Wednesday, April 30, 2014

Another Credit Swiss Related Bank Enabler Pleads Guilty (4/30/14)

DOJ issued this press release, here, titled:  Swiss Offshore Tax Evasion Enabler Pleads Guilty.   The enabler is Josef Dörig.  The plea is to one conspiracy count, with a maximum incarceration period of 5 years.

Dorig was indicted by superseding indictment in July 2011.  See Criminal Charges for More Swiss Bank Enablers (Federal Tax Crimes Blog 7/21/11), here.  One of his co-conspirators, Andreas Bachmann, pled guilty in March 2014.  See Credit Suisse Banker Pleads Guilty to Tax Conspiracy (Federal Tax Crimes Blog 3/12/14; 3/13/14), here.  (The latter blog names others indicted at the same time in addition to Dorig and Bachmann: Markus Walder, Marco Parenti Adami, Susanne D. Ruegg Meier, Roger Schaerer, Emanuel Agustoni, and Michele Bergantino; Schaerer is the Credit Suisse officer mentioned prominently in the NY probe of tax shelters, see NY State Agency Makes New Moves in Investigation of Credit Suisse (Federal Tax Crimes Blog 4/17/14), here.

Here are the key excerpts (emphasis supplied by JAT):
In a statement of facts filed with the plea agreement, Dörig admitted that between 1997 and 2011, while owning and operating a trust company, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret bank accounts held in the names of sham entities at a financial institution referred to in the superseding indictment as International Bank (IB), one of the biggest banks in Switzerland and one of the largest wealth managers in the world
 According to the statement of facts, from 1972 to 1996, Dörig worked for a subsidiary of IB.  The subsidiary formed, managed and maintained nominee tax haven entities.  Individuals concealed their assets by holding their accounts at IB in the names of these tax haven entities.  During this time, the subsidiary managed and maintained over 100 sham entities for U.S. taxpayers committing tax evasion. 
 Also included in the statement of facts, in 1997, executives at the subsidiary devised a plan to spin off all of these sham entities into a new trust company, Dörig Partner AG, to be owned and operated by Dörig, who was then an employee of the subsidiary.  Dörig was required to make his best efforts to keep the existing accounts at IB open and to ensure that any clients referred to him by IB would open new accounts at that institution.  
 According to the statement of facts, IB promoted Dörig Partner as a provider of various entity structures.  The phone list used in IB’s New York representative office identified Dörig Partner as an external trust expert.  Dörig Partner also sublet space from IB in an office tower where a private bank owned by IB was the major tenant.  
 As part of the conspiracy, Dörig traveled to the United States to introduce himself to new clients he had obtained as part of the spin-off.  In the following years, he traveled to the United States with bankers from IB, including his co-defendants Markus Walder, Marco Parenti-Adami and Michele Bergantino, to meet with existing and prospective clients who already had undeclared accounts at IB but had been identified by the IB’s bankers as potential candidates for the use of a structure. 
 According to the statement of facts, although Dörig ostensibly controlled both the structure and the account at IB, in practice, many of the U.S. taxpayers with undeclared accounts controlled the assets in those accounts by dealing directly with IB bankers, often without either the knowledge or consent of Dörig. 
 According to the statement of facts, in 2008, IB ordered Dörig Partner to close accounts for the structures they managed.  Dörig turned to an asset manager at a financial services firm in Zurich for assistance.  The financial services firm maintained a master account in its own name at a private bank in Gibraltar, and then opened sub-accounts for Dörig’s clients at that bank to which Dörig transferred the funds from the clients’ undeclared accounts at IB.  The financial services firm provided the Gibraltar bank only with the number associated with each sub-account and did not inform the bank of any information regarding the owners of the assets in the sub-accounts. 
I assume that IB is Credit Suisse.


  1. NeedDirection,

    You make it sound so easy, but in reality it is not. IRS audits are administrative processes that take a lot of steps and a significant commitment of resources other than just firing off a letter to get the taxpayer to come in and report the taxes he or she owes. The resource commitment for audits is significant, and that commitment is not alleviated simply because the IRS may have some of the information (e.g., from the offshore banks).

    So, let's say hypothetically, that from the latest initiative, on or before 12/31/14, the Swiss banks turn over 100,000 names of U.S. taxpayers. Can the IRS audit all of them. I doubt it, without pulling resources from other legitimate administrative uses, including other offshore account initiatives.

    Indeed, as with all areas of noncompliance, I would suspect that the IRS will do a triage so as to best manage its use of resources for maximum effect.

    But, then, I am not in charge of the IRS and I really do not know what it will do. I can say, however, that I think it would be imprudent for any U.S. taxpayers to assume that they are too small of fishes for the IRS to fry. So other than to be aware of the limitations on the IRS's resources and need to marshal them for maximum impact, I think it would be imprudent for any taxpayer to rely upon some speculated low audit exposure.

    Rather, the analysis I recommend to clients is to best assess the risks if they were audited. Then, if they conclude that they are at no criminal penalty risk and limited civil penalty risk (i.e., not willful and a good narrative), then several options are available -- OVDI with opt out, QD with risk of audit, and GF with risk of audit.

    Jack Townsend

  2. With the wilfulness standards decided in Mcbride and Williams, can anyone really be comfortable that they "are not willful" or have a "good narrative"? Pehaps a few outliers who held unusual accounts (gambling accounts, life insurance with cash option, some kind of prepaid credit card) may be comfortable. Maybe I am exaggerating, but it would seem there is a recklessness standard that need only be proven by a preponderance of the evidence and a rebuttable presumption that answering Schedule B imputes knowledge of FBAR to a taxpayer. Perhaps those would be applied only in the egregious cases where the IRS/DOJ want to make a point, but it seems quite risky, nevertheless, unless one is a superminnow with so few assets that it wouldn't matter.

  3. gottaloveUStax,

    Thanks for your comment. It is very good.

    I do think it is important to review the facts of those cases. I realize that, in the law, a broad statement made in an egregious case can bleed over to applicability to less egregious cases. But, I think that if the IRS and DOJ start doing that, they end up getting courts to rethink the statements made in Williams and McBride and end up damaging their positions for the egregious cases.

    I don't think the IRS and DOJ will be out to push the envelope beyond those cases that are really egregious.

    Having said that, I have one case where the IRS and DOJ did do that, but, as they say, the fat lady has not sung in that case yet.

    Jack Townsend

  4. Jack,

    I guess that then raises the question of what the IRS considers egregious. It would seem to me that many caught in this FBAR nightmare who don't want to give up 27.5% of their assets have a choice : play the audit lottery and/or play the "hope the IRS is reasonable" lottery. Going for a QD/GF disclosure means you play the audit lottery and (if audited), play the "hope the IRS is reasonable" lottery as well. Joining the OVDP with an intention of opting out means you are only playing the latter. But the problem remains that there doesn't seem to be much guidance as to when the IRS will be reasonable/what the IRS considers egregious. How do they weight relevant factors such as the extent of the wilfulness, the number of accounts, the size of the account, the amount of under-reported income, the amount of delinquent tax, whether aggressive pursuit of the person in question would encourage compliance and so on. Is the presence/absence of any particular factor particularly harmful/helpful? Is the IRS more reasonable with long-term expats or recent immigrants? There are quite a few articles about the definition of wilfulness, but there are none (that I can find) about the factors the IRS considers egregious. I know that you (and other lawyers) all have duties to clients (both past and current), and I know that this is a nuanced area, but, still, it would be helpful if someone could collate experience across practitioners in this area and write that article

  5. Oh, how I and thousands of others would like such information to be available.
    Unfortunately from what I've read and from speaking to OVDI lawyers, 1) optouts have been few, at lleast handled by lawyers (there may be many more pro se) 2) optouts take a long time so many are still in process and it's too early to tell how they will turn out and 3) the process is subjective depending on the agent, so much seems to depend on the luck of the draw.

  6. gottaloveUStax

    You said it so well. Putting it differently isn't the difference between "definite audit" (OVDP) versus "audit lottery" (QD/GF)? In both cases, we play the "hope the IRS is reasonable" lottery but it is unclear whether results would be different.

  7. Jack, Like gottaloveUStax wondered, any possibility of collating experience across practitioners in this area and write a article?

    It would be tremendously useful for readers of this blog and others. Tax professionals I have spoken with have experience with 4-10 opt-out cases generally . So there is not a lot of data out there. So collation would greatly help.

  8. NeedDirection,

    I agree that it would be useful to build a database of users' experiences. I suggested that to a group once. The thought was to take all the "unpublic" resolutions of cases and build a database that could then be used for a lot of purposes, including better "guesses" in other cases where guesses is all we have.

    Unfortunately, the group as a group did not respond. The problem, I think, is that it would require work on the attorneys parts to distill the key features of any particular resolution so that they would be meaningful and then client permission to even share that data would likely be required. My experience is that most clients are unwilling to permit sharing without absolute assurance that no one -- including the IRS -- can work back to them ( or their lawyer) as the source of the information.

    So, I think that getting significant feedback in a meaningful way from practitioners is very difficult.

    Undoubtedly, the IRS has that information and, I suspect, a database of the key features of resolutions that permit it to derive key information to make sure that, in broad strokes, the IRS is applying the penalties somewhat uniformly. I don't know that, but I would be surprised if the IRS does not do that.

    Perhaps a FOIA request would blast that information out. Or, perhaps, in its good graces, the IRS would release it so that the black box nature of the FBAR audit (whether by OVDI/P opt out, by QD or by GF) could be mitigated.

    Jack Townsend

  9. NeedDirection,

    Yes. Succinctly summarized.

    Jack Townsend


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