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Foreign Bank & Financial Accounts

Most of us don’t have Foreign Bank or Financial Accounts, however for those that do, it’s important to report them properly so that you’re paying the correct taxes. Apart from the requirement to file a 1040, you must file an FBAR (Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1) on or before June 30 (for the previous calendar year) if so required. If you’re caught failing to report one of these accounts, the penalties can be steep. You may face civil and, in certain cases, criminal penalties in Federal court.

Penalties for Failure to Report an Account on the “FBAR”

The following chart highlights the civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements. Surprisingly enough, there are instances where no criminal penalties are imposed, but of course this will depend on the specific facts surrounding each individual case. Naturally, where there are criminal penalties, the Federal Sentencing Guidelines dictate the range of imprisonment on each case. Under the Guidelines, a person convicted of a Federal crime could face a longer sentence if they have prior convictions. However, the type of prior convictions and facts surrounding the instant criminal matter can decrease or increase the potential punishment.

 Violation

Civil Penalties 

Criminal Penalties 

Comments

Negligent Violation Up to $500 N/A 31 U.S.C.
§ 5321(a)(6)(A)
31 C.F.R. 103.57(h)
Non-Willful Violation Up to $10,000 for each negligent violation N/A 31 U.S.C. § 5321(a)(5)(B)
Pattern of Negligent Activity In addition to penalty under § 5321(a)(6)(A)
with respect to any such violation, not more than $50,000
N/A 31 U.S.C. 5321(a)(6)(B)
Willful – Failure to File FBAR or retain records of account Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. Up to $250,000 or 5 years or both 31 U.S.C. § 5321(a)(5)(C)
31 U.S.C. § 5322(a)
and 31 C.F.R. § 103.59(b) for criminal.
The penalty applies to all U.S. persons.
Willful – Failure to File FBAR or retain records of account while violating certain other laws Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. Up to $500,000 or 10 years or both 31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminal
The penalty applies to all U.S. persons.
Knowingly and Willfully Filing False FBAR Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. $10,000 or 5 years or both 18 U.S.C. § 1001,
31 C.F.R. § 103.59(d) for criminal.  The penalty applies to all U.S. persons.
Civil and Criminal Penalties may be imposed together.  31 U.S.C. § 5321(d).

Beda Singenberger

Beda Singenberger was a certified public accountant from Switzerland, he was the owner/operator of a Zurich financial advisory firm named Sinco Treuhand AG. Sinco provided wealth managment and tax advice globally including in the US. In 2011, Mr. Singenberger was indicted in the Southern District of New York for conspiring with over 60 US taxpayers to hide more than $184 Million in Swiss Bank Accounts. Story Link: DOJ Release

The “Singenberger Client List”

It looks like Federal agents are going after anyone on something called the “Singenberger Client List.” The most recent criminal information was filed in the Southern District of New York against one of these “clients,” named Jacques Wajsfelner for failing to report his account(s) on the FBAR for a number of years.

Jacques Wajsfelner

Mr. Wajsfelner has plead guilty in open court to charges that he failed to file FBARs from 1995 through 2011; filed false income tax returns by omitting information about his Swiss accounts; & “failed to make voluntary disclosures under the IRS’s Voluntary Disclosure Program.” The stipulated tax loss from these acts is somewhere around the $400,000 mark and the civil penalty imposed will be around $2.84 Million. It has also been reported that the Federal Sentencing Guidelines put Mr. Wajsfelner’s imprisonment between 30 and 37 months, the maximum for the offense he pled to is 5 years (60 months). Link to Filed Criminal Information.

Why Did Mr. Wajsfelner accept a Plea Deal?

Usually, the accused will accept a plea agreement because the weight of the evidence against them is great and there is a likelihood that aggravating the prosecutor with a trial can lead to additional or more serious charges, which in turn can mean a greater length of imprisonment. Reviewing the Court Docket in Mr. Wajsfelner’s case reveals that the plea agreement was accepted nearly immediately after the Criminal Information was filed. This demonstrates that negotiations on the plea deal began prior to filing the Information and possibly before filing the Notice of Intent to File a Criminal Information.

In addition to the filed charges, Bloomberg News reports that Mr. Wajsfelner lied to federal agents about his Foreign Account and that of course implicates 18 U.S.C. § 1001. Moreover, there is some evidence that Mr. Wajsfelner employed a “sham” Hong Kong company in the execution of this financial scheme. As such, the prosecution could have evidence connecting Mr. Wajsfelner to another crime in furtherance of the charged crime and that would subsequently give rise to enforcement of  31 C.F.R. § 103.59(c), which carries a 10 year maximum imprisonment penalty as indicated in the chart above. Not to mention the additional punishment for the crime discovered, if any.

What is Title 18, United States Code, Section 1001?

18 USC § 1001 makes it a crime to: 1) knowingly and willfully; 2) make any materially false, fictitious or fraudulent statement or representation; 3) in any matter within the jurisdiction of the executive, legislative or judicial branch of the United States. The sentence for this crime can be 5 years.

Specifically, the code states:

(a) Except as otherwise provided in this section, whoever, in any
matter within the jurisdiction of the executive, legislative, or
judicial branch of the Government of the United States, knowingly
and willfully -
(1) falsifies, conceals, or covers up by any trick, scheme, or
device a material fact;
(2) makes any materially false, fictitious, or fraudulent
statement or representation; or
(3) makes or uses any false writing or document knowing the
same to contain any materially false, fictitious, or fraudulent
statement or entry;
shall be fined under this title, imprisoned not more than 5 years
or, if the offense involves international or domestic terrorism (as
defined in section 2331), imprisoned not more than 8 years, or
both.
(b) Subsection (a) does not apply to a party to a judicial
proceeding, or that party's counsel, for statements,
representations, writings or documents submitted by such party or
counsel to a judge or magistrate in that proceeding.
(c) With respect to any matter within the jurisdiction of the
legislative branch, subsection (a) shall apply only to -
(1) administrative matters, including a claim for payment, a
matter related to the procurement of property or services,
personnel or employment practices, or support services, or a
document required by law, rule, or regulation to be submitted to
the Congress or any office or officer within the legislative
branch; or
(2) any investigation or review, conducted pursuant to the
authority of any committee, subcommittee, commission or office of
the Congress, consistent with applicable rules of the House or
Senate.

Conclusion

The penalties for failing to report the FBAR can be steep when the circumstances so warrant. As you can see, a simple tax code violation can turn ugly very quickly based on what is learned throughout the investigation and how you deal with investigators. It seems Mr. Wajsfelner employed a sophisticated tax shelter scheme to try and shield less than $500,000 in taxes and will end up paying over $3 Million for that action. Not to mention the potential 37 months of incarceration.

Federal law is a complex area and White Collar Criminal Defense even more so. Please contact an attorney experienced in these matters if you find yourself the target of a Federal investigation.

If you want to learn more about Michael A. Huerta, Attorney and Counselor at Law, or Huerta PLLC, a New York Law Firm, visit http://HuertaPLLC.com

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