Recently completed FBAR cases should cause a chill dread upon all who cherish freedom. Here is why: The United States has a Bill of Rights the intent of which is to limit the threat of the United States Federal government. However, the Bill of Rights has become a dead letter as result of the practice of plea bargaining which essentially wipes out the rights of the individual. Three recent FBAR cases illustrate this nicely:
- Beanie Baby creator Ty Warner made a deal with the government to pay $53.5 in FBAR penalties on a bank balance of 93.6 million. According to the Chicago Tribune, the IRS charged him with failure to report 3.1 million in earnings from a secret Swiss account, failing to pay $885,300 of US taxes. The FBAR fine thus appears to be over 60x the tax delinquent tax liability.
- Pius Kampfen, a retired Swiss banker living in California, became a US citizen in 2006, has agreed to pay a penalty of 1.5 million on a high account balance of $2,930,785. Tax owing to the US was minimal ($4,945 according to the government’s reckoning). The penalty is thus 300x the damage to the government in uncollected taxes. Jack Townsend comments, “With the indicated tax loss, and the reference to the tax loss table for setting the base offense level, the sentence seems to be not out of line with other sentences. But, I wonder why the Government would have prosecuted the case with such a small tax loss. Certainly, probably his role as a Swiss banker himself (working for Julius Baer) probably was in the mix.”
- A widow Mary Esteel Curran, who inherited unreported accounts from her husband, agreed to pay $10.8 million on a high account balance fo $21.7 million. She failed to pay about $668,000 in taxes. The FBAR fine is thus 16x the damage to the government.
In each of these cases, the defendent has accepted a plea bargain which included an FBAR fine greatly in excess of the damage to the government. In none of the cases does the money appear to be illegally obtained, making it questionable as to the applicability of the fine under the Bank Secrecy Act. In the case of Kampfen, the accounts were in Switzerland his native land, where he worked for many years. Essentially, the money consists of many years of retirement savings. If the Federal Government wishes to punish him for his association with Julius Baer, it should charge him with relevant crimes. Using the FBAR law as a form of retaliation smacks of injustice. Even the IRS has admitted in its manual that it should be extremely reticent to apply severe FBAR fines against legal money.
These fines would have a very good chance of being found unconstitutional. The Supreme Court ruled in the case of the US vs. Bajakajian that a fine must be proportional to the crime. It seems to me that fines exceeding the tax liability by several orders of magnitude are not proportional. My comments at Jack Townsend’s blog to this effect have gone unanswered.
Yet here is the dilemma facing each of the defendants: Do they fight it and risk losing everything? A man like Mr. Kampfen has too much to lose. Not only could he lose all his wealth and his freedom, but he would have had to pay every remaining penny to his lawyers to fight the US government. He has accepted instead to hand over his retirement savings.
Conrad Black is a good example of what happens when you refuse to plea bargain. Of the fourteen original charges against him, only two finally stuck after the appeal process was done. The government still won and he had to finish his prison sentence. The government really only has to win a little and you lose big, whereas to defend yourself, you must go undefeated on all charges. The plea bargain system favors the government and causes serious human rights violations. The United States government is a bully. Hand over your lunch money or suffer the consequences.
What does this say to those who are thinking about catching up on un-reported FBARs? Think twice. The United States government is not benevolent. It is a rapacious beast starving for food. Our only hope is that it starve to death before it devours too many more expats.