Amid their widening investigation into banks suspected of facilitating offshore tax evasion by wealthy Americans, the federal authorities are contemplating a novel punishment: a severe monetary penalty normally reserved for individual Americans.
The penalty stems from the violation of a rule known as Foreign Bank and Financial Accounts, or Fbar(pronounced EF-bar), that requires American taxpayers with overseas bank accounts and foreign assets to file a special disclosure with the Treasury Department each year. The top penalty for failing to file the disclosure is 50 per cent of the account balance for each year of violation, a level that can leave tax evaders owing multiples of what their accounts hold.
Now the justice department, which is conducting a broadening inquiry into Swiss and Swiss-style banks, including Credit Suisse and HSBC, according to court papers and statements by the banks, is exploring how and whether it could apply the penalty to the banks, should it find that they violated American tax laws, according to two persons briefed on the matter. The persons, one in government and the other in private legal practice, spoke only on the condition of anonymity.
Under the Fbar filing requirement, which is intended to help tax authorities unearth undeclared assets held abroad, American citizens and residents with foreign accounts that collectively hold more than $10,000 are required to file the disclosure form to the Treasury Department by June 30. Tax lawyers have generally read the requirement as applying to American citizens and residents — not to American banks or to foreigners of any kind.
But buried in the language of the requirement are provisions that a few criminal defense and tax lawyers say cover foreign financial institutions and their foreign bankers.
Jeffrey Neiman, a former federal prosecutor now in private practice in Fort Lauderdale, said, “under my reading of the Fbar rules, if the government can prove that a financial institution willfully caused an Fbar violation, the government could seek a penalty on the financial institution, no matter where in the world it is based, for up to 50 per cent of the balance of all accounts in question.” Recent government cases against four Credit Suisse private bankers, among others, cite efforts by the bankers to dissuade American clients from filing the disclosures.
Neiman was a federal prosecutor in Fort Lauderdale until April 4 and oversaw many government filings against clients and employees of UBS.
©2011 The New York
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