DOJ’s Latest Offshore Tax Case Shows Expatriates Who Renounce U.S. Citizenship Not Immune From Prosecution

An individual residing in Switzerland since 2007, who apparently renounced his U.S. citizenship four years ago, was convicted today in federal court of one count of filing a false U.S. income tax return. According to a Justice Department press release, Albert Cambata opened a bank account at an unnamed Swiss bank in 2006 in the name of a Hong Kong company, with the assistance of a Swiss banker and a Swiss attorney. Later that year, Mr. Cambata received $12 million from a company based in Belize, which funds in turn originated from a company in Panama.

On his 2007 and 2008 federal income tax returns, Mr. Cambata failed to report interest income earned on his Swiss bank account in the amounts of $77,298 and $206,408, respectively. In April 2008, Mr. Cambata had his Swiss attorney request that 5 million Euros be wired from his Swiss account to a different account controlled by Mr. Cambata located at the Monaco branch of a different Swiss bank. In June 2008, Mr. Cambata closed his original Swiss bank account and moved the funds to an account he controlled at the Singapore branch of a third Swiss bank.

In 2012, Mr. Cambata went to the U.S. Embassy in Bratislava, Slovakia, to renounce his U.S. citizenship. At that time, he notified the U.S. Department of State that he had become a naturalized citizen of St. Kitts and Nevis.

Sentencing is scheduled for April 15, 2016. As part of his plea agreement, Mr. Cambata agreed to pay $84,849 in restitution.

Several interesting conclusions can be drawn from this latest conviction in the U.S. government’s extensive and ongoing crackdown on offshore tax evasion. First, the information that DOJ used to pursue Mr. Cambata and his extensive trail of money transfers likely came from either banks participating in the Swiss Bank Program or Category 1 Swiss banks which have reached resolutions with the U.S. government (like UBS and Credit Suisse), or perhaps both. All three of Mr. Cambata’s accounts – in Switzerland, Monaco, and Singapore – were held at branches of Swiss banks, and although those banks are not identified by name in the DOJ press release, they are likely cooperating with the U.S. government in same fashion. In addition, the funds at issue originated from companies based in Belize and Panama, countries which are squarely in the sights of the Tax Division’s ongoing investigations. In 2015, a federal court authorized issuance of “John Doe” summonses seeking information regarding accounts held at certain Belize banks as well as companies that assisted in the creation of Belizean international business corporations. Today’s conviction presumably was the product of information shared with the U.S. by Swiss banks and through the “John Doe” summons process.

Second, the guilty plea of Mr. Cambata has several interesting features. He only pleaded guilty to filing false tax returns for 2007 and 2008, and it is unclear why his plea did not include subsequent years given that, according to the press release, he moved his funds to a third Swiss bank account in June 2008. It is possible that Mr. Cambata properly reported his foreign accounts beginning in tax year 2009 and thereafter. In February 2009, the U.S. government announced its landmark agreement with Swiss banking giant UBS, and the significant publicly generated by that announcement may have prompted Mr. Cambata (like many others) to properly file U.S. returns and FBARs starting in that year and thereafter. In addition, the tax years of conviction (2007 and 2008) would normally be closed due to operation of the six-year criminal statute of limitations for tax crimes, but that statute does not run when the defendant is “outside the United States.” According to the press release, Mr. Cambata resided outside the United States – in Switzerland – since 2007. The amount of unreported income, and the “tax loss,” are also of note in this case. Mr. Cambata in his guilty plea agreed to pay restitution to the U.S. Treasury in the amount of $84,849. In a criminal tax case, the restitution amount normally corresponds to the “tax loss,” which is the key factor for sentencing purposes. Assuming that the tax loss is $84,849, with appropriate adjustments for “sophisticated means” typically required in offshore tax cases and for pleading guilty, Mr. Cambata is likely facing a sentence of between 12 to 18 months in prison. The tax loss in this is not overwhelming compared to other offshore criminal tax cases brought by the Justice Department, but given the other features present here – the defendant residing outside the United States; use of a complex web of multiple accounts, entities, and countries – the government obviously felt that this was a case worth prosecuting.

Third, this case should serve as a warning to expatriates that renouncing U.S. citizenship does not confer immunity from criminal prosecution. The rules for renouncing U.S. citizenship are complicated – both from a State Department and IRS perspective – and even those who carefully comply with those rules are not absolved from criminal conduct occurring prior to that time, as Mr. Cambata’s case demonstrates.  This is especially important as the number of U.S. citizens renouncing their citizenship is reaching record levels.

Finally, from a general deterrence perspective, this case serves as a broad warning to taxpayers with undisclosed foreign bank accounts and unreported income like Mr. Cambata – particularly those who are expatriates – that the risk of inaction is grave. For nearly eight full years, the DOJ and IRS have waged a public campaign to crack down on offshore tax evasion, and during that entire time the IRS has offered various voluntary disclosure programs to incentivize non-compliant taxpayers to come forward voluntarily and self-correct their tax issues. Individuals with undisclosed foreign bank accounts who remain on the sidelines at this late stage are very much at risk of discovery (like Mr. Cambata) and will face harsh consequences for failing to take advantage of the various voluntary disclosure options long available to them. Indeed, today’s DOJ press release includes the government’s now-typical language warning non-compliant taxpayers of the dire consequences they face if they fail to take immediate action:

“U.S. taxpayers have been given ample opportunity to come forward, disclose their secret foreign accounts, and come into compliance,” said Acting Assistant Attorney General Ciraolo. “Those individuals and entities who rolled the dice in the hope of remaining anonymous are facing the consequences. The Tax Division remains committed to investigating and prosecuting individual taxpayers with undeclared foreign financial accounts, as well as the financial institutions, bankers, financial advisors and other professionals who facilitate the concealment of income and assets offshore. And as today’s guilty plea clearly indicates, the department’s reach is well beyond Switzerland.”

“IRS Criminal Investigation will continue to pursue those who do not pay the taxes they owe to the United States,” said Special Agent in Charge Thomas Jankowski of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office. “Today’s plea is a reminder that we are committed to following the money trail across the globe and will not be deterred by the use of sophisticated international financial transactions that hide the real ownership of income taxable by the United States.”

 

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