Connecticut FBAR Penalty Ruling
Connecticut FBAR Penalty: When a US Person commits an FBAR violation and it is determined to be a “willful” violation, the Taxpayer may become subject to civil fines and a possible offshore criminal investigation. The Connecticut Court issued a $14 million penalty (and subsequent prison sentence) against a South Korean citizen who was a Legal Permanent Resident of the United States (Connecticut). While willful FBAR penalties are less common than willful violations, when the US Government pursues a willful violation — it can be a costly endeavor for the Taxpayer.
Non-willful violations in Connecticut may be limited to “per form” and not “per violation” as in the case of US vs Kaufman No. 3:18-cv-00787.
The IRS Likes to Fry Big Fish
One thing to take away from this recent case is that you don’t have to be famous to get hit with criminal offshore penalties. Hyung Kwon Kim was not like Wesley Snipes nor Paul Manafort. He was neither an artist nor politician — he was a wealthy man who tried to avoid US tax by willfully shirking his annual FBAR Statement filing responsibilities — and he got caught.
For many taxpayers, FBAR noncompliance is not an isolated issue. They tend to have some other red flags with their tax returns — itemized deductions, charitable contributions, six/seven-figure combined salaries, businesses, etc. — all of which can lead to an innocent audit of something else which automatically may trigger an audit of foreign accounts.
Hyung Kwon Kim (“Defendant”) was originally from South Korea but was residing in the United States as a Legal Permanent Resident.
Kim lived in Greenwich, which you may know is an exclusive, affluent area of Connecticut.
He was an international businessperson who had money scattered throughout many different countries.
Specifically, his biggest concern was how he was going to receive transfers of money without being detected by the United States government.
Therefore, Defendant opened up various bank accounts at some pretty well-known shady financial institutions in Switzerland including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.
Statement of the Facts
A brief statement of the facts as provided in the charging papers:
- Starting in 1998, Defendant opened up multiple bank accounts in Switzerland
- The accounts were often opened in the name of Nominee Offshore Entity to avoid detection
- Defendant requested that the banks not send any mail to his U.S. address
- Defendant traveled to Switzerland often to discuss the status of his accounts
- Defendant had money transferred from the 3rd party nominee companies into the bank accounts
- The income was not reported to the U.S. Government and FBARs were not filed (or FBARs were intentionally misrepresented)
- Defendant had upwards of $28 million in the foreign accounts
In order to avoid detection, Defendant worked with various bankers throughout Switzerland and other countries in order to facilitate the transfer of money to locations outside the United States. To further perpetuate his crime he opened up shell companies and other false companies in other countries to receive funds.
These companies were primarily located in Panama, the British Virgin Islands and Liechtenstein.
Transfers to the United States
What’s the fun of having $28 million offshore if you can’t enjoy the money while you are living in United States.
He purchased gems and jewelry, as well as an 8.6 carat ruby ring, and a $3 million house in Greenwich, Connecticut.
Defendant Continued to Move Money Illegally
Throughout the years, Defendant continued to transfer money to different foreign financial institutions.
At some point, once the United States government put on a full-court press against many of the Swiss banks, the banks informed defendant that he should move the money to other institutions (or spend it).
His Harsh FBAR Penalty
Defendant may end up in prison (5 years maximum), along with a $14 million FBAR penalty and additional unspecified fines and penalties.
Why such a harsh FBAR penalty?
Because the IRS found him to be willful — which results in significant fines and penalties.
As provided by the Department of Justice’s statement regarding the case:
“For more than a decade Hyung Kim concealed his wealth in secret offshore accounts, evading reporting requirements and the payment of income taxes due,” said Acting Deputy Assistant Attorney General Goldberg. “With his guilty plea, he is now held to account for his criminal conduct. Offshore tax evasion is a top priority for the Tax Division, and we will continue to work with our partners at IRS to follow the money and actively pursue those who persist in thinking that they can safely hide their income and assets offshore.”
“Mr. Kim’s plea is another example of what happens to those who dodge their tax obligations by utilizing offshore tax havens,” said Chief Don Fort, IRS Criminal Investigation. “We owe it to the vast majority of honest U.S. taxpayers to tirelessly search for and prosecute those who avoid paying their fair share, regardless of how they may try to disguise their income.”
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