Monday, June 11, 2012

U.S. Targets Liechtenstein in Offshore Bank Tax Initiative (6/11/12)

A recent article discusses the U.S. focus on Liechtenstein banks.  Dylan Griffiths, Liechtenstein Informs Bank Clients of U.S. Tax-Evasion Request (BloombergBusinessWeek 6/10/12), here.  Here are a some excerpts:
Liechtenstein, an Alpine country of 36,000 people, has told American clients of the principality’s oldest bank that U.S. authorities have requested their account data as they widen a tax-evasion probe. 
Accounts at Liechtensteinische Landesbank AG (LLB) that contained at least $500,000 at any time since the beginning of 2004 are covered by the information request, according to a May 30 letter sent to a client by the principality’s tax authority. Liechtenstein facilitated the so-called group request from the U.S. by amending a tax law in March. 
 * * * * 
“The ruling to extend the period of applicability back to the tax year 2001 in the administrative assistance law with the U.S. is limited to 12 months from the date it comes into force,” said Sele. It “is closely linked to the ongoing U.S. offshore voluntary disclosure program."
* * * * 
In the Liechtenstein group request, U.S. authorities are also targeting lawyers, accountants, financial advisers, asset managers and those responsible for professional “asset protection,” who “conspired with a U.S. taxpayer to commit U.S. crimes or provided assistance,” according to the letter.
The requests are related to Liechtensteinische Landesbank ("LLB"), whose Swiss office is one of the target banks in the Swiss initiative.

Asher Rubinstein has a release discussing this developments.  Here are some excerpts:
Liechtenstein was once the vanguard of offshore banking secrecy, and it was said that Swiss bankers kept their own money in Liechtenstein.  * * * * 
 LLB account holders have an opportunity to challenge the release of banking information in Liechtenstein courts until June 15th.   Owners of accounts at LLB have a very short window to apply for the OVDI.  In light of the ongoing erosion of foreign banking secrecy, the inability of foreign governments to withstand U.S. pressure and the willingness of former tax havens to cooperate with the IRS, U.S. taxpayers with non-compliant accounts, in Liechtenstein and anywhere else, should meet with qualified tax counsel immediately to discuss tax compliance.
See also Tax Blawg discussion here.


  1. Many, or most, countries do not allow ex post facto laws.  I really don't see how the rule of law can have any credibility in Liech. if they can pass a law in March 2012 to provide information from as back as 2001.

  2. @Anonymous  of 10:01 am:
    If Liechtenstein doesn't bend its rules ex-post facto wise, well then the IRS can buy the data from a disgruntled bank employee like the German tax authorities did. (In Germany it's illegal to buy stolen goods, but they did anyway.)

  3. I'd like to offer a few
    comments as to why this is a significant event in terms of IRS enforcement and
    DOJ prosecutions related to offshore accounts.


    The 2008
    Liechtenstein-USA tax treaty was itself significant, because until that point,
    Liechtenstein offered very strong banking secrecy laws.  However, in light
    of the events at that time - - DOJ success against UBS, erosion of Swiss
    banking secrecy laws, the OECD initiative against tax haven jurisdictions, the
    proliferation of tax information exchange agreements with many tax havens, and
    the theft of “secret” bank documents by an employee of Liechtenstein’s own LGT
    bank and sale to the German government  -
    - Liechtenstein saw the writing on the wall, so to speak, and realized that tax
    secrecy was a thing of the past and was no longer going to be tolerated by
    countries like the US, UK, Germany, etc.

    However, while Liechtenstein thereby agreed to tax information exchange and
    cooperation, Liechtenstein specifically did NOT agree to IRS "fishing
    expeditions", broad requests for information on a class of unknown
    taxpayers.  Under the 2008 treaty, Liechtenstein was only to provide
    information if asked about a specific, known taxpayer identified by
    name. In other words "we are investigating John Smith, who we believe
    has an account at Bank XYZ" - that was an allowable request that would
    give rise to cooperation and exchange of bank information.  "We want
    all records on all US taxpayers with accounts at Bank XYZ" - - that is
    "a fishing expedition" and would not give rise to cooperation and
    exchange of information under the treaty.


    What DOJ asked for on May 11
    was not a specific request for information about known, named taxpayers.
     It was a broad request for unnamed, unknown taxpayers.  And yet, the
    Liechtenstein Tax Administration is cooperating with this DOJ request.


    Liechtenstein is cooperating
    with this DOJ request because, under U.S. pressure, and without any publicity, on
    March 21, 2012, the Liechtenstein Parliament passed an internal law and quietly
    amended the 2008 treaty, the result of which is that “fishing expeditions” are
    now allowed.  I have heard from sources in Liechtenstein that the Crown
    Prince of Liechtenstein personally lobbied members of the Liechtenstein
    Parliament to pass the law.

    This is a game changer in terms of IRS/DOJ enforcement.  It means that
    broad requests will now give rise to governmental assistance.  It means
    that DOJ need not issue "John Doe" summonses, after court approval,
    as it did against UBS in 2008 and HSBC in 2011, but instead can ask for, and
    presumably get, banking records quickly (in Landesbank's case, one month),
    government-to-government.   If Liechtenstein, formerly one of the world's
    most secretive jurisdictions, can succumb to US pressure, it means that other
    countries will do so also.

  4. I believe in a case called Judy Chua vs the Minister of National Revenue the Supreme Court of Canada forced the renegotiation of the US Canada Tax Treaty due to certain ex-post facto clauses that the court ruled to be a violation of the person in question Judy Chua's charter rights. Chua's lawyer later became a justice at the Tax Court of Canada.

  5.  The Swiss Parliament made an unconstitutional ex post facto change
    in its bank secrecy laws in 2010, allowing Switzerland to divulge account information going back to 2002.  They did this to save themselves from indictment in the US.  Not even the Swiss honor
    their constitution when it comes to saving their own skin.

  6. I hate to sound so self centered, but could this be good news for minnows ? The IRS will likely want to stop wasting time on minnows (either on opt out or routine audits) and focus on VDs or audits from these accounts (likely whales, > 500K). 

  7. I come across an interesting blurb Canadian Liechtenstein tax issues:

    The mystery surrounding Canadian owners of offshore accounts in a secretive bank in Liechtenstein has deepened with the discovery by the Canada Revenue Agency that nearly half the names it was given are not the real owners of the accounts, iPolitics has learned. CRA’s probe has determined that 51 of the 106 names it received of account holders in the LGT Bank in the tax haven of Liechtenstein “were not the true beneficial owners for the account.” “With regards to the 51 cases that were not the true beneficial owners for the accounts, the CRA has determined, through audit actions, that they do not have any tax obligation in relation to the information obtained,” explained Philippe Brideau, spokesman for the Canada Revenue Agency. “However, the CRA has taken actions to determine the true beneficiaries and has taken audit actions to ensure compliance with the Income Tax Act.” Brideau said further details are protected under confidentiality provisions of the Income Tax Act.
    Me Again:

    I am going to surmise the real beneficial owners of these accounts aren't Canadian and in fact they are probably US residents. What is interesting is under the laws of Canada these nominees or enablers or free and clear as a matter of Canadian law. (There is no FBAR in Canada CRA must prove actually tax loss). Of the other Canadians out of the 105 four were fully compliant with the ITA and 22 were partially compliant. The others as CRA puts its are going to be subject to enforcement action.

  8. This seems to be a posting from the Isaac Brock Society Blog, here:

    I'll see if I can track down more information on it and perhaps do a posting.

    Thanks for the information!

    Jack Townsend

  9.  I think (don't have hard data) that the number of accounts in Liech. is much smaller than in Swit., maybe 1/10th as many as a very rough guess, so there wouldn't be that much of an additional burden on the IRS.


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