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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Tax Evasion’

UK Income From Its Offshore Disclosure Facilities | Kluwer International Tax Blog

Posted by William Byrnes on August 3, 2015


UK Income From Its Offshore Disclosure Facilities | Kluwer International Tax Blog.

In 2011, HMRC forecast that it would receive “billions” from the Swiss Disclosure Facility.  In 2012, HMRC stated that this number would be five billion sterling, and another three billion sterling from the Liechtenstein Disclosure Facility (LDF).  This implies that at least a couple hundred thousand United Kingdom tax residents are non tax compliant through not disclosing income and income-producing assets overseas, in offshore countries.  

So what have the results been?  What are the future results likely to be?  Read Byrnes and Perryman at UK Income From Its Offshore Disclosure Facilities | Kluwer International Tax Blog.

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UK HMRC Releases New Policy Documents to Tackle Offshore Evasion

Posted by William Byrnes on July 20, 2015


The government announced four consultations as part of its publication Tackling Evasion andHM_Treasury_logo.svgAvoidance.  These take forward HMRC’s strategy for tackling offshore evasion, No Safe Havens.

The four consultations are:  see International Financial Law Prof Blog.

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Israeli Bank Pays $300 Million, Admits U.S. Tax Evasion by Clients

Posted by William Byrnes on December 23, 2014


A major Israeli international bank admitted that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the Internal Revenue Service (IRS) by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world.

Read the post here ….

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Swiss Banks Lost $383 Billion So Far Due To Tax Evasion Investigations

Posted by William Byrnes on September 1, 2014


International Financial Law Prof Blog.

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International Financial Law Blog headlines

Posted by William Byrnes on August 21, 2014


 

SEC Charges Golfing Buddy with Insider Trading Ahead of Bank Acquisition

O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities.

Barclays Bank adds to its new global financial crime unit

Joe Smith, Wells Fargo’s deputy money-laundering reporting officer and financial crime reporting officer, will join Barclays as a vice-president in October.

Is the UK elimination of criminal intent for criminal prosecution of tax non-compliance sound ? Is tax non-compliance equal with ‘Cruelty to Animals’ and ‘Illegal Guns’?

The Government has announced its intention to introduce a new strict liability criminal offence. This consultation seeks views on the design of this offence.

S630_HMRC_sign__media_library__960_

The UK Government has announced its intention to introduce a new strict liability criminal offence, similar to the crime of cruelty to animals.

Strict liability offences 

2.5 A strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting.

Box 1: Other strict liability offences 

There are several existing offences which can be construed to imply strict liability, including some carrying custodial sentences. These include, for example: …

Cruelty to animals, including the offences of causing unnecessary suffering while transporting an animal or holding it at a market; ….

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/345370/140819_Tackling_offshore_tax_evasion_-_A_new_criminal_offence.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/345236/140819_Tackling_offshore_tax_evasion_-_Strengthening_civil_deterrents.pdf

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more Guns & Money, Bribery, Money Laundering, Major Insolvencies, Drug Dealing … and the week is just half way over

Posted by William Byrnes on July 31, 2014


Wednesday’s articles

the secret language of LIBOR traders exposed

DOJ wants more time to examine Barclays

Morgan Stanley pays $275 million fine & disgorgement for $2.5 billion of sub-prime backed securities sales

Analysis of the 88,000 Financial Firms on the IRS’ GIIN List for FATCA

FATCA Expanded Affiliated Group (EAG) by Country – the FFI List

FACTA in Swiss Finance Transactions

FATCA Compliance Guide Download

MOnday and Tuesday articles

Guns & Money – Smith & Wesson pays $2 million for bribery

Banco Espírito Santo’s former CEO arrested for Money Laundering & Tax Evasion as bank reports Portugal’s largest loss, Espirito Santo Financial Group seeks creditor protection

Guinea mining FCPA bribery investigation nets first jail sentence

Substantial money laundering penalties but not tax collection from OVDI disclosures

4th guilty plea in Indonesia bribery FCPA case

BOA settles alleged narco kingpin violations for $16 million

SunTrust Admits Issuing Mass Denials After Throwing Away Thousand of Customers Unopened Files

Lloyds Banking Group Will Pay $370 Million, Admits Criminal Wrongdoing

FTC seizes law firm assets, alleges $35 million fees bilked from distressed homeowners

Is FedEx a drug dealer? The $2.4 billion question

Tax Inversions: The Basics

Lionel Messi to be Prosecuted for Alleged Tax Evasion of $5.4 million

Posted in Uncategorized | Tagged: , , , , , , , , , , , , , , , , | 1 Comment »

Guns & Money, Bribery, Money Laundering, Major Insolvencies, Drug Dealing … and the week has just begun

Posted by William Byrnes on July 30, 2014


Links to Articles –

Guns & Money – Smith & Wesson pays $2 million for bribery

Banco Espírito Santo’s former CEO arrested for Money Laundering & Tax Evasion as bank reports Portugal’s largest loss, Espirito Santo Financial Group seeks creditor protection

Guinea mining FCPA bribery investigation nets first jail sentence

Substantial money laundering penalties but not tax collection from OVDI disclosures

4th guilty plea in Indonesia bribery FCPA case

BOA settles alleged narco kingpin violations for $16 million

SunTrust Admits Issuing Mass Denials After Throwing Away Thousand of Customers Unopened Files

Lloyds Banking Group Will Pay $370 Million, Admits Criminal Wrongdoing

FTC seizes law firm assets, alleges $35 million fees bilked from distressed homeowners

Is FedEx a drug dealer? The $2.4 billion question

Analysis of the 88,000 Financial Firms on the IRS’ GIIN List for FATCA

Tax Inversions: The Basics

Lionel Messi to be Prosecuted for Alleged Tax Evasion of $5.4 million

Posted in Uncategorized | Tagged: , , , , , , , , , , , , , , | Leave a Comment »

110 Swiss client accounts turned over to IRS

Posted by William Byrnes on May 13, 2014


Swisspartners Enters into Non Prosecution Agreement and Turns Over US clients account information

The Tax Division of the US Department of Justice (DOJ) and the IRS’ Criminal Investigation (IRS-CI) announced a major victory in their joint campaign “… to identify U.S. tax cheats who have hidden behind phony offshore trusts and foundations,” said Deputy Attorney General Cole in the Friday, May 9, 2014 release by the DOJ’s Office of Public Affairs.

“This office will continue to work aggressively to hold accountable not only those U.S. taxpayers who evade their tax obligations by hiding money overseas, but also those abroad who make such tax evasion possible,” said U.S. Attorney Bharara.

The asset management firm, Swisspartners, entered into a non-prosecution agreement (NPA), the terms of which were verified by signature in a May 8, 2014 DOJ letter attached to the May 9th  complaint filed with the New York Southern District.  Almost a year ago, the DOJ reported that in July 2013 Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein that owns 71% of Swisspartners, entered into a non-prosecution agreement and agreed to pay more than $23.8 million stemming from its offshore banking activities, and turned over more than 200 account files of U.S. taxpayers who held undeclared accounts at the bank.

“I am very pleased that we have successfully concluded negotiations with the Swisspartners Group,” said IRS-CI Chief Weber .  “In making amends, the Swisspartners Group has turned over 110 account files relating to U.S. taxpayer-clients who maintained undeclared assets overseas….”

Swisspartners Group confessed to assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from in or about 2001 through in or about 2011.  The DOJ provided the following factors as the basis of the NPA:

  • the Swisspartners Group’s voluntary implementation of various remedial measures beginning in or about May 2008;
  • the Swisspartners Group’s voluntary self-reporting in 2012 of its criminal conduct at a time when it was neither a subject nor target of any investigation by the U.S. Department of Justice;
  • the Swisspartners Group’s voluntary and extraordinary cooperation, including its voluntary production of account files that include the identities of U.S. taxpayer-clients;
  • the Swisspartners Group’s willingness to continue to cooperate to the extent permitted by applicable law;
  • the Swisspartners Group’s representation, based on an investigation by outside counsel, the results of which have been shared with the U.S. Attorney’s Office and the Tax Division, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts; and
  • the NPA requires the Swisspartners Group to continue to cooperate with the United States for at least three years from the date of the agreement.

The NPA requires the Swisspartners Group to forfeit $3.5 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $900,000 in restitution to the IRS, representing the approximate amount of unpaid taxes arising from the tax evasion by the Swisspartners Group’s U.S. taxpayer-clients from 2001 to 2011.  In the complaint, Swisspartners admitted to:

  1. establishing sham corporate entities whereby the clients continued to maintain control of accounts,
  2. smuggling cash, in the tens of thousands, without reporting into the US to deliver to its clients, and
  3. establishing sham insurance policies with premiums from undeclared sources and in which the clients continued to control the underlying investments.

On its website, Swisspartners states: “swisspartners analyzes your tax and fiscal law situation and provides structuring services at an international level – complementary to the services provided by your tax advisor in your home country.”  Regarding insurance policies, its website states: “swisspartners designs private-placement insurance contracts that take into account the legal and tax requirements of the countries in which the family members involved have their fiscal domiciles.  Not only are our efficiently designed contracts not subject to ongoing taxation in the asset owner’s country of residence, they are also non-taxable in several other countries.

In the DOJ release statements, Deputy Attorney General Cole stated, “Swisspartners avoided criminal charges as a direct result of its decision to self-report its misconduct at a time when it was not even under investigation and its extraordinary cooperation, including its decision to turn over voluntarily the files and identities of U.S. taxpayer clients it helped hide money from the IRS.  The case serves as a clear example of the benefits that can be obtained from early and complete cooperation with federal law enforcement.”

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 that strongly encouraged Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) had issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.

106 Swiss Banks Enter DOJ’s NPA program

David Voreacos of Bloomberg News reported that Kathryn Keneally, assistant attorney general of the Justice Department’s Tax Division, in her keynote remarks to the American Bar Association Section of Taxation mid-year  (January 25, 2014), stated that 106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney and Professor Jack Townsend reported on his blog on April 30, 2014 a list of 52 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-eight for category 2.

However, while 106 may be a large jump from a mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few Swiss banks had filed for non prosecution with the DOJ’s program, William R. Davis and Lee A. Sheppard of Tax Analysts’ Worldwide Tax Daily reported that “one private practitioner estimated that some 350 banks holding 40,000 accounts have not come in.” (see “ABA Meeting: Keneally Reports Success With Swiss Bank Program”, Jan. 28, 2014, 2014 WTD 18-3.)

Framework of Swiss Bank NPA Program

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DOJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.  Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November 2013 comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

SwissInfo reported that Migros Bank selected Program Category 2 because “370 of its 825,000 clients, mostly Swiss citizens residing temporarily in the US or clients with dual nationality”, met the criteria of US taxpayer.  Valiant told SwissInfo that “an internal review showed it had never actively sought US clients or visited Americans to drum up business. The bank said less than 0.1% of its clients were American.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

  1. Existing accounts on 01.08.2008: 20%
  2. New accounts opened between 01.08.2008 and 28.02.2009: 30%
  3. New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance program in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

(Chapter updates since November 2013 are available at https://profwilliambyrnes.com/category/fatca/)book cover

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters of the analysis of 50 FATCA experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.  complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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Former Credit Suisse Banker Pleads Guilty

Posted by William Byrnes on May 2, 2014


Former Credit Suisse Banker Pleads Guilty

Josef Dörig, 72, plead guilty on April 30 to conspiring to defraud the IRS in connection with his work as the owner of Dorig Partner AG, a trust company in Switzerland.

In a statement of facts filed with the plea agreement, Dörig admitted that between 1997 and 2011, while owning and operating a trust company, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret bank accounts held in the names of sham entities at Credit Suisse.  In 1997, the Credit Suisse subsidiary spun off these sham entities into a trust company, Dorig Partner AG, owned and operated by Dorig, the Justice Department said.

Sentencing is set for Aug. 8th and Dörig faces a statutory maximum sentence of five years in prison.

Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients

In the February 21, 2014 Press Release by the US Securities and Exchange Commission (SEC) “Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients“, Credit Suisse agreed to pay $196 million and admit wrongdoing to settle the SEC’s charges.  According to the SEC’s order instituting settled administrative proceedings, Credit Suisse provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws.  Credit Suisse relationship managers traveled to the U.S. to solicit clients, provide investment advice, and induce securities transactions.  These relationship managers were not registered to provide brokerage or advisory services, nor were they affiliated with a registered entity.  The relationship managers also communicated with clients in the U.S. through overseas e-mails and phone calls.

Credit Suisse Hearing 

The seven hour hearing of the US Senate’s Permanent Subcommittee on Investigations on tax evasion associated with unreported bank accounts of Americans held about Credit Suisse in February 2014 provides a good background to understand the Justice Department indictment and guilty plea.  Below I paraphrase and excerpt the most intriguing statements of the hearing.

Based upon its two-year investigation, the Subcommittee reported that Credit Suisse opened Swiss accounts for over 22,000 U.S. customers with assets that, at their peak, totaled roughly $10 billion to $12 billion.  The Subcommittee stated that the vast majority of these accounts were hidden from U.S. authorities and that U.S. law enforcement officials have been slow to collect the unpaid taxes or hold accountable the tax evaders and bank involved.

Sen. Carl Levin, D-Mich., the subcommittee chairman said “The Credit Suisse case study shows how a Swiss bank aided and abetted U.S. tax evasion, not only from behind a veil of secrecy in Switzerland, but also on U.S. soil by sending Swiss bankers here to open hidden accounts. In response, the Department of Justice has failed to use the U.S. legal tools that won the UBS case and has instead used treaty requests for U.S. client names, relying on Swiss courts with predictably poor results. It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore.”

“For too long, international financial institutions like Credit Suisse have profited from their offshore tax haven schemes while depriving the U.S. economy of billions of dollars in tax revenues by facilitating U.S. tax evasion,” said Senator John McCain, ranking member of the subcommittee. “As federal regulators begin to crack down on these banks’ illicit practices, it is imperative that they use every legal tool at their disposal to hold these banks fully accountable for willfully deceiving the U.S. government and seek penalties that will deter similar misconduct in the future.”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.  However, the vast majority of this recovered money is not tax revenue but instead results from the FBAR penalties assessed for not reporting a foreign account.  The Taxpayer Advocate found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about381% of the additional tax assessed for taxpayers with median-sized account balances.

Have These Efforts Substantially Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics,  cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Thus, at a current rate well below 10% compliance (because nonresident aliens in the US must file a FBAR on their non-US accounts of $10,000 and over), it appears that all the additional enforcement is producing similar results of the War on Drugs.  This is not to say that obtaining a highly level of compliance with the tax law , like compliance with the drug laws and DUI laws, is not a public good in itself – it indeed is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance, about which pundits such as law enforcement officials, social libertarians, the medical profession, and all their paid lobbyists, debate.

Credit Suisse Statement to Subcommittee:

Credit Suisse is a global financial services company with operations in more than 50 countries and over 45,000 employees including approximately 9,000 U.S. employees in 19 U.S. locations. In the United States, Credit Suisse is a Financial Holding Company regulated by the Federal Reserve. The Bank has a New York branch, which is supervised by the New York Department of Financial Services, and we have three regulated U.S. broker/dealer subsidiaries. Our primary U.S. broker/dealer has been designated a Systemically Important Financial Institution under the Dodd-Frank law. We have a substantial business presence here in the United States.

Credit Suisse Exit of U.S. Relationships

Following our decision to prohibit former U.S. clients of UBS from transferring their assets to Credit Suisse, in August 2008, Credit Suisse promptly turned to addressing issues highlighted by the UBS situation. In October 2008, Credit Suisse decided to allow relationships with non-U.S. entities that had U.S. beneficial owners only if they demonstrated U.S. tax compliance. We hired a leading Swiss law firm to review the tax status of U.S. clients that wanted to remain. By the end of the first year of review, all but 135 relationships with assets over $10,000 had been reviewed and resolved.

In April 2009, we extended our review to U.S. resident clients. Credit Suisse transferred virtually all U.S. resident accounts to one of the Bank’s U.S.-registered affiliates, or terminated the relationships. Credit Suisse simply shut down those client relationships that were unwilling to move or that did not meet the $1 million requirement for transfer to the Bank’s U.S.-regulated affiliates. By the end of the first full year of review, 2010, we had reviewed and resolved more than 85% of U.S.-resident relationships with assets over $10,000.

To ensure that the review was comprehensive, we also manually searched for accounts that, although not identified in our systems as U.S.-linked, could possibly have some U.S. connection – for example, a U.S. phone number or address in the paper client file, or a notation of a U.S. birthplace on a foreign passport. Credit Suisse also reviewed the private banking activities of its subsidiaries, including Clariden Leu, which was a nearly wholly owned Credit Suisse subsidiary between 2007 and 2012. Clariden Leu’s review and exit projects paralleled the projects at Credit Suisse.

Credit Suisse also engaged one of the Big Four accounting firms to conduct its own review to assess whether the Bank had effectively identified the account relationships with U.S. links. This firm carefully analyzed the Bank’s efforts – with an intense line-by-line analysis of account information – and concluded to an extremely high level of confidence that Credit Suisse had identified the complete population of U.S. account relationships. The results of this substantial effort have been presented to the Subcommittee staff.

Subcommittee “Undeclared Accounts” Methodologies Unreliable

Credit Suisse repeatedly discussed with the Subcommittee staff the fact that it is impossible for us to know the tax status of assets previously held by U.S. clients if those clients did not disclose that information to the Bank. Unfortunately, the Subcommittee has chosen to speculate based on a number of “methodologies,” each of which is problematic and generates results that are, at best, unreliable. The Subcommittee’s need to reference three conflicting “methodologies” is an implicit recognition that accurate estimates of unreported U.S. client assets previously held at Credit Suisse cannot be made based on the actual information available to the Bank and to the Subcommittee.

8,300 Accounts under $10,000 FBAR Reporting Requirement

In any event, the Subcommittee assumes that every U.S. client account held abroad was undeclared. As discussed below, that is a demonstrably inappropriate assumption. Moreover, U.S. Treasury Department regulations required U.S. citizens to report foreign accounts only if the balance exceeded $10,000 at some point during the year. While the Subcommittee staff has mentioned 22,000 accounts, more than 8,300 had balances below $10,000 as of December 31, 2008.

6,400 Accounts for US Expats Residing in Switzerland

Troublingly, these estimates also lump in categories of accounts where there is every reason to believe that the client had a valid reason for holding a Swiss account. For example, the Subcommittee’s estimates of “undeclared” accounts include approximately 6,400 accounts held by all U.S. expats who would ordinarily have a need for some form of local banking services outside of the U.S. Again, it should not be ignored that most expats resided in Switzerland, and therefore had a particularly valid reason for maintaining a bank near their homes.

Finally, each of the three “methodologies” that the Subcommittee staff has raised is problematic for different reasons:

First Methodology No Factual Basis

The first method wrongly suggests that the number of accounts closed during the Bank’s

“Exit Projects” may be a proxy for “undeclared” accounts. The Bank’s “Exit Projects” revealed that U.S. clients left the Bank for various reasons. For example, Credit Suisse decided to simply shut down around 11,000 U.S. resident accounts when the Bank decided to stop having Swiss-based private bankers service U.S. residents and because those clients’ balances did not meet the $1 million requirement for transfer to the U.S. regulated affiliates. Those clients never had the opportunity to demonstrate tax compliance because their accounts were simply terminated. There is no basis factually to assume that all of these clients were not tax compliant.

Second Methodology Unsupported

The second method, the “UBS method,” is simply unsupported. This method proposes to estimate accounts by considering all accounts without Forms W-9 to be “undeclared” U.S. accounts. The absence of a Form W-9 alone in no way supports an inference that a client failed to report the account to the IRS, or that the Bank was aware that the client failed to do so. The Qualified Intermediary Agreement with the IRS required the preparation of a Form W-9 only if the client maintained U.S. securities. If the client did not maintain U.S. securities, a Form W-9 was not required. These are the IRS’s rules. Because this method does not consider whether the client maintained U.S. securities, it is inaccurate to assume that the account was maintained to evade U.S. taxes.

Third Methodology Inconclusive

Nor is the third method conclusive. The so-called “DOJ Estimate” recounts a figure of $4 billion stated in an indictment of certain Bank relationship managers. Because the grand jury’s proceedings are secret, neither we nor the Subcommittee have any basis to assess the grand jury’s methodologies.

Credit Suisse Assets Under Management

As to Assets under Management (AuM), it should be noted that our exit projects established that an approximate amount of $5 billion of AuM was reviewed and verified for tax compliance over the years. This number includes AuM transferred to our U.S.-registered entities or closed after tax compliance was established. In addition, approximately $2.25 billion AuM lost its U.S. nexus over the years. Finally, of the accounts that were closed over the years we simply have no basis to assume that all of them were undeclared.

It was discussed between the Senators and the representatives of Credit Suisse that the actual amount of AUM compared to Credit Suisse’s AuM was miniscule, and that such AuM contributed less than 1% to Credit Suisse’s profits.  However, Senator John McCain, the minority ranking member, told the Credit Suisse representatives that, while small in the context of the bank, amounts of billions and the profits made therefrom, are large amounts to a American taxpayer if made aware of such conduct.  While listening to the Senator’s assessment (and agreeing), I wondered why in contrast hundreds of billions of annual deficits up to nearly a trillion deficit, and 15, 17, perhaps 20 trillion of national debt don’t seem to phase the same taxpayer referred to?

Internal Investigation

Nor did we turn a blind eye to the past. On the contrary, we invested enormous efforts to achieve as much clarity as possible about whether, and to what extent, Credit Suisse employees had violated U.S. laws or helped clients do so. Credit Suisse asked external counsel to investigate any instances of past improper conduct fully. That investigation was broad and deep.

The U.S. law firm King & Spalding and the Swiss law firm Schellenberg Wittmer led the investigation, with help from a major accounting firm. The investigation reviewed all aspects of the Bank’s Swiss-based private banking business with U.S. customers. It involved more than 100 interviews of Credit Suisse and Clariden Leu personnel, from line-level private bankers to senior leaders of the Bank. The investigation reviewed the conduct of bankers across the Swiss private bank who had a number of U.S. clients or traveled to the United States.

The investigation identified evidence of violations of Bank policy centered on a small group of Swiss-based private bankers. That conduct centered on a group of private bankers within a desk of 15 to 20 private bankers at any given time who were focused on larger accounts of U.S. residents. Most of the improper activity was focused on some private bankers who traveled to the United States once or twice a year; otherwise, the investigation found only scattered evidence of improper conduct.

The investigation did not find any evidence that senior executives of Credit Suisse knew these bankers were apparently helping U.S. customers hide income and assets. To the contrary, the evidence showed that some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management.

Cooperation with U.S. Authorities

Credit Suisse has consistently cooperated with the investigations led by the Department of Justice, the SEC, and this Subcommittee, going to the greatest extent permissible by Swiss law to provide information to investigating U.S. authorities.

Since early 2011, Credit Suisse has produced hundreds of thousands of pages of documents, including translations of foreign-language documents. Our representatives have met with the Department of Justice to help them understand the information we provided and to describe the findings of our internal investigation and the Bank’s various compliance efforts.

Credit Suisse has also provided briefings to officials from the U.S. government, including the SEC and this Subcommittee. That includes more than 100 hours briefing the Subcommittee staff on details of the private banking business and the internal investigation and thousands more hours answering written questions from Subcommittee staff. Specifically, Credit Suisse produced over 580,000 pages of documents, provided 11 detailed briefings to the Subcommittee staff in all-day, or multi-day, sessions, provided 12 substantive written submissions, and made 17 witnesses available from both the United States and Switzerland, including the Bank’s General Counsel, co-heads of the Private Bank and Wealth Management Division, and the CEO.

Report Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts

The 175-page bipartisan staff report released Tuesday February 25 outlines how Credit Suisse engaged in similar conduct from at least 2001 to 2008, sending Swiss bankers into the United States to recruit U.S. customers, opening Swiss accounts that were not disclosed to U.S. authorities, including accounts opened in the name of offshore shell entities, and servicing Swiss accounts here in the United States without leaving a paper trail.  For the complete analysis of the reportm see https://profwilliambyrnes.com/2014/02/26/senate-subcommittee-hearing-and-report-on-offshore-tax-evasion/

 

106 Swiss Banks Seek Non-Prosecution from US Justice Department for Past Tax Evasion by Clients

106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney Jack Townsend reported on his blog on February 14th provided a list of 49 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-five for category 2.  106 was a large jump from the mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel).

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.[2]

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DoJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ had released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

– Existing accounts on 01.08.2008: 20%
– New accounts opened between 01.08.2008 and 28.02.2009: 30%
– New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance programme in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

LexisNexis FATCA Compliance Manual

book cover

The LexisNexis® Guide to FATCA Compliance comprises 34 Chapters by 50 contributors grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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Senate Subcommittee Hearing and Report on Offshore Tax Evasion: Credit Suisse Investigation

Posted by William Byrnes on February 26, 2014


On March 1st, 8th and 15th I have scheduled a series of FATCA articles to post.  Please “email subscribe” to this blog on the left menu if you want to read the interesting FATCA updates, and other tax related news.

Today’s Hearing 

I have just finished listening to today’s live 7 plus hour > hearing < (Wednesday, February 26) of the US Senate’s Permanent Subcommittee on Investigations on tax evasion associated with unreported bank accounts of Americans held at Credit Suisse.  Below I paraphrase and excerpt the most intriguing statements.

Based upon its two-year investigation, the Subcommittee reported that Credit Suisse opened Swiss accounts for over 22,000 U.S. customers with assets that, at their peak, totaled roughly $10 billion to $12 billion.  The Subcommittee stated that the vast majority of these accounts were hidden from U.S. authorities and that U.S. law enforcement officials have been slow to collect the unpaid taxes or hold accountable the tax evaders and bank involved.

Sen. Carl Levin, D-Mich., the subcommittee chairman said “The Credit Suisse case study shows how a Swiss bank aided and abetted U.S. tax evasion, not only from behind a veil of secrecy in Switzerland, but also on U.S. soil by sending Swiss bankers here to open hidden accounts. In response, the Department of Justice has failed to use the U.S. legal tools that won the UBS case and has instead used treaty requests for U.S. client names, relying on Swiss courts with predictably poor results. It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore.”

“For too long, international financial institutions like Credit Suisse have profited from their offshore tax haven schemes while depriving the U.S. economy of billions of dollars in tax revenues by facilitating U.S. tax evasion,” said Senator John McCain, ranking member of the subcommittee. “As federal regulators begin to crack down on these banks’ illicit practices, it is imperative that they use every legal tool at their disposal to hold these banks fully accountable for willfully deceiving the U.S. government and seek penalties that will deter similar misconduct in the future.”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.  However, the vast majority of this recovered money is not tax revenue but instead results from the FBAR penalties assessed for not reporting a foreign account.  The Taxpayer Advocate found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances.

Have These Efforts Substantially Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics,  cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Thus, at a current rate well below 10% compliance (because nonresident aliens in the US must file a FBAR on their non-US accounts of $10,000 and over), it appears that all the additional enforcement is producing similar results of the War on Drugs.  This is not to say that obtaining a highly level of compliance with the tax law , like compliance with the drug laws and DUI laws, is not a public good in itself – it indeed is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance, about which pundits such as law enforcement officials, social libertarians, the medical profession, and all their paid lobbyists, debate.

Credit Suisse Statement to Subcommittee:

Credit Suisse is a global financial services company with operations in more than 50 countries and over 45,000 employees including approximately 9,000 U.S. employees in 19 U.S. locations. In the United States, Credit Suisse is a Financial Holding Company regulated by the Federal Reserve. The Bank has a New York branch, which is supervised by the New York Department of Financial Services, and we have three regulated U.S. broker/dealer subsidiaries. Our primary U.S. broker/dealer has been designated a Systemically Important Financial Institution under the Dodd-Frank law. We have a substantial business presence here in the United States.

Credit Suisse Exit of U.S. Relationships

Following our decision to prohibit former U.S. clients of UBS from transferring their assets to Credit Suisse, in August 2008, Credit Suisse promptly turned to addressing issues highlighted by the UBS situation. In October 2008, Credit Suisse decided to allow relationships with non-U.S. entities that had U.S. beneficial owners only if they demonstrated U.S. tax compliance. We hired a leading Swiss law firm to review the tax status of U.S. clients that wanted to remain. By the end of the first year of review, all but 135 relationships with assets over $10,000 had been reviewed and resolved.

In April 2009, we extended our review to U.S. resident clients. Credit Suisse transferred virtually all U.S. resident accounts to one of the Bank’s U.S.-registered affiliates, or terminated the relationships. Credit Suisse simply shut down those client relationships that were unwilling to move or that did not meet the $1 million requirement for transfer to the Bank’s U.S.-regulated affiliates. By the end of the first full year of review, 2010, we had reviewed and resolved more than 85% of U.S.-resident relationships with assets over $10,000.

To ensure that the review was comprehensive, we also manually searched for accounts that, although not identified in our systems as U.S.-linked, could possibly have some U.S. connection – for example, a U.S. phone number or address in the paper client file, or a notation of a U.S. birthplace on a foreign passport. Credit Suisse also reviewed the private banking activities of its subsidiaries, including Clariden Leu, which was a nearly wholly owned Credit Suisse subsidiary between 2007 and 2012. Clariden Leu’s review and exit projects paralleled the projects at Credit Suisse.

Credit Suisse also engaged one of the Big Four accounting firms to conduct its own review to assess whether the Bank had effectively identified the account relationships with U.S. links. This firm carefully analyzed the Bank’s efforts – with an intense line-by-line analysis of account information – and concluded to an extremely high level of confidence that Credit Suisse had identified the complete population of U.S. account relationships. The results of this substantial effort have been presented to the Subcommittee staff.

Subcommittee “Undeclared Accounts” Methodologies Unreliable

Credit Suisse repeatedly discussed with the Subcommittee staff the fact that it is impossible for us to know the tax status of assets previously held by U.S. clients if those clients did not disclose that information to the Bank. Unfortunately, the Subcommittee has chosen to speculate based on a number of “methodologies,” each of which is problematic and generates results that are, at best, unreliable. The Subcommittee’s need to reference three conflicting “methodologies” is an implicit recognition that accurate estimates of unreported U.S. client assets previously held at Credit Suisse cannot be made based on the actual information available to the Bank and to the Subcommittee.

8,300 Accounts under $10,000 FBAR Reporting Requirement

In any event, the Subcommittee assumes that every U.S. client account held abroad was undeclared. As discussed below, that is a demonstrably inappropriate assumption. Moreover, U.S. Treasury Department regulations required U.S. citizens to report foreign accounts only if the balance exceeded $10,000 at some point during the year. While the Subcommittee staff has mentioned 22,000 accounts, more than 8,300 had balances below $10,000 as of December 31, 2008.

6,400 Accounts for US Expats Residing in Switzerland

Troublingly, these estimates also lump in categories of accounts where there is every reason to believe that the client had a valid reason for holding a Swiss account. For example, the Subcommittee’s estimates of “undeclared” accounts include approximately 6,400 accounts held by all U.S. expats who would ordinarily have a need for some form of local banking services outside of the U.S. Again, it should not be ignored that most expats resided in Switzerland, and therefore had a particularly valid reason for maintaining a bank near their homes.

Finally, each of the three “methodologies” that the Subcommittee staff has raised is problematic for different reasons:

First Methodology No Factual Basis

The first method wrongly suggests that the number of accounts closed during the Bank’s

“Exit Projects” may be a proxy for “undeclared” accounts. The Bank’s “Exit Projects” revealed that U.S. clients left the Bank for various reasons. For example, Credit Suisse decided to simply shut down around 11,000 U.S. resident accounts when the Bank decided to stop having Swiss-based private bankers service U.S. residents and because those clients’ balances did not meet the $1 million requirement for transfer to the U.S. regulated affiliates. Those clients never had the opportunity to demonstrate tax compliance because their accounts were simply terminated. There is no basis factually to assume that all of these clients were not tax compliant.

Second Methodology Unsupported

The second method, the “UBS method,” is simply unsupported. This method proposes to estimate accounts by considering all accounts without Forms W-9 to be “undeclared” U.S. accounts. The absence of a Form W-9 alone in no way supports an inference that a client failed to report the account to the IRS, or that the Bank was aware that the client failed to do so. The Qualified Intermediary Agreement with the IRS required the preparation of a Form W-9 only if the client maintained U.S. securities. If the client did not maintain U.S. securities, a Form W-9 was not required. These are the IRS’s rules. Because this method does not consider whether the client maintained U.S. securities, it is inaccurate to assume that the account was maintained to evade U.S. taxes.

Third Methodology Inconclusive

Nor is the third method conclusive. The so-called “DOJ Estimate” recounts a figure of $4 billion stated in an indictment of certain Bank relationship managers. Because the grand jury’s proceedings are secret, neither we nor the Subcommittee have any basis to assess the grand jury’s methodologies.

Credit Suisse Assets Under Management

As to Assets under Management (AuM), it should be noted that our exit projects established that an approximate amount of $5 billion of AuM was reviewed and verified for tax compliance over the years. This number includes AuM transferred to our U.S.-registered entities or closed after tax compliance was established. In addition, approximately $2.25 billion AuM lost its U.S. nexus over the years. Finally, of the accounts that were closed over the years we simply have no basis to assume that all of them were undeclared.

It was discussed between the Senators and the representatives of Credit Suisse that the actual amount of AUM compared to Credit Suisse’s AuM was miniscule, and that such AuM contributed less than 1% to Credit Suisse’s profits.  However, Senator John McCain, the minority ranking member, told the Credit Suisse representatives that, while small in the context of the bank, amounts of billions and the profits made therefrom, are large amounts to a American taxpayer if made aware of such conduct.  While listening to the Senator’s assessment (and agreeing), I wondered why in contrast hundreds of billions of annual deficits up to nearly a trillion deficit, and 15, 17, perhaps 20 trillion of national debt don’t seem to phase the same taxpayer referred to?

Internal Investigation

Nor did we turn a blind eye to the past. On the contrary, we invested enormous efforts to achieve as much clarity as possible about whether, and to what extent, Credit Suisse employees had violated U.S. laws or helped clients do so. Credit Suisse asked external counsel to investigate any instances of past improper conduct fully. That investigation was broad and deep.

The U.S. law firm King & Spalding and the Swiss law firm Schellenberg Wittmer led the investigation, with help from a major accounting firm. The investigation reviewed all aspects of the Bank’s Swiss-based private banking business with U.S. customers. It involved more than 100 interviews of Credit Suisse and Clariden Leu personnel, from line-level private bankers to senior leaders of the Bank. The investigation reviewed the conduct of bankers across the Swiss private bank who had a number of U.S. clients or traveled to the United States.

The investigation identified evidence of violations of Bank policy centered on a small group of Swiss-based private bankers. That conduct centered on a group of private bankers within a desk of 15 to 20 private bankers at any given time who were focused on larger accounts of U.S. residents. Most of the improper activity was focused on some private bankers who traveled to the United States once or twice a year; otherwise, the investigation found only scattered evidence of improper conduct.

The investigation did not find any evidence that senior executives of Credit Suisse knew these bankers were apparently helping U.S. customers hide income and assets. To the contrary, the evidence showed that some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management.

Cooperation with U.S. Authorities

Credit Suisse has consistently cooperated with the investigations led by the Department of Justice, the SEC, and this Subcommittee, going to the greatest extent permissible by Swiss law to provide information to investigating U.S. authorities.

Since early 2011, Credit Suisse has produced hundreds of thousands of pages of documents, including translations of foreign-language documents. Our representatives have met with the Department of Justice to help them understand the information we provided and to describe the findings of our internal investigation and the Bank’s various compliance efforts.

Credit Suisse has also provided briefings to officials from the U.S. government, including the SEC and this Subcommittee. That includes more than 100 hours briefing the Subcommittee staff on details of the private banking business and the internal investigation and thousands more hours answering written questions from Subcommittee staff. Specifically, Credit Suisse produced over 580,000 pages of documents, provided 11 detailed briefings to the Subcommittee staff in all-day, or multi-day, sessions, provided 12 substantive written submissions, and made 17 witnesses available from both the United States and Switzerland, including the Bank’s General Counsel, co-heads of the Private Bank and Wealth Management Division, and the CEO.

Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients

In the February 21, 2014 Press Release by the US Securities and Exchange Commission (SEC) “Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients“, Credit Suisse agreed to pay $196 million and admit wrongdoing to settle the SEC’s charges.  According to the SEC’s order instituting settled administrative proceedings, Credit Suisse provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws.  Credit Suisse relationship managers traveled to the U.S. to solicit clients, provide investment advice, and induce securities transactions.  These relationship managers were not registered to provide brokerage or advisory services, nor were they affiliated with a registered entity.  The relationship managers also communicated with clients in the U.S. through overseas e-mails and phone calls.

Report Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts

The 175-page bipartisan staff report released Tuesday February 25 outlines how Credit Suisse engaged in similar conduct from at least 2001 to 2008, sending Swiss bankers into the United States to recruit U.S. customers, opening Swiss accounts that were not disclosed to U.S. authorities, including accounts opened in the name of offshore shell entities, and servicing Swiss accounts here in the United States without leaving a paper trail.

Senator Carl Levin Statement

In his statement summary of the investigation of Credit Suisse, Senator Levin stated:

“…A bipartisan report we are releasing today cites chapter and verse of the failure to collect the taxes owed and to hold accountable the U.S. persons who evaded their tax obligations and the tax haven banks who helped them.  To lay bare the problems, our report uses a detailed case study involving Credit Suisse.

“What we found was that Credit Suisse had been holding back about how bad the problem was at the bank.  At its peak, in Switzerland, Credit Suisse had over 22,000 U.S. customers with accounts containing more than 12 billion Swiss francs, which translates into $10 to $12 billion U.S. dollars.  Nearly 1,500 accounts were opened in the name of offshore shell companies to hide U.S. ownership.  Another nearly 2,000 were opened at Clariden Leu, Credit Suisse’s own little private bank.  Almost 10,000 were serviced by a special Credit Suisse branch at the Zurich airport which enabled clients to fly in to do their banking without leaving airport grounds.

“Although Credit Suisse policy was to concentrate its U.S. client accounts in Switzerland at a Swiss desk called SALN, which had about 15 bankers trained in U.S. regulatory and tax requirements, that policy was largely ignored.  In 2008, over 1,800 bankers spread throughout the bank in Switzerland handled one or more U.S. accounts.  One U.S. client told the Subcommittee about visiting the bank’s main offices in Zurich.  The client was ushered into a remotely controlled elevator with no floor buttons, and escorted to a bare room with white walls, all dramatizing the bank’s focus on secrecy.  The client opened an account after being told the bank did not require completion of the W-9; without that form, the account was not reported to U.S. authorities.  In later visits, the client was offered cash withdrawals and credit cards to draw from the Swiss account while in the United States, and the client always signed a form ordering that the Credit Suisse account statements be immediately shredded.

“But the Swiss bankers didn’t stay in Switzerland.  Like UBS, Credit Suisse bankers travelled across the United States.  Ten SALN bankers alone took more than 170 U.S. trips from 2001 to 2008, to look for new clients and service existing accounts.  Credit Suisse arranged for them to host tables at the annual Swiss Ball in New York and to host golf tournaments in Florida to prospect for wealthy clients.  Some also met with as many as 30 to 40 existing U.S. clients in a single trip to attend to their banking needs. 

“We learned of one Swiss banker who met with a U.S. client over breakfast at a U.S. luxury hotel, and slipped the client bank account statements in between the pages of a Sports Illustrated magazine.  Although none of the Swiss bankers were registered with the U.S. Securities and Exchange Commission, many provided broker-dealer and investment advisory services for U.S. clients, resulting in the > $196 million fine that Credit Suisse < paid last week.  Some Swiss bankers also advised U.S. clients on how to structure cash transactions to avoid filing reports of cash transactions over $10,000 as required by U.S. law.  Other Swiss bankers helped U.S. clients set up offshore shell corporations to hold their accounts and hide the ownership trail.  Some bankers lied on visa applications when they entered the United States, saying the purpose of their visit was tourism when in fact it was business.

“Once UBS’s misconduct was exposed, Credit Suisse initiated a series of so-called Exit Projects to close its U.S. client accounts in Switzerland.  Those projects took five years, until 2013, to complete.  In the end, the bank verified accounts for about 3,500 out of the 22,000 U.S. clients as compliant with U.S. tax law, meaning they were disclosed to the IRS.  The bank closed accounts for the other 18,900 U.S. customers.  It is clear that the vast majority – up to 95 percent – were undeclared, meaning hidden from Uncle Sam. 

“So where are we now?  Unlike UBS, U.S. enforcement action against Credit Suisse has stalled, even though the bank got a target letter three years ago in 2011.  While seven of its bankers were indicted by U.S. prosecutors in 2011, none has stood trial and none has been the subject of a U.S. extradition request.  Less than a handful of U.S. taxpayers with Credit Suisse accounts have been indicted.

“As you can see on this chart, of the 22,000 U.S. clients with Swiss accounts at Credit Suisse, the total number of accounts with U.S. names disclosed by the Swiss to the United States over five years hits a grand total of 238.  That’s 238 out of 22,000, about one percent.   Other Swiss banks with thousands of U.S. clients in Switzerland have, as far as we know, disclosed no names at all.

“By restricting itself to the treaty process, DOJ essentially handed over control of U.S. information requests to Swiss regulators and Swiss courts that rule on how they will be handled and have regularly elevated bank secrecy over bank disclosures.

“But the Swiss roadblocks didn’t end there.  In 2009, right after the UBS battle, Switzerland agreed to amend the U.S.-Swiss tax treaty to replace its highly restrictive “tax fraud” standard with the somewhat less restrictive “relevance” standard.  But the Swiss also insisted that the less restrictive disclosure standard be used only for information requests regarding Swiss accounts in existence after the amendments were signed on September 23, 2009.  U.S. negotiators went along, and produced a new treaty standard that may be useful prospectively, but can’t be used for potentially tens of thousands of Swiss accounts employed for U.S. tax evasion before 2009.  The end result is that the tax evaders and the Swiss banks who helped them may get away with wrongdoing.

“Here’s another rigged game.  The U.S.-Swiss extradition treaty is supposed to enable each country to obtain the transfer of a criminal defendant from the other country.  But that treaty has an exception giving the Swiss the discretion to deny an extradition request for a person accused of a tax offense.  DOJ has indicted 38 Swiss banking and other professionals for aiding and abetting U.S. tax evasion.  The indictment of the seven Credit Suisse bankers is already three years old.  But 34 of those 38 defendants have yet to stand trial.  Instead, most are openly residing in Switzerland.  One Swiss banker who left Switzerland to vacation in Italy was recently arrested and is here and set to stand trial in October, but he’s the exception.  It is bad enough that the Swiss can deny extradition for persons aiding and abetting U.S. tax evasion; it is inexplicable that the United States hasn’t even made extradition requests.”

According to the Subcommittee report, after the UBS scandal broke, Credit Suisse began a series of Exit Projects, and took five years to close Swiss accounts held by 18,900 U.S. clients, leaving just 3,500 U.S. customers still with the bank. Credit Suisse also conducted an internal investigation, but produced no report and identified no leadership failures that allowed the bank to become involved in tax evasion. Despite, in 2011, indictment of seven of its bankers and a DOJ letter notifying the bank that it was itself an investigation target, Credit Suisse has not been held legally accountable by DOJ, and none of its bankers has stood trial.

Despite earlier testimony pledging to use important U.S. legal tools such as grand jury subpoenas and John Doe summonses to obtain the names of U.S. tax evaders, the investigation found that DOJ had failed to use them, choosing instead to file treaty requests with little success. In the past five years, DOJ has not sought to enforce a single grand jury subpoena against a Swiss bank, has not assisted in the filing of a single John Doe summons to obtain client names or account information in Switzerland, and has prosecuted only one Swiss bank, Wegelin &Co., despite more than a dozen under investigation for facilitating U.S. tax evasion. In addition, over the past five years, DOJ has obtained information, including U.S. client names, for only 238 undeclared Swiss accounts out of the tens of thousands opened offshore.

Subcommittee Findings

The Subcommittee investigation reaches several findings of fact:

(1)      Bank Practices that Facilitated U.S. Tax Evasion. From at least 2001 to 2008, Credit Suisse employed banking practices that facilitated tax evasion by U.S. customers, including by opening undeclared Swiss accounts for individuals, opening accounts in the name of offshore shell entities to mask their U.S. ownership, and sending Swiss bankers to the United States to recruit new U.S. customers and service existing Swiss accounts without creating paper trails.  At its peak, Credit Suisse had over 22,000 U.S. customers with Swiss accounts containing assets that exceeded 12 billion Swiss francs.

(2)      Inadequate Bank Response. Credit Suisse’s efforts to close undeclared Swiss accounts opened by U.S. customers took more than five years, failed to identify how many were undeclared accounts hidden from U.S. authorities, and fell short of identifying any leadership failures or lessons learned from its legally-suspect U.S. cross border business.

(3)      Lax U.S. Enforcement. Despite the passage of five years, U.S. law enforcement has failed to prosecute more than a dozen Swiss banks that facilitated U.S. tax evasion, failed to take legal action against thousands of U.S. persons whose names and hidden Swiss accounts were disclosed by UBS, and failed to utilize available U.S. legal means to obtain the names of tens of thousands of additional U.S. persons whose identities are still being concealed by the Swiss.

(4)      Swiss Secrecy. Since 2008, Swiss officials have worked to preserve Swiss bank secrecy by intervening in U.S. criminal investigations to restrict document production by Swiss banks, pressuring the United States to construct a program for issuing non-prosecution agreements to hundreds of Swiss banks while excusing those banks from disclosing U.S. client names, enacting legislation creating new barriers to U.S. treaty requests seeking U.S. client names, and managing to limit the actual disclosure of U.S. client names to only a few hundred names over five years, despite the tens of thousands of undeclared Swiss accounts opened by U.S. clients evading U.S. taxes.

Subcommittee Recommendations:

(1)      Improve Prosecution of Tax Haven Banks and Hidden Offshore Account Holders. To ensure accountability, deter misconduct, and collect tax revenues, the Department of Justice should use available U.S. legal means, including enforcing grand jury subpoenas and John Doe summons in U.S. courts, to obtain the names of U.S. taxpayers with undeclared accounts at tax haven banks. DOJ should hold accountable tax haven banks that aided and abetted U.S. tax evasion, and take legal action against U.S. taxpayers to collect unpaid taxes on billions of dollars in offshore assets.

(2)      Increase Transparency of Tax Haven Banks That Impede U.S. Tax Enforcement. U.S. regulators should use their existing authority to institute a probationary period of increased reporting requirements for, or to limit the opening of new accounts by, tax haven banks that enter into deferred prosecution agreements, non-prosecution agreements, settlements, or other concluding actions with law enforcement for facilitating U.S. tax evasion, taking into consideration repetitive or cumulative misconduct.

(3)      Streamline John Doe Summons. Congress should amend U.S. tax laws to streamline the use of John Doe summons procedures to uncover the names of taxpayers using offshore accounts and other means to evade U.S. taxes, including by allowing a court to approve more than one John Doe summons related to the same tax investigation.

(4)      Close FATCA Loopholes. To obtain systematic disclosure of undeclared offshore accounts used to evade U.S. taxes, the U.S. Treasury and IRS should close gaping loopholes in FATCA regulations that have no statutory basis, including provisions that allow financial institutions to ignore account information stored on paper, and allow foreign financial institutions to treat offshore shell entities as non-U.S. entities even when beneficially owned and controlled by U.S. persons.

(5)      Ratify Revised Swiss Tax Treaty. The U.S. Senate should promptly ratify the 2009 Protocol to the U.S.-Switzerland tax treaty to take advantage of improved disclosure standards.

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice > released a statement on December 12, 2013 < strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a > joint statement < signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.[2]

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DoJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ had released > comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks < .

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

– Existing accounts on 01.08.2008: 20%
– New accounts opened between 01.08.2008 and 28.02.2009: 30%
– New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance programme in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

106 Swiss Banks Seek Non-Prosecution from US Justice Department for Past Tax Evasion by Clients

106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney Jack Townsend reported on his blog on February 14th provided a list of 49 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-five for category 2.  106 was a large jump from the mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel).

See my other articles:

LexisNexis FATCA Compliance Manual

book coverFifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives – one voice crafted by the primary author William Byrnes.

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

Posted in FATCA, Financial Crimes | Tagged: , , | 3 Comments »

LexisNexis® Guide to FATCA Compliance release …

Posted by William Byrnes on May 3, 2013


Over 400 pages of compliance analysis !! now available with the 20% discount code link in this flier –> LN Guide to FATCA_flier.

The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies,  in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions.  A sample chapter from the 25 is available on LexisNexis: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

book coverContributing FATCA Expert Practitioners

Kyria Ali, FCCA is a member of the Association of Chartered Certified Accountants (“ACCA”) of Baker Tilly (BVI) Limited.

Michael Alliston, Esq. is a solicitor in the London office of Herbert Smith Freehills LLP.

Ariene d’Arc Diniz e Amaral, Adv.  is a Brazilian tax attorney of Rolim, Viotti & Leite Campos Advogados.

Maarten de Bruin, Esq. is a partner of Stibbe Simont. 

Jean-Paul van den Berg, Esq.  is a tax partner of Stibbe Simont.

Amanda Castellano, Esq. spent three years as an auditor with the Internal Revenue Service.

Luzius Cavelti, Esq. is an associate at Tappolet & Partner in Zurich.

Bruno Da Silva, LL.M.  works at Loyens & Loeff, European Direct Tax Law team and is a tax treaty adviser for the Macau special administrative region of the People’s Republic of China.

Prof. J. Richard Duke, Esq. is an attorney admitted in Alabama and Florida specializing over forty years in income and estate tax planning and compliance, as well as asset protection, for high net wealth families.  He served as Counsel to the Ludwig von Mises Institute for Austrian Economics 1983-1989.

Dr. Jan Dyckmans, Esq. is a German attorney at Flick Gocke Schaumburg in Frankfurt am Main.

Arne Hansen is a legal trainee of the Hanseatisches Oberlandesgericht (Higher Regional Court of Hamburg), Germany.

Mark Heroux, J.D. is a Principal in the Tax Services Group at Baker Tilly who began his career in 1986 with the IRS Office of Chief Counsel.

Rob. H. Holt, Esq. is a practicing attorney of thirty years licensed in New York and Texas representing real estate investment companies.

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Denis Kleinfeld, Esq., CPA. is a renown tax author over four decades specializing in international tax planning of high net wealth families.  He is Of Counsel to Fuerst Ittleman David & Joseph, PL, in Miami, Florida and was employed as an attorney with the Internal Revenue Service in the Estate and Gift Tax Division.

Richard L. Knickerbocker, Esq.  is the senior partner in the Los Angeles office of the Knickerbocker Law Group and the former City Attorney of the City of Santa Monica.

Saloi Abou-Jaoude’ Knickerbocker Saloi Abou-Jaoude’ Knickerbocker is a Legal Administrator in the Los Angeles office of the Knickerbocker Law Group concentrated on shari’a finance.

Jeffrey Locke, Esq.  is Director at Navigant Consulting.

Josh Lom works at Herbert Smith Freehills LLP.

Prof. Stephen Polak is a Tax Professor at Thomas Jefferson School of Law’s International Tax & Financial Services Graduate Program where he lectures on Financial Products, Tax Procedure and Financial Crimes. As a U.S. Senior Internal Revenue Agent, Financial Products and Transaction Examiner he examined exotic financial products of large multi-national corporations. Currently, Prof. Polak is assigned to U.S. Internal Revenue Service’s three year National Research Program’s as a Federal State and Local Government Specialist where he examines states, cities, municipalities, and other governmental entities.

Dr. Maji C. Rhee is a professor of Waseda University located in Tokyo.

Jean Richard, Esq.  a Canadian attorney, previously worked for the Quebec Tax Department, as a Senior Tax Manager with a large international accounting firm and as a Tax & Estate consultant for a pre-eminent Canadian insurance company.  He is currently the Vice President and Sr. Wealth Management Consultant of the BMO Financial Group.

Michael J. Rinaldi, II, CPA. is a renown international tax accountant and author, responsible for the largest independent audit firm in Washington, D.C.

Edgardo Santiago-Torres, Esq., CPA, is also a Certified Public Accountant and a Chartered Global Management Accountant, pursuant to the AICPA and CIMA rules and regulations, admitted by the Puerto Rico Board of Accountancy to practice Public Accounting in Puerto Rico, and an attorney.

Hope M. Shoulders, Esq. is a licensed attorney in the State of New Jersey whom has previously worked for General Motors, National Transportation Safety Board and the Department of Commerce.

Jason Simpson, CAMS is the Director of the Miami office for Global Atlantic Partners, overseeing all operations in Florida, the Caribbean and most of Latin America. He has worked previously as a bank compliance employee at various large and mid-sized financial institutions over the past ten years.  He has been a key component in the removal of Cease and Desist Orders as well as other written regulatory agreements within a number of Domestic and International Banks, and designed complete AML units for domestic as well as international banks with over three million clients.

Dr. Alberto Gil Soriano, Esq.  worked at the European Commission’s Anti-Fraud Office in Brussels, and most recently at the Legal Department of the International Monetary Fund’s Financial Integrity Group in Washington, D.C. He currently works at the Fiscal Department of Uría Menéndez Abogados, S.L.P in Barcelona (Spain).

Lily L. Tse, CPA. is a partner of Rinaldi & Associates (Washington, D.C.).

Dr. Oliver Untersander, Esq. is partner at Tappolet & Partner in Zurich.

Mauricio Cano del Valle, Esq. is a Mexican attorney who previously worked for the Mexican Ministry of Finance (Secretaría de Hacienda) and Deloitte and Touche Mexico.  He was Managing Director of the Amicorp Group Mexico City and San Diego offices, and now has his own law firm. 

John Walker, Esq. is an accomplished attorney with a software engineering and architecture background.

Bruce Zagaris, Esq. is a partner at the Washington, D.C. law firm Berliner, Corcoran & Rowe, LLP. 

Prof. William Byrnes was a Senior Manager then Associate Director at Coopers & Lybrand, before joining academia wherein he became a renowned author of 38 book and compendium volumes, 93 book & treatise chapters and supplements, and 800+ articles.  He is Associate Dean of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Dr. Robert J. Munro is the author of 35 published books is a Senior Research Fellow and Director of Research for North America of CIDOEC at Jesus College, Cambridge University, and head of the anti money laundering studies of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Posted in Compliance, Estate Tax, Financial Crimes, information exchange, Money Laundering, OECD, Reporting, Tax Policy, Taxation, Wealth Management | Tagged: , , , , , , | 1 Comment »

OECD Model Agreement for Tax Information Exchange (TIEA) Part 2 (Legal Privilege)

Posted by William Byrnes on September 1, 2009


This week we continue with our examination of Cross-Border Information Exchange deciphering the Legal Privilege Limitation requirements of exchange contemplated by the OECD Model Agreement for Tax Information Exchange.  In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.

Tax Evasion Request (1 January 2004)

In the BVI TIEA, criminal tax evasion, for which the exchange of information begins 1 January 2004, is defined:

“”criminal tax evasion” means willfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party. The competent authorities shall agree on the scope and extent of matters falling within this definition;” (emphasis added)[1]

The Cayman TIEA does not contain the last emphasized sentence.  The Bahamas TIEA states more broadly that “”criminal matter” means an examination, investigation or proceeding concerning conduct that constitutes a criminal tax offense under the laws of the United States.  The IOM and Jersey TIEAs define criminal tax matters as those “involving intentional conduct which is liable to prosecution under the criminal laws of the applicant Party.”  Barbados and Bermuda TIEAs do not contain a specific definition of criminal tax evasion, that is the USA may request information regarding civil tax matters.

From January 1, 2006, information regarding any civil tax matters may be requested by the USA from all of the jurisdictions.  This date coincides with the date established by the OECD it demanding its commitment letters from targeted tax havens regarding the 1998 and 2000 Reports.

Legal Privilege Limitation

The BVI, Cayman and Bahamas TIEAs contain a protection for information subject to legal privilege.  The BVI TIEA broadly define legal privilege:

     “items subject to legal privilege” means:

       (a) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;

       (b) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and

       (c) items enclosed with or referred to in such communications and made –

              (i) in connection with the giving of legal advice; or

              (ii) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when the items are in the possession of a person who is entitled to possession of them.

              Items held with the intention of furthering a criminal purpose are not subject to legal privilege, and nothing in this Article shall prevent a professional legal adviser from providing the name and address of a client where doing so would not constitute a breach of legal privilege; (emphasis added)

The Cayman TIEA does not contain the provision that a professional legal advisor is not prevented from providing a client’s name and address.  The Bahamas definition is more restrictive in that it does not contain the clause (c) regarding items enclosed in legally privileged communications.  The NLA and Barbados TIEAs incorporate legal privilege pursuant to its definition under domestic law in that the TIEA limits the Requested Party to the information collection means available under domestic law.  Whereas the IOM TIEA contains a definition of legal privilege, Jersey does not, though like NLA and Barbados, such definition and limitation is incorporated.  Like Cayman, the IOM TIEA defines legal privilege as:

       (i) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;

       (ii) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and

       (iii) items enclosed with or referred to in such communications and made-

             (a) in connection with the giving of legal advice; or

            (b) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when they are in the possession of a person who is entitled to possession of them.

Items held with the intention of furthering a criminal purpose are not subject to legal privilege.

Procedural Application – Fishing Expeditions

The BVI TIEA provides in order to demonstrate the relevance of the information sought to the request that the US shall provide the following information:

       (a) the name of the authority seeking the information or conducting the investigation or proceeding to which the request relates;

       (b) the identity of the taxpayer under examination or investigation;

       (c) the nature and type of the information requested, including a description of the specific evidence, information or other assistance sought;

       (d) the tax purposes for which the information is sought;

       (e) the period of time with respect to which the information is requested;

       (f) reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party and may be relevant to the tax purposes of the request;

       (g) to the extent known, the name and address of any person believed to be in possession or control of the information requested;

       (h) a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under this Agreement.

The Cayman TIEA does not include clauses (a) or (e) above, but practically such information should be included in any valid request under any TIEA. Jersey and IOM’s TIEA is similar to the BVI TIEA in respect of this section, absent clause (a).  NLA does not contain this section in its TIEA, but such information by the USA should be provided.

Time to Comply

The BVI and Cayman TIEAs allow them 60 days to identify of any deficiencies in a request and provide the US notice.  If BVI or Cayman will not provide requested information, or cannot, it must immediately notify the US.

Check back for Part 2 on Thursday, September 3.  Prof. William Byrnes


[1] BVI TIEA, Article 4.

Posted in Compliance, information exchange, Taxation | Tagged: , , | Leave a Comment »

OECD MODEL AGREEMENT FOR TAX INFORMATION EXCHANGE (TIEA) PART 1

Posted by William Byrnes on August 29, 2009


This week we continue with our examination of Cross-Border Information Exchange deciphering the procedural and substantive requirements of exchange contemplated by the OECD Model Agreement for Tax Information Exchange.  The other important issue of Cross Border Assistance with Tax Collection will be addressed in a few weeks. 

In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.

2003 OECD Model Agreement for Tax Information Exchange (TIEA)

The OECD Model TIEA was developed by an OECD Working Group consisting of the OECD Members and delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino.  The OECD Model TIEA obviates from several principles established in the 2003 OECD Model DTA, 2001 UN Model, 1981 OECD Convention on Tax Claims and 1988 OECD Convention on Administrative Assistance.

The Model TIEA provides that the Parties shall give “information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.”  The Model TIEA allows for a two year phase between information sought in criminal tax matters, i.e. criminal tax evasion, versus the later extension to information sought in civil tax matters i.e. civil tax evasion but importantly also tax avoidance.   

The TIEA obviates from the traditional requirement of dual criminality, that is the underlying crime for which information is sought should be a crime in both Parties’ domestic laws: “Such information shall be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested Party if such conduct occurred in the requested Party.”

Because the OECD Model TIEA is meant to be applied to negotiations with jurisdictions that do not have a direct tax system, the TIEA provides that the Requested Party must seek requested information even when it does not need the information for its own tax purposes.  But a Requested State is not obliged to exceed the power to gather information that is allowable under its laws.  However, the TIEA is specific that each Party is obliged to provide:

“a) information held by banks, other financial institutions, and any person acting in an agency or fiduciary capacity including nominees and trustees;

b) information regarding the ownership of companies, partnerships, trusts, foundations, “Anstalten” and other persons,…ownership information on all such persons in an ownership chain; in the case of trusts, information on settlors, trustees and beneficiaries; and in the case of foundations, information on founders, members of the foundation council and beneficiaries….”

Procedurally, the Requesting State’s competent authority must provide, in order to “demonstrate the foreseeable relevance of the information to the request” the following information:

“(a) the identity of the person under examination or investigation;

(b) a statement of the information sought including its nature and the form in which the applicant Party wishes to receive the information from the requested Party;

(c) the tax purpose for which the information is sought;

(d) grounds for believing that the information requested is held in the requested Party or is in the possession or control of a person within the jurisdiction of the requested Party;

(e) to the extent known, the name and address of any person believed to be in possession of the requested information;

(f) a statement that the request is in conformity with the law and administrative practices of the applicant Party, that if the requested information was within the jurisdiction of the applicant Party then the competent authority of the applicant Party would be able to obtain the information under the laws of the applicant Party or in the normal course of administrative practice and that it is in conformity with this Agreement;

(g) a statement that the applicant Party has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.”

US TIEAs Coming into Effect since 2001

  • Barbados, 3 November 1984
  • Bermuda, 11 July 1986
  • Cayman Islands, 27 November 2001
  • Antigua & Barbuda, 6 December 2001
  • Bahamas, 25 January 2002
  • BVI, 3 April 2002
  • Netherlands Antilles, 17 April 2002
  • Guernsey, 19 September 2002
  • Isle of Man, 3 October 2002
  • Jersey, 4 November 2002
  • Aruba,  13 September 2004
  • Brazil, pending
  • Liechtenstein, pending

The BVI and Cayman TIEAs are nearly duplicate.

Tax Covered

The BVI and Cayman Islands TIEAs scope is limited to collecting information for issues of US federal “income” tax.[1]  For more broad in scope are the Isle of Man (“IOM”)[2], Jersey[3], The Bahamas[4] and Netherlands Antilles[5] (“NLA”) TIEAs that apply to “all federal taxes”, thus by example encompassing federal estate tax, federal gift tax, federal social security tax,  federal self employment tax and federal excise tax.  The Barbados[6] and Bermuda[7] TIEAs apply to the specific federal taxes previously listed, which has the same broad affect as The Bahamas and NLA TIEAs.

Scope of Information

The BVI and Cayman TIEAs scope of information includes that “relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons.”  The IOM, Jersey, Bahamas, NLA and Bermuda TIEAs provide that information means any fact or statement, in any form, by example an individual’s testimony or documents, that is foreseeably relevant or material to United States federal tax administration and enforcement.  The Barbados TIEA provides more generally for the exchange of information to administer and enforce the TIEA listed taxes covered within the scope.

Jurisdiction : Parties and Information Subject to Requests

The BVI, Cayman, IOM, Jersey, and NLA TIEAs do not limit the scope of the request to parties that are nationals or resident in BVI and Caymans, but rather allow a request for information as long as either the information is within the jurisdiction or is in the possession of, or controlled by, a party within the jurisdiction.  The Bahamas treaty does not address this jurisdictional issue directly but probably will result in the same application.  The Barbados TIEA also does not limit the scope of the request to resident parties.  The Bermuda TIEA, when the information is sought about a non-resident of both jurisdictions, requires that the requesting party establish the necessity of the information for the proper administration and enforcement of its tax law.

Notice to Taxpayer of Request

The TIEAs do not address the issue, however the TIEAs require that enabling legislation be enacted to ensure the carrying out of the TIEAs obligations.  BVI may include in its enabling legislation that the taxpayer must receive notice that a TIEA request has been made targeting the taxpayer.  The Government of Switzerland, in its public statements regarding the turning over information including bank records for approximately 5,000 accounts UBS settlement with the US IRS, stated that it will post notices to the UBS account holding US taxpayers whose information has been disclosed via the tax treaty between the US and Switzerland.  The IRS has in turn said that these Swiss notices will not service a notice for IRS purposes that these (alleged) tax evaders may still, if not under current audit for this non-disclosure, may still quickly take advantage of the reduced civil penalty and elimination of criminal penalty amnesty.

Check back for Part 2 on Wednesday, September 2.  Prof. William Byrnes


[1] Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland, Including The Government Of The British Virgin Islands, For The Exchange Of Information Relating To Taxes, Article 1 (BVI TIEA”; Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland, Including The Government Of The Cayman Islands, For The Exchange Of Information Relating To Taxes, Article 1 (“CI TIEA”).

[2] Agreement Between The Government Of The United States Of America And The Government Of The Isle of Man For The Exchange Of Information Relating To Taxes, Art. 3.

[3] Agreement Between The Government Of The United States Of America And The Government Of The States Of Jersey For The Exchange Of Information Relating To Taxes, Art. 3.

[4] Agreement Between The Government Of The United States Of America And The Government Of The Commonwealth Of The Bahamas For The Provision Of Information With Respect To Taxes And For Other Matters, Article 1 d).

[5] Agreement Between The Government Of The United States Of America And The Government Of The Kingdom Of The Netherlands In Respect Of The Netherlands Antilles For The Exchange Of Information With Respect To Taxes, Article 3 f).

[6] Agreement Between The Government Of The United States Of America And The Government Of Barbados For The Exchange Of Information With Respect To Taxes, Article 3.

[7] Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland (On Behalf Of The Government Of Bermuda) For The Exchange Of Information With Respect To Taxes, Article 2 i).

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