Swiss Bank Concealment Scheme Results in Prison and FBAR Penalties
Many foreign nationals do not realize the reporting and tax requirements imposed on them by the IRS. While it has been said ignorance of the law is no excuse, intentional tax avoidance can result in far more severe penalties, including prison and millions in FBAR penalties. That's what recently happened to a South Korean citizen who used a Swiss bank concealment scheme to try to avoid paying for assets held overseas.
U.S. FBAR and Tax Reporting Requirements Apply to Legal Permanent Residents
U.S. citizens generally understand they have a legal duty to report and pay their taxes. When taxpayers hold assets overseas, they also have a duty to disclose those foreign financial accounts under the Bank Secrecy Act by filing a Foreign Bank Account Report (FBAR), and to include those assets on their annual tax return. FBARs are required any time any foreign financial account under the taxpayer's control accumulates more than a $10,000 balance at any time during the tax year.
What is sometimes less clear is that these reporting requirements also apply to immigrants, including legal permanent residents. Because immigrants often have assets overseas, or may inherit sizable accounts from family in their home country, foreign nationals are often more likely to meet the FBAR reporting requirements than their neighbors who are citizens.
Deliberately Dodging Bank Secrecy Laws Proves Risky
Hyong Kwon Kim, a citizen of South Korea, had lived in the U.S. as a legal permanent resident since 1998. He was a business owner and executive, operating a family business with international reach. Kim came into tens of millions of dollars, which he inherited from family members overseas. Rather than deposit the funds in a U.S. account and risk paying estate taxes on them, Kim deposited the funds into secret accounts at Credit Suisse, its subsidiaries, and another Swiss bank account.
Kim took extreme steps to be certain the IRS would not find the international funds. He distributed them across several accounts in his own name, the name of a relative, and under shame corporate entities. He worked with a Swiss attorney, E.P., to structure financial transactions so he would get the benefit of the funds here in the U.S. without having to pay taxes on them. He had checks issued directly from these accounts to third parties in the name of the sham companies. One company even purchased a luxury home in Greenwich, Connecticut and a vacation property in Chatham Massachusetts. On paper, these properties belonged to the companies and Kim paid rent to use them. In reality, they were purchased with undisclosed financial assets under his control.
In 2008, Credit Suisse cooperated with the IRS to close accounts held by sham entities owned by U.S. residents, including Kim. He refused to bring his assets to the U.S. Instead, he sent coded messages to his Swiss banker to have the funds transferred to another bank and maintain control of the accounts. Ultimately, he used over $1 million to purchase a ring with a 13.9 carat sapphire and three diamonds with a total weight of 13 carats and brought the jewelry to U.S. to avoid detection.
What Happens When Using a Swiss Bank Concealment Scheme to Hide Foreign Assets Fails
E.P. eventually pleaded guilty to tax-related crimes in 2013 in the Southern District of New York. As a result, the IRS learned of Kim's accounts and his undisclosed financial assets. The IRS brought federal criminal charges against him, claiming that Kim willfully failed to report his foreign financial accounts to the U.S. Treasury and filed false income tax returns for 1999 through 2010. The government claimed that he failed to report investment income and earnings from the offshore accounts. Altogether, Kim's Swiss bank concealment scheme covered up over $28 million in foreign assets.
On January 25, 2018, Kim was sentenced by a federal district court judge to six months in prison. He was ordered to pay $100,000 in court fines and $243,542 in restitution to the IRS. That's in addition to over $14 million in FBAR penalties.
When taxpayers get creative to avoid disclosing foreign assets, like the Swiss bank concealment scheme used by Kim, they run the risk of losing everything when they are discovered by the IRS. When that happens, it takes hard work and a skilled tax attorney familiar with the FBAR requirements and the IRS reporting systems to make the best of a bad situation. Foreign nationals with accounts overseas are better off talking to a tax attorney now, before the IRS finds out, to take advantage of programs that can reduce their liability, and keep them out of prison.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years’ experience. If you have questions regarding criminal prosecution of FBAR or tax reporting violations, contact Joe Viola to schedule a consultation.
