Another Blow to Swiss Bank Secrecy

As highlighted yesterday on the front pages of the Wall Street Journal, the New York Times and other newspapers across the country- - Credit Suisse has pled guilty to conspiracy to aid tax evasion (by helping U.S. citizens unlawfully evade taxes through Swiss bank accounts).  The large bank agreed to pay about $2.6 billion in penalties.

U.S. regulators have spared the bank from losing its U.S. investment adviser license and other potentially harsh results.  So other than the monetary penalties, the negative impact on the bank may be limited.  In any event, this is another significant reminder that attempts by U.S. citizens to evade taxes through offshore accounts (and the institutions that help facilitate that tax evasion) are under close scrutiny by the U.S. Department of Justice and other federal regulators.

All of this unfortunately means that U.S. citizens who legally and properly take advantage of foreign bank accounts will likely have even more paperwork and regulatory hoops to jump through when they open offshore accounts. 

FBAR and FATCA Provide Separate Reporting Requirements for Offshore Accounts

FBAR and FATCA (which require reports by U.S. persons of interests in foreign accounts) overlap to a large extent.  But they impose separate reporting requirements.  Failure to comply (especially with regard to FBAR) can have very severe consequences. 

FBAR (a foreign bank account report) stems from a banking regulation under the Bank Secrecy Act.  It is specifically designed to inform the U.S. government of funds held by U.S. persons in foreign accounts.  Since the purpose of this report relates at least in part to the fight against terrorism, penalties for failure to file can be very severe. 

FATCA (the Foreign Account Tax Compliance Act) is a tax statute.  Pursuant to this federal law, the IRS requires that Form 8938 (Statement of Specified Foreign Financial Assets) be filed annually to report interests by U.S. persons in foreign accounts.  This reporting requirement clearly overlaps with the FBAR report.  But filing one of them does not excuse filing the other one when required.

Tax preparers are becoming increasingly familiar with these forms.  But if you have offshore accounts, you should confirm with your accountant or tax preparer that you are filing all reports that a U.S. person would be required to file to reflect ownership in those accounts.

Opening Offshore Accounts Has Become More Burdensome

The recent scandals involving tax evasion by some Americans (who had assets in secret Swiss bank accounts) are still playing out.  The Swiss Cabinet recently announced a new program that would allow about a dozen Swiss banks to provide the United States Department of Justice with information on bank accounts held by Americans.  The Justice Department continues to pursue financial institutions involved in facilitating unlawful tax evasion by U.S. citizens. 

Needless to say, these abuses will now adversely affect many Americans who legitimately hold funds overseas.  There is now more effort in opening overseas accounts; and some Swiss banks will not even accept American clients.  This is not a new story:  abuses by a few often ruin things for everyone.  There are very legitimate reasons for an American to invest funds overseas.  It is unfortunate that this is becoming more difficult.

Further Erosion of Swiss Banking Secrecy

A front page article in today’s Wall Street Journal as well as an article by Lynnley Browning and Julia Werdigier in today’s New York Times report that Swiss officials have agreed to let banks release more information on the holdings of their American clients. 

This most recent development is yet another step in a process that is making it increasingly difficult for Americans hide assets in Swiss accounts and unlawfully evade taxes on those assets.

As I frequently explain to clients, there is absolutely nothing wrong with having a Swiss bank account or other offshore account. But you have to comply with all applicable reporting requirements.

Tax Season Reminder: Reporting Requirements for Offshore Accounts

Offshore accounts  - - whether in trusts, LLCs or just in your own name - - can have a variety of financial, business and asset protection advantages.  But they will generally be subject to U.S. tax.  And they have special reporting requirements.  See for example my post from last year about IRS Form 8938.  So make sure your tax preparer knows about the applicable filing requirements.

The IRS and the United States Justice Department are relentlessly pursuing wealthy Americans with secret offshore assets.  U.S. authorities seemed to initially target accounts at banks in Switzerland.  But the Wall Street Journal recently reported that there are also actions by U.S. officials involving accounts in numerous other offshore locations - - including India, Israel, Hong Kong and Singapore

So make sure your tax preparer is aware of your offshore accounts - - and comply with the U.S. reporting requirements applicable to those accounts. 

Another Reminder That Asset Protection ≠ Hiding Your Assets


Avoiding U.S. taxes by hiding your assets is illegal.  Last month, Switzerland’s oldest bank pled guilty to a criminal conspiracy charge for helping wealthy Americans avoid taxes by hiding their assets in secret accounts. 

Wegelin & Co., founded in 1741, is the first Swiss bank to plead guilty to a criminal charge in the on-going U.S. investigation of secret offshore accounts.  The bank plans to close once this criminal case wraps up. 

Asset protection essentially involves protecting your assets while keeping them in plain sight.  There may be privacy considerations; but asset protection should never be designed to unlawfully avoid taxes.  Offshore accounts can be appropriate and very beneficial for many Americans - - if they are opened, operated and titled properly.


Mitt Romney Keeps Funds in Cayman Islands and Switzerland

As I have mentioned in many other posts, there is nothing wrong with using Swiss bank accounts or offshore entities.  A recent front page article in the New York Times noted that Mitt Romney and his wife hold millions of dollars in a Swiss bank account and millions more in partnerships in the Cayman Islands.  Their attorney, R. Bradford Malt, said that the Swiss bank account complied with all Internal Revenue Service reporting requirements, and that the family had paid all applicable taxes.

This is simply another reminder that it is perfectly appropriate for a U.S. citizen to hold funds outside the United States -- as long as applicable U.S. taxes are paid in full.  Even though holding assets offshore may sometimes be tax neutral, those assets can frequently be much better protected from U.S. creditors.

IRS Form 8938 -- Another Reporting Requirement for Offshore Assets

The IRS is continuing its efforts to identify sources of offshore taxable income of U.S. taxpayers.  This has lead to a new reporting requirement.  Many U.S. taxpayers with foreign assets must now file IRS Form 8938 - Statement of Specified Foreign Financial Assets.  This new requirement is applicable to the 2011 tax year, and must be filed with an individual's annual federal tax return.  The IRS has issued instructions for the new form.

This new requirement does not replace the annual FBAR report, which is due by June 30 of the applicable filing year.

Some, but not all, U.S. taxpayers are subject to the new requirement.  For instance, it applies to married taxpayers filing a joint income tax return if the total value of your specified foreign financial assets is more than $100,000 on the last day of the year or more than $150,000 at any time during the tax year. 

There are failure-to-file and accuracy-related penalities relating to Form 8938, and these penalties can be severe.  It is therefore very important for anyone with funds in offshore accounts to have a tax preparer who is familiar with all of the applicable reporting requirements.

More Changes to Swiss Banking Rules

According to Matthew Saltmarsh writing in the Thursday, April 21, 2011 New York Times -- Switzerland will probably sign new treaties by the summer with Germany and Britain under which their citizens will pay taxes on most of their undeclared assets in Swiss banks.  It appears that France and Italy will sign similar treaties with Switzerland.  The arrangements will likely involve payment of a flat rate withholding tax, which will be deducted by the Swiss bank.  Client anonymity would be preserved.  But citizens of European countries like France, Great Britain and Germany will no longer be able to completely avoid taxes on undeclared assets in Swiss bank accounts.

While the proposals would preserve Switzerland's banking secrecy, the New York Times reports that they are likely to accelerate a shift away from banks relying on undeclared assets. These changes could result in more consolidation and down-sizing among Swiss private banks.

It is very important to keep in mind that Swiss banks can offer more than secrecy.  The country has traditionally offered political and economic stability; a strong currency; and quite a bit of banking and investment expertise.  Moreover, from a pure asset protection standpoint, protecting one's assets does not equal hiding those assets.  In the United States, the best asset protection plans essentially involve holding assets where they are not hidden, but having them lawfully titled in such a way that they are better protected from creditors.

Holding assets in a Swiss account could be a very legitimate part of a lawful and reasonable asset protection plan for a United States citizen -- as long as there is no attempt to unlawfully avoid applicable U.S. taxes.

Crackdown Continues On Offshore Tax Schemes

UBS (the giant Swiss financial institution) has received a lot of bad press recently in connection with offshore tax evasion schemes.  More UBS clients were indicted earlier this month, but federal authorities are focusing on other financial institutions as well.  Lynnley Browning reported last week in the New York Times that arrests have now been made in connection with an international tax evasion scheme said to involve HSBC.

The latest case involves real estate developers who sold a hotel in New York City and allegedly routed the proceeds through sham accounts in Panama, the Virgin Islands, Liechtenstein, Switzerland and the Bahamas to evade taxes.  The complaint against the real estate developers (filed in federal court in Fort Lauderdale, Florida) describes how federal agents used wire taps in 2007 to record various phone conversations.  This shows that authorities are using more aggressive techniques in fighting offshore schemes.

I was setting up companies in Panama for clients more than thirty years ago.  These entities, however, were used for very legitimate business, tax, and asset protection purposes.  Using offshore companies or trusts to unlawfully evade U.S. taxes or for other unlawful purposes is becoming more and more difficult -- as it should be.

Congress Continues to Close Tax Loopholes in Offshore Accounts

A new law signed by President Obama last month makes it much harder for U.S. citizens to evade taxes by hiding money in offshore accounts.  Foreign financial institutions will now face a 30% tax on their U.S. investments if they refuse to provide information about accounts held by U.S. citizens.

None of this is a surprise.  With huge budgets deficits, Congress is closing offshore tax loopholes and making it harder for U.S. citizens to shelter money in foreign jurisdictions.  You can read about the new law in the March 28, 2010 New York Times article by Gretchen Morgenson titled "Death of a Loophole, and Swiss Banks Will Mourn".

As I have mentioned many times before... This does not mean there is anything inherently wrong with offshore trusts-- as long as they are not used for unlawful tax evasion.

IRS Recieved a Flood of Foreign Account Disclosures as Amnesty Deadline Approached

I reported in a post earlier this month that as an IRS amnesty deadline approached, more than 7,500 U.S. taxpayers had voluntarily disclosed their secret offshore accounts.  Lynnley Browning reports in a November 18, 2009 New York Times article that the IRS received a flood of additional disclosures just before the deadline expired.  The final number of U.S. taxpayers disclosing secret offshore accounts almost doubled as the deadline approached-- from 7,500 to 14,700.  IRS commissioner Douglas H. Shulman has indicated that billions of additional dollars will come into the U.S. treasury as a result of this IRS program. 

It is important to realize that U.S. taxpayers who use legitimate asset protection techniques should have no concern whatsoever about the recent IRS actions.  The IRS is simply aggresively going after U.S. taxpayers who are not reporting income as required by applicable law.  Offshore accounts can have numerous advantages (both from a financial perspective and from an asset protection standpoint).  You should not be afraid of using offshore accounts or offshort trusts, as long as they are being properly reported and administered.

A big lesson from the recent IRS actions is to carefully choose your financial and legal advisers.  Americans who opened secret offshore accounts and then failed to report income taxes were foolish and/or got very poor advice.  A reputable asset protection attorney would have never recommended the course of action that has now landed many Americans in deep trouble with the IRS.

IRS Likely to Continue its Assault on Offshore Accounts

It seems that U.S. lawmakers are likely to give the IRS increasing support in its recent assault on offshore accounts.
More than 7,500 U.S. taxpayers have voluntarily disclosed secret offshore accounts to the Internal Revenue Service in connection with a recent amnesty program. The program did not provide any forgiveness for tax evasion. It simply provided possible leniency with respect to penalties for those who voluntarily came forward and disclosed secret offshore accounts. IRS Commissioner Doug Shulman says that the IRS will be scouring the 7,500 disclosures to identify financial institutions, advisors and others who helped taxpayers avoid obligations. 
According to an article by Ryan J. Dommoyer of Bloomberg News (published in The Cleveland Plain Dealer), U.S. lawmakers have praised the recent developments and are calling for stronger laws to help the IRS. Senator Carl Levin heads the Permanent Subcommittee on Investigations. That Committee has held hearings on how UBS solicited Americans to put assets in Swiss banks. Senator Levin has stated that he will keep pushing legislation to give the IRS more tools to fight tax evasion through offshore accounts.
As I have repeatedly stated in posts on this blog, there is nothing inherently wrong with offshore accounts. When such accounts are maintained in a proper and lawful manner, account holders should have no significant concerns about increased IRS scrutiny.

IRS Extends Amnesty Program For Those Who Have Been Unlawfully Hiding Assets

In March of 2009 the IRS began a six month amnesty program with reduced penalties for those who come forward and acknowledge they been have unlawfully hiding assets-- and failing to pay applicable taxes on those assets.  The amnesty program is part of a broader effort by the IRS to crack down on U.S. citizens who are illegally hiding assets overseas.  While the IRS has refused to say how many Americans have applied for the program, the number appears to be more than 3,000.  Offenders still face penalties.  But they can probably avoid jail time, and possibly avoid some penalties.

The IRS announced this week that it will extend the amnesty program until October 15.  There will be no additional extensions.

If you are interested, you can read more about the amnesty program in an article by Stephen Ohlemacher (Associated Press) in the Tuesday, September 22 Cleveland Plain Dealer Business Section.

Disclosure of Secret Offshore Accounts May Have Caused Suicide of Prominent Philanthropist

Finn M. W. Caspersen, heir to the Beneficial Corporation fortune, was a patron of Harvard and Princeton and gave away tens of millions of dollars to charity.  He was active in New Jersey politics.  Mr. Caspersen served on the Dean's Advisory Council at Harvard Law School.  As Lynnley Browning wrote in the New York Times on September 16, 2009:

"He seemed, in many ways, like a man from another time, a Gatsbyesque figure who glided through a world of old money, private clubs and pedigree horses, his family name emblazoned on Ivy League halls."

Mr. Caspersen's life ended tragically on Labor Day when he shot himself in the head at Shelter Harbor Golf Club in Westerly, Rhode Island.   

No one can be sure why Finn Caspersen ended his life.  He had been suffering from kidney cancer.  But the New York Times reports that at the time of his death, Mr. Caspersen may have been using secret offshore bank accounts to evade taxes.  Investigators were apparently building a case against him.  It is reported that he may have owed as much as $100 million in back taxes and penalties, and may have faced prison.  The Caspersen case apparently involves accounts in Liechtenstein, a leading offshore tax haven.  According to the New York Times, federal authorities recently placed liens on the personal trusts of Mr. Caspersen's four sons.

In any event, it never ceases to amaze me how many super-wealthy Americans have tried to unlawfully evade U.S. income taxes by using "secret" offshore accounts.  Recent IRS actions are making these accounts less and less secret.  As I have said in a number of other posts, there is nothing inherently wrong with offshore accounts.  They can be valuable for a variety of reasons.  But they cannot be used for tax evasion.  Failing to report income and paying the appropriate tax can have disastrous consequences -- both professionally and personally.

I highly recommend the full article by Lynnley Browning in the Business section of the September 16, 2009 New York Times.  It is a fascinating story about a real tragedy.


Justice Department Widens its Attack on Swiss Banking Secrecy

Last week, the Swiss banking giant UBS agreed to turn over information on American clients suspected by the IRS of using Swiss accounts for tax evasion.  On Wednesday, August 19, IRS Commissioner Douglas Shulman said that the agency is looking at other banks and intermediaries in Switzerland in addition to UBS. 

The IRS Commissioner was not kidding.  Last Thursday the Justice Department indicted a Swiss banking executive and a Swiss lawyer for selling tax evasion services to wealthy clients.  The services allegedly involved the use of Swiss accounts as part of an unlawful scheme to disguise and hide assets.  The indictment, filed in the United States District Court in Ft. Lauderdale, Florida, accuses a director of a Swiss bank as well as a Swiss lawyer with conspiracy to defraud the United States.  The men are accused of helping clients hide assets by creating the appearance that certain assets of U.S. clients belong to Swiss citizens.  The men were also accused of falsifying documents to disguise interests of United States citizens in certain offshore funds.  It appears that the Justice Department established a special task force in 2007 to focus on Swiss banks that help Americans evade taxes.  Recent actions seem to be the result of some of these investigations. 

The message from the indictments is very clear:  not only will the IRS and the Justice Department investigate large financial institutions like UBS -- but they will also be looking at smaller banks and financial institutions who may be helping U.S. citizens to unlawfully hide assets.  Lawyers who facilitate these unlawful schemes may also become targets of the IRS and the Justice Department.

Only fools and criminals participate in offshore schemes that are designed to evade U.S. income tax obligations.  Legitimate asset protection planning does not involve unlawful tax evasion.  It involves keeping assets essentially in plain sight, while lawfully minimizing taxes and taking advantages of laws that allow you to make assets more difficult for creditors to reach.

You can read more about the recent indictments as well as the Justice Department's on-going attack on Swiss banking secrecy in an August 21, 2009 article in The New York Times

Swiss Bank Accounts May Not Be Secret Anymore

On Wednesday, August 19, UBS (one of Switzerland's largest banks) agreed to turn over information on more than 4,450 American clients suspected by the IRS of using Swiss accounts for tax evasion.  Due to provisions of a new tax treaty between the U.S. and Switzerland, it could be more than a year before the IRS has all the information it wants.  It is clear, however, that the IRS is stepping up its efforts against tax evaders who are using Swiss accounts in an attempt to hide assets.  You can read more about these IRS efforts in an August 20, 2009 New York Times article.

In February of 2009, UBS paid $780 million and admitted to criminal wrongdoing in selling offshore banking services that contributed to tax evasion by U.S. citizens.  And the U.S. Department of Justice has a number of criminal investigations pending against UBS clients.  Swiss bank accounts are not going to remain as secret as they once were. 

There are still valid reasons to have Swiss bank accounts.  Switzerland has traditionally provided a very stable political and economic climate.  Many of its banks have provided a very high level of personal client services and good money management.  Swiss accounts (like other offshore accounts) can certainly be part of a legitimate, lawful asset protection plan.  It may be more difficult for a creditor to reach assets in a Swiss account than in a U.S. bank account.

Recent enforcement actions by the IRS, however, are a clear reminder that you cannot use Swiss accounts (or any other offshore accounts) in order to evade U.S. tax obligations.  United States citizens are required to pay tax on income whether that income is received in the United States or abroad.  As I have discussed in other posts -- and as I will continue to emphasize -- legitimate asset protection does not involve unlawfully hiding assets in order to evade taxes.  In fact, the best asset protection plans essentially leave assets in relatively plain sight, and simply take advantage of applicable laws in order to make it more difficult for creditors to reach those assets.