Thursday, March 7, 2013

Offshore Tax Probe Picks Up U.S. Chase for Cheats With Secret Accounts Looks to Israel, India and Elsewhere


After getting a guilty plea from Switzerland's oldest private bank, which was ordered Monday to pay a total of $74 million for violating U.S. tax laws, federal investigators have fresh momentum thanks to leads gathered from interviews with confessed tax cheats.
So far, U.S. officials have clawed back $5.5 billion in unpaid taxes and penalties in the past four years. At least another $5 billion is likely to be collected from continuing cases involving accounts at banks in Switzerland, India, Israel, Hong Kong, Singapore and elsewhere, according to estimates from lawyers who are tracking the various probes.
The number of confessions is expected to rise sharply from the current total of 38,000.
"The government has no intention of letting up in its relentless pursuit of wealthy Americans with secret accounts offshore, and soon it will have even more tools to work with" as a new law goes into effect, said Mark Matthews, a former chief of the Internal Revenue Service's criminal-investigations division who now is a lawyer at Caplin & Drysdale in Washington.
Spokesmen for the Justice Department and IRS declined to comment on continuing enforcement actions but have said they are aggressively pursuing those who violate U.S. tax laws.
A 2009 agreement with UBS  first pierced the long-standing veil of Swiss bank secrecy. To avoid criminal charges, UBS paid $780 million and turned over the names of about 4,500 U.S. taxpayers with secret accounts. Since then, the IRS has offered limited amnesty programs to encourage more people to come forward.
Monday's order by a federal judge in New York against Wegelin & Co., which admitted it turned a blind eye to tax evasion allegedly committed by its American customers, marked a key victory in the crackdown efforts.
U.S. officials now are shifting their focus to other banks in Switzerland and other countries, ranging from sprawling giants to niche providers of offshore accounts to taxpayers with dual citizenship, according to lawyers representing some account holders.
"They saw the money moving out of UBS and into Wegelin, and now they are looking to see where else it is going," says Mr. Matthews.
Several Israeli banks have asked customers who are U.S. citizens or hold green cards to provide their Social Security or taxpayer-identification numbers if they want to keep their accounts open, say lawyers involved in the cases.
Barbara Kaplan, a lawyer at Greenberg Traurig LLP in New York, says Wegelin's guilty plea sends a message to other offshore banks that the U.S. government is ready and willing to pursue alleged wrongdoers even if they have no offices in the U.S.
In court documents, the U.S. government said that Wegelin set out to capture illegal banking business lost by UBS and another unidentified Swiss bank. Wegelin said the guilty plea was an attempt at "closure."
Other banks are also drawing scrutiny.
The U.S. is investigating how HSBC Holdings PLC catered to wealthy Indians born or living in the U.S., and whether it offered them clandestine accounts in India, said Bryan Skarlatos, a partner at law firm Kostelanetz & Fink LLP in New York who has represented more than 1,000 people with offshore accounts.
An HSBC spokeswoman said the bank "does not condone tax evasion and fully supports U.S. efforts to promote appropriate payment of taxes." The bank has said it is cooperating with continuing tax-related investigations involving Switzerland and India.
Credit Suisse Group AG said it has been responding to subpoenas and other requests for information from U.S. authorities. A spokeswoman for the Swiss bank declined to comment further.
Swiss bank Julius Baer Group AGsays it isn't the subject of the U.S. probe of undeclared accounts but has been in "close contact" and "constructive talks" with U.S. officials and expects to pay a fine, according to a bank spokesman.
The company "finished its retreat from the U.S. offshore business more than a year ago," the spokesman added.
Last year, U.S. prosecutors indicted three Israeli-American tax preparers for allegedly helping clients hide money in two unidentified Israeli banks. Lawyers involved in tax-evasion cases saw the criminal charges as a sign of growing interest in Israeli banks by U.S. investigators.
Meanwhile, financial firms are girding themselves for the Foreign Account Tax and Compliance Act, or Fatca, a federal law that takes effect in 2014 and will require foreign institutions to disclose the names of customers who are U.S. taxpayers.
Firms must scour their client lists to determine who is subject to U.S. taxes, or face penalties.
Countries or individual firms can sign agreements to abide by Fatca rules. If they don't, then U.S. companies, investment firms and banks must withhold 30% of payments such as dividends to account holders. Nine countries so far have signed or initialed—meaning provisional approval—Fatca agreements with the U.S., while another 40 are in negotiations, according to publisher Tax Analysts.
One notable holdout: China, which includes Hong Kong. Lawyers say it is unlikely that China would comply—or that the U.S. will impose the 30% tax.
"This has more to do with politics than taxes," says Robert Goulder, a lawyer with Tax Analysts. A Treasury spokeswoman says the department "has engaged with China and will continue to do so."
(—Andrew Morse and Aaron Lucchetti contributed to this article.)
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  • Historically government is force, government is violency and tyrany , the bigger it gets the more it eats. As far as US history is concerned he current administration is the worst of the bad. It has gotten so out of hand they would smile and laugh while they hit hard working good people over the head with an IRS hammer to get a bigger cut and put it in thier own pockets.
    8 Recommendations
    • Theives are theives, and people who think that their money allows them to get away with anything, and makes them better than me, are sadly mistaken. If they don't want to ever set foot in this country again, that is one thing altogether, but living here, and not paying for it is pathetic. Imagine what the Russians do to people like that, probably a bit more tyranny there than in the US. But maybe you don't believe me and want to move to Russia and take all your money with you. Good luck.
      8 Recommendations
      • You got it worng fool. The bureaucrats with thier worthless paper pushing jobs and their hands in the pockets of the tax payers along with the political left wing socialist who promise other peoples money to the common lazy pukes living of the government and looking for more are the criminal thieves. Yes you are a lost and twisted little punk. We pay for solendra and you pay no taxes but still you would have 100% to waste and squander and find no satisfaction.
        8 Recommendations
      • But that's a big part of what's screwed up with this country's tax code. Most of the people the IRS are going after are dual citizens and such that don't even live here anymore yet everyone who retains US citizenship are still supposed to pay taxes to Uncle Sam regardless of where they live. The USA is only one of a few of countries that have such a pervasive tax law.

        If you're Russian and live outside the country they don't expect income tax. So in that respect, Russia is kinder to its citizens than the USA.
        7 Recommendations
      • Mr. Vesper,
        Is this a surprise requirement? do people not know that they can renounce their US citizenship and avoid paying the taxes? Or do they get something from having that citizenship and just want it for free?
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      • Mr Dirtwhistle
        To renounce US citizenship, you generally need a new citizenship. Although the US and some other countries seem to bestow citizenship on practically any legal immigrant who applies after a limited period of time, normally five years in the US, this is not the case in many other countries. Many countries require that the applicant demonstrate sufficient integration by passing tests including language tests and background checks in addition to having resided and worked in the country. Without going into detail, it has taken me nearly 20 years to be eligible to apply for citizenship in the country where I live. Obtaining another citizenship is not be as simple as waiving a wand.
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      • "Obtaining another citizenship is not be as simple as waiving a wand." I will bet if you have a large bank account it becomes much easier.
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      • Mr Becker:
        A large bank account likely helps to obtain citizenship in banana republics and some developed countries. However, I can cite the following examples where wealth was not enough:
        1) Tina Turner: naturalization application in Switzerland denied in 2011 due to insufficient integration, i.e., poor German skills. After she improved her German, she was recommended for Swiss citizenship in January 2013, although process is not complete.
        2) Vitaly Milkin: a Russian oligarch billionaire who has been trying to obtain Canadian citizenship for around 20 years. Canada has denied his naturalization application due to links to organized crime. (See story in Toronto National Post for March 5, 2012).
        3) Mohamed Al-Fayed: a billionaire and former owner of Harrods department store in London was twice denied British citizenship for unknown reasons.

        The US has the EB-5 visa program to allow residence and then citizenship for foreigners willing to invest $500k or $1 million in the US. This program has similarities to investment citizenship programs offered by several Caribbean nations.
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    • Jack, wealthy Conservatives must pay for military,and past trillions of war debt.
      3 Recommendations
      • Fantastic, then wealthy liberal can pay for all the social programs. Problem solved, you bill unfortunately is much larger.
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    • Jack,

      The primary objective of government is to enforce routine law and order. People that break those laws will rightly suffer the consequences.

      They chose to break them of their free will and must, necessarily, accept the penalty. If a little force is required, that's why they make handcuffs and prisons.

      PW
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    • You seem like a fun guy Jack. What other lying, cheating and law-breaking do you approve of and feel you should be exempt from the penalties for?
      1 Recommendation


  • Only $5.5 billion in unpaid taxes, penalties and interest. The article said that 38,000 taxpayers had been involved. That only works out to about $145,000 per guilty taxpayer.

    I would have expected tax cheats using foreign accounts to have marginal rates above 28 percent. 145k per person would mean less than 500k per person of hidden income over a period of years; even less if you assume penalties and interest make up much of the 5.5 billion.

    That doesn't exactly sound like millionaires and billionaires being tracked down.
    3 Recommendations

  • FATCA has yet to be implemented, but it seems to me that there will be many banks located in many different countries that won't comply.

    If a bank is located in a country where the government of that country wants to curry favor with the US government (e.g., Japan, Europe, and Israel), then the bank will have to comply. And if the foreign bank in question derives significant income from US operations, it will also have to comply. But outside of these two situations, I see no reason why a foreign bank would have to act at the behest of the U.S. government.

    No question that FATCA will cause the "cockroaches to scatter" (so to speak). But I can see no reason why they won't find a new home somewhere else.
    1 Recommendation
    • David,

      That was my first thought, too, but any financial institution that found itself 100% restricted from the U.S. finacial system would be at an enormous disadvantage.

      PW
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    • As noted in the article, China is not expected to sign a FATCA Inter-Governmental Agreement (IGA). This is what Deloitte had to say about China on February 27:

      "…one major lingering question concerns the impact of the FATCA regulations in China and the Special Administrative Region of Hong Kong. Neither jurisdiction appeared on the list released on 8 November by the United States Treasury Department setting forth all the countries with which the U.S. was negotiating intergovernmental agreements and dividing the countries into three categories based on the state of progress and anticipated final outcome. They were, in fact, the most prominent absentees. Moreover, officials from the Chinese government have at times publicly assailed FATCA as an intrusion on sovereignty, which unjustly shifts the cost and burden of U.S. tax regulations onto non-U.S. financial companies. While the grievance is not unique, as many countries have issued similar complaints, none has possessed the degree of counter-leverage available to China as the largest creditor nation of the U.S.

      The sword wielded by the U.S. in order to foist FATCA upon non-U.S. financial institutions was the deprivation of access to the U.S. capital markets, the world’s deepest and most liquid. This threat sufficed to compel financial institutions to lobby their governments to find ways to align foreign laws with FATCA compliance and resulted in the several IGAs signed so far and the many more expected in the future. However, in most situations the local financial institutions needed to invest in the U.S. capital markets more than the U.S. capital markets needed their investments. With China owning trillions of dollars in U.S. government debt, that balance of incentives may not hold."

      The US can infringe on the sovereignty of less powerful countries, particularly those who wish to stay friendly with the US. This formula works until the US has to go up against China which holds a lot of economic power in the relationship. Then there are Russia, Brazil, India and some other up-and-coming nations. Will they agree to a FATCA IGA when it buys them nearly nothing in return?
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    • FATCA is having some undesirable side-effects. The Financial Times reported the following (Sept 28, 2012):

      "US tax policies delay $2bn Chinese loan

      A loan worth nearly $2bn from China Development Bank to help fund an ambitious San Francisco housing project is being delayed as a result of Chinese concerns about the effect of tax policies in the US, a person familiar with the situation said.

      The measures include the controversial Foreign Accounts Tax Compliance Act (FATCA), which comes into effect in 2014 and could force foreign banks to pay a 30 per cent withholding tax on the interest income on any loans made to US entities or persons.

      “They need to clarify the implications of these regulations before they approve the loan,” said the person.
      The Chinese bank had been in talks for months with Lennar, one of the largest homebuilders in the US, to help finance a massive housing development on Hunters Point and Treasure Island, two former naval bases in the San Francisco Bay Area, with a total value of as much as $13bn. Lennar declined to comment."

      How much construction worker income and income tax revenues have been lost just from the delay of this one loan and start of this project? Common sense is apparently in short-supply in the Obama administration.
      Recommend

  • It's funny, based on the last election I could swear that they would have Romney in jail for murder and tax evasion felonies. I just DON'T GET IT! Maybe they were too worried about Hugo's health prospects when he began going to Cuba for his treatments. Well, I suppose they'll have him in handcuffs in no time. It IS after all a bad example to be successful isn't it? Just terrible!
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  • There are plenty of Americans with dual citizenship and Americans married to a foreign national living in their spouse's country who are law abiding who get caught up in this attitude at the IRS that everyone with a financial account outside the USA is a tax cheat. No, we just need a bank account. Instead we have to deal with a presumption of guilt and the hassle of ever increasing forms to submit to the gu'mint. first there was the Form TD F 90-22.1, then added to that was the Form 8938. Next up is FATCA., which will also impact us. These are not forms detailing income. This is big brother wanting to know everywhere you have or had money equivalent to over $10,000 during the year. They literally track your money. Creepy, no? BTW, penalties for not filing these, or filing them incorrectly, is extremely severe (and filing is not straightforward), which means you spend a fortune on a tax expert. Finally, since we live overseas we really have no one in congress or the senate representing us, despite the tax we pay. I'm all for going after law breakers, but don't punish the innocent along with them.
    1 Recommendation

  • I pay tons of federal taxes and know that the federal government could care less how they spend it, waste it, throw it down the toilet, bribe unions with it, pay for unjust wars with it, pay people to breed with it....................The fact does remain, there is still enough left over to live very well. Why would you put yourself and you family through this just to save some money?

    What would soften the tax blow would be if EVERYONE has to pay something and they actually used the money wisely. National sales tax would be fair and just, as for wise use, won't happen.
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