IRS Seeks Identities of Americans with Undisclosed Belize Bank Accounts

17 September 2015 Legal News Alert: Government Enforcement, Compliance & White Collar Defense Publication
Authors: Lisa M. Noller Thomas F. Carlucci Frederic J. Adam William Bradley Russell Jr

Legal News Alert: Government Enforcement, Compliance & White Collar Defense

Americans, including residents who are not citizens, are required to report their foreign bank accounts every year, on pain of stiff civil and criminal penalties. Regulations under the Bank Secrecy Act require each “United States person having a financial interest in, or signature authority over, a bank, securities, or other financial account in a foreign country” to file a foreign bank account report, often called an FBAR. The regulations define foreign financial accounts broadly, to include even certain annuities and insurance policies. And the regulations don’t just require the record owner of the account to report it. An American with a beneficial interest in an account must file an FBAR, as must an American who owns more than half of an entity with a foreign account. And a corporate officer with signature authority over an account must file an FBAR, even if he has no personal interest in the account. Additionally, “[a] United States person that causes an entity ... to be created for a purpose of evading [the FBAR requirement] shall have a financial interest in any bank, securities, or other financial account in a foreign country for which the entity is the owner of record or holder of legal title.”

The penalties for failing to file an FBAR are draconian. Running afoul of the requirement could bring five years in prison and a $250,000 criminal fine — or in some cases, 10 years and a $500,000 fine. In addition, a person failing to file an FBAR may face civil penalties totaling half the value of the account for each year. A person with a million-dollar account who fails to file an FBAR for six years could therefore face a civil penalty of $3 million, half the value of the account for each of the six years an FBAR was not filed.

Despite these harsh penalties, some Americans do not file FBARs and maintain accounts in foreign jurisdictions with strict bank secrecy in an effort to conceal their income from the IRS. In the past dozen years, the IRS and the Justice Department have been working aggressively to identify Americans with undisclosed accounts in bank secrecy jurisdictions.

One tool the government has used in this effort is the John Doe summons, which is authorized by Tax Code section 7609. A John Doe summons allows the IRS to seek information about taxpayers, even when it does not know their names. The IRS used this tool in 2008 to discover information about Americans with undeclared offshore accounts at the Swiss bank UBS. Now, it is using it again in an attempt to unmask Americans with accounts at Belize Bank International Limited and Belize Bank Limited. According to the government, these banks maintained correspondent accounts at two American banks, Citibank and Bank of America. The IRS believes it will be able to identify Americans with accounts at the two Belizean banks by looking at the correspondent account records at Citibank and Bank of America.

Americans with undisclosed accounts at Belize Bank International Limited and Belize Bank Limited have immediate cause for concern. And Americans with secret offshore accounts anywhere should pay close attention to developments in this area.

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Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Lisa M. Noller
Chair, Government Enforcement, Compliance & White Collar Practice
Chicago, Illinois
312.832.4363
lnoller@foley.com

Thomas F. Carlucci
Partner
San Francisco, California
415.984.9824
tcarlucci@foley.com

Frederic J. Adam
Partner
Silicon Valley, California
650.251.1118
fadam@foley.com

W. Bradley Russell, Jr.
Associate
Jacksonville, Florida
904.633.8928
wbrussell@foley.com