Foreign Account FBAR Willfulness & Crime Fraud Exception to Privilege
One of the strongest types of privileges available to Attorneys and their clients (although the Client actually “holds” the privilege) is the Attorney-Client Privilege.
The purpose of the privilege is to ensure the client is “up-front” with the attorney, which is necessary for the Attorney to effectively represent the interests of the client.
But, there are exceptions to the privilege, and one main exception is the Crime-Fraud Exception.
This issue recently came up in a case involving the Panama Papers and Willfulness.
Panama Papers & Crime Fraud Exception to Privilege
In a recent case that is currently pending, the government moves the courts to disallow the use of the Attorney-Client Privilege based on the “Crime Fraud Exception.”
U.S. v. Owens, Brauer, et al.
The Panama Papers resulted in the release of confidential information about clients of various banks throughout Panama, who were using illegal, covert methods to hide wealth.
The U.S. is currently bringing civil and criminal cases against some of the participants.
Panama Papers Criminal Indictment/Charges
Harald Joachim von der Goltz is charged in Indictment 18 Cr. 693 (RMB) (the “Indictment”) with conspiracy to commit tax evasion, wire fraud, money laundering conspiracy, willful failure to file Reports of Foreign Bank and Financial Accounts (“FBARs”), and making false statements.
As a resident alien of the United States, von der Goltz is subject to U.S. tax laws, which require him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts.
However, von der Goltz deliberately evaded these requirements by setting up a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS. (Id.).
Von der Goltz was assisted in this scheme by Owens, an attorney at Mossack Fonseca and, subsequently, the Owens Firms, and by Gaffey, a then-partner at [REDACTED] (the “U.S. Accounting Firm”).
As part of this fraudulent scheme, von der Goltz, Owens, and Gaffey falsely claimed that von der Goltz’s elderly mother (the “Mother”) is the sole beneficial owner of the shell companies and bank accounts at issue. (Id. ¶ 36). The Mother, at present, is approximately 102 years old. (Id.). She is a Guatemalan citizen and resident, and – in contrast to von der Goltz – she is not a U.S. taxpayer.
Crime Fraud Exception to Privilege
Here is how the U.S. is moving the court to deny the privileges, with select excerpts from the Motion:
The crime-fraud exception to the attorney-client privilege and to work-product protections applies when the Government shows that there is probable cause to believe that (1) a fraud or crime has been attempted or committed, and (2) the communications or materials in question were in furtherance of the fraud or crime. In re Grand Jury Subpoena Duces Tecum Dated September 15, 1983, 731 F.2d 1032, 1038 (2d Cir.1984). “
In addition to the crime-fraud exception, von der Goltz and his agents voluntarily and intentionally waived any privilege over the Relevant Information in three ways.
First, von der Goltz selectively disclosed and discussed the contents of the Relevant Information with the Government and made no effort to invoke the privilege until many months later.
Second, von der Goltz further waived any privilege over the Relevant Information by failing to take any steps to assert the privilege after the public dissemination of communications purportedly covered by the privilege.
Third, von der Goltz waived the privilege by waiving the attorney-client privilege in his relationship with attorneys at the law firm (the “U.S. Law Firm”), and taking the position that his communications with the U.S. Law Firm bear on von der Goltz’s mens rea with respect to the charges in the Indictment, including the charges pertaining to the Relevant Information. Consequently, this Court should rule that the Relevant Information is not protected by privilege, and should be disclosed to the Prosecution Team in this case.
Get into IRS Offshore Compliance Before it is Too Late
Even if you were willful, presuming the money was legally sourced, you may still qualify for post-OVDP (aka IRS VDP — Voluntary Disclosure Practice) to get compliant before the IRS audits, examines, or investigates you — and you lose the right to use Voluntary Disclosure/Tax Amnesty.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.