against an individual's tax liability. [FN312] The argument used by Marchetti thus is not available for a failure to pay income tax. If the IRS refuses to accept an undisclosed taxpayer payment, however, the taxpayer should be privileged from the act of making payment. [FN313] The taxpayer's liability does not change; only the act of making payment becomes privileged.
    A major question remaining is whether the undisclosed taxpayer system is sufficiently accessible to a taxpayer privileged from making most, if not all, of the specific disclosures required on a return so as to preclude a valid fifth amendment claim for failing to file a return or make a tax payment. A taxpayer who fails to file a return for fear of self-incrimination, also may fail to pay tax because he is unaware of a method to do so without incriminating himself. In any event, the government must obtain independent knowledge of a taxpayer's liability before the taxpayer needs to assert the privilege for failure to pay tax. [FN314]"

    (Citations omitted).

  5. The foregoing comments should further one's understanding of the contours of Fifth Amendment jurisprudence as it pertains to compliance with a variety of reporting requirements. Inasmuch as reporting requirements represent "testimonial statements", that is, statements of a witness that can be used against him/her, it stands to reason that the general duty/obligation to report is akin to the duty for a subpoenaed witness to show up. To be sure, such duty does not call for the automatic waiver of one's rights and privileges, including especially, but not limited to the 5th amendment. See Garner v. United State, 424 U.S. 648 (1976) (Fifth Amendment right applies in relation to tax returns and tax reporting requirements); Minnesota v. Murphy, 465 U.S. 420 (1984)(Fifth Amendment right applies in relation to reporting requirements imposed on probationers).

    The bottom line here is this: Long-standing Fifth Amendment jurisprudence and well-documented scholarly articles, including especially, but not limited to Mr. Stanley's foregoing article, fully support the position that an individual is justified declining to communicate any facts or opinions (expressly, implicitly, directly, indirectly or otherwise), even in the face of clear statutory requirements, if doing so could help a hypothetical prosecutor construct a link in a chain of evidence that could be used to convict him/her of any criminal offense or lead to the imposition of any other penal consequences including the forfeiture of his/her estate. See Heidt, Robert Prof., The Conjurer's Circle - The Fifth Amendment Privilege In Civil Cases, 91 Yale L.J. 1062 (1982).

  6. According to press reports, Pictet received an administrative request in 2010.

    This is likely related only to the Arizona case, and may not suggest a broader investigation of Pictet.

    (The fact that the government's April 27 filing in the Arizona case referred to Pictet by name may indicate that Pictet in fact is *not* under investigation.)

    Specifically, the government's April 27 filing appends Pictet account documentation (e.g., Form A, Power of Attorney) signed by Kerr, Quiel, and Rusch. The documents are Bates-stamped with the prefix "PICTET" (see ECF pages 43 to 46).

    If the US had submitted a broader administrative request for Pictet client data -- i.e., a request not limited solely to the Arizona defendants -- it is difficult to believe that this information would not have leaked, either from the Swiss government or from Pictet clients who would have received the notification required by Swiss due process law.

  7. 1. I agree with your inference that Pictet may not be under investigation.

    2. I think one can infer from the documents attached to the Government's Motion for application of the crime-fraud exception to the attorney-client privilege that documents the Government received from UBS identified Pictet as a bank that had funds belonging to Kerr and Quiel. Hence, the Government had very good evidence of tax fraud and the like and could name the specific individuals in a treaty request to the Swiss competent authority for Pictet documents. Keep in mind that the dispute between the U.S. and the Swiss government turns most significantly upon the fact that the U.S. does not know the names and hence cannot formulate a traditional treaty request. Moreover, the U.S. can only request by certain profile characteristics the type of U.S. person who it wants the banks -- UBS most particularly -- to sweep its files to identify and turn over the documents. With the specificity that the IRS could put in the request for Pictet documents, it was almost a no brainer that the documents would be turned over.

    3. I agree with your last inference (last paragraph).

    Thanks for your comments.

    Jack Townsend

  8. Jack,

    I would like to share a personal story with your readers about how the new rules are affecting innocent people, who are getting caught in the DOJ snare.

    For historic and personal reasons, I have maintained offshore bank accounts, reasons related to frequent travel, multiple currencies, etc. I have always disclosed those accounts on my US tax returns.

    I got a letter recently from a foreign bank saying that it would close my account unless I could provide "satisfactory evidence" of my compliance with US taxes. Now, I have always complied (I'm using my own name for this post, after all!), and the amounts in the accounts are over $10K but not substantial, and there haven't been many accounts.

    How do I comply with the "satisfactory evidence" standard from the perspective of the bank? They had no idea what that meant--they were just parroting something "official sounding." (I am not asking for an answer--just illustrating my point.) The bank officials have no intention of reading 400 pages of single-spaced regulations (nor have I for that matter), and I don't want to send our US tax return to show that we have complied, which, frankly, wouldn't make any sense to a foreign bank official anyway.

    Basically, the long and the short of it, is that the bank didn't want to deal with the US approach and its solution was to kick me out. I understand its "macro" point of view.

    I resolved the issue by calling the bank, changing my address to a local address and presenting a non-US passport. After talking with the various bank managers, I was able to solve the problem, but I doubt others would be as fortunate as my citizenship situation is a little unusual.

    I write here to suggest that there is a significant downside to hassling US citizens living abroad, and the new DOJ/Big Brother approach is, at a minimum, generating bewilderment and confusion, and, perhaps, at the other extreme, bad will and hostility.

    At this point, the DOJ/Treasury approach seems to have taken on a "Frankensteinian" life of its own, and, in my humble opinion, needs to be limited and curtailed.

    To be clear, it is my strong belief that US citizens living abroad, and those like me living in the US, need to comply with their US tax obligations, regardless of how onerous they are--that is a price for US citizenship. They need to report their offshore bank accounts going forward and for a certain number of years. But otherwise leave them alone. Silly enforcement makes for silly results. And fear of enforcement needs to be removed from the equation.



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