Tuesday, May 27, 2014

DOJ Tax AAG Kathy Keneally is Leaving DOJ Tax (5/27/14)

The DOJ Press release is here.

Kathy has been a dedicated public servant.  Some of her accomplishments are set forth in the press release, but I am also sure that she has touched and benefited the Tax Division in many other ways, large and small.

Readers of this blog will recognize Kathy, during her AAG tenure, as the public face of DOJ Tax in various initiatives, including most prominently the offshore account initiatives.

My best wishes to Kathy.

The press release indicates that she will return to her home in New York.  I expect that she will return to private practice and serve clients with the same professionalism she exhibited in private practice and as AAG.


  1. Jack, I think it should be taken as written that the era of Swiss bank secrecy (at least vis a vis any of the major western economies) is dying. I also think it is a bit unfair to dismiss the difficulties US citizens (especially, Americans abroad) are experiencing because of the proposed FATCA rules. You are correct in that eventually, once FATCA is implemented and widely accepted and the costs are sunk, banks in Switzerland and elsewhere will slowly start offering services to US citizens again. The same can be said for the recent offshore initiatives: once knowledge of FBARs, form 8938s and general requirements regarding offshore accounts and the rules regarding taxation of offshore assets become more widely known, there will be fewer people caught in the net. Having said that, it is the transition period that is most difficult, whether, for example, it be for US citizens who cannot open certain types of bank accounts or immigrants/other "minnows" caught in the FBAR nightmare. The fact that it will most likely be transitional doesn't make it any easier for those people.

  2. Good read. Thanks for posting. In many tax cases, it's hard to find evidence for willfull blindness that any innocent taxpayers who did not earlier disclose their foreign income &/or assets, had any advice, brochures, pamphlets, news dissemination, specific counsel to disclose a 3520, file an FBAR, a PFIC form, check the box at the bottom of schedule B, or any other arcane & abstruse tax forms with their regular tax returns. Burden of proof is on the IRS to show that taxpayers (defendants) had any evidence that NOT filing something is a crime, versus the mail fraud (which Mr. Tai may have possible known was a crime). With the irs, the mens rea is just the opposite, proving that the taxpayers did NOT do something with the intention or knowledge that not doing so, is a crime. Isn't that MUCH harder to prove for the IRS, prosecution, and much more opaque for the jury, no matter HOW defined the instruction to the jury, regarldess of the the burden being on the goventment for culpability?

  3. Mr. Madhani,

    I have appreciated your comments. I will try to respond to this one, but I have to say that I am not sure I understand everything in this comment. I therefore will respond to the parts that I think I understand.

    You say: "Therefore, with all these people who are in the OVDI, they are FAR from criminal." The design of the OVDI/P is to benefit the persons whose profiles would permit criminal prosecution and conviction. They get a pass from prosecution and a mitigated miscellaneous penalty rather than potentially one or more willful 50% penalties.

    I am not sure you differentiate between the civil and criminal cases for failing to file an FBAR. The criminal case has to be proved beyond a reasonable doubt and requires that the Government prove that the defendant knew of the FBAR filing requirement and choose to violate that law. Proof that would indicate willful blindness can assist the Government in meeting that burden, but does so only in the context of all the facts. The civil case has the same issues except that the burden of proof is by a preponderance of the evidence (although I think it should be clear and convincing). Obviously, as should be the case, it is easier for the Government to meet that burden because of the lesser proof standard.

    Other than that, I don't know how to respond further in a way that might be meaningful.

    Thanks again.

    Jack Townsend

  4. Jack, it is not anecdotal.

    Here are some facts:

    1. The majority of the banks that are Category 2 banks closed all US accounts in 2009. The Category 1 banks are the ones that acceptable clients from the Category 2 banks after mid-2009. The categories and fines released by the USDOJ speak to this truth.

    2. All accounts for -all- US domiciled persons were closed by 2011. This was it for US domiciled clients. Done.

    3, There are 2 or 3 banks that offer FATCA compliant accounts to US persons, BUT only as a safe keeping securities accounts. Meaning, you are entering the bank as an investment account with an external adviser and you deal with the external adviser and you have no contact with the bank.

    4. All US persons (regardless if they are in or outside USA) are denied traditional private bank accounts. I know of 1 bank that will take US persons that hold a second passport if you: a) deposit $1M b) the $1M is not sourced from a USA bank - the account cannot be funded from a US financial institution.

    So, to answer your root question, Swiss banking is dead to US persons. Dead.

    Continental Europe is also dead to US persons living in the the USA. There is a small percentage that will allow securities accounts with an external adviser (SEC registered). European banking is mostly dead (95%) to US persons who are residing in Europe... it is hit or miss. That 95% is for those with a second passport... It is dead (99.99%) for those walking in solely with a US passport.

    My real world experience as a US citizen who resides in Europe is that even with a work contract from a local company, apartment/house rental agreement, utility bill, etc,... I could not open an account unless I had a CLN. I eventually found a bank, but they would only open the account if only my wages were paid into the account (i.e. no money beyond wages were moved into the account).

    We all understand you still believe this is simply a tax issue, but there are many of us who believe this was done to prevent capital flows out of the USA. The best long term strategy to enact capital controls is to make it impossible for your citizenry to get accounts outside the country. If your citizens cannot open accounts outside of the country, is this not a "soft" capital controls?

    When you see the renunciations, you probably think "F-em... Tax cheat. F-em traitor" I am now saying, "Another person that couldn't get a bank account". Banking is crucial part of everyone's existence. As a US citizen who is outside of the USA, you are in violation of Patriot Act rules if you lie to open an account and then the US Govt makes it impossible to open an account outside the USA. Forcing people to renounce to be able to open a bank account seems a little extreme.

  5. gottaloveUStax

    Thanks for your comments. Your points are well taken. Without minimizing the disruption caused by such transitions, I will just point out that major cancers require major surgery that requires the patient to recuperate. It is not fair that a patient had cancer; but he does need the surgery. It is not fair that offshore banking encouraged some U.S. offshore bank depositors to cheat on their taxes. The solution unfortunately requires some pain for those who did not. I am not sure it could have been otherwise.

    But, we do know that after the transition period that I think will be shorter than perhaps you do, U.S. persons should find willing offshore banks to service their legitimate needs.

    Jack Townsend

  6. Here is my personal experience.
    Almost all banks in Switzerland today do not want American clients. US clients who are resident in Switzerland are accepted reluctantly if at all, and often severely limited in what banking services are available. Typically if you reside not just in Switzerland but in the canton where the bank is located you may be able to find a bank that will allow you to have your salary deposited and to pay bills; but no ability to buy stocks or mutual funds. A similar situation exists in at least two of the four EU countries adjacent to Switzerland.

    Not resident in Switzerland? Fuggetabout it, with the exception of Pictet, UBS, and CS which will open an account with a million minimum, fees of at least 1.5% p.a. (that's $15,000) and you are limited in how much of your portfolio can be in stocks/funds (can't allow Americans to take too much risk) so a huge chunk of that million is in a deposit or CD earning maybe 0.2% though the 1.5% fee applies to the entire account.

    Two EU countries: Country X I found one bank after contacting every bank I could think of, I can have deposits or individual stocks but no mutual funds whatsoever. Country Y found one bank (again probably the only bank in the whole country) which will take accounts from US citizens not resident in that country. And yes, it allows me to hold mutual funds. However even though they are FATCA compliant and will presumably submit a 1099, they will have NO communication with me while I am in the US: no mail to/from the US, no calls, no emails.

  7. John Audit,

    Thanks for your comments. I will respond first to your paragraph numbers.

    1. Can you cite me to a source for this information?

    2. Are you talking about all accounts in all Swiss accounts for all banks for all US domiciled persons? If that is what you are saying, I know that is not true. So, could you please clarify what you are saying? And, of course, are they continuing to serve U.S. persons not domiciled in the U.S.? And, what do you mean by domicile -- does that equate to residence?

    3. Are you saying that there are only 2 or 3 banks offering banking services to U.S. persons? I don't think that is true, but would appreciate your sources for this information so that I can review the data.

    4. All U.S. persons are denied banking services. I presume you mean in Switzerland. That is not a true statement, but I am willing to review whatever sources you may have for the claim.

    Swiss banking received at most a roadbump. All the Swiss banks have to do is get FATCA compliant, which they will do. Then, it is hard to imagine that they will turn away U.S. customers. More likely,U.S. customers or some significant subset of them previously attracted to Swiss banks will no longer be attracted because they cannot hide their assets and income in Swiss banks.

    I don't doubt your real world experience. But I think you can find accommodating Swiss banks. And, of course, there are branches and affiliates of U.S. banks in Switzerland that would be more than happy to take you deposits and give you the benefits of that type of local banking service.

    Contrary to what you may think, I really don't think about people who renounce citizenship. I certainly don't think in the terms you have quoted in the final paragraph. When I do think about them, I think in the terms of Justice Oliver Wendell Holmes that he doesn't mind paying taxes, for that is the cost of a civilized society. So those who object to paying taxes and are willing to forego U.S. citizenship because of that burden, well then that is their right and privilege. I do think that societies -- whether ours or any others -- are better off when persons not willing to meet the obligations of membership in society leave. So, I am not troubled by citizenship renunciations. That too, to turn Holmes' famous quote, is a cost of civilized society where those who don't want to be contributing members leave.

    Jack Townsend

  8. Have you tried U.S. bank branches or affiliates? I am sure that they will be pleased to provide you the same services they provide others.

    Of course, some banks have minimum requirements for both U.S. and non U.S. That is just their business model and, presumably, they will accept accounts accordingly.

    Again, I am not saying there will not be disruptions and inconveniences. I am saying that they will be temporary and ultimately the marketplace will force banks to be competitive. If they want to make money, I doubt that they will continue to put restrictions U.S. citizens that they don't place on citizens from other countries.

    Jack Townsend

  9. 1. If you want hard proof, read the annual reports of various banks for f.y. 2009. Some are still online and many did disclose in their annual report they had closed all US person accounts. Look at the schedule of fines from the DOJ. Note the fines ramp up for accounts opened after 2009. The DOJ knows that all/most accounts were shut down and the banks that accepted accounts after late 2009 were dealing with a rush of accounts from the other banks that shutdown the accounts.

    Julius Baer (2009 closures): http://online.wsj.com/news/articles/SB10001424052970204136404577206512065652938

    2. This is exactly what I am saying. If you are US domiciled (YOU LIVE IN THE USA): US address, US phone number, US smell, etc. your account was closed.

    ZKB (category 1): http://www.reuters.com/article/2012/01/05/zkb-us-idUSL6E8C506O20120105

    There are simply very, very, very few US accounts that are still open in Swiss banks. The vast majority were closed in 2009... By 2011/2012 the remaining were closed out. Done. You might have some one off examples or some incorrect perceptions, but the reality is the accounts were closed out by the banks. Any miniscule amount that remained (0.01% were absolutely shutdown when the remaining banks all jumped at the DOJ amnesty). Why keep accounts around that you have to pay 20% to 50% on?

    3. That is exactly what I am saying and it is true. Have your secretary try to open an account. As soon as she tells them that you are a US citizen they will end the conversation. If they let her complete the sentence, they will absolutely discontinue the phone call when she states that you are US domiciled.

    4. Fact. All US persons are -denied- private banking. Since posting my original response "Anonymous" posted the same exact experiences I went through. US citizens/US persons can -not- open private bank accounts in Switzerland.

    As to your last part... It is not about taxes... It is about capital controls. I understand you don't want to believe this. Have a long chat with US Citizens who are outside the USA. Clearly you can see what country I am posting this message from, I am not a troll from within the USA looking to spread propaganda.

    I will close this by saying that I had to have my work contract modified 1 month after accepting my current employment. Why? Because my contract specifically stated: "Employee will establish a bank account in Country X and all wages will be paid monthly to the bank account in Country X.". After showing my employer the nightmare I had gone through, they relented and agreed to pay my wages to an adjacent country where I was able to finally get a bank account. -Every- bank that is located in the country where I work flatly turned me down unless I could produce a CLN. NO CLN - NO ACCOUNT - REGARDLESS OF INITIAL DEPOSIT.

  10. Ms Keneally was one of those who lead the OVDI and OVDP charge that harmed, and continue to harm, many innocents. I would be like to be the first to say "good riddance."

  11. Anonymous - You posted (essentially) what I posted. The problem we are up against is this perception that it is business as usual over here. It is... just not for US citizens.

    I am a dual citizen (born in the USA). Once they open my EU passport and see the US birth place the conversation and smiles end. "I am sorry sir, you are a US person and we don't do business with US persons". "We can only continue if you have a CLN". "We understand you are an EU citizen, but the US govt makes it impossible for us to open an account for you". "We understand you would be willing to deposit $XXX,XXXX or $X,XXX,XXX (Don't let the door hit you in the ass)"

    I eventually just printed a list of all banks, took a few days off from work, and went to every bank on the list. In the country I work, no bank would accept me (REGARDLESS OF INITIAL DEPOSIT). In Country X, where I live, was able to get around the CLN by telling them I renounced.

  12. Thanks again. let me address your numbered paragraphs:

    1. Again your evidence is anecdotal. What evidence I have to the contrary is also anecdotal. I do not have enough evidence to properly draw conclusions as to whether all Swiss banks closed U.S. depositor accounts, closed most U.S. depositor accounts, etc. I do have evidence of some closings, both in my practice and from the news and the link you provide. I don't have enough evidence to extend beyond that, particularly because I know some accounts were not closed. Now, as you probably know, there we some U.S. depositor accounts that were fully compliant from day 1, with all necessary forms filled out etc. Those accounts are not subject to the DOJ penalty regime for Swiss banks. There would be no need to close those accounts and my anecdotal evidence is that some of those accounts continue. So the point here simply is that accounts that appeared to be U.S. tax noncompliant were closed.

    2. See my response in #1. The ones that appeared to be noncompliant were closed. Furthermore, your complaint is not that U.S. residents are having difficulty opening Swiss accounts. Your complaint is that U.S. nonresidents can't open the account when it is convenient for them to do so apart from tax noncompliance. I do not doubt that that is a legitimate complaint during the transition period. But you still did not address my point of whether you could open an account with a U.S. bank branch or affiliate.

    3. See answers above. I thought your complaint was about nonresident U.S. persons not being able to open accounts.

    4, Again, as best I understand it you are relying on anecdotal evidence. If you need private banking services (for investments, etc.), why not get them in the U.S.? As the article notes, the Swiss are going to have to prove that they are better at competing for U.S. deposits now that they cannot offer tax evasion to make their returns look better. My experience - certainly anecdotal -- is that, for tax noncompliant accounts (which is my database), the Swiss banks had worse returns than comparable services in U.S. banks. Most of my clients agreed and voluntarily repatriated their funds without compulsion from the Swiss banks.

    Again, I empathize with the inconvenience you are experiencing and hope that your find adequate work-arounds during the transition.

    Jack Townsend

  13. Jack, essentially what you are saying is that there is a compelling government interest in attacking offshore tax evasion, and while collateral damage is unfortunate, it may be a justifiable trade off. That is a fair point (admittedly easier to make if you are not the one feeling the pain), but fair nonetheless. I personally don't have a problem with the aggressive prosecution of offshore tax evasion. However, I do think the collateral damage could have been limited with some intelligent/diligent legislative action and regulatory enforcement. Would it have been so difficult to include a home-country exemption for FBAR/FATCA reporting for people who reside outside the US? What about combining Form 8939, Form 3520, and FBAR? Would that have been so hard? Would it have take a lot of effort to craft a more appropriate streamlined program or provide clearer OVDP guidelines to bring more people into compliance without the threat of ruinous penalties? You refer a lot to Holmes saying that "taxes are the price we pay for civilisation", and that is true. Having said that, I am not sure duplicative and overly intrusive reporting regimes or draconian penalities for filing failures are the price we pay for civilisation, however justified the ultimate goal of stamping out tax evasion. To use your analogy above, I don't mind paying for a skilled surgeon with a sharp scalpel to excise cancer. The U.S., however, went in with a rusty spoon and a blindfold.

  14. I don't think there is evidence of a complete denial of financial services, although I think there is more than sufficient anecdotal evidence of extreme inconvenience for people who have a legitimate need for non-US accounts (such as immigrants and Americans abroad). This area is "ein [zu] weites Feld" as the Germans might say, representing a wide range of diverse experiences. Yes, Americans can get access to financial services (although it might be more costly and/or much more inconvenient) and the question remains as to whether that is really necessary. As for obtaining financial services in the US, that has become very difficult for someone who does not have a US address. Whereas before 9/11 and the Patriot Act, a number of Americans abroad used to be creative about claiming an American address (for example, using friends' or relatives' addresses), that is very much frowned upon/discouraged now. Indeed, when asked about the legality of that, one AUSA informally confirmed that while he couldn't point to the exact statute, it was probably illegal. Would love to get your thoughts on that (even though I know it is not technically a tax crime).

  15. GlobalCapitalismMay 28, 2014 at 3:25 AM

    As much as I sympathize with duals or expats with regards to the denial of banking services but it is a good thing if Switzerland,Germany,France etc. show the United States how isolated they are with regards to their 8 million diaspora.
    US clients AND business will remain toxic.
    Unfortunately the US has to learn it AGAIN the hard way!

  16. GlobalCapitalismMay 28, 2014 at 3:32 AM

    I am not surprised with JATs naive response. He has been fed testimony after testimony and links over the last 6 month with regards to those "disruptions and inconveniences" and all he can come up with is the same old broken record. Just Shameful !!

  17. GlobalCapitalismMay 28, 2014 at 3:44 AM

    I think Jack Townsend it would be best if you do your own research on this subject if you are not capable of listening to the testimony and links of the readers of this blog. Call yourself the banks in Switzerland,Germany and France and try to open up a checking or savings account .

  18. "good riddance" I second that, she has the blood of innocent expats on her hands simply to further her own career. Talk about a public servant!

  19. GlobalCapitalismMay 29, 2014 at 5:19 AM

    Yes Kathryn Keneally, Asst Attorney General, Tax Division, announced her resignation this week after just 2 years in office. She is responsible for the disastrous Swiss-US Programme (sometimes called “OVDP for banks”) which failed to distinguish between Swiss-based private banks that actively encouraged tax evasion by Americans resident in the US and Swiss retail banks that passively allowed American citizens, resident in Switzerland, to have normal banking
    relationships with them. It is unknown whether she resigned voluntarily or was forced out.
    Btw. I was told yesterday by personel to the US Embassy in Berne that as many as 10 expatriations per day are being processed there, meaning that the total could be 2,000 for 2014 (10 per day x 200 working days) at this one embassy alone !!

  20. GlobalCapitalismMay 29, 2014 at 6:38 AM

    "good riddance" I second that also. The major effect of the OVDI/P has been to terrorise minnows with personal
    connections to foreign countries — immigrants, emigrants, and their
    spouses and children — who innocently organised their financial lives
    around their personal connections.


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