Foreign Banks Subject to U.S. Law

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The U.S. Department of Justice (DOJ) has made it clear that it will continue an aggressive practice of prosecuting foreign banks and bank personnel that have materially aided U.S. taxpayers in hiding money offshore. The most current examples are the Swiss banks Weglin & Co and Julius Baer. The DOJ is undeterred in its prosecutions by lack of physical presence of offshore banks in the U.S. as it asserts jurisdiction by attaching the banks funds in “correspondent ” banks in the U.S. The theory is that the correspondent bank is “facilitating” tax evasion activities of the offshore bank and therefore all money of the offshore bank in custody of the correspondent bank is subject to seizure. The impact on the offshore banking community is clear.

All dollar transactions, no matter where they occur in the world must clear through the New York Federal Reserve Bank. That means that for an offshore bank it must have a correspondent bank in the U.S. so it can clear US dollar transactions through the New York Fed. (game, set match on jurisdiction). What this means is that any offshore bank that was or is complicit in helping U.S. taxpayers hid money from U.S. reporting and taxation runs the risk of prosecution along with the employees involved. Accordingly most offshore banks will cooperate in turning over information about U.S. taxpayers with “hidden” accounts rather than face prosecution and account attachment.

The options for U.S. taxpayers with current undisclosed accounts, (those who have note filed Reports of Foreign Bank or Financial Accounts, “FBAR’s”, are to come forward voluntarily or wait to be caught. Coming forward typically means participating in the Offshore Voluntary Disclosure Program (OVDP). If a U.S taxpayer does not come forward and is caught first, the taxpayer will face possible prosecution and civil penalties of at least 50% of the highest account balance in the preceding six years for FBAR violations. In addition the offending taxpayer faces civil tax fraud penalties of 75% plus interest on all unreported income.

There are clearly those U.S. taxpayers who will take the approach of an Ostrich and bury their heads hoping that they will not be discovered. Those taxpayer’s are engaged in a high risk bet with the odds stacked heavily against them.

 

Topics:  DOJ, FBAR, Foreign Banks, Offshore Banks, OVDP, Penalties

Published In: Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sanford Millar, Law Offices of Sanford I. Millar | Attorney Advertising

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Sanford Millar
Law Offices of Sanford I. Millar

Experience and Qualifications: Over 30 years of experience in domestic and international tax... View Profile »


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