Conflicts of Interest in Handling Foreign Financial Accounts Cases

Posted on: August 15, 2016 | By: Stephen Dunn | Bank Secrecy Act, Conflicts of Interest in Handling Foreign Financial Accounts Cases, Delinquent FBAR Submission Procedures, FBARs, Foreign Accounts Compliance, OVDP, Streamlined Procedures

             We assist persons in complying with U.S. laws concerning foreign financial accounts. We prepare FinCEN Forms 114 (formerly Form TD F 90-22.1), Report of Foreign Bank and Financial Accounts, (“FBARs”), or amended FBARs reporting foreign financial accounts, and file them.   We have amended income tax returns prepared for clients reporting income from foreign financial accounts, and file them for the clients. The amended income tax returns include any necessary information returns, such as Form 8938, Statement of Foreign Financial Assets, or Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. For clients who have unreported U.S. income tax with respect to their foreign financial accounts, we file their U.S. amended income tax returns in a submission under the Internal Revenue Service’s Streamlined Offshore Compliance Procedures or, if the taxpayer’s noncompliance was “willful,” in a submission under the Internal Revenue Service’s Offshore Voluntary Disclosure Program (“OVDP”).

Many lawyers assist persons in complying with U.S. laws concerning foreign financial accounts. Some of them also represent foreign financial institutions. But query whether a law firm can ethically, effectively represent both U.S. person account holder and foreign financial institutions.

            In the wake of the United States’ prosecution of Swiss bank UBS AG for complicity in its clients’ evasion of U.S. income tax, the U.S. Department of Justice and the Swiss Federal Department of Finance entered into a Joint Statement and Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks. Under the Joint Statement,a Swiss bank that has reason to believe it may have committed a tax-related offense under Titles 18 or 26 of the United States Code, or a monetary transactions offense under 31 U.S. Code §§ 5314 or 5322, in connection with undeclared U.S. related accounts held by the Swiss bank during the applicable period (a “Category 2 Bank”) can apply to the Tax Division of the U.S. Department of Justice for a non-prosecution agreement.

If the Tax Division concludes that a Swiss bank has met all of its obligations under a non-prosecution agreement, then it will not prosecute the bank for tax-related offenses under Titles 18 or 26 of the United States Code, or for any unreported monetary transactions under Title 31, Sections 5314 or 5322 of the United States Code, in connection with undeclared U.S. related accounts held by the bank during the applicable period. The obligations of a Swiss bank under a non-prosecution agreement include, among other things, providing the following information for each U.S. related account at the bank closed during the applicable period,

verified by an independent examiner:

i.      the maximum value, in dollars, of the account during the applicable period;

ii.     the number of U.S. persons affiliated or potentially affiliated with the account, and the relationship to the account of each such U.S. person or entity or potential U.S. person or entity (e.g., a financial interest, beneficial interest, ownership, or signature authority, whether directly or indirectly);

iii.    whether the account was held in the name of an individual or an entity;

iv.   whether the account held U.S. securities at any time during the applicable period;

v.    the name and function of any relationship manager, client advisor, asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other individual or entity functioning in a similar capacity known by the Bank to be affiliated with said account at any time during the applicable period; and

vi.   information concerning the transfer of funds into and out of the account during the applicable period on a monthly basis, including (a) whether funds were deposited or withdrawn in cash; (b) whether funds were transferred through an intermediary (including but not limited to an asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other third party functioning in a similar capacity) and the name and function of any such intermediary; (c) identification of any financial institution and domicile of any financial institution that transferred funds into or received funds from the account; and (d) any country to or from which funds were transferred.

Non-prosecution agreements also require the Swiss bank to pay a penalty to the United States as follows:

1.      For U.S. related accounts that existed on August 1, 2008, an amount equal to 20% of the maximum aggregate dollar value of all such accounts during the Applicable Period.

2.      For U.S. related accounts that were opened between August 1, 2008, and February 28, 2009, an amount equal to 30% of the maximum aggregate dollar value of all such accounts; and

3.      For accounts opened after February 28, 2009, an amount equal to 50% of the maximum aggregate value of all such accounts.

The maximum aggregate value of U.S. related accounts is reduced for each account as to which the Swiss bank demonstrates, to the satisfaction of the Tax Division of the Justice Department, was not an undeclared account, was disclosed by the Swiss bank to the U.S. Internal Revenue Service, or was disclosed to the IRS through an OVDP submission. This motivated Swiss banks to urge their current and former U.S. account holders to enter the OVDP, or to sign a form consenting to disclosure of their account information to the U.S. government. Some Swiss banks went as far as threatening to disclose U.S. account holders’ account information to the U.S. government if they did not provide proof that they had entered the OVDP, or sign a form consenting to disclosure of their account information to the U.S. government.

When a client contacts our firm after having received such an overture from a Swiss bank, we immediately do what is necessary to make the client compliant with U.S. laws concerning foreign financial accounts. Then, if the client consents, we contact the Swiss bank and offer to provide proof of the client’s compliance in exchange for reimbursement of the client’s attorney fees. If the Swiss bank persists in threatening to disclose our client’s identity and account information to the U.S. government without the client’s consent, we remind the Swiss bank that it acquired the account initially upon the bank’s promise to hold the account holder’s identity and account information in confidence. We further point out that the bank used Swiss banking secrecy to solicit deposits in the U.S., and that the bank’s disclosure of the account holder’s identity and account information to the U.S. government would violate the bank’s contractual, fiduciary duty of confidentiality to the account holder. We threaten to hold the bank liable in a court of law for doing so. We could not so proceed if we represented Swiss banks, or any banks. We simply could not represent both Swiss banks and their current or former depositors.

Other posts of interest:

U.S. Persons’ Reporting Obligations Regarding Foreign Financial Assets

OVDP Often a Bad Choice for Foreign Accounts Compliance

You May Only Need to File Delinquent FBARs

Reporting Horrors of Foreign Mutual Funds (“PFICs”)

Compliance Required of U.S. Persons Concerning Foreign Financial Accounts

Beneficial Ownership, Income Tax, and FBARs

Foreign Accounts? Here’s What You Need to Know

OVDP Often a Bad Choice for Foreign Accounts Compliance

Our Approach to Foreign Accounts Cases

Conflicts of Interest in Handling Foreign Financial Accounts Cases

Disclosure of Indian Financial Accounts to the U.S. Government

Passive Foreign Investment Companies: U.S. Clients Should Consider Compliance

Delinquent FBAR Filings

Status of Intergovernmental Information Sharing Concerning U.S. Persons’ Foreign Financial Accounts

Is It A Foreign Account?

The Use of John Doe Summonses in Identifying U.S. Persons’ Accounts

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