Wednesday, June 12, 2013

Rubinstein on the State of Offshore Bank Account Compliance (6/12/13)

Asher Rubinstein, here, has posted an article titled, Offshore Update: The Door to Foreign Account Amnesty Can Close At Any Time, here.  Key points that interested me are:

1.  After naming certain Swiss banks in the IRS and DOJ cross-hairs, he says:(par. 3) that IRS may and presumably will "close the door" on U.S. depositors in those banks qualifying for OVDP.

2.  He says the following about Singapore banks becoming targets:
The inclusion of Singapore is significant because of the rise of Singapore as a major international financial center.  The flow of        funds from Switzerland to Singapore when Swiss banking secrecy evaporated was substantial.  According to one report, the amount on deposit in Singapore has grown more than fifty percent over the last five years, which is precisely the period of time since UBS was sued by the DOJ.  Although there have been suggestions that Singapore might be “the next Switzerland”, this is unlikely.  Singapore would not risk its financial reputation (depending on the report, either the fourth or fifth largest world financial center, after New York, London, Tokyo and Hong Kong) to be a harbor for non-compliant accounts.  Singapore makes a significant amount of money from legitimate international banking and would not jeopardize this by being “blacklisted” as an uncooperative tax haven, as it was a decade ago.  To this end, Singapore has recently announced that it is in talks with the US on a FATCA-type of agreement.  In addition, a new regulation requires Singapore banks to identify all accounts that may harbor the proceeds of tax evasion, and close them.  Failure to abide by this new law will result in criminal charges for the Singaporean bankers under Singapore law.
He later says:
Recently, the IRS and tax authorities in the UK and Australia agreed to exchange information regarding offshore trusts and corporations.  In its press release announcing this agreement, the IRS specifically noted that the three countries have already “acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands.  The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.”
He concludes:
           In light of the above, there can be no expectation or even hope of banking secrecy.  US taxpayers with undisclosed foreign assets have little choice but to voluntarily come into tax compliance, before the IRS comes to them. 
            Merely closing a foreign account is not an alternative, because DOJ and IRS never limit their investigations to only current accounts.  In the case of UBS, DOJ’s John Doe Summons sought banking records back to 2000.  In the case of Liechtensteinische Landesbank, DOJ requested records back to 2004.  In the case of Julius Baer, the investigation goes back to 2002.  In other words, closing an account today does nothing to remedy the non-compliant past, and DOJ and the IRS focus on past non-compliance.  In addition, a wire transfer or bank check from the foreign account to a US account (or account elsewhere) creates an easy trail back to the foreign account, and would also give rise to due diligence, “know your client” and source of funds inquiries by the recipient bank.  Using the non-compliant funds to buy real estate or other assets also creates a trail and does nothing to undo the non-compliant past, which will be the focus of the IRS investigation. 
             Moreover, the IRS has taken a particular interest in the transfer of funds from a non-compliant account as an attempt to continue to avoid or keep a step ahead of the IRS.  For instance, once UBS cooperated with the IRS, the IRS followed the flow of funds from UBS to banks such as Wegelin in Switzerland and Leumi in Israel.  Wegelin was criminally indicted for its acceptance of funds from UBS, and Leumi is under investigation for the same reason.  In fact, evidence of such transfers could be used by DOJ prosecutors in building a case that a taxpayer willfully evaded the IRS and, rather than bringing a foreign account into tax compliance, proactively took steps to continue the hiding of assets and income from the IRS.  Such facts would have profound consequences in a criminal tax fraud prosecution, settlement possibilities and punishment. 
            In most cases, the only viable path forward is to take advantage of the current IRS amnesty program and bring the foreign account into tax compliance.  The IRS 2012 Offshore Voluntary Disclosure Program remains open, although the IRS can end the program at any time.  Equally important, the IRS can announce at any time that US clients of a specific foreign bank or banks under investigation are no longer eligible to participate in the OVDP.  Thus, US taxpayers who still own foreign accounts that are not tax compliant must not take a “wait and see” attitude because it might be too late, as the door to amnesty – - and lower penalties – - could be abruptly closed.


  1. Jack, Mr.Rubinstein says that banks under investigation/summonses are transferring all account information to the US government. This would be a lot of information for quite a few banks. Do you expect account information to be shared for tiny minnows who probably barely met the FBAR requirements?

    If so, a civil audit remains an issue for minnows at banks under investigation, no matter how small the balance, liability or even if 3-year SOL has expired.

  2. I have posted before that the most recent request to Julius Baer involved only accounts held by domiciliary entities. I can infer from that, at least, that the U.S. is not asking for all the information. Moreover, it seems that under the new initiative to be authorized that the names will not be given but sufficient data will be given so that some of the U.S. customers can be identified with careful analysis of the data. I can infer that the U.S.will have some type of triage that will ignore the minnows. Those, however, are just inferences. And, of course, the U.S. could pick up a few minnows on a random basis to remind minnows that they may need to take corrective action as well. But, at the end of the day the true "tiny minnows" will probably win the audit lottery. That is not a go-forward strategy, which requires full compliance.

  3. Jack, I was referring more to the continued cooperation of banks such as UBS and HSBC India. Even though summons were served in 2009 and 2011 respectively, and some criminal indictments were made recently, you had a recent blog about continued cooperation of these banks.

    It would imply that after going for high-value clients, now all account holders, including tiny minnows, are under the scanner? Or the continued cooperation is for investigating the bankers?

    As for winning the "audit lottery" vs go-forward, I assume by winning the "audit lottery", you mean doing nothing about the future or past. But go-forward means full compliance (FBAR, taxes) for future? Hoping to win the audit lottery for banks under investigation seems wishful.

  4. I was disappointed to see so much scaremongering and suggestions that OVDP is the answer for "most" taxpayers and the general assumption that foreign accounts exist to "hide income from the IRS." Mr. Rubinstein seems to be repeating the same statements made by the IRS. I would have expected that by now he would have had sufficient contact with people whose behavior was not willful, to not make the assumption that most of those with foreign accounts must be willfully evading taxes. The latest TAS report certainly talks about good actors.

  5. Where are low income expats supposed to get the funds on zero tax owed but, forms not filed to get into this compliance. I cannot afford the fees asked by most preparers or those who can fill out these forms correctly! They are clear as mud to me. This is certainly a witch hunt. My foreign spouse is the primary on our accts and is refusing to give this private data to the United States. In fact I the lone American in our family make zero of the dollars in any of our accounts. Rock/Hard place. All of this emotional fear mongering and worry on zero tax owed? I'm for the first time in my life feeling very unkind towards the U.S. as my only option and even that isn't a clear way is to renounce. If you cannot afford fines, fees and don't know where to even begin in this mess and you owed nothing then why aren't they helping us? My local embassy has zero help to offer with any of this. Hung.Out.To.Dry.

  6. There's a lot of scaremongering not just on part of the IRS but lawyers/accountants drumming up business. From your description it seems that since you're not earning the money it's really your wife's so although you have signature authority you have no financial interest in the accounts. Renouncing would only stop future needs to comply, but would not eliminate past obligations. Taking your name off the accounts would also stop future need to comply, but would not eliminate past obligations.

  7. Well, I think just filing what I need to file and renouncing is my route because we can't keep up with this paperwork, the expense, the rule changes plus having my local checking account called "off shoring" is a bit much. Also, the press and fear mongering and including average ex pats in this off shore meme, criminal tax cheat's all a bit too much. I can't run to Toronto to find a competent international preparer every year. I'm getting older and could see a time when this all might be physically a challenge. Since I'd never owe them anything there's really no other answer but, to get out. Other nations send their citizens off and allow them out of their system then welcome them home should they ever return. They are interested in collecting tax rightfully where people live and work. The U.S. system is rather more bullying and punitive. I think they are exceedingly interested in fines since in high tax countries many ex pats wouldn't end up owing them actual taxes. Of course the U.S. press hasn't been entirely honest in how these issues affect the majority. They are too busy talking about FB owners and Tina Turner.

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