White Collar Criminal Defense Group

The IRS And Treasury Department Issue Final Regulations Aimed At Offshore Tax Evasion

The U.S. Treasury Department and IRS recently announced final regulations directed at enforcement of the 2010 Foreign Account Tax Compliance Act (“FATCA”) and combating offshore tax evasion.  These new regulations require foreign financial institutions – termed “FFI’s” – to identify and report to the IRS information regarding financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.  Participating FFI’s can be required to withhold a 30% tax on transactions to non-participating FFI’s who are unwilling to provide the required information.  The Treasury Department worked with over 50 countries, including the United Kingdom, Mexico, Norway, Denmark, Ireland, Switzerland, and Spain, to establish intergovernmental agreements that mandate the reporting of financial information by FFI’s.

These recent regulations are part of a larger strategy by the IRS to identify foreign accounts or ownership interests held by U.S. taxpayers.  In January 2012, the IRS began its 2012 Offshore Voluntary Disclosure Program, which seeks to incentivize individuals to report previously undisclosed income from offshore accounts.  The IRS claims that taxpayers who participate in the offshore disclosure program will avoid substantial civil penalties and “generally” eliminate the risk of criminal prosecution.  The 2012 Offshore Voluntary Disclosure Program is a throwback to the 2009 and 2011 offshore disclosure programs, all of which are viewed as a success based on their collection of over $5 billion in back taxes, interest, and penalties from over 34,000 voluntary disclosures.

Using the “Report of Foreign Bank and Financial Accounts,” more commonly known as an “FBAR,” U.S. taxpayers with foreign accounts must annually report all accounts maintained with an FFI if the total value of the accounts exceed $10,000 at any time during the year.  The FBAR requires taxpayers to identify an account’s maximum value during the year, the name and address of the financial institution, and the account number.  The civil penalty for willfully failing to file an FBAR can be the greater of $100,000 or 50% of the balance of the foreign account for each violation.  The criminal penalty for failure to file an FBAR can be up to five years imprisonment and a fine of $250,000 for each violation.

Does Mary Jo White Need A DeLorean?

The news that Mary Jo White has been nominated to serve as chairwoman of the Securities and Exchange Commission has a lot of folks buzzing about the potential for increased Wall Street prosecutions.

Columbia University law professor John Coffee calls her “tough as nails.”  Senator Charles Schumer of New York says she’s, well, “tough as nails.”  And President Obama says, “You don’t mess with Mary Jo.”  (Probably because she’s tough as nails).

But Stephen Gandel is not so impressed.  Over at Fortune, he calls White “the right person at the wrong time” and laments that her prosecutorial skills might have been better used in the immediate aftermath of the financial crisis:

The window for pursing crimes from the financial crisis is rapidly closing. And enforcement is only one part of what the SEC does. It also needs to regulate the market to make sure it’s fair for everyone. High-frequency traders, for example, can probably breathe a sigh of relief, for now. Shapiro had been examining their turf, but this is not an area in which White has a lot of experience.

Gandel’s point has broader implications for regulation in general.  The tendency to get stuck fighting the last battle is great and can lead us to ignore obvious warning signs from newly developing threats.  That’s one reason why prediction is hard, and most of us are bad at it.

White’s level of dexterity in navigating the obstacles few, if any, of us can foresee will probably do more to determine if she succeeds at the SEC than any nail-like tendencies she apparently possesses.