Deferred Prosecution Agreements, Offshore Disclosure & Dual-Citizens (Golding & Golding)

Deferred Prosecution Agreements, Offshore Disclosure & Dual-Citizens (Golding & Golding)

Deferred Prosecution Agreements, Offshore Disclosure & Dual-Citizens

Deferred Prosecutions Are Dangerous to Offshore Voluntary Disclosure

When a person submits to U.S. Offshore Voluntary Disclosure, it is important that they are properly counseled on the impact of a disclosure, and how it may impact their exposure — both in the U.S. and abroad.

Offshore Disclosures are Multi-Layered

When it comes to offshore voluntary disclosure, there are many nuances to be aware of.

The area of law is always changing, and due to recent updates in the law, including changes to various international tax agreements, regulations, statutes, and enforcement procedures — oftentimes even a “simpler” disclosure becomes an incredibly complicated process. 

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All IRS Offshore Disclosures are Complex (Even Streamlined Cases)

Even a simple streamlined disclosure program submission can have serious consequences. In other words, Offshore Voluntary Disclosure does not happen in a bubble. 

There are many moving parts, and since it is the IRS — those parts do not always work together very well.

This is especially true when the matter involves a foreign institution that entered into a deferred prosecution agreement.

Voluntary Disclosure is Not Limited to the U.S.

Voluntary disclosure is the general concept of proactively submitting to a tax amnesty program in order to minimize potential catastrophic penalties that most governments can issue involving the intentional (and even the unintentional) failure to be in tax compliance.

While the United States has had an active version of offshore disclosure for many years, upwards of 50 other countries also have (or have had in the past) voluntary disclosure programs as well.

Some of the programs are very structured such as the voluntary disclosure programs in Canada, Italy and Israel – and some of the other programs are not as structured.

With that said, the goal of all of these programs is the same – to get you into compliance.

And, in many other countries the compliance period is different and the outcome may involve criminal prosecution.

Therefore, it is important understand some of the common traps in pitfalls to beware of.

Offshore Tax Scams

If something is too good to be true, it always is.

The same can be said for foreign financial institutions and promoters selling you on some false bill of goods. They convince you that if you invest outside of United States that they will take care of you – and of course, nothing can go wrong.

They usually have several things in common, including having you:

  • Launch an offshore company
  • Invest or park money at certain Foreign Financial Institutions
  • Utilize a number account instead of a named bank account; and
  • Have a hold-mail agreement so that the bank does not send you any statements

Here’s an example we come across often: Peter is a dual citizen of the US and a foreign country.  A promoter in a foreign country entices Peter to invest by guaranteeing a 12% return on investment come – no matter what.

Moreover, the promoter further entices Peter by letting Peter know that if he: forms an offshore company using a designated agent in the foreign country (so Peter’s name is not on it);  parks the money at a certain institution (see here for a general list of “bad banks”); utilizes a number account instead of a name bank account; and agrees to a hold mail agreement so that he does not receive any statements – the IRS will be none the wiser.

The IRS Can Catch You Pretty Easily These Days

Just catch any episode of American Greed and you’ll realize there are no guarantees in finance — that’s just not the way life works.

Sometimes people get greedy, and the scam just falls apart.

But more than not, the scam falls apart once one or more people get caught — and are willing to give up anybody and everybody to save their own hide.

Maybe 30 years ago it would have been difficult for the IRS to sniff you out and  track your money in countries like Switzerland, Luxembourg, the Bahamas, and Panama – but the times have changed.

Just like that supercool pair of parachute-pants you thought would never go out of style, welcome to 2019 – and unless you’re at an 80’s party, you’ be pretty hard-pressed to find anyone cruising around in a Datsun 280X, dressed in parachute pants, and wearing a thin gold chain sticking out of the turtleneck.

FATCA Agreement

The United States has entered into numerous FATCA IGA (Intergovernmental Agreements) with foreign countries to facilitate the reciprocal Exchange of information involving.

To date, nearly 115 countries have entered into FATCA Agreements, with more than 300,000 foreign financial institutions reporting U.S. Account Holders to the U.S. Government.

Gone are the days of a handshake, understanding that if you stretch my back, I’ll scratch yours – and international financial secrecy.

It’s just not difficult to get caught anymore.

It’s not worth the risk.

Deferred Prosecution Agreements

In certain instances, the U.S. government has the information hand-fed to them by way of a deferred prosecution agreement.

These agreements are great for the Internal Revenue Service and Department of Justice.  The foreign institution gets caught — and of course, the individual bank members do not want to end up doing 5-to-15 years in prison.

Therefore, the institution’s members agree to enter into a Deferred Prosecution Agreement, in which the U.S. and the foreign financial institution agree that in exchange for not pursuing a prosecution at this time, the institution will turnover heaps of information to the Department of Justice.

The information generally involves U.S account holders, which are then disseminated to the various different three letter agencies within the U.S. government to enforce the Bank Secrecy Act and other related tax crimes.

Deferred Prosecution Agreements Lead to Information

As a result of all the wonderful and fresh information the US government receives, they are able to use this information to discover and uncover foreign investments in bank accounts, mutual funds, other investments, ETFs, cryptocurrency – you name it.

A Bigger Problem for Dual Citizens

Non-Dual Citizens

In this particular type of situation, when the individual is only subject to taxes in one country (United States) it’s not so bad.

Take Jeffrey for example. He is a U.S. citizen, who opened up a Swiss bank account. This was primarily so that when he went out with friends and hit the bar scene, he could tell people he had a Swiss Bank Account; in other words, Jeffrey was no criminal mastermind.

Jeffrey got caught by the U.S. government, and agrees to pay a hefty fine to the IRS because they caught him before he entered into offshore voluntary disclosure.

He stays in the good graces of the US government, and he is probably going to be fine.

Dual-Citizens Have it Worse

For dual-citizens, it is much more complicated. That is because oftentimes foreign countries will also have reporting requirements for their own citizens who maintain investments in countries such as the United States.

If that foreign country also happens to be a member of the OECD and/or otherwise agrees to comply with CRS (Common Reporting Standard) which is similar, but not the same as FATCA – it is important the attorney understands the dual-nature of multi-country reporting for his or her client.

This is especially important if the foreign institution signed a deferred prosecution agreement. Why? Because if the individual is not counseled properly, he or she may make misrepresentations in their U.S. filings which could end up being reported back to the other country’s tax authorities. 

Moreover, if the individual tries to put one past the IRS (by filing streamlined when they were willful) it could spell disaster.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

Schedule a Confidential Reduced-Fee Initial Consultation with a Board-Certified Tax Attorney Specialist


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