Raminfard Guilty Plea Highlights Complexity Of International Tax Compliance, Seriousness Of Violations, Importance Of IRS Offshore Voluntary Disclosure Program

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Los Angeles Businessman, David Raminfard, pleaded guilty on November 4th, 2013 in the Federal District Court in Los Angeles to conspiring to defraud the United States, the Justice Department and Internal Revenue Service-Criminal Investigation (IRS-CI) announced.

Raminfard, a U.S. citizen, maintained undeclared bank accounts at an international bank headquartered in Tel Aviv, Israel, identified in court documents only as Bank A.  The accounts were held in the names of nominees in order to keep them secret from the U.S. government.  One of the accounts was held in the name of Westrose Limited, a nominee entity formed in the Turks and Caicos Islands.  To further ensure that his undeclared accounts remained secret, Raminfard placed a mail hold on his accounts.  Rather than having his account statements mailed directly to him, Raminfard would receive them from an international accounts manager with Bank A in Israel, who brought them to Los Angeles to review them with Raminfard during meetings at a hotel.

In 2000, Raminfard began secretly using the funds in his undeclared accounts as collateral for back-to-back loans obtained from the Los Angeles branch of Bank A.  A “back-to-back” loan is a two party arrangement in which a bank advances a loan on the basis of a loan advanced by another bank in another country. In this particular case, the “back-to-back loan” was taken out at Bank A’s Los Angeles Branch secured by funds in an account located at Bank A’s Israel Branch (the “pledged account”). The pledged account in Israel was held in a certificate of deposit, and there was usually a 1% to 2% spread between the interest earned on the certificate of deposit and the interest charged on the back-to-back loan.

Raminfard used the loan money to purchase commercial real estate in Los Angeles.  By using back-to-back loans, Raminfard was able to access his funds in Israel without the U.S. Government learning about his undeclared accounts.  These loans also enabled Raminfard to claim the interest paid on the loans as a business expense on his companies’ business tax returns, while not reporting the interest earned in Israel as income on his individual income tax returns filed with the IRS.  For tax years 2005 through 2010, Raminfard failed to report approximately $521,000 in income.  The highest balance in Raminfard’s undeclared accounts was approximately $3 million.

As we have previously explained and , federal law requires all United States persons with a financial interest in or signature authority over at least one financial account located outside of the United States, the aggregate value of which exceeded $10,000 at any time during the calendar year, to be reported to the U.S. Treasury by filing an FBAR. Failure to disclose these accounts can result in both civil and criminal liabilities. As we have further explained, the IRS has established a voluntary disclosure initiative for taxpayers who want to disclose previously undisclosed accounts and avoid being criminally prosecuted.

Consequently, using the money in an undeclared bank account exposes a person to various forms of liability, and it therefore becomes highly difficult for the U.S. person to access it from within the United States.  Back-to-back loans, then, come into the picture as a vehicle to allow the account holder in the U.S. to access the account without the federal government discovering it. However, as the Raminfard case makes clear, the United States perceives this as tax evasion and will prosecute it as such.

Raminfard is the latest in a series of defendants charged in the U.S. District Court for the Central District of California with conspiring to defraud the United States in connection with using undeclared bank accounts in Israel to obtain back-to-back loans in the United States. He faces a potential maximum prison term of five years and a maximum fine of $250,000.  In addition, he has agreed to pay a civil penalty to the IRS in the amount of 50 percent of the high balance of his undeclared accounts for failing to file FBARs.

 

Topics:  Banking Secrecy, Banking Sector, Civil Monetary Penalty, Commercial Real Estate Market, Conspiracies, DOJ, Foreign Bank Accounts, International Banks, International Tax Issues, Investigations, IRS, Lending, Leveraged Lending, Leveraged Loans, Loans, Offshore Banks, Tax Benefits, Tax Deductions, Tax Evasion, Tax Fraud, Tax 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.

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