Justice Department Steps Up Attack on Tax and FBAR Evaders

Boston, MA- December 15, 2010. By Attorney Timothy R. Weeks, Esq., LL.M. and Morris N. Robinson, Esq., CPA, LL.M.

 
Executive Summary
 
On Tuesday, December 14, 2010, the U.S. Department of Justice filed charges in the Southern District of Florida accusing a Swiss banker, Renzo Gadola, with conspiracy to defraud the United States under 18 U.S.C. § 371. [1]  The information alleges that Mr. Gadola conspired to help wealthy Americans evade taxes from 2000 through 2010.  If convicted, Mr. Gadola faces a maximum penalty of 5 years imprisonment, 3 years supervised release, and a $250,000 fine.
 
This case is part of an ongoing series of cases against U.S. citizens, foreign banks, and foreign bankers.  The common thread in each of these cases is that the criminal defendant either alone or in conjunction with others took repeated affirmative steps to evade both income taxes and the requirement to file annual reports of foreign bank accounts (FBARs).  In this case, the United States Department of Justice used a cooperating U.S. citizen to charge a Swiss banker with conspiracy to evade the income tax and FBAR laws.  In its continuing effort to enforce compliance with laws regarding reporting offshore financial accounts and financial transactions, the U.S. Department of Justice may begin to use cooperating Swiss bankers to charge U.S. citizens.
 
To protect themselves, U.S. citizens are strongly advised to consider requesting admission to the Offshore Voluntary Disclosure Program.  Although this program officially closed on October 15, 2009, the IRS is continuing to accept taxpayers into the program. [2] Since that time IRS has accepted an additional 3,000 taxpayers into the program.
 
Discussion
 
According to the information filed by the federal prosecutor in the United States District Court, Southern District of Florida, Mr. Gadola, a registered investment advisor with the SEC, was a private Swiss banker at UBS and, later, an independent investment advisor at RG Investment Partner AG.  The information alleges that Mr. Gadola conspired with his partner, an unnamed Swiss banker, to market undeclared Swiss bank accounts and Swiss bank secrecy to United States clients who were interested in evading United States income taxes.
 
To effectuate their conspiracy, Mr. Gadola allegedly travelled to the United States on numerous occasions to conduct banking activities and, at other times, sent mailings, e-mails, and telephone calls to and from the United States.  The banking activities he allegedly performed included structuring the transfer of funds, including cash, within the United States and across United States borders, without disclosing the transfers to the United States government, specifically the IRS.  Additionally, Mr. Gadola allegedly assisted United States clients in concealing assets and income from the United States government and advised them not to disclose their undeclared accounts at UBS and other foreign banks to the United States government.

The complaint against Mr. Gadola focuses on an unnamed United States client who, along with his siblings, inherited an undeclared account at UBS from his deceased mother in 1999.
 
In September 2009, the United States client informed Mr. Gadola’s co-conspirator Swiss Banker that he began participating in the IRS Voluntary Disclosure Program.  After learning this, the Swiss Banker allegedly advised, and continually persuaded, the United States client to not disclose foreign bank accounts held at UBS and Basler Kantonalbank, a regional Swiss bank.  According to the information, the Swiss Banker allegedly offered to provide false explanations regarding the source of funds deposited in the offshore accounts, to create false bank records, and to provide a means to repatriate the funds to the United States over time and in small increments. 
 
The information alleges that in November 2010, Mr. Gadola met with his United States client and stated that the Swiss banker asserted that the chance the United States government would find out about his offshore account was practically zero, and therefore, he should not go through the voluntary disclosure.  The basis of this assertion was that cash was transferred from UBS to Basler Kantonalbank and later withdrawn, and as a result, there was no paper trail linking the United States client’s money to UBS.
 
Section 5314 of Title 31 of the United States Code requires residents or citizens of the United States or persons doing business in the United States to keep records and file reports, when he or she makes a transaction or maintains a relation with a foreign financial agency.  This reporting requirement is done through the filing of a Form TD F 90-22.1 (Foreign Bank Account Report or “FBAR”), an information report filed with the United States Secretary of the Treasury that states that the person has a financial interest in, or signature authority over, financial accounts in a foreign country with an aggregate value exceeding $10,000 at any time during the taxable year.
 
Because of the lack of compliance with the FBAR, in 2009 the IRS initiated the Voluntary Disclosure Program that allowed taxpayers who failed to disclose offshore bank accounts and report foreign income to come forward and avoid some of the harsh fines and penalties and potentially avoid criminal prosecution. Although approximately 14,000 taxpayers voluntarily came forward and requested amnesty, many more may soon be discovered due to the IRS’s continuing effort to uncover the extent to which taxpayers are avoiding income taxes through offshore accounts.
 
Recently, the IRS reached an agreement with UBS whereby UBS agreed to turn over the Social Security numbers of all United States account holders with accounts worth more than 1,000,000 Swiss Francs (approximately $1.03 million) by mid February, 2011. Under this agreement, the IRS will be able to identify the 3,000 additional account holders who chose not to come forward under the Offshore Voluntary Disclosure Program that officially terminated on October 15, 2009.  Additionally, Congress and the IRS have effectively put pressure on foreign banks to avoid further complicity in American tax evasion.  In fact, Bank Leumi, Israel’s largest bank, recently notified its United States account holders by letter that they must report their account holdings to the IRS.  There are additional credible reports that other foreign banks have sent similar letters to their bank customers.
 
As the present impending prosecution of Mr. Gadola indicates, the United States government is not only focused on receiving the cooperation of foreign banks and identifying and penalizing taxpayers who failed to report and pay taxes on offshore accounts, but it is actively engaged in prosecuting bankers who effectuate the means through which taxpayers can evade United States taxes by way of offshore bank and brokerage accounts.  This multifaceted approach in enforcing the laws regarding offshore bank accounts is one of the central issues that the IRS addressed in 2010 and will continue to address in 2011 and many years to come.
 
On December 9, 2010, M. Robinson & Co. held a seminar at Bentley University on the IRS’s Voluntary Disclosure Program.  Topics covered at this event included how to advise and represent clients who may have unreported offshore accounts, the requirements for properly reporting offshore accounts through Form TD F 90-22.1 (FBAR), and the civil and criminal penalty structures for failing to disclose offshore accounts.  An audio recording of these presentations can be found on our website at http://www.masstaxlawyers.com/audio-library/
 
Acknowledgement.  M. Robinson & Co. thanks Attorney William J. Lovett for his assistance in providing us the criminal information filed against Renzo Gadola.  Mr. Lovett is a white collar crime defense attorney with the Boston law firm Dwyer & Collora, LLP.  Mr. Lovett was a panelist at our December 9, 2010 seminar.
 
What We Do.  M. Robinson & Company is a leading Boston-based tax boutique that is focused on resolving tax disputes for businesses, individuals, and non-profit organizations.  M. Robinson & Company offers a broad range of tax-related services to its clients at both the state and federal levels, including assistance with tax audit defense, FBAR defense, tax appeals, tax collections, litigation, and tax planning.  For more information about M. Robinson & Company, please visit our website at www.masstaxlawyers.com.

 
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