DOJ Tax Budget Request - The Criminal Parts #5 - Combatting Offshore Tax Schemes

More on the DOJ Tax Budget Request

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Combating Offshore Tax Schemes

The Tax Division continues to play a lead role in investigations and prosecutions involving the use of foreign tax havens. Increased technical sophistication of financial instruments and the widespread use of the internet have made it easy to instantly move money in and out of the United States, around the world, irrespective of national borders. Using tax havens facilitates evasion of U.S. taxes and the commission of related financial crimes.

Offshore tax schemes are often difficult to detect and prosecute, so the IRS has allocated resources to target taxpayers who engage in offshore activity for the purpose of underreporting income. Income tax evaders and other criminals use banks located in countries that have strict bank secrecy laws and that will not, or cannot, provide assistance to investigators for the United States. Sophisticated criminals may also use non-traditional tax haven countries, such as Latvia. Despite these difficulties, the Division has been successful in prosecuting these tax cheats.

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In February 2009, in United States v. UBS AG (S.D. Fla.), UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement, admitting guilt on charges of conspiring to defraud the United States by impeding the IRS. As part of the agreement, UBS, based on an order by the Swiss Financial Markets Supervisory Authority, agreed to immediately provide the United States with the identities of, and account information for, certain United States customers of UBS’s cross-border business. Under the agreement, UBS also will expeditiously exit the business of providing banking services to United States customers with undeclared accounts and will pay $780 million in fines, penalties, interest, and restitution.

The Division has also obtained the return of indictments and convictions of individuals associated with offshore schemes. For example, in August, 2009, in United States v. Bradley Birkenfeld, et. al., (S.D. Fla.), Birkenfeld, a former UBS banker, was sentenced to 40 months in prison following his June 2008 guilty plea to conspiring with an American billionaire real estate developer, Swiss bankers, and his co-defendant, Mario Staggl, to help the developer evade paying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein. In his plea Birkenfeld admitted that between 2001 and 2006, while employed as a director in the private banking division of Swiss bank UBS, he routinely traveled to and had contacts within the United States to help wealthy Americans conceal their ownership in assets held offshore and evade paying taxes on the income generated from those assets. In November, 2008, in United States v. Raoul Weil (S.D. Fla.), an indictment was returned charging Weil with conspiracy to defraud the United States and the IRS. Weil was allegedly the senior UBS executive in charge of the wealth management business and private banking, who supervised unlawful cross-border activities carried out by bankers and their managers that helped wealthy Americans conceal their income and assets from the IRS. In January 2009, the District Court declared Weil to be a fugitive.

The Division has begun the prosecution of UBS clients, using information obtained through the deferred prosecution agreement. For example, in June 2009, in United States v. Steven M. Rubinstein (S.D. Fla.), Rubinstein, an accountant for an international company, pleaded guilty to filing a false tax return for 2004 that failed to report he had a financial account at UBS in Switzerland and failed to report the income he earned on the accounts. In April 2009, in United States v. Robert Moran (S.D. Fla.), Moran pleaded guilty to filing a false income tax return. Moran concealed more than $3 million in assets in a secret bank account at UBS. In July 2009, in United States v. Jeffrey P. Chernick (S.D. Fla.), Chernick, another UBS client from Stanfordville, N.Y., pleaded guilty to charges of filing a false tax return.

The prosecution of UBS clients has included cases all over the country. In August 2009, in United States v. John McCarthy (C.D. Cali.), McCarthy, a UBS client, agreed to plead guilty to one count of wilfully failing to file a Foreign Bank and Financial Accounts report (FBAR). In September 2009, in United States v. Jorgen Homann, (D.N.J.) Jorgen Homann, of Saddle River, New Jersey, pleaded guilty to failure to file a Report of Foreign Bank or Financial Accounts. Homann accepted responsibility for concealing more than $5 million in Swiss bank accounts. On October 5, 2009, in United States v. Roberto Cittadini, (W.D. Wash.) Roberto Cittadini, of Bellevue, Washington, pleaded guilty to one count of filing a false tax return. Cittadini concealed nearly $2 million in Swiss bank accounts.