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.
The fines on FBAR are outrageous no matter what the circumstance. It’s not taxes, it’s a piece of paper they knew they were not enforcing and they knew nobody ever heard of.
What they are doing with FBAR fines is the most disgusting power play of this entire debacle. It’s no wonder they won’t say how much they are “bringing in” broken down as “taxes” versus “penalties”
I wonder about the legality of all of this sometimes. The U.S. essentially ignored expats for decades then pulled dusty laws off the books many of them were not even aware of and decided to start enforcing those laws. In practice they were telling people “we care nothing about FBARS”
I guess they can get away with this since they are doing it but, I do wish there were grounds for someone to sue them over it. It seems to be there are various dubious violations going on with these FBAR penalties.
@Petros
I agree with you completely on this. It’s a good time to review the post and comments about the Curran case.
http://isaacbrocksociety.ca/2013/04/26/fbar-story-ends-judge-frees-curran-after-she-paid-willful-penalty/#comments
I repeat comment from that post that bears on the issue of “willfulness”
http://isaacbrocksociety.ca/2013/04/26/fbar-story-ends-judge-frees-curran-after-she-paid-willful-penalty/comment-page-1/#comment-305587
In any the FBAR Fundraiser is nothing but extortion pure and simple. Nothing but a way to raise penalties. On this point I repeat Just Me’s comment on a recent Robert Wood post:
http://www.forbes.com/sites/robertwood/2013/10/04/should-you-opt-out-of-irs-offshore-amnesty/
@Atticus
All indications are that Carl Zwerner will be the test case.
http://isaacbrocksociety.ca/2013/09/26/the-fbar-fundraiser-and-the-penalty-jackpot/
Remember also that in the Curran case the judge chastized the Department of Justice for bringing the case against Curran.
I recently explained the FBAR Fundraiser to a Homelander who couldn’t believe it and said it was the most “evil thing she had ever heard”.
We know that the Obama administration is the personification of “evil”.
@USCitizenAbroad, yes. Thank you.
In an earlier post, to which I allude, I said the IRS was bluffing as they knew full well that the FBAR fines at these levels would not be proportional to the crime if the funds were legally obtained. Yet here we are. The IRS is using the plea bargain system to get what they want and the majority will not challenge them, because they might not have anything left after it’s all been said and done. In a system like that, the government always wins.
Someday the USG will trip up and go after the wrong person resulting in a legal challenge. The IRS will go one case too far for common sense.
There was a case in the UK when the banks tried to enforce their excessive penalties on the wrong customer who found a precedent under English law about the ‘charges’ have to reflect the ‘damage’ done to the company. That guy cost UK banks £billions and thousands and thousands of small claims court cases.
Although the IRS has more stick than the banks, it could be going down the same road at least for penalties.
@Don, perhaps. Or may be the public will rise up and recreate the circumstances that occurred in France when the guillotine was a fad.
The IRS must still be fighting an uphill battle. Three weeks ago they posted a couple of videos on ‘FATCA Registration’ on YouTube for FFIs for the run up for July 2014. Part 1 has had only 351 views and Part 2 only 58.
Hardly resounding worldwide interest at present. Either the world is still asleep or nobody will care until they have to pay the withholding tax.
Prediction – the IRS is going to have to make headlines by pulling the 30% trigger on withholding tax, but risks pissing off the entire world. Who is going to win?
Please correct me if I am wrong, but it seems that it is the DOJ (Department of Justice – what a misnomer?) that is using FBAR penalties during the plea bargaining process?
Those in question seem to have quite a bit of wealth. What are the implications of the little guy? If one of us has a net worth of 50k and missed filing an fbar would we then be fined 2 million?? This is all making me paranoid to the point I may make moves to ensure I have no assets and put what little assets I do own in my wife’s name. I assume my wife being a non-us citizen can’t be extorted by a foreign government? But who knows.. I think i’ll ensure our home, car, bank accounts and everything it in her name only. Seems drastic and even though I am a tiny fish with not much assets this makes me awfully paranoid..
@Petros – One thought, the famous website could be used as a form of protest by helping you know who by registering certain institutions from all around the world. Get the drift?
Mickey Maus Versicherung Gmbh
Minniestrasse 30
Disneydorf 76009
Deutschland
Herrn Mickey Maus (Gesellshaftsfuhrer)
The FBAR penalties are unbelievably evil especially when combined with incredibly aggressive tactics. When they can start with 300% of the high balance, regardless of the tax loss, “only” 50% feels like a win. The problem is the ridiculous starting point. They charge you with the financial “death penalty” in the hopes that you’re happy with life in prison. Draco would be proud.
@pukekonz – You are in the same boat with a few million other people. I think we would all like to know the answer to your question. Since most people were not filing FBARs until the last year or two (and likely are STILL not filing FBARs because the don’t know about them) I cannot fathom how the IRS are going to handle the mountain of information they will receive when FATCA kicks in. I seriously dread to think. Are we all going to wake up with a penalty notice in the mail? Who knows?
From my experience here in the UK, 90% of the US expats I run into don’t even know they should have been filing tax returns, much less FBARs. It’s going to be a very rude awakening for a lot of people if FATCA happens.
@US in the UK – I believe the UK is paying ‘lip service’ to the US. The HMRC has better things to do than collect taxes/penalties for the US especially when the UK has little to gain. Picture it some HMRC civil servant has the choice of perusing an enquiry that nets the UK revenue or chasing data for the IRS. Which is going to be more important?
People have to understand the data traffic is 95% US not UK. HMRC managers will tell their staff to put IRS business on the back burner. What could be the result otherwise?
Even if the US has FATCA data it’s going to be a vertical journey uphill to make foreign tax authorities put IRS business before their own. At the end of the day the IRS does not pay their salaries.
So we’re back to the threat of being detained at the US border. It’s even debatable if you didn’t pay FBAR penalties if the US could even extradite you. It’s not a crime to leave the UK, live in the US and not pay taxes to the UK once you’ve taken US residence. The US is going to struggle on several fronts.
@pukekonz
Little guy (and, I guess, not-so-little-guy) expats that meet the criteria can file under Streamlined and not be subject to penalties (including FBAR penalties). This in no way helps, for example, the hapless immigrant to the US who didn’t know about her FBAR filing responsibilities, but does take care of a significant chunk of expat non-filers.
What will the IRS do if/when such expats come to their attention via FATCA? Well, if the IRS is smart, it will tell them to file under Streamlined (if they meet the criteria).
Possible reasons for doing this:
1) Collecting penalties from expats is problematic
2) Diplomatic considerations as many of these expats will also be citizens of their resident countries
3) The vast, vast, vast majority of these people will not be guilty of anything more sinister than being unaware of their filing responsibilities
Of course, that’s just my guess, so take it with a big grain of salt, but I suspect that as long as the expat can show non-wilfulness, he will be OK.
Imagine the opposite of this:
FATCA IGA kicks into gear full force in Canada, and suddenly thousands (tens of thousands?) of non-filing dual citizens come to the attention of the IRS. Is the IRS really going to ding these people for a large chunk of their life savings with the Canadian MSM finally paying attention to what’s going on? There would just be too much pressure on the Canadian government for it to idly sit by and do nothing.
The reality is that unless someone with sufficient funds is convicted and appeals challenging the FBAR penalties, the US will just keep pursuing the same course. In terms of pursuing expats, if the expat is dual in another country, has no US assets, and does not return to the US the risk is pretty low for the US to take any successful action against such expat.
There is also the marketing machine run by the IRS. I believe this machine paints all expats as traitors, flag burners, terrorists, cheats, evaders and law breakers. This is why I think the general US public will have no sympathy for expats in such IRS issues. To the general public I betrayed my country by leaving and eventhough it’s not the case by default I am seen as a tax dodger -why else would I leave? It’s saddening. I’m booked in Nov. for my relinquishment so hopefully that goes well.
@pukekonz, There is no way of knowing whether the Swiss banker is “rich” or just an ordinary middle class kind of guy. Three million in financial assets is not rich by Swiss terms, and is likely merely adequate to maintain a middle class lifestyle for a couple decades of retirement. The fine is therefore absolutely outrageous.
What will they do to the little guys whose account information is revealed by FATCA? Did you not read the “FATCA: The Master Plan“? The IRS has said that once they have the information they will apply the full 50% fine per annum. This is from the horse’s mouth. So they will start with the bigger accounts and work their way down until they’ve taken care of everyone. This is why it is crime of the first order for the leaders of our countries of residence to sign IGAs.
What happens to those who have renounced but get fined by the IRS at a time after they are no longer a US citizen? I will soon only be a NZ citizen and far from rich or with any assets (CLN will be dated 2008). I can assure you if I am fined by the IRS there’s no way I can pay it as I live check to check. Would NZ extradite one of their own citizens to the US by order of the IRS? Or do we take the approach of never entering US soil again in fear of detainment at the border? I have no plans to enter the US again but if a family member died I might want to attend a funeral. This all seems so insane, like a bad dream..
@pukekonz, as US in the UK says, we are “all in the same boat with a few million other people”. No one really knows where this is all going. The IRS is clearly keeping its options open and may, as Petros believes, ultimately go after everyone they think they can extort money from. The US Congress makes the laws, the President signs them, and agencies like the IRS elaborate them with rules and regulations. Being a sovereign nation with enormous military and economic power, the US and its agencies can do anything to its ex citizens (or, in fact, to anyone) that they can get away with, as we have seen in the “war on terror” and with excessive FBAR penalties.
As of now there are no reports (that I know of) of ex US citizens being arrested or unusually harassed at the border, but that could change. It is probably prudent for those of us who have given up US citizenship to visit the US as little as possible and plan to do so even less in the future. The situation could be changed at any time by cooperation between the IRS and Homeland Security, with no further action required by Congress or the President.
As for what US homelanders think of us, I don’t care. Most of them are ignorant. I left the US in the 1960s over a war that I believed was wrong. Some thought of me as a “draft dodger”, although when I left I was too old to be drafted. I became a Canadian citizen in the 1970s, relinquishing my US citizenship then, and I have recently received a CLN to attest to that. Now they can call me a “tax dodger” for all I care, though before I became a Canadian citizen I filed US tax returns for years just to prove that I never owed them any tax.
No, the door didn’t hit me on the way out. By obtaining my CLN I have slammed it shut behind me.
If I sound angry — and I am — it’s because I resent the US threatening my financial and personal security just because I was a citizen by birth there long ago.
Pukekonz. Extradition is costly and time consuming from a legal point of view. Extradition only is done for serious crimes. You can relax. You can also travel to the US. They cannot even afford to pay the salaries of their own workers let alone go after someone in a far away land who lives paycheque to paycheque.
@Pukekonz, In my opinion you are very safe in New Zealand, and I agree with KalC. My complaint is from a policy point of view. We must assume that the US intends to go after the wealthy first and work their way down the line. Perhaps not the super wealthy who have the resources to mount legal challenges in courts, but the so-called upper middle class, like Mr. Kampfen, with financial assets between 1-10 million. One would think that the Canadian government would step in and rescind the IGA once that starts happening, but who is to say? I am saying that the IRS has promised to go after these accounts. They have promised. The Canadian government has to act as though this is what will happen and refuse to reveal the account information of residents of Canada to the United States under any circumstances (and here I would argue that they need to revise the current use of the W9 and encourage new Canadians to relinquish their US citizenship and duals to renounce, and they need to make this easier for the duals by insisting on mass renunciation ceremonies and streamlining the Canadian citizenship process for American permanent residents (1 year processing time is just too long).
Finally, I tell people they are their own worst enemy. In this whole situation, still the worst thing that an expat has ever done is enter OVDP. This is the equivalent of volunteering for martyrdom, which the early Christians had to condemn. It is not virtuous to give oneself up like a sheep for the slaughter.
Now I have publicly refused to pay FBAR and in July I entered the US without incident. How much more the little guy who is not a public figure? On the other hand, if you are a Swiss banker, or if you are already under indictment, then by all means, please avoid the US. But most of our readers are just the little people and the US has little concern for such people at this point–just as the brown bears at Katmai ignored Mr. Treadwell for twelve years, the salmon runs be adequate to provide their nutritional needs. But on the 13th year, the salmon runs were inadequate, and one hungry starving bear named Ollie ate Mr. Treadwell and his companion.
If you have not been indicted, I wouldn’t worry if I were you. Finally, as regards any undeclared accounts, you still have Fourth and Fifth Amendment rights. FBAR requires that one waive one’s Fourth Amendment rights. Delayed FBARs are a waiver of one’s Fifth Amendment rights. OVDP is a waiver of all rights. In USA law, one can waive one’s rights.
The old joke of the bear chasing two hikers applies. The one hiker takes off his hiking boots and reaches for his runners. His friend says, “What are you doing? You can’t out run a bear!” He responds, as he fastens the shoelaces, “True. But I only have to out run you.”
As long as you think Mr. Kampfen is “rich” then you are probably not in the crosshairs of the IRS, at least for now.
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This topic is really about the misuse of existing laws. The U.S. is dusting off an old law and using it as a means of extortion. The FBAR rules were not initially intended to be used in situations like they are being used now. There are many reasons but …
I would be interested in reaction to both the following article in the National Post and the comments to the article:
http://news.nationalpost.com/2013/10/09/teen-would-be-burglars-convicted-of-felony-murder-receive-extreme-50-year-sentences-for-crimes-they-didnt-commit/
Once again we have what I would call the “technical application of the law” for a purpose it was not intended for. But, what I find equally extraordinary is the content of many of the comments which reflect a complete misunderstanding of the issue.
This reminds me of what happens when “Law is used as a substitute for morality”.
http://isaacbrocksociety.ca/2013/03/22/when-law-becomes-a-substitute-for-morality/
Take it from someone who knows, the IRS can’t even process the low hanging fruit in their possession NOW!
How do you guys think the current debt crisis is going to pan out? Is there any hope of the US government ultimately collapsing? I have always thought a collapse would give rise to 5-7 separate countries where the US once existed. This might be the only way for the people in that region of the world to break the stranglehold of the beast and become a more european style region. I couldn’t imagine living over there right now. All privacy under siege, greedy corporates calling the shots, most of the population powerless and subdued by TV entertainment. I grew up there in the 70’s and don’t recognize the place anymore. That country needs a serious reboot to say the least 🙁