On January 27, 2016, the US Department of Justice announced that it had signed the final non-prosecution agreement with a Category 2 Swiss bank.22The DOJ-Swiss Bank Program, which began on August 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States. More than 80 Swiss banks voluntarily reported under the program and paid more than $1.3 billion in penalties to the United States. Under the Program, Swiss banks have revealed information on thousands of US accountholders, which has driven many of these taxpayers into the IRS voluntary disclosure programs. As last reported by the IRS, more than 54,000 taxpayers have participated in the voluntary disclosure program, and the IRS has collected more than $8 billion in taxes, penalties and interest. The IRS considered the Swiss program a success and is now looking beyond Switzerland to find additional US accountholders who may have engaged in offshore tax evasion.
At the recent American Bar Association meeting held on January 29, 2016, the acting Attorney General for the tax division disclosed that the IRS and DOJ are now focusing bank investigations in Belize, the British Virgin Islands, Cayman Islands, the Cook Islands, India, Israel, Liechtenstein, Luxemburg, the Marshall Islands and Panama, to name a few. The government is pursuing both civil and criminal enforcement efforts to pursue taxpayers who continue to conceal foreign accounts and assets and evade their US tax obligations. The government has encouraged financial institutions and individuals who have engaged in criminal conduct to contact the DOJ to discuss their options.
In September, the US District Court for the Southern District of Florida authorized the issuance of “John Doe” summonses to Citibank and Bank of America to produce records identifying US taxpayers with offshore bank accounts in Belize.23The “John Doe” Summonses sought information regarding US persons who hold offshore accounts at Belize Bank International Limited and Belize Bank Limited (the “Belize Banks”). These summonses permit the IRS to seek records of the Belize Banks’ correspondent accounts at Bank of America, N.A. and Citibank, N.A.
Pursuant to the summonses, Bank of America and Citibank have been directed to produce records which identify US taxpayers with accounts at the Belize Banks. The court also granted permission to the IRS to seek records of Corporate Services’ correspondent accounts at Bank of America and Citibank, as well as information related to Corporate Service’s deposit account at Bank of America.24The “John Doe” class includes US taxpayers, who at any time from 2006 through 2014 had interests in, or authority with respect to, any financial accounts maintained at, monitored by, or managed through the Belize Entities. The IRS believes that these John Doe summonses will enable it to ascertain the identity of US taxpayers that it believes are using the Belize Entities and correspondent accounts to avoid their obligation to report and remit associated taxable income to the United States.
Taxpayers who desire to disclose to the Service a foreign account have a choice between the OVDP, the latest iteration of which is an open-ended program that began in January 2012 (modified in 2014), and the newer streamlined procedures, offered beginning in 2012 and also modified in 2014 to accommodate a broader group of US taxpayers. The two programs are mutually exclusive, and a taxpayer must choose between them. The key difference in participating in the streamlined procedures requires a certification of non-wilfulness. A false certification filed under the streamlined procedures could lead to possible criminal liability. Most US taxpayers who enter the IRS OVDP to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution or a facilitator, who helped the taxpayer establish or maintain an offshore account, had been publicly identified as being under investigation, or received a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.
If 2016 is anything like recent tax years, it is likely the IRS and DOJ will announce additional civil enforcement actions and new criminal investigations and prosecutions related to foreign accounts.