Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

The Federal government is building criminal cases against more than 150 U.S. citizens holding overseas bank accounts with Union Bank of Switzerland (UBS), as reported by Reuters and the Banking Times. The criminal investigations are part of a Federal crackdown on tax evasion by means of overseas accounts and were facilitated by a settlement between U.S. and Swiss authorities earlier this month in which Switzerland agreed to disclose the identities of some 5,000 U.S. citizen account holders, contrary to Switzerland's longstanding tradition of banking secrecy. UBS has already settled charges that it assisted U.S. customers in evading taxes for $780 million.

As the IRS states on its website, under the agreement, the IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts. UBS will give account holders notice if information relating to the acocunt holders is included in the IRS treaty request. "Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations." "The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action."

Four U.S. clients of UBS, three in Florida and one in California, are already being prosecuted based on the information provided by UBS. And the number of investigations and prosecutions are expected to grow. In a press release,Tax Commissioner Doug Shulman claimed that the U.S./Swiss agreement "puts in place an apparatus for the IRS to obtain information on thousands of offshore accounts. Further the Swiss government is prepared to work with us regarding similar U.S. requests, if any, involving other financial institutions." U.S. and Swiss authorities are reportedly negotiating for the disclosure of thousands of additional names of U.S. account holders. Commissioner Shulman stated that international tax evasion is a "top priority."

Commissioner Shulman stated that the IRS has set a "voluntary disclosure" deadline of September 23, 2009, for UBS customers with unreported, offshore income, and advised persons to contact a tax professional. Customers receiving notification from the bank may come forward under the voluntary disclosure program--however "once the Swiss government sends [the IRS] the name, all bets are off." UBS customers with any reason for concern should strongly consider promptly contacting tax and legal professionals.

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As reported by the International Business Times and Reuters, the U.S. and Switzerland entered an agreement last week under which UBS, Union Bank of Switzerland, would disclose the identities of approximately 4,500 to 5,000 holders of secret Swiss bank accounts.

The Internal Revenue Service had filed suit against UBS in February in the U.S. District Court for the Southern District of Florida, accusing UBS of aiding and abetting U.S. citizens in tax evasion and demanding disclosure of the identities of approximately 52,000 U.S. citizens who hold Swiss accounts, upon which the Swiss government ordered UBS to disclose the identities of 250 account holders, bypassing UBS' customer appeal process, in order to settle criminal charges. UBS also paid the U.S. a $780 million fine. The Swiss People's Party has called the U.S. government's actions "blackmail." However, after negotiations with the U.S., the Swiss government held an extraordinary special session last Monday to discuss settlement of the case.

The agreement between the U.S. and Switzerland will supposedly leave Switzerland's banking secrecy intact and UBS will not have to pay a fine. However, under the terms of the agreement, Switzerland is obliged to assist the U.S. if the U.S. seeks its help in a criminal investigation. Swiss accounts below a certain size will not have to be reported, however the precise limit will be kept confidential, leaving account holders without notice as to whether they might be vulnerable. Account holders threatened with disclosure would, however, be able to challenge disclosure in Swiss courts. The U.S. government supposedly backed off its original demands because the U.S. Treasury did not want to cause UBS to fail.

The total amount of fines which the 4,500-5,000 U.S. citizens are estimated to be charged is estimated at $3.74 billion. On April 2, Steven Michael Rubenstein of Boca Raton, Florida, an accountant for a yacht company, became the first U.S. citizen to be arrested for tax evasion as a result of UBS' disclosures.

UBS is the world's largest manager of private wealth assets, and is the second-largest bank in Europe in both market capitalization and profitability. UBS operates in 50 countries nationwide, including the U.S., and has offices across the country. Since 2007, after UBS incurred huge losses, the bank's single largest sharholder has been the Government of Singapore Investment Corporation. Last November, Raoul Weil, Chairman and CEO of UBS' Global Wealth Management and Business Banking and member of UBS' Group Executive Board, was indicted in the Southern District of Florida.

 

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Charles Bee Jr., 63, a former Vice Chairman and partner of BDO Seidman, pled guilty last week to tax fraud charges from helping to create $1 billion worth of phony tax shelters for wealthy clients, as reported by WebCPA and The New York Post.

The charges against Bee are part of an investigation of a tax scheme which allowed BDO Seidman's clients to evade more than $200 million in taxes, according to the government. Bee was a member of BDO's Tax Solutions Group, which designed and marketed tax strategies and shelters to upper-income clients. The Group marketed the shelters with the Chicago office of the law firm of Jenkens & Gilchrist and with an international bank in New York.

The government has alleged that the the tax shelters were only allowed by the IRS if there was a reasonable probability of a profit. However, given the fees which BDO charged to its clients, it alleges that the tax shelters marketed by BDO had no reasonable probability of resulting in a profit.

BDO used an opinion letter created by Jenkins & Gilchrist to make it appear that their clients had a legitimate business purpose, containing allegedly false representations about the clients' motivations for entering into the transactions. The Tax Solutions Group also used a consulting agreement containing alleged false statements regarding the fact that the fees charged by BDO were solely for the tax shelters. Lastly, Bee and others are charged with causing clients to file false tax returns.

Bee pled guilty to one count of conspiracy to defraud the IRS for creating one false short option tax shelter for a client. He also admitted that he made false statements during a deposition in a Court of Federal Claims case.

Bee faces 15 years in prison, but prosecutors have promised to seek leniency if Bee cooperates in the investigation. BDO is cooperating with the government in its investigation. He has agreed to forfeit $20 million, as well as four residences in Florida and New Jersey.

Adrian Dicker, another former Vice Chairman of BDO, and Michael Kerekes, a principal of BDO, pled guilty to related conspiracy and tax evasion charges in February and March of this year.

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We have pointed out the potential rewards which the Internal Revenue Service offers whistleblowers who sound the alarm on tax fraud. A major recent tax whistleblower case is the multimillion dollar dispute between the IRS and Cardinal Health, Inc., a distributor of pharmaceuticals and medical supplies based in Dublin, Ohio.

 

As reported by the Wall Street Journal, the IRS filed securities filings last month challenging deductions totaling $178.9 million claimed by Cardinal Health from the sale of trade receivables to a special-purpose, accounts receivable and financing entity for the years 2001 to 200. The transactions were facilitated by Rabobank Group, based in the Netherlands.

 

The IRS has also given Cardinal Health notice of proposed adjustments for tax years 2003 through 2005 relating to the transfer of intellectual property between its domestic and foreign subsidiaries, specifically transfers by Alaris Medical Systems, Inc., a manufacturer of infusion pumps, which Cardinal purchased in 2004. The additional tax proposed by the IRS in these notices totals $598.1 million.

 

Rabobank has been involved in numerous controversial tax shelters such as the transaction involving Cardinal Health, in which domestic corporations sell accounts receivables to overseas companies at a discount for which they take a tax deduction.

 

A former Rabobank executive filed a whistleblower claim with the IRS in 2007, claiming that the transactions were designed for tax avoidance and not legitimate business purposes.

Cardinal Health has stated that it disputes the IRS’ adjustments and will vigorously contest them. It has claimed that the accounts-receivable arrangement expired last October.

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So, I’m out of the office for a few days and all hell breaks loose in the federal blogosphere. First, Justice Souter announces his retirement from the Supreme Court (don’t you wonder why many Supreme Court Justices die in office). I mean, seriously, at some point doesn’t someone reach retirement age. Seems to me a distinct lack of dignity to just hang on. I believe that Justice Leah Sears on the Georgia Supreme Court will be a serious candidate for the position.

Then, the Letter of Apology blog had an excellent piece over the weekend regarding the use of uncharged and acquitted conduct to enhance a defendant’s sentence. Interestingly, that post originated from a Washington Times article (interesting because it is the more conservative of the two D.C. newspapers) regarding Juror No. 6 from a drug trial in the district several years ago, where the trial lasted 10 months. On finding out that one of the defendants, who was largely exonerated by the jury's verdict, was going to get 16 years based on either uncharged, or acquitted conduct, the juror wrote a thoughtful letter to the sentencing court. It is worth a read.

And, finally, today, the administration announces according to the Washington Post, that it is going to crack down, not only on individual tax fraud by parking monies in secret overseas accounts, but also on the corporate parking of profits in overseas companies for the purpose of limiting tax exposure.

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As previously reported here, the Department of Justice and UBS entered into a deferred prosecution agreement wherein UBS is to pay a fine and disclose to DOJ the names of its some 52,000 clients that have used UBS to park income in violation of U.S. tax laws. The New York Times reports today that the President of Switzerland has asked Treasury Secretary, Timothy Geithner, to drop what the Times inexactly reports to be a lawsuit to disclose the names of the UBS clients. In fact, under the deferred prosecution agreement, UBS has to cooperate with DOJ by providing the client’s names. My guess, Mr. Geithner, who had his own tax issues, isn’t going to touch this one. DOJ has already prosecuted two folks whose names UBS disclosed and, inevitably, many more such prosecutions will follow.

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In a well timed guilty plea, the day before tax day, Robert Moran, entered a plea yesterday in federal court in Ft. Lauderdale, according to this report from the Miami Herald, to filing a false tax return. The Herald reports that Moran, the founder and president of Moran Yacht & Ship in Ft. Lauderdale, had $3.4 million in a UBS account in Switzerland as of year end 2007, but didn’t report to the IRS that he had the account and did not declare the income from the account as required by law.

Moran is the second UBS client to face criminal tax charges since UBS agreed in February to a deferred prosecution agreement with the government to provide the IRS with the identities of and account information for U.S. customers of UBS’s overseas accounts. UBS also agreed to pay a fine of $780 million.

Moran faces up to three years in prison and a $250,000 fine.
 

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     While many late preparers are busy filling out forms, the United States District Attorney's Office for the Northern District of Georgia has issued a press release to help motivate taxpayers to be honest with the Internal Revenue Service. United States Attorney David Nahmias told the press last Thursday that "The IRS and other federal investigative agencies are also on the lookout for related fraud, and taxpayers need to know that you--not your tax preparer--are ultimately responsible for the information that goes on your tax return" (not a promising sign for the trusty old good faith reliance on professional tax advice defense, but anyway).
    Mr. Nahmias rounded out the release with a string of cautionary tales--or rather recent tax prosecutions by the USAONDGA against both filers and tax preparers. Among the cases are a tax preparer who neglected to file her own tax returns, despite an income of over $400,000, and another preparer which submitted over 100 returns claiming over $460,000 in false Telephone Excise Tax Credits.

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