Manafort & Gates FBAR Fraud - Could OVDP Have Changed the Outcome?

Manafort & Gates FBAR Fraud – Could OVDP Have Changed the Outcome?

The same way Al Capone got did in by taxes, is the same way taxes and FBAR related activities may bring down several high-ranking members of the U.S. government (current and former).

FBAR Fraud Crime

Even though there are numerous allegations being alleged against Messrs. Manafort and Gates, we are going to focus on one specific allegation, which is the primary area of law we focus on at our firm – IRS Offshore Voluntary Disclosure, which also includes FBAR & FATCA.

Summary of FBAR Allegations

As you can imagine, government complaints are technical and boring. Therefore, we are going to do our best to summarize each paragraph of the FBAR allegation in order to bring you a better understanding of what the government alleges as to these two individuals — and what the penalties may possibly entail.

**Links in this article to prior articles we have previously authored on the related topic.

U.S. Citizens with Authority over Foreign Bank Accounts

U.S. Citizens (as well as Legal Permanent Residents and Non-Legal Permanent Residents who meet the Substantial Presence Test) have a responsibility to update the U.S. government regarding certain foreign accounts that they may have.

A few things to keep in mind is that U.S. Citizen also includes U.S Persons, and the term “Accounts” is far more detailed than just bank accounts. It may include investment accounts, pensions, mutual funds, etc.

When a person has an annual aggregate total of more than $10,000 over foreign accounts (either as the owner, joint owner, or signatory) they are required to file the FBAR annually online (electronically) – detailing all of the requisite foreign account information.

It does not matter if the money is one account with $500,000, or eight accounts with $1,500 each – once the $10,000 threshold is exceeded, all accounts must be reported.

What is the Purpose of the FBAR?

While most individuals would tell you that the main purpose of the FBAR is as a ways and means for the IRS and U.S. government as a whole to hassle people, the technical rationale for having to file the form is: “The [FBAR] reports filed by individuals and businesses are used by law enforcement to identify, detect, and deter money laundering that furthers criminal enterprise activity, tax evasion, and other unlawful activities.”

Obligated to report information to the IRS (Schedule B)

Schedule B is a relatively common schedule that is filed along with a 1040 tax return.

There are two main purpose is to the form:

-The first purpose is when a person has more than $1,500 in interest or dividends (but no foreign account authority). When a person has less than $1,500 they are not required to identify each specific institution or the amount of the interest/dividend from each institution. But, once a person exceeds the threshold, they are required to parse the total aggregate into an itemized list, detailing the institution, the amount of the passive income, and whether it was interest or dividend.

– The second situation is when a person has ownership or signature authority over foreign accounts during the tax year. It does not matter if the person has ownership of the funds, or mere signature authority — they still must file Schedule B. This is true, even if the person does not have any interest or dividends from U.S. or Foreign Sources.

No FBARs were Filed

Neither Defendant in this indictment filed the FBAR detailing the amount of money they had overseas. Based on the fact that it appears they each had several million dollars abroad, each defendant would have been required to file his own separate FBAR Report for each year his annual aggregate total in the accounts exceeded $10,000.

Schedule B (Foreign Account Ownership) was Misrepresented

In addition, Manafort specifically marked off “No” on schedule B, which asked him whether the person filing the return had any ownership or signature authority over any foreign accounts abroad.

Manafort’s Tax Preparer Asked Him Directly

As you may find from several other blog postings we have prepared, question seven and willfulness are two very important issues when it involves international tax crimes. Sometimes these issues will hinge on whether the Tax Preparer/CPA ever asked the client whether he had or she had foreign Accounts.

Once a person is asked whether they had foreign accounts (especially if asked in writing) and say no, chances are they are going to be found willful (aka criminal). We recently posted a comprehensive article on this very same issue due to the fact that there are many inexperienced offshore disclosure attorneys wrongfully recommending their clients to enter Streamlined instead of OVDP, even if they marked no on a questionnaire from their accountant CPA – because the attorneys are trying to make a quick buck.

As you can see, there is not much wiggle room when a person asks whether you had foreign accounts in a language you understand, and you answer…no.

Willful

As a result of these apparent intentional misrepresentations on the part of defendants, the government is bringing a criminal indictment against them. The penalties against a person who is found willful of these crimes can range upwards to several years in prison as, well as a complete forfeiture of the foreign money. The penalties are less severe when someone is found to be non-willful.

Criminal Penalties

Possible criminal charges related to tax matters include tax evasion (IRC § 7201), filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203).

– Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.

– Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

– A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000.

– A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.

– A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.

– A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

OVDP May have Changed Manafort’s Outcome

Presuming the money was legally sourced, Manafort may have warded off any potential criminal charges by entering the traditional OVDP (Offshore Voluntary Disclosure Program) and significantly reduced any fines and penalties – and almost completely avoid a criminal investigation.

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.