Dashing any thought that they were taking a hiatus from investigating and prosecuting taxpayers with secret offshore bank accounts and the bankers that helped them, the Justice Department and Internal Revenue Service have unleashed an avalanche of new enforcement activity in the final days of July. Since 2008, the government has criminally charged more than 160 U.S. taxpayers who maintained secret offshore bank accounts. During that same time period, the government has charged more than 50 “enablers” – foreign bankers, attorneys, investment advisors, and the like – who helped U.S. citizens set up and maintain secret foreign accounts. Lately however, the Justice Department’s offshore enforcement initiative has largely been quiet, with few public announcements of new criminal cases. That silence was broken on July 19, with the news that a Swiss national formerly employed by Credit Suisse had pleaded guilty to conspiring with the bank’s U.S. customers to defraud the Internal Revenue Service. One day later, a Beverly Hills resident was charged with tax fraud based upon his failure to disclose secret accounts that he maintained in Israel and Germany. Shortly thereafter, on July 24, another Beverly Hills resident pleaded guilty to failing to disclose a bank account he maintained in Dubai. With these announcements, the Justice Department’s offshore enforcement agenda appears to be alive and well.

United States v. Susanne D. Rüegg Meier

We begin with the Justice Department’s announcement that a former Credit Suisse banker, Susanne D. Rüegg Meier, pleaded guilty to conspiring with U.S. taxpayers and other Swiss bankers to defraud the U.S. Treasury. By way of background, Credit Suisse pleaded guilty in May 2014 for conspiring to aid and assist its U.S. customers in filing false tax returns, and was ordered to pay more than $2 billion in fines and restitution. Eight individual bankers from Credit Suisse, including Rüegg Meier, were indicted on conspiracy charges back in 2011. Rüegg Meier is the fourth Credit Suisse banker to plead guilty so far. Michele Bergantino pleaded guilty approximately one year ago and received a sentence of probation only. Two other defendants, Josef Dorig and Andreas Bachmann, previously pleaded guilty and were also sentenced to probation. The remaining Credit Suisse bankers named as defendants remain at large.

According to documents filed with the court, Susanne D. Rüegg Meier, a citizen and resident of Switzerland, admitted that from 2002 through 2011, while working as the head of the Zurich Team of Credit Suisse’s North American desk in Switzerland, she participated in a wide-ranging conspiracy to aid and assist U.S. taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts. Rüegg Meier was responsible for supervising the servicing of accounts involving over 1,000 to 1,500 client relationships. She was also personally responsible for handling the accounts of approximately 140 to 150 clients, about 95 percent of whom were U.S. persons residing primarily in New York, Chicago, and Florida, who held assets under management totaling approximately $400 million.

The Justice Department’s press release stated that Rüegg Meier took the following steps to assist clients in hiding their Swiss accounts: retaining in Switzerland all mail related to the account; structuring withdrawals in the forms of multiple checks each payable in amounts less than $10,000 that were sent by courier to clients in the United States; and arranging for U.S. customers to withdraw cash from their Credit Suisse accounts at Credit Suisse locations outside Switzerland, such as the Bahamas. Rüegg Meier further admitted that approximately 20 to 30 of her U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities or other structures that were frequently created in the form of foreign partnerships, trusts, corporations, or foundations.

Between 2002 and 2008, Rüegg Meier traveled approximately twice per year to the United States to meet with clients. Among other places, Rüegg Meier met clients in the Credit Suisse New York representative office. To prepare for the trips, Rüegg Meier would obtain “travel” account statements that contained no Credit Suisse logos or customer information, as well as business cards that bore no Credit Suisse logos and had an alternative street address for her office, in order to assist her in concealing the nature and purpose of her business.

After Credit Suisse began closing U.S. customers’ accounts in 2008, Rüegg Meier assisted the clients in keeping their assets concealed. For example, when one U.S. customer was informed that the bank planned to close his account, Rüegg Meier assisted the customer in closing the account by withdrawing approximately $1 million in cash. Rüegg Meier advised the client to find another bank simply by walking along the street in Zurich and locating a bank that would be willing to open an account for the client. The customer placed the cash into a paper bag and exited the bank. Rüegg Meier also recommended that a few U.S. clients open new accounts at other specific banks, such as Bank Frey and Wegelin & Co., and transfer their assets from their Credit Suisse accounts to the new accounts.

As part of her plea agreement, Rüegg Meier admitted that her criminal conduct caused the U.S. Treasury to lose between $3.5 and $9.5 million in tax revenue. Ordinarily a defendant in this type of tax case would be ordered to pay restitution of back taxes to the IRS as part of her sentence. In Rüegg Meier’s plea agreement, however, the parties agreed that no restitution was required “because all losses to the government as a result of the conspiracy with Defendant already have been paid in full by Credit Suisse AG as part of its criminal settlement.” As part of Credit Suisse’s guilty plea in 2014, the bank agreed to pay, and in fact paid, $667 million in restitution to the IRS as well as a fine in the amount of $1.3 billion. An interesting question is whether this substantial restitution payment by the bank – which was intended to address taxes that should have been paid by accountholders – results in a windfall to the IRS, because individual taxpayers who held accounts at Credit Suisse and filed amended tax returns were also required to pay back taxes to the IRS, thus providing a “double recovery” to the IRS at least with respect to some taxpayers.

United States v. Teymour Khoubian

Next up is the announcement that a resident of Beverly Hills, California, was indicted on July 20 for hiding $20 million in offshore bank accounts in Germany and Israel. Khoubian is alleged to have filed false individual tax returns for tax years 2005 through 2010 that did not report his financial interest in multiple Israeli and German bank accounts or the interest income that he earned from those accounts. He also allegedly falsely claimed refundable tax credits to which he was not entitled, including the Earned Income Tax Credit, which is intended for low-to moderate-income working individuals. In 2008, Khoubian is alleged to have held approximately $20 million in assets in his undisclosed accounts. The indictment charges that Khoubian also filed a false 2011 tax return that underreported the interest income he earned from his Israeli accounts and continued to fail to disclose that he held an account in Germany. Khoubian is also alleged to have filed false FBARs for 2012 and 2013 that concealed his German account.

In addition to filing false tax returns and FBARs, Khoubian is alleged to have provided his German bank with a copy of his Iranian passport and a residential address located in Israel to prevent the bank from disclosing the account to the IRS. He also allegedly sent a letter to Bank Leumi falsely claiming he was living in Iran when, in fact, he resided in Beverly Hills, California. Khoubian is also charged with making false statements to an IRS Special Agent: denying that he owned an account in Germany between 2005 and 2010, stating that the German account was closed, when it was in fact still open, and stating that the funds had been transferred to the United States, when Khoubian had allegedly transferred over $600,000 from his German account to his accounts in Israel.

United States v. Marc Edward Mani

Finally, the Justice Department announced on July 24 that a plastic surgeon in Beverly Hills pleaded guilty to concealing a bank account in Dubai that contained nearly $1.3 million he earned while working in that country. According to the plea agreement filed in this case, while working as a plastic surgeon in Beverly Hills, Mani began to travel to Dubai in 2011 to perform plastic surgery for a foreign medical center. Mani’s accountant, who was aware that Mani was earning foreign income, informed him that he would be required to report any foreign bank accounts under his ownership or control to the IRS. In 2012, Mani opened a bank account with a financial institution based in Dubai and began depositing income he earned from abroad into this account. By February 2013, Mani’s foreign bank account held more than $400,000. However, Mani failed to file a FBAR to disclose his foreign bank account for the calendar years 2012 and 2013. In addition to failing to disclose his interest in his foreign bank account, Mani also failed to report on his federal income tax returns the vast majority of the approximately $1.28 million in foreign income he earned in Dubai for the years 2012, 2013 and 2014.

The Mani case raises an issue that we regularly encounter in offshore tax cases: whether the taxpayer acted “willfully” in not reporting foreign bank accounts. The question of willfulness often turns on the interaction between taxpayer and return preparer. In his plea agreement, Mani acknowledged that his accountant, who was aware that Mani was earning income from Dubai, advised him of the requirement to file FBARs to report any foreign bank accounts. Mani nonetheless failed to file FBARs for 2012 and 2013. Under these facts, the government could easily demonstrate willfulness, which requires a showing of “a voluntary intentional violation of a known legal duty.” See Internal Revenue Manual 4.26.16.4.5.3.

[View source.]