The United States is one of the few countries that demands that its citizens pay income taxes regardless of the country in which that money was earned.
And, in recent years, Washington has become increasingly aggressive about hunting down undeclared American individual and corporate bank accounts held overseas.
U.S. Senator Carl Levin states “Experts estimate that Americans now have more than $1 trillion in assets offshore, and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes.
U.S. corporations,” he says “are estimated to illegally evade another $30 billion each year through offshore tax dodges.”
Over the past five years, the U.S. Internal Revenue Service has offered “voluntary disclosure” programs in which American individuals and corporations with undeclared overseas accounts can admit to their existence and pay penalties, while avoiding criminal prosecution.
The IRS says that by mid-2012, this program raked in some $5 billion from those admitting to offshore banking.
Americans’ hidden loot is held in various tax havens such as Caribbean islands and Switzerland, a country that established strong banking secrecy laws in 1934. But in the last decade, Switzerland has been pressured to open its ledgers to international scrutiny.
U.S. efforts to pierce through Swiss secrecy moved forward recently with the guilty plea of a former Credit Suisse banking official. Andreas Bachmann admitted on March 12 to federal charges that he and six other officials at that bank helped U.S. citizens evade taxes by hiding a reported $4 billion of their assets.
The Swiss national admitted to violations including carrying cash for American customers so the account holders would not be in excess of legal limits.
Also, Bachmann says he personally met with clients in restaurants and other locales to avoid the “paper trails” of account statements. Bachman is reportedly cooperating with federal authorities as six other Credit Suisse bankers still face their day in court.
Watching – and questioning – the effort to get U.S. account information from Swiss banks is the U.S. Senate Permanent Subcommittee on Investigations.
Headed by Senator Levin, the subcommittee just issued a report titled “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts.”
The 181-page report says Credit Suisse held more than 22,000 accounts for Americans collectively worth $10 to 12 billion.
Credit Suisse is one of 14 Swiss banks that have been under U.S. Justice Department investigation since the 2008 crackdown on Swiss bank UBS.
That led to a 2009 agreement in which UBS paid a $780 million dollar fine and revealed some 4,700 concealed U.S. accounts.
The Senate subcommittee says Credit Suisse not only secretly held American cash, but also, came up with an ingenious way to enable Americans to tap into their Swiss loot
“Another service offered by Credit Suisse,” the report states, “was to employ third party service providers to supply its U.S. customers with credit cards and travel cash cards that enabled them to secretly draw upon the cash in their Swiss accounts.”
The report was critical of the Justice Department, stating that it only pried loose 258 American account names from the 22,000 at Credit Suisse. Senator Levin accused the department of “a lack of determination to pursue these cases.”
The Senate panel hearing may give new energy to Justice’s quest for account names, and resolution of Credit Suisse’s case,
There are multiple reports that the bank may seek a deferred prosecution agreement with the federal government as did UBS, with a large fine – perhaps in the $800 million range - and account identities revealed.
“Criminal cases are all about momentum,” former federal prosecutor Jeffrey Neiman, told Bloomberg News “These hearings are going to give some sort of momentum to the Justice Department.”
All of this comes before the onset of a new U.S. law, the U.S. Foreign Account Tax Compliance Act.
On July 1, non-U.S. banks and financial institutions will be required to report the presence of accounts held by Americans that, collectively at each institution, are over $50,000.
For joint personal accounts, it’s $100,000. For legal entities such as corporations, the trigger point is $250,000.
The law, known by its acronym “FATCA”, is both praised and criticized by watchdog groups.
While saying the act is an improvement over the status-quo, observers point out that by keeping the total balance of all accounts held at each overseas bank below those thresholds, IRS reporting would not be triggered.
Joshua Simmons, with the Washington-based transparency group Global Financial Integrity, points out another way around the law he says is sure to be exploited.
“The biggest loophole by far,” he said, “is that foreign banks aren't required to 'look through' offshore companies or other entities to determine whether an American actually controls an account."
He added it's "something that should be a common-sense, standard practice regardless of FATCA. There's no excuse for banks not to know with whom they are doing business.”
Indeed, U.S. corporate registration laws are lax regarding full disclosure of the identities of parties to the incorporation. Some American states, especially Delaware, rake in a considerable sum from corporate formations and have been reluctant to toughen regulations that may cut down that revenue.
Transparency and accountability advocates say what is ultimately needed is global cross reporting of both individual and corporate accounts.
The G20 group of nations has stated that the automatic exchange of bank account information for taxation purposes is desired as the “new global standard.”
The Organization for Economic Cooperation and Development recently put forth a template legal structure for countries that want to emulate information sharing set forth in FATCA.
Jeffrey Owens, a tax expert at the Organization for Economic Cooperation and Development, said catching tax evaders was “a concern that many member countries share.”
If countries could agree to new global reporting standards for exchanging information, he said, then “maybe there’s a way forward.”
Meanwhile, the IRS has extended its “come clean” program without setting an end date for it in hopes of getting more individuals and corporations to come forward.
And, it continues to tell Americans that it is better to own up to their foreign bank accounts now than to continue to hide them and suffer criminal penalties when they eventually get caught.