New Jersey Businessman With NRI Account Pleads Guilty to Using Offshore Bank Accounts to Defraud the U.S. and Pays $2.37 Million FBAR Penalty

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Sanjay Sethi, a New Jersey businessman, pleaded guilty on January 7, 2013 to using hidden offshore bank accounts to defraud the U.S. in a so-called “Klein conspiracy.” According to the information that the government filed in federal district court in New Jersey, Sethi used the “NRI [Non-Resident Indian] Services division” of a large bank.. Milwaukee neurosurgeon Arvind Ahuja, an Indian American who was convicted in August of failing to file an FBAR and filing a false tax return, also used a bank’s NRI Services division to conceal his income and assets from the IRS.

Sethi’s bank accounts at the large bank’s Swiss and Indian divisions had a combined balance of as much as $4.7 million. He transferred money to the large bank from accounts held in the name of nominee entities in the Cayman Islands, the British Virgin Islands, and Switzerland. The entities bore names like Karol Bagh Charitable Trust, Fundus, Inc., SNS Investments, Ltd., Driftmore International, Ltd., and Ace Marketing, Inc.  Sethi faces a maximum of five years in prison when he is sentenced on April 18, 2013. The actual sentence is likely to be much lower. For a case involving a tax loss of between $80,000 and $200,000, sophisticated tax evasion, and acceptance of responsibility, the U.S. Sentencing Guidelines are likely to recommend a sentencing range of 18-24 months in prison. The sentencing could be higher or lower depending on the judge and whether Sethi is cooperating with the government against offshore bankers or other account-holders.

‘Taxpayers do not have to wait for the IRS to investigate, the IRS Offshore Voluntary Disclosure Program is usually available to taxpayers seeking to come into compliance and avoid criminal prosecution,” said Jim Mastracchio, Co-Chair of BakerHostetler’s Tax Controversy Practice. “With the implementation of FATCA banks will be seeking to identify all US account holders, making the disclosure programs increasingly attractive over the next few months,” added Mastracchio. Jay Nanavati, a former DOJ Tax Division Assistant Chief added, “Indian Americans who use NRI bank accounts need to make certain that they report to the IRS the accounts’ existence and any income from those accounts.”

For more information on the government’s offshore enforcement efforts, FBAR penalties, and the IRS’s Offshore Voluntary Disclosure Program (OVDP), please contact Jim Mastracchio at (202) 861-1650 (Jmastracchio@bakerlaw.com) or Jay Nanavati, (202) 861-1747 (jnanavati@bakerlaw.com), Baker Hostetler LLP, 1050 Connecticut Ave., Washington, DC 20036 (www.bakerlaw.com).