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Voluntary Disclosures of Offshore Accounts Reach 43,000, Justice Official Said

Voluntary Disclosures of Offshore Accounts Reach 43,000, Justice Official Says, (Mar. 19, 2014)

Voluntary disclosures of offshore accounts held by U.S. account holders have reached 43,000, Department of Justice (DOJ) Assistant Attorney General (Tax Division) Kathryn Kenneally said on March 18. Speaking with Scott Michel of Caplin & Drysdale Chartered at an American Bar Association program on international tax enforcement, Kenneally provided additional statistics:

Criminal charges have been brought against 71 accountholders—63 have pled guilty and five have been convicted so far; Six bankers have pled guilty to criminal charges; and

The DOJ has ongoing investigations of 14 Swiss banks and is looking into banks in other countries, including Liechtenstein, Luxembourg, Israel, India and the Caribbean area. According to Kenneally, the recent guilty pleas by two Swiss bankers are not just a recent trend. The DOJ is pursuing voluntary disclosures, cooperators and whistleblowers, and is seeking records through offshore subpoenas and summonses in the U.S. It is difficult for offshore activities to avoid a U.S. presence, she said; often, a U.S. bank is involved, so there are U.S. records that the DOJ can obtain. Kenneally stated that it still remains to be said—the DO is committed to making the use of foreign bank accounts for U.S. tax evasion “very unattractive.” After all the investigation and enforcement activity by the U.S. government, she said she could not understand why anyone would continue to use a foreign account to evade taxes.

Under the current program regarding offshore activities involving Swiss banks, 106 banks have submitted letters of intent seeking an agreement with the DOJ, Kenneally said. The program divides banks into four categories.

Category 1 banks are under investigation, and it is too late for them to come forward on their own. Category 2 banks self-identify themselves as having potential criminal exposure and seeking a nonprosecution or deferred prosecution agreement or to make a guilty plea. These banks must have notified the DOJ by December 31, 2013, through the letter of intent. They then must submit a plan and comply with the programs by April 30, 2014.

The DOJ may grant up to a 60-day extension. Kenneally noted that the DOJ “means those deadlines” and did not choose the dates casually. Some banks believe that, if they are complying with their responsibilities as qualified intermediaries (QI), they automatically can avoid criminal exposure, Kenneally said. She noted, however, that this is not true; banks may be able to avoid prosecution, but it is not automatic. She added that a bank that moves clients into non-U.S. assets to avoid QI requirements could be treated as criminal conspirators if there is intent to avoid tax liability.

Regardless of foreign data protection requirements, the DOJ’s program does not offer protection, Kenneally explained. The door is open to cooperation but participants must provide information. “We need the information and expect it,” she said.

Michel suggested that data protection is a serious issue in Switzerland. Banks may find themselves in conflict with Swiss law, even though the bank has no intent to thwart the DOJ program. Kenneally reiterated that the DOJ expects documents and that “most of the time, there’s no fight.” However, if the DOJ’s expectations about obtaining information cannot be met because of foreign barriers, “we can terminate the program,” she said.

The DOJ program also provides Categories 3 and 4 for banks that want a nontarget letter and can demonstrate that they are not criminally culpable, Kenneally said. This program will not begin until July 1. The DOJ wants to finish with Category 2 banks before moving on.

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According to Kenneally, the treaty process for obtaining information is working well but, under Code Sec. 6105, the DOJ cannot discuss treaty requests. She said that, if a person challenges a U.S. request in a foreign country, that person has to notify the U.S. attorney general. A person who fails to provide notice would be banned from the program, she said.

Michel noted that there is a protocol to the Swiss treaty awaiting ratification. Kenneally said that the DOJ can work within the current treaty, but the protocol would make things easier and the DOJ wants it ratified.

By Brant Goldwyn, CCH News Staff

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