Offshore Bank Accounts Targeted in Federal Tax Fraud Investigations

The Department of Justice announced on Monday that a federal district court in California had authorized service of a “John Doe summons” aimed at uncovering information about offshore Caribbean holdings of U.S. taxpayers suspected of evading or underpaying federal taxes. The DOJ’s investigation is one part of a much larger push by the government in recent years to prevent tax evasion in offshore tax havens and to recovers tax delinquencies from those who have underpaid in the past.

The information the government used to gain authorization for its current investigation comes primarily from the IRS Offshore Voluntary Disclosure Program, which permits individuals who have offshore holdings to come forward, pay off their tax deficiencies, pay hefty civil fines, and avoid the possibility of future criminal prosecution and jail time. Apparently, a number of taxpayers who took advantage of the program admitted to having funds in the Canadian Imperial Bank of Commerce FirstCaribbean International Bank, based in Barbados and with branches throughout the Caribbean. Information gathered from 120 voluntary disclosers confirmed to the government that significant numbers of U.S. taxpayers were using FirstCaribbean International Bank to illegally avoid paying federal taxes.

While FirstCaribbean is based in Barbados, because it engages in numerous transactions in U.S. dollars, the bank itself has a “correspondent account” in a U.S.-based bank, in this case Wells Fargo N.A. Thus, while FirstCaribbean is outside the jurisdiction of the federal government, the DOJ could nonetheless issue the John Doe summons on Wells Fargo to obtain deposit and wire transfer records for FirstCaribbean’s U.S. taxpayer accounts, even though the identities of those taxpayers are not yet known. After obtaining that information from Wells Fargo, the IRS and DOJ will be able to analyze those financial records to determine whether FirstCaribbean account holders have violated U.S. tax laws.

There are many valid reasons that a taxpayer might have holdings in a foreign account, such as making accessing funds easier while spending time abroad or simplifying foreign business transactions. While keeping money abroad is perfectly legal, U.S. law does require payment of taxes on all income earned worldwide, and foreign bank accounts may not be used to hide income from federal authorities. Additionally, each year taxpayers must report any foreign bank accounts that have held over $10,000 at any time in the previous year. Criminal penalties for attempted tax evasion include up to five years imprisonment, a criminal fine of up to $100,000, in addition to enhancement as required under the Federal Sentencing Guidelines. Failure to supply the IRS with required information—such as offshore account holdings over $10,000—can be punished with up to a year imprisonment and a $25,000 fine. In such cases, no actual tax deficiency or evasion is necessary; willful failure to provide the required information is the crime, not underpayment.

Tax law is extremely complex and one of the few areas of criminal law where ignorance of the law may actually be a defense in some cases. Where a taxpayer has relied in good faith on the advice of an accountant or attorney when opening an offshore account, a taxpayer may potentially have a viable defense to a charge of attempted tax evasion. Likewise, most tax crimes require the prosecution to prove that a taxpayer willfully broke the law, and in many cases evidence of willfulness maybe hard for the government to prove. Willfulness is a very fact-specific determination that often requires going through mountains of records and other evidence in a case.

If you are under investigation or charged with criminal tax violations, our experienced federal defense attorneys may be able to help. Our firm has an extensive record of success in defending tax and other white collars crimes in federal courts throughout the U.S. Acting early and mounting an aggressive defense is the best way to protect your rights and minimize the serious risks that a federal prosecution can pose.


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