IRS Criminal Investigation Division Announces New Priorities

Carlos F. Ortiz, Bridget M. Briggs, and Jeffrey M. Rosenfeld

At the ABA Section of Taxation’s 2017 May Meeting, Erick Martinez, the IRS Criminal Investigation Division’s Director of Field Operations – Northern Area, provided insight into the Division’s current priorities and strategies. Mr. Martinez indicated that the Division is concentrating on nationally coordinated investigations in conjunction with the Justice Department Tax Division and the IRS Large Business and International Division, such as cases involving renewable fuel credits.

The Criminal Investigation Division is also increasing its focus on data-driven cases such as beneficial owner cases, given the plethora of information resulting from the Swiss bank program and offshore voluntary disclosure programs. Mr. Martinez further noted an increased emphasis on cybercrime with two new cybercrime units in Los Angeles and Washington investigating failure to report income earned through the use of technology.

Offshore Tax Enforcement Update: DOJ Announces Criminal Charges Against Bank Julius Baer

The U.S. government has filed criminal charges against another Swiss Bank — Bank Julius Baer — and simultaneously secured guilty pleas from two Julius Baer bankers who had been fugitives for the past five years. Pursuant to the terms of a deferred prosecution agreement, the bank admitted that it knowingly assisted many of its U.S. customers in evading their obligations under U.S. law. Julius Baer must pay $547 million as part of the deal. Resolution of the U.S. government’s investigation of Julius Baer has been long-awaited, and follows the UBS deferred prosecution agreement in 2009 and the guilty plea of Credit Suisse in 2014.

The full text of the Justice Department’s press release follows.

Manhattan U.S. Attorney Announces Criminal Charges Against Bank Julius Baer Of Switzerland With Deferred Prosecution Agreement Requiring Payment Of $547 Million, As Well As Guilty Pleas Of Two Julius Baer Bankers

Bankers Daniela Casadei and Fabio Frazzetto, Fugitives since 2011, Surrender and Plead Guilty to Felony Tax Charges

Preet Bharara, the United States Attorney for the Southern District of New York, Caroline D. Ciraolo, Acting Assistant Attorney General of the Justice Department’s Tax Division, and Richard Weber, Chief, Internal Revenue Service – Criminal Investigation, (“IRS-CI”), announced the filing of criminal charges against Bank Julius Baer & Co., Ltd. (“JULIUS BAER” or the “Company”), a financial institution headquartered in Zurich, Switzerland.   JULIUS BAER is charged with conspiring with many of its U.S. taxpayer-clients and others to help U.S. taxpayers hide billions of dollars in offshore accounts from the United States Internal Revenue Service (the “IRS”) and to evade U.S. taxes on the income earned in those accounts.

Mr. Bharara also announced a deferred prosecution agreement with JULIUS BAER (the “Agreement”) under which the Company admits that it knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law.  The admissions are contained in a detailed Statement of Facts attached to the Agreement.  The Agreement requires JULIUS BAER to pay a total of $547 million by no later than February 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York.

The criminal charge is contained in an Information (the “Information”) alleging one count of conspiracy to (1) defraud the IRS, (2) to file false federal income tax returns and (3) to evade federal income taxes.  If JULIUS BAER abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charges.

In addition, two Julius Baer client advisers, DANIELA CASADEI and FABIO FRAZZETTO, pled guilty in Manhattan federal court today.  CASADEI and FRAZZETTO were originally charged in 2011 and remained at large until February 2, 2016, when they each made initial appearances before the Honorable Gabriel W. Gorenstein, United States Magistrate Judge for the Southern District of New York.

CASADEI and FRAZZETTO each pled guilty to an Information (collectively, with the JULIUS BAER Information, the “Informations”) before U.S. District Judge Laura Taylor Swain charging them with conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide their assets in offshore accounts and to evade U.S. taxes on the income earned in those accounts.

Manhattan U.S. Attorney Preet Bharara said:  “Bank Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law.  Together with our partners at the IRS, we will continue to prosecute financial institutions and individuals who facilitate tax evasion.”

Acting Assistant Attorney General Caroline D. Ciraolo said:  “Today’s resolution with Bank Julius Baer and the guilty pleas entered by two bank employees reflect the department’s continued commitment to hold accountable those financial institutions who conspired with U.S. taxpayers to conceal assets abroad and evade U.S. tax obligations, as well as those individuals responsible for such crimes.  The deferred prosecution agreement filed today makes it clear that there is a heavy price to pay for this conduct, and that there is a significant benefit in fully cooperating with the department.”

IRS Chief Richard Weber said:  “In taking responsibility for their actions, Bank Julius Baer has agreed to cooperate and pay a substantial penalty for their role in circumventing offshore disclosure laws.  The agreement – as well as the guilty pleas of client advisors Daniela Casadei and Fabio Frazzetto – sends a strong message to the international banking community as well as U.S. taxpayers who think they can outsmart the system by hiding their money in these international banks.  The consequences of not reporting your foreign accounts and paying the taxes you owe will be significant for those who do not heed the warnings that agreements like this yield.”

According to the Informations, statements made during the proceedings today, and other documents filed in Manhattan federal court, including the Statement of Facts to the Agreement:

The Offense Conduct

From at least the 1990s through 2009, JULIUS BAER helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS, and otherwise hide accounts held at JULIUS BAER from the IRS (hereinafter, “undeclared accounts”).  JULIUS BAER did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at JULIUS BAER.  CASADEI and FRAZZETTO, bankers who worked as client advisers at JULIUS BAER, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at JULIUS BAER in order to evade their obligations under United States law.  At various times, CASADEI, FRAZZETTO, and others advised those U.S. taxpayer-clients that their accounts at JULIUS BAER would not be disclosed to the IRS because JULIUS BAER had a long tradition of bank secrecy and no longer had offices in the U.S., making JULIUS BAER less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the U.S.

In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, JULIUS BAER undertook, among other actions, the following:

— Entering into “code word agreements” with U.S. taxpayer-clients under which JULIUS BAER agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.

— Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities (collectively, “structures”) or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.

JULIUS BAER was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at JULIUS BAER in order to evade their U.S. tax obligations, in violation of U.S. law.  In internal JULIUS BAER correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

JULIUS BAER also advised its bankers to take certain steps to avoid scrutiny from U.S. authorities when travelling to the U.S., as well as steps to avoid U.S. law enforcement identifying JULIUS BAER clients.  In a memo entitled “U.S. Clients Do’s & Don’ts,” circulated internally in 2006, a JULIUS BAER employee provided client advisers with advice regarding travel to the U.S., including:

— “At Immigration . . . When asked by Officer what will you do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement.One can throw in skydiving or another fun sport/activity.This tends to shift the questioning away from the business purpose to the ‘fun time’ part of the trip (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).”

— “In regard to communicating while in the U.S.:“Only use mobile phone[s] registered in and operating from Switzerland.Avoid phone calls from hotel to clients.It is recommended to purchase a telephone calling card from the post office, grocery stores, or electronic shops.This allows you to use practically any phone with no specific link left behind. The best is to pay for the calling card in cash.For ex: a 400 minutes local calling card costs less than $50, but the rates can vary. Most cards can also be used to call anywhere abroad.”

At its high-water mark in 2007, JULIUS BAER had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, JULIUS BAER earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.

Julius Baer’s Blocked Effort to Self-Report, Acceptance of Responsibility, and Cooperation in the Government Investigation

Notwithstanding its lucrative criminal conduct, by at least 2008, JULIUS BAER began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations.  For example, by November 2008, the Company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance.  In that same month, JULIUS BAER imposed a prohibition on opening accounts for any U.S. clients without an IRS Form W-9.

Additionally, in November 2009, before JULIUS BAER became aware of any U.S. investigation into its conduct, JULIUS BAER decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers.  Prior to self-reporting to the United States Department of Justice, JULIUS BAER notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities.  This Swiss regulator requested that JULIUS BAER not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the U.S. on tax-related matters.  Accordingly, JULIUS BAER did not, at that time, self-report to U.S. law enforcement authorities.

After ultimately engaging with U.S. authorities, JULIUS BAER has taken exemplary actions to demonstrate acceptance and acknowledgement of responsibility for its conduct.  JULIUS BAER conducted a swift and robust internal investigation, and furnished the U.S. Government with a continuous flow of unvarnished facts gathered during the course of that internal investigation.  As part of its cooperation, JULIUS BAER also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the United States Department of Justice to legally produce employee and third-party information to the Department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including FRAZZETTO and CASADEI, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.

*                *                *

CASADEI, 52, a Swiss citizen, and FRAZZETTO, 42, an Italian and Swiss citizen, each pled guilty to one count of conspiracy to defraud the IRS, to evade federal income taxes, and to file false federal income tax returns.  CASADEI and FRAZZETTO each face a maximum sentence of five years in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentences imposed on the defendants will be determined by the judge.

CASADEI and FRAZZETTO are each scheduled to be sentenced before Judge Swain on August 12, 2016.

Mr. Bharara praised the outstanding investigative work of IRS-CI, and thanked the Justice Department’s Tax Division for their significant assistance in the investigation.  Mr. Bharara also thanked the Department of Homeland Security for their assistance with the case.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Jason H. Cowley and Sarah E. Paul are in charge of the prosecution.

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.”

 

Justice Department Opens 2016 Tax Season With Stern Warning to Taxpayers

The Internal Revenue Service announced that the 2016 individual income tax filing season opened on January 19, 2016, with more than 150 million returns expected to be filed. The IRS expects more than 70 percent of taxpayers to again receive tax refunds this year. Last year, the IRS issued 109 million refunds, with an average refund of $2,797.

Simultaneously sending a stern warning to would-be tax cheats, the Justice Department’s Tax Division announced that a business owner in Alexandria, Virginia, had pleaded guilty to a multi-million dollar conspiracy to defraud the IRS that could land the defendant in jail for four to five years. In that case, the defendant owned and operated a gas station and multiple Subway restaurant franchises. According to court documents, the defendant admitted that between 2008 and 2014, he and his managers failed to deposit all of the gas station and Subway franchises’ gross receipts into corporate bank accounts. Instead, the defendant and his co-conspirators skimmed those receipts and retained them for their personal use, and failed to report those funds to the IRS. IRS investigators built their case by reviewing point-of-sales records for the Subway franchises, which showed total sales of $20 million for this period, but the corporate and partnership tax returns only reflected sales of $14 million. Compounding the problem, certain of the defendant’s businesses did not file returns at all in some years. The defendant also acknowledged filing false individual income tax returns. In his guilty plea, the defendant admitted that his illegal conduct caused a tax loss to the IRS of between $1.5 million and $3.5 million.

Using this defendant’s guilty plea as an opportunity to promote general deterrence and tax compliance, the Justice Department’s press release contains the usual cautionary language typically seen around April 15:

“As we start the 2016 filing season, this case serves as a reminder that the Justice Department, working with its partners at the IRS, remains committed to identifying, investigating and prosecuting businesses and individual taxpayers who willfully fail to file accurate tax returns and pay the taxes due,” said Acting Assistant Attorney General Ciraolo. “Every taxpayer owes a duty to their fellow citizens to pay their fair share and those who choose not to do so will face the consequences.”

“Today’s plea of Obayedul Hoque for conspiracy to defraud the United States sends a clear message to would-be tax cheats,” said Chief Richard Weber of IRS-Criminal Investigation (CI). “Whether you fail to file and pay your corporate taxes or your personal income taxes, IRS-CI special agents work diligently to uncover all kinds of fraud and hold everyone accountable. U.S. citizens expect and deserve a level playing field when it comes to paying taxes and there are no better financial investigators in the world when it comes to following the money.”

It is well-known that the Justice Department’s Tax Division typically increases the frequency of its press releases announcing enforcement activity in the weeks leading up to April 15. Academic research confirms that the DOJ issues a disproportionately large number of tax enforcement press releases as “Tax Day” approaches:

Every spring, the federal government appears to deliver an abundance of announcements that describe criminal convictions and civil injunctions involving taxpayers who have been accused of committing tax fraud. Commentators have occasionally suggested that the government announces a large number of tax enforcement actions in close proximity to a critical date in the tax compliance landscape: April 15, “Tax Day.” These claims previously were merely speculative, as they lacked any empirical support. This article fills the empirical void by seeking to answer a straightforward question: When does the government publicize tax enforcement? To conduct our study, we analyzed all 782 press releases issued by the U.S. Department of Justice Tax Division during the seven-year period of 2003 through 2009 in which the agency announced a civil or criminal tax enforcement action against a specific taxpayer identified by name. Our principal finding is that, during those years, the government issued a disproportionately large number of tax enforcement press releases during the weeks immediately prior to Tax Day compared to the rest of the year and that this difference is highly statistically significant. A convincing explanation for this finding is that government officials deliberately use tax enforcement publicity to influence individual taxpayers’ perceptions and knowledge of audit probability, tax penalties, and the government’s tax enforcement efficacy while taxpayers are preparing their annual individual tax returns.

Joshua D. Blank and Daniel Z. Levin, When Is Tax Enforcement Publicized?, 30 Virginia Tax Review 1 (2010).

With the opening of the 2016 tax filing season, we can expect a steady drumbeat of DOJ press releases with increasingly stronger warnings as April 15 approaches.

Justice Department Announces Historic Conclusion of Swiss Bank Program for Category 2 Institutions

DOJ logoThe Justice Department achieved a historic milestone in its ground-breaking Swiss Bank Program with its announcement today of the final Category 2 bank resolution. The Justice Department executed its 80th and final agreement with HSZH Verwaltungs AG, which agreed to pay a civil penalty of more than $49 million. All told, the 80 Category 2 Swiss banks which resolved their criminal tax exposure with the U.S. government will pay more than $1.36 billion in penalties. Perhaps even more importantly, every Category 2 bank in the Swiss Bank Program is required to cooperate in any future related criminal or civil proceedings, thereby ensuring that the Justice Department will have the complete assistance from each bank as the U.S. government pursues leads throughout the world.

By all accounts, the Swiss Bank Program appears to have been an incredible success for the Justice Department (and IRS) in its efforts to combat offshore tax evasion. Never before had the U.S. government offered an amnesty program to the entire banking industry in a particular country, and at the time the program was unveiled in 2013, it was not clear that the program would be a success or that Swiss banks would be interested. But given the overwhelming demonstration of interest from Swiss banks, the substantial monetary penalties collected, and the wealth of information shared with the U.S., the program can fairly be declared a significant win for the U.S. government. Given the success of the Swiss Bank Program, it will be interesting to see whether the Justice Department offers a similar program to banks in other countries or regions.

Today’s press release included the following quote from the Attorney General thanking the Swiss government for its efforts in making the Swiss Bank Program so successful:

“The Department of Justice is committed to aggressively pursuing tax evasion, and the Swiss Bank Program has been a central component of that effort,” said Attorney General Loretta E. Lynch. “Through this initiative, we have uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts. We have improved our ability to return tax dollars to the United States. And we have pursued investigations into banks and individuals. I would like to thank the Swiss government for their cooperation in this effort, and I look forward to continuing our work together to root out fraud and corruption wherever it is found.”

Other Justice Department officials echoed the Attorney General’s sentiments, and noted that the Swiss Bank Program has provided the DOJ and IRS with a wealth of information that is being mined for leads that are being pursued civilly and criminally throughout the world:

“The department’s Swiss Bank Program has been a successful, innovative effort to get the financial institutions that facilitated fraud on the American tax system to come forward with information about their wrongdoing – and to ensure that they are held responsible for it,” said Acting Associate Attorney General Stuart F. Delery. “As we have seen over the last year, Swiss banks are paying an appropriate penalty for their misconduct, and the information and continuing cooperation we have required the banks to provide in order to participate in the program is allowing us to systematically attack offshore tax avoidance schemes.”

“The completion of the agreements under Category 2 of the Swiss Bank Program represents a substantial milestone in the department’s ongoing efforts to combat offshore tax evasion, and we remain committed to holding financial institutions, professionals and individual taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “Using the flood of information flowing from various sources, the department is investigating this criminal conduct, referring appropriate matters to the Internal Revenue Service for civil enforcement and pursuing leads in jurisdictions well beyond Switzerland. Individuals and entities engaged in offshore tax evasion are well advised to come forward now, because the window to get to us before we get to you is rapidly closing.”

Top officials from the Internal Revenue Service similarly commended today’s announcement, noting that more than 54,000 taxpayers have come forward to voluntarily disclose their previously-undisclosed offshore assets:

“Today’s resolution with HSZH Verwaltungs AG brings to a close this phase of DOJ’s Swiss Bank Program,” said acting Deputy Commissioner International David Horton of the IRS Large Business & International Division. “The comprehensive success of this program sends a powerful message to those who might think they can evade their tax obligations by going offshore. A whole sector of financial institutions, 80 banks in all, has been held accountable for aiding the use of secret accounts and circumventing U.S. law. In addition to the more than $1.3 billion in penalties from these resolutions, more than 54,000 taxpayers have come forward to the IRS to pay more than $8 billion in taxes, interest and penalties.”

“The bank agreement with HSZH announced today may bring an end to one phase of the Swiss Bank Program, but more importantly it brings us closer to our overall goal of compliance and accountability for financial institutions and U.S. taxpayers,” said Chief Richard Weber of IRS-Criminal Investigation. “The data received from each agreement on the accounts, schemes and linkages is extremely valuable in combating international tax evasion. I could not be more proud of the effort of our special agents who worked tirelessly to make this program a success in coordination with the Department of Justice.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

Taxpayers who have still not “come clean” and declared their offshore assets may still take advantage of various IRS programs, such as the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures, but the price of admission has now increased if they had accounts at HSZH:

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at HSZH must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

IRS Criminal Investigation Annual Report Confirms Devastating Impact of Budget Cuts

Today the IRS Criminal Investigation Division released its annual report, summarizing its activities and accomplishments during fiscal year 2015. One of the key takeaways from the report is the devastating impact of budget cuts on the IRS as a whole, and on the criminal investigation function in particular. The report acknowledges that CI hired only 45 new special agents over the last three years, and staffing levels hit their lowest levels since the 1970s. In virtually all categories of enforcement activity – investigations initiated, prosecution recommendations, indictments, convictions, and sentencings – CI’s results for FY2015 were dramatically reduced. In FY2015, CI had only 2,316 special agents, down from a historical high of 3,363 special agents in FY1995.  A Bloomberg article published today neatly summarized this news:

Tax cheats can breathe a little easier. The gun-toting Internal Revenue Service investigators who send felons to prison are retiring in droves and there’s no one to replace them.

The IRS press release announcing the release of the report follows below:

WASHINGTON — The Internal Revenue Service today announced the release of its IRS Criminal Investigation (CI) annual report, reflecting significant accomplishments and enforcement actions taken in fiscal year 2015.

Focusing on tax-related identity theft, money laundering, public corruption, cybercrime and terrorist financing, IRS CI initiated 3,853 cases in FY 2015.

“Our criminal investigators continue to bring complex and meaningful cases that have a significant impact on tax administration,” said John Koskinen, IRS Commissioner. “This work also plays an important deterrent effect on would-be criminals, helping ensure fairness for taxpayers and protecting voluntary compliance in our tax system. The report is a tribute to the important work done by IRS Criminal Investigation.”

“This report reflects the extremely high level of commitment that CI agents bring to the job and the great case work accomplished in the past year,” said Richard Weber, Chief, IRS Criminal Investigation. “But the story that the report tells this year is that fewer agents do mean fewer cases. I’m extremely proud of all that we accomplished in spite of our budget challenges, but the inability to hire is really taking a toll.”

The annual report is released each year for the purpose of highlighting the agency’s successes while providing a historical snapshot of the make-up and priorities of the organization. The very first Chief of IRS CI, Elmer Lincoln Irey, served from 1919 to 1946 and envisioned releasing such a document each year to showcase the agency’s work.

CI is the only federal law enforcement agency with jurisdiction over federal tax crimes. This year, CI again boasted the highest conviction rate in all of federal law enforcement — 93.2%. CI is routinely called upon by prosecutors across the country to be the lead financial investigative agency on a wide variety of financial crimes including international tax evasion, identity theft and transnational organized crime.

“While our highest priority is to enforce the nation’s tax laws, we cannot underestimate the deterrent effect we are having on would-be criminals and the impact we are having on tax administration,” said Weber. “I’m certain that a majority of Americans who follow the law would tell you that they want consequences for those who do not.”

CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law. The 50-page report summarizes a wide variety of IRS CI activity throughout the fiscal year and includes case summaries on a range of tax crimes, money laundering, public corruption, terrorist financing and narcotics trafficking financial crimes.

The cases in this year’s report represent the diversity and complexity of CI investigations. They touch almost every part of the world and were again some of the most successful in the history of CI. In May, indictments were unsealed in the FIFA investigation, a case that continues to this day. At the time, the investigation involved coordination with police agencies and governments in 33 countries and was one of the most complicated international white-collar cases in recent memory. Ross Ulbricht, the creator and owner of the “Silk Road” website, was sentenced to life in prison and ordered to forfeit more than $183 million. A Michigan man, Dr. Farid Fata, was sentenced to 540 months in prison and ordered to forfeit $17 million for his role in a health care fraud scheme. Fata purposefully misdiagnosed people with cancer, pumping their bodies with chemotherapy that they did not need, in order to get rich.

“I’m proud of IRS CI and the reputation that this agency has as the best financial investigators in the world. We have a long and storied history and we continue to write new chapters to that history each year,” said Weber. “Regardless of our budget situation, I am proud that we have not lost sight of our impact or mission and that the quality of our cases remains high.”